Jay K Kunkel speaks on opening Lear Corp's business account with Maruti Suzuki India and Honda Cars India, developing intelligent seating systems and its growth mantra for the APAC region.
Jay K Kunkel, president (Asia-Pacific) and member, Executive Council, Lear Corporation, speaks to Shobha Mathur on opening its business account with Maruti Suzuki India and Honda Cars India, developing intelligent seating systems and its growth mantra for the APAC region.
Future guidance for Lear Corp has projected China as the highest producer of vehicles in 2016 and hence a lucrative market for doing business. Where does India stand in this scenario?
With China being the largest vehicle market with 23-24 million units, it is difficult not to talk about what a company is doing in China. But there are challenges there with the lower rate of growth. In my opinion, the business model that has worked for many companies for the last 20 years is probably not the right one going forward.
India with its 5-6 million vehicle population has experienced stronger growth rates over the last two years. Also, there have been some very strategic decisions taken by some of our top customers like General Motors (GM) and Ford in the ASEAN. GM is vacating ASEAN and Ford is restructuring its operations. Both these scenarios are good news for India as more production will come to India. It also benefits Lear since these two companies are major customers of ours. In addition, Mahindra & Mahindra is also a major client.
We also supply to BMW, Daimler and Nissan. For India, it is very good news as Daimler has opened its engineering centre. If Ford and GM shift more importance to this market, one of the key developments will be bringing design and development as well as engineering expertise here. Going forward, India needs to grow beyond software engineering and upgrade its hardware engineering and industrial engineering skills.
Lear Corp has recorded growth for the sixth year in a row. Will this result in a reshuffle of equations in APAC operations?
Globally we have had a number of record years. That is, in part, an outcome of the improved economy, and part due to a revamp of the company and its new direction.
In the past, Lear undertook a lot of acquisitions and though we are still open to acquisitions, it is now really about improving the efficiency of the business. Managing our company’s business is now based on four pillars – quality, efficiency, leadership and innovation – and I am one of the global co-chairmen of the Global Product Innovations Programme.
The Asian operations have been restructured and made more efficient. Our business is now driven by what we call an Asia Pacific Growth Plan (APGP).
The APGP which manages the daily business is a value-based document and not just a sales plan, so it is bottom up by country, by platform, by product and by customer. Here we measure the value of our portfolio in the market. As a result, we have been able to post record results in Asia and have experienced good success in India as well as in China. The ASEAN seems a bit stuck but Japan and Korea are very important to Lear because many of our customers are based there.
In Japan, it is more of a sales and engineering effort, so for our product portfolio we do import into Japan from places such as Philippines, China and ASEAN. We are to invest in a new technical centre in Japan for business transfer. We will leverage that investment not only into China but also into India for Maruti Suzuki as well as Nissan with whom we have a lot of business in India. We do the same thing with Hyundai in Korea.
So that means that Lear has acquired new businesses in India recently with Maruti Suzuki and Nissan. Will you be opening the account with Honda Cars India as well?
We have had the Nissan business for some time now and have just won the new successor programme with them. There are also additional programmes coming up with Nissan. We also have a very strong relationship with Renault in Europe as also in Japan, in India and in France.
In the past year or so, we have won our first business with Maruti Suzuki India. Even though we hold roughly between 35-38 percent of the seating market here, we have not really been involved in a meaningful way with Maruti Suzuki and that is now changing in the structured business.
We now have new structural concepts that revolve around being lightweight, reducing critical mass and also being less expensive. We are developing the partnership with Maruti Suzuki and working on various product areas in seating.
We have also struck recent success with Honda Cars India. Honda is our customer in other markets and we now have business with it in India as well. We are working very diligently on Honda’s new Brio programme on the engineering and programme management side. India will be one of the markets for it and, perhaps, Thailand and Indonesia also.
Can you detail some product innovations and new technologies Lear is working on to introduce in India?
Seating that people felt was becoming commoditised is now changing in a dynamic way. It is being driven through technologies like sensors and radars, cameras and connectivity. There is also a link to the electrical and electronics division.
A year ago, we purchased Eagle Ottawa which is a global leather company that allows us to be the most vertically integrated seating company worldwide. This moves us from product planning and puts us in the design studio. We can then be involved with the customer right from the design stage of the vehicle when the interiors are being designed. This will provide both Lear and the customer a huge competitive advantage to be linked at that point of the process.
Secondly, you will be hearing a lot about intelligent seats in the future. This will be driven through sensors, electronics and connectivity where the seats can automatically adjust to the posture condition. Seats will take medical readings and blood pressure readings and will be able to determine the number of occupants in the car. For example, if there is an accident and the occupant cannot reach the phone, then this is where connectivity will come in. The car will automatically communicate to the infrastructure about how many passengers were in the car, which seats they were in, how the airbags deployed, what type of injuries they may have sustained based on the vehicle dynamics and rollover and this can be communicated to the emergency service which can then communicate to the ambulance on its way to the accident site. They can then anticipate what type of injuries they may see. There is a lot going on in the area of seating and some of these developments are already in production in the luxury models but not yet in India.
