‘India needs to move beyond software.’
Jay K Kunkel, senior VP and president, APAC, Lear Corp, speaks to Amit Panday on why India needs to sharpen its focus on industrial engineering, the company's growth drivers for the Indian market and its low-cost manufacturing strategy.
Jay K Kunkel, senior vice-president and president, Asia-Pacific operations, Lear Corporation, speaks to Amit Panday on the company's low-cost manufacturing strategy, its growth drivers for the Indian market, and why India needs to sharpen its focus on industrial engineering.
2014 was the fifth year in a row that Lear Corporation globally recorded YoY growth numbers. How crucial is the Asia-Pacific region to Lear’s global operations?
For Lear Corp, Europe is the largest region as it contributes close to 40 percent of worldwide business. Asia contributes roughly 20 percent. The Asia-Pacific region is extremely important for any international company and that is why we continue to make significant investments in this region.
Lear’s annual report says that 80 percent of all manufacturing operations are now based in ‘low-cost countries.’ How would you define a low-cost country?
Each company has its own definition of how they define low cost. For Asia, which is my area of responsibility, makes up for 11 countries. Across these countries, we have roughly 82-83 locations and over 30,000 employees. So it’s a large, complex business.
Of course Japan and Korea (South) are not necessarily considered low cost. China is a little more than half our business in Asia, may be close to 60 percent, and then we have ASEAN and India, which is also a very important market for us given the recent changes in the market dynamics here among the OEMs.
So in terms of low cost, our strategy of low cost is as good as everybody else’s but we also make sure that we follow ‘in-country-for-country’ approach. Also, importantly, this business is about products and we need to make sure that we are designing and developing products in Asia of Asia.
If China contributes close to 60 percent of the total Asia business, where does India stand?India would be close to 15-20 percent. In Japan, we don’t have any manufacturing, so it’s sales and engineering there. In Korea we have a couple of plants; ASEAN, as a market, has been declining. You’ve seen the recent announcement from General Motors, and as we all know, even Ford is completely restricting their ASEAN business. My estimate is that all these developments will end up penetrating into India.
What would be the growth drivers for your India business?
India is critical for us. We have the largest market share when it comes to the automotive seating business here in India (close to 35-40 percent), and we have business with most of the major OEMs. So on the seating side, the numbers are very clear and it’s a very important market for us and we want to retain the No. 1 position for ourselves. We need to make sure that we are bringing quality, the craftsmanship and also the technology to this market.
We need to improve on our electrical and electronics business here and we have made major efforts here in the last 12-18 months in terms of designing the in-Asia-for-Asia business, which we have been doing in China.
We have done this before and that same approach, mentality and culture also applies to India. That is something we have in our priority list to become more robust here.
Despite the ups and downs in the auto industry globally, how would you assess the India market’s performance for the past five years period?
We now have healthy growth. How we approach the business in Asia is, perhaps, a little bit different to what I found in some other countries. We have an Asia Pacific growth plan (APGP). People often get wrapped up in production rhymes saying here the growth is based on market production. That’s of course, part of our formula as well but how we describe the business in Asia is that we should be growing over-proportionate to the value created in the market based on our products. So it isn’t just based on production, the volumes are a part of that. But it is also about the content. The calculations that drive our businesses is – are we growing over-proportionate to the value that’s being created in the market? This is because value is what, at the end of the day, the shareholders are looking for.
We are finding this approach successful. This process also helps in identifying where we might have technology gaps or white spots. It is not just a sales plan, it is a comprehensive business plan, and part of this plan also drives our requirements in terms of mergers and acquisitions, technology absorption, locations, customers and other areas.
Talking about electricals and electronics, while it is true that emerging trends such as safety, environment (emissions, EVs, hybrids) and others point at the ever-increasing need of the growing electrical content in cars, how would you describe the same in the context of the seating business?
The value of the product portfolio in the seating business also increases because the customers are also driven by different things which are not only environmental, safety but also technology. All car companies are looking at improvements because the environmental issues and it’s not just a hybrid play or an electric play or fuel efficiency. This (seating technologies) is what is driving the lightweight solutions, magnesium products. Or you can go all the way to the supercars; you will see seats are made of carbon fibre.
This is driven due to the need for weight savings, which of course drives fuel efficiency. There are needs also in terms of safety. India is a market for this. Here we see lots of opportunities in seating, part of it is weight distribution.
Looking at safety, traditionally the recalls have been more voluntary and with new government regulations coming, this is going to be more focussed. This is an opportunity because the technologies that we have here are very different than what we use worldwide. Some of the products we export from here to our customers, so we already have to meet those standards. For our metals and structures business, which is key for us in developing business with our customers, we have a comparative advantage in terms of metals and processes. Seating also has to pass through crash tests. So I do see a lot of opportunities in the seating business. In addition, we can also customise seat design. If you want to put your initials or your logo or if you want to have special seat colours from your favourite football team or cricket team, we can do all that.
Also, in January this year we purchased Eagle Ottawa, which is the largest and premium leather supplier for automotive. This has allowed us to fully vertically integrate ourselves in the development of automotive seating business. So we not just start at the product planning stage but we get into the design house with the customers because of their (experts at Eagle Ottawa) capabilities. We can now begin our relationship with the customers and help give them a comparative advantage by starting in the design studio from scratch.
