‘This is a great time to be in engineering. The software side of this industry is another exciting opportunity.’

Richard Welford, chief strategy officer, Tata Technologies, speaks to Amit Panday on the strategy to attain a US$ 1 billion turnover by 2020, setting up a new engineering centre of excellence in the UK, and being the first Indian ER&D company to be involved in a complete end-to-end body engineering project for Jaguar Land Rover.  

Is the company’s 2020 target of achieving a turnover of US$ 1 billion on track? What is your evaluation of the important global markets for Tata Technologies?

There are a lot of answers to that question. We will start from the basics. Industry 4.0 is a good example to understand where technology is moving and that also reflects the level of technology adoption. Technology advancements are accelerating as is demand, which is growing only in one direction — upwards.

From the business perspective and the opportunities that this represents, the potential is enormous. There is clearly a demand level, which will be sustained for quite some time. The nature of this demand is increasingly exciting because it opens all sorts of new definitions of business. There will be a continuation in the demand for mechanical engineers because we will still need somebody to engineer the products. Clearly, the spend is also shifting towards the software side of it and this will consume the larger amount of the global spend, as the global spend is going up. So the amount of investments associated with mechanical engineering is not declining but it is simply being out-accelerated by the investments on the digital side. There is opportunity on both the sides.

The technology is now leveraged for achieving faster product development cycles, you can test more derivatives, scenarios, create more options, create new customisations. So for us as a business, we have got pure product development and the continuing demand for it, which is accelerating. Then you have the complexities of this new generation of product development and the level of choice that consumers want, which is another level of special area for us. We have built mechanical production engineering faculties to manage these complex operations. So that moves us on the digital side without touching the software yet.

A big area for us as an organisation is to work on the vehicle lifecycle and product development. We work a lot with companies and help them understand how you engineer your products well and also how you manage your process of engineering really well. This means the process of engineering is increasingly relying on even more data. So are you managing your data well throughout the engineering process in a way that is continuous? There are lots of gaps on this front and
we are helping companies address the discontinuities and enable seamless data flow. Overall, there are a lot of opportunities. This is a great time to be in engineering. The software side of this industry is another exciting opportunity.

A few years ago, industry reports pointed out that embedded software accounted for only 10 percent of overall vehicle development costs. Currently, it stands at over 35 percent. What is your assessment?

We believe that this (share of investments on the software side) would cross 50 percent of the investments made on the vehicle development programs. This would happen within the next 10 years. This is the balance of spend. The total engineering research and design spend will continue to go up and the share of that increasingly larger number will be on the software and systems side. The 50-60 percent of the overall spend will depend on the ground consumers – how far would they like to embrace the smart eco systems, connected vehicle experience and others.

So you mean that the hold of technology companies in the automotive segment will grow?

Let me give you an example of Jaguar Land Rover. CEO Dr Ralph Speth was recently challenged by the are-people-going-to-buy-cars question and his answer was very interesting. His answer was that cars will still get sold and it’s the case of who is actually buying them.

We will still need a Jaguar and Land Rover as people would like to be mobile in a luxury vehicle. The key factor is — are people going to buy them or are they going to consume them? In whichever case, it’s going to be a business. So the OEM still has a role to play in creating that inspirational end result. However, the key would be the nature of the business — will it be a business-to-consumer relationship or a business-to-business relationship? That’s the changing geometry of an automotive OEM.

I was in an Uber cab in London recently and I was talking to the driver. I asked him how is it going and he told me about the social system Uber follows. They (Uber drivers) have to have a sustained level of feedback to remain an Uber driver, and they rate you (consumer) as well. This is just fantastic in terms of raising that relationship between the service provider and the consumer. This means there is another eco system coming around Uber, another company coming up around Uber ranking the Uber drivers, the cars, and the consumers.

Last year Tata Technologies developed one of the most complicated automotive ER&D projects for JLR making it the only Indian ER&D company to do so. Is the company ready to raise its benchmarks?

Yes, and we are ready. Jaguar Land Rover is one customer, among many, we do business with at the vehicle level. We take vehicle level programs and deliver complete vehicles. It’s a level of capability that we have developed. The pitch would be that we have evolved more than any other ER&D services provider, we have the cross-industry knowledge and we have also developed a global delivery model. We did global distribution of resources, which is great, and we leveraged India in a way that wasn’t possible before at a full vehicle development level. While India has been a part of the outsourced engineering services market for a long time now, it was never before applied in such a rigorous and complete way in the development of a complete product. The said JLR project has brought in confidence to other customers also that we can deliver at that scale and with that maturity.