Another area that we are looking at is airbags – people are sometimes injured with their deployment. This is an engineering challenge due to the deployment time of the airbag but if we can adjust so that on impact the seats also automatically adjust with the movement of a few millimetres, it will make the difference. Many of the new products will be in production very soon with materials like complete carbon fibre seats, that have been manufactured for some supercars like Lamborghini, Porsche and Maserati and are a combination of structures (eco structures) that are lightweight but possess higher strength up to intelligent seats. From a design perspective, you can personalise the interiors in the near future.
How low cost a manufacturing base is India and how does it compare with other countries?
India is certainly considered a low-cost market but that is a very product-by- product discussion. For sophisticated electronics which have very automated manufacturing, labour cost is not so important as in seating and it becomes more a volumes game. This is part of the tricks box of electronics.
India also provides good value in terms of engineering and intellectual knowhow for the cost but there are some other markets which are starting to count such as Vietnam which, from the population perspective, will never be a large consumer market but there is a very educated and highly productive workforce there.
In terms of low cost, Cambodia comes to mind as does Myanmar but India has the right combination of being a highly driven consumer market as well as a very connected market. For example, if you see what is happening in China which has had 10-12 percent YoY wage increases for 20 years, that market is now getting into a very difficult stage as skillsets have not grown at the same pace as the cost for which you are paying for that level of skillsets. This is one of the challenges that the government there is facing. They have a market that has been dependent for so long on these kind of wage hikes that to cut back on them could create issues like social unrest.
If I look at typical measurement cost per engineering hour for electronics, the cost in Shanghai for an electrical engineer versus cost per engineering hour in Singapore is the same. Then comes the question whether I am getting the same level of skillsets for this cost? This is part of the competitive advantage that India still brings and this is when inflation rates in China are less than 2 percent this year. So giving a 10 percent salary hike makes no sense to a typical businessman. These are the decisions that have to be taken when deciding whether to invest in a technical centre, or in certain product development or in connectivity. India has proven innovation capabilities because the educational structure here is very different from that in China. I prefer to say India is high value rather than low cost.
With Lear’s emphasis on engineering skills, what will be the roadmap for engineering in India going forward?
In the recent past, the focus has been very much on software that is part of the electronics game and that will continue. We are increasing our engineering base in India significantly, not just in seating but in electricals and electronics. That will also include connectivity now. India is turning into a connectivity engineering base for us, not just for Asia but worldwide.
We have purchased two companies, one of which is Arada Systems. We are focused intensely on potential acquisitions, large or small, in this space globally. In India, this will include acquisitions and potential partnerships both in India and globally but India and Asia is clearly a priority. We are in discussions with various companies for it.
Ford India is shifting export production of the EcoSport to Romania. Will it affect Lear’s India business?
Yeah, we are on the EcoSport, so losing that export business has a negative impact. But that’s a short-term issue and I am not concerned about it in the mid- and the long-term because of the importance of the India market.
The decisions driving this for Ford are their own but you can also see some major geographical shifts going on inside Ford. They are restructuring their ASEAN business with a view to increasing the business in India. Now with the rates of growth at least for two years looking to be more sustainable, going forward this will also generate an increased focus on India.
With GM, another key customer, planning a revival in India, are you excited about future prospects for Lear?
Certainly, we hope for their success because we will be part of that. All these things move in cycles. Ford went through this several years ago and then took a step back and introduced a very aggressive product line.
I am happy to see GM also taking a step and looking at what product design, development and content they need to have to be successful in Asia. It has been demonstrated over the years that just introducing a vehicle from some other part of the world and trying to de-content it has not usually proven successful. And the companies that are most successful like for example, Maruti Suzuki, for them it is about designing and developing in Asia for Asia or in India for India.
Which are the new products for Asia in the electricals and electronics field? What supporting environment is required in India to give a boost to this segment?
We are looking at a few different factors. One of our traditional businesses is wiring and that is extremely competitive in India –I think we are a bit late to the game.
The other is we have some of our best customers like Ford here and if they expand their presence it would be good for us as they are one of our major customers worldwide for electricals as well. On the other hand, the traditional wiring business is also shifting in terms of related components such as connected gateways. So we are looking at wiring but also putting a lot of focus on electronics such as smart junction boxes that eliminate fuses and reduce connections, so the durability and quality goes up in the vehicles and we are leaders in it.
This is a technology that we are discussing with several companies here and we are also bringing our wireless charging technology in which we are an industry leader. You can put this anywhere in the vehicle and it will charge on both the frequencies and we are capable with both and are talking to an Indian company for it. We have already provided prototypes and samples last year and are introducing these technologies including connected gateways, smart junction boxes and other areas of connectivity and also, if desired, high power.
What is the way forward in India in terms of investments, growth, plant expansion, capex and revenues by 2020?
We have plans to continue to invest here especially in seating with the plans that Daimler, General Motors