So yes, we do see a lot of opportunities and value additions that seating can make above the obvious ones in electronics.
Globally for Lear Corp, the ratio of seating business to electricals and electronics business would be 70:30. Is it the same for the business from the Asia-Pacific region also?
Yes roughly. But that would be changing for the reasons that you mentioned, because of the sharp increase in the content of electricals and electronics in vehicles. So if I am looking at the next five years, the value of the electricals and electronics market for us in Asia will actually far surpass the value of the seating market. This is in terms of the value of the product portfolio and it does not mean the business.
Focussing on India, the government is trying to weave an all-new business-friendly image of India’s manufacturing sector and policies. What is your assessment of the same?
I think it’s too early to say anything. I think it’s the right concept. As with any good concept, the hard part is the execution. What you want to do is easy but how you would do it always the more difficult part. But for Lear Corp, this is an approach that we follow anyway (for the seating business). So there are some areas where we are already very highly localised in seating products.
Electricals and electronics for us would be one of the very important areas (for future investment and localisation). So I think the concept is right but government approach is one thing, however, what the market requires is another. The market requirements may follow the government’s interest. For example, what market is there for hybrid cars in India and what infrastructure is there to support it?
India essentially has been a weak country when it comes to manufacturing of electronic components. Thailand, on the other hand, is highly advanced in that area. India’s strength, however, lies in forgings. Does Lear Corp evaluate strengths and weaknesses country to country before making investments?
Absolutely! It’s a matter of time. So this will happen (improvement in India’s production capabilities of electronic components) with or without the government policies in the area of automotive electronics.
Traditionally, you had this market size of ASEAN that was greater than India’s and now it is almost equal. If you look at the next five years, you may see India surpassing the ASEAN’s market size. The ASEAN market was driven by the Japanese and they still own 75-80 percent of the market. They were driven by two things – ASEAN was a quickly developing market – Thailand in particular, and they also had this pressure in their home market where they still export a number of vehicles. They couldn’t be competitive enough making these products in Japan so they had to make these somewhere else.
But in the context of India, the government has to have the right incentives, promote right skill sets in workforces and engineering. But it has to go beyond software (engineering). Software is just a part of it. Traditionally the automobile companies do not pay for software (from the point of view of the automotive supplier using software for designing and developing components). This is where the design and development in-Asia-for-Asia is important. That’s the next step for India as the market develops.
So you think India is heading in the right direction when it comes to creating the talent pool (in engineering skills) here? Apart from software and IT, do you think Indian engineering skills can be used elsewhere, say for Lear Corp?
For the years that I have been associated with India (for over 20 years), it seems to me that the education system lends itself to developing strong skill sets such as software.
What needs to now come in are the skills on hardware, body control modules for example we use smart junction boxes. We now have reference designs that are scalable by market. So we can design and develop a smart junction box incorporating body control modules. This improves the ability, quality, design flexibility and other areas.
Indian talent now needs to have the capability of designing the hardware and not just the software and that to me is the key step. The winners would be the ones who will find a way to excel in this area.
It’s difficult not to mention about manufacturing. One of the key areas where India needs to really focus on is industrial engineering. This is something that the Chinese have done rather well. If you look historically, this is one area where first the Japanese excelled and then South Korea. Because you can talk about all these niche products but if you can’t industrialise them, you won’t go anywhere. Hybrids, high power electrical vehicles are perfect examples.
So to fulfill prime minister Narendra Modi’s objectives, one of the key areas has to be industrial engineering. That’s how you move from forgings to higher-value products.
Moving to the business of cars, Lear Corp relies heavily on US carmakers such as GM and Ford but it does not supply products to the largest Indian carmaker Maruti Suzuki and also Honda Cars India, which were growing when the industry was declining. Is the company looking at filling in the gaps in the market here?
Our business is not just with the foreign companies. While most of the foreign carmakers we have business with such as Ford, GM, BMW, Hyundai and others, we also enjoy very good relationship with Mahindra & Mahindra. Regarding Maruti Suzuki and Honda, I am not at liberty to give you details other than to say that we are developing very close relationships with them and in certain product areas where we can bring a competitive advantage.
I am very confident that we will be able to have a different discussion on those customers in the
Will the company be investing in India in terms of capex, R&D, developing new products, inducting manpower, training and other areas in the near future?
Yes, our business in India is growing; we are hitting that requirement for our Asia plan where in terms of value we are growing over-proportionate in the market. So we have invested in the last three years, we have invested US$ 50 million in India, within which we have set up plants, capacity expansion and this will continue.
We are also investing significantly in engineering here and it’s not just in software engineering. We are focussing on increasing our capabilities in hardware engineering. So for India, it’s clear to us that it is an investment market.
On the seating side, we would like to stay the No. 1 player in India. In electricals and electronics, we have been spending time and I think we’ve got unique products designed in-Asia-for-Asia. On the wiring front as well, we have lot of new technologies in terminals and connectors, in terms of lightweight, usage of aluminium which again comes back to weight savings.
This interview has been published in Autocar Professional's August 15, 2015 print edition.
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