The company has recently received its first purchase order in China? Is it about a hybrid / electric vehicle platform?

Yes, at a vehicle level. It is a pure electric vehicle platform.

Brazil has performed below expectations in terms of economic growth. Hasn’t Tata Technologies been cautious about entering that country? You have no legal entity in Brazil whereas you have one in China. Also, some of your largest automotive customers are very bullish about the Brazilian market in the coming future. JLR is even building its local footprint there. How do you plan to address this issue?

Yes, we have been little cautious about Brazil in the past. Typically in the Brazilian automotive market, the vehicles produced there are engineered somewhere else. So there isn’t a great deal of localised content in that market. Now that will change just like the changing territories. If we look at the Brazil automotive market, a company like Chrysler (Fiat Chrysler) is the market leader there. While they manufacture there, their design is imported, the engineering is still done in North America and Italy.

However, for the moment, we keep revisiting the proposition if Brazil is ready for the model. There are a couple of equations that we keep reading — one is the market needing what we offer or do we go to the market via a different route. Another part is that if the market in Brazil will let us reproduce ourselves in a way we want to reproduce ourselves. Many of our competitors, especially the ones that originate in India, have a model which is to export the Indian engineering resources while our model is very much a global model. We have architected a balance of a really critical interface to our customers.

We invest in local resources. We have hundreds of engineers in the UK who are dealing with the likes of JLR, we have a delivery centre in the UK. But in the case of Brazil, the availability of engineering resources is insufficient. So it’s the access to the resource pool is the only way that can help us reproduce ourselves. In Brazil right now the model would depend upon a mass import of resources. Now that’s not necessarily the right way to work because the business culture may not be supportive, and also it would be very expensive to displace people globally and put them into a different country.

On the other hand, we already have a significant presence in North America and Europe to deal with the OEMs. So in the context of your reference with the customers that are entering Brazil such as JLR, we are working with them in their preparations of manufacturing engineering but it’s not necessary for our company to be physically present in Brazil. We can deliver results and provide them the blueprint of their next-generation factory by pooling all engineering resources based in the UK, India and North America.

So that means that your strategy to boost company’s business from the Brazilian automotive market is to continue servicing your clients there from North America and Europe?

Yes, because that’s what makes more sense. Tomorrow it may change depending on new variables, and which is why strategy is not a constant thing. We are working on a new innovation project on behalf of a particularly large OEM.

Are you expanding your operations in the UK?

Yes we are. We are building a brand new delivery centre.

The company recently received a mandate from a leading automotive OEM to identify lightweight materials for end-to-end vehicle body program. What are the updates on that?

We have a number of vehicle lightweight programs in play currently. What you may be referring to the one from North America where an American OEM had asked us if we could engineer an aluminium-bodied vehicle. They made a decision that it would be an all-aluminium-bodied vehicle, and we took it through the education process. We said we can engineer an all-aluminium vehicle and began processing the material costs, costs involved in the difference in the existing technologies and the ones required to manufacture an all-aluminium vehicle. Their existing factories were not ready to make an aluminium-bodied vehicle, and then the technical complexities associated with the aluminium body. When we bundled all these and many more factors into one business case, we realised that they actually needed a progressively lightweight vehicle. So then we began suggesting a mixture of materials — high strength steel, special steel for select areas, usage of right lightweight materials in the right amounts to achieve the business goals.

So it’s always a business case versus the engineering decisions. The two should always balance each other. We are an adviser in that capacity and not just a provider of engineering services, and we are doing that increasingly all over the world including our activities in China currently.

The company has a formal serial mergers and acquisitions (M&A) strategy in place. What decisions are taken under that?

This would be the most difficult question to answer because this is a very sensitive topic. One can say categorically that we will be making acquisitions. The acquisition will absolutely play its part but when we would acquire, we would know if it is to boost our scale, or new footprints in a new geography, absorb new clients, capacity and skillset augmentation, engineering competence and others. We will do one, and we have a budget associated with it, and we are active in the process.

Revenue-wise, the company stood close to US$ 425 million (FY2014-15). Plus there is a window of another US$ 250-300 million via organic growth. So if we do the math then the remaining bit in the race to US$ 1 billion will come from inorganic growth?

Yes, I think you can fairly say that it’s a reasonable assumption. Our achievement of US$ 1 billion aspiration will be a combination of organic and inorganic growth.

Our current growth plan satisfies both modes.

What kind of growth are you anticipating in 2015-16?

We have been tracking an average of about 13-14 percent if you look at the last five years. We hope to at least do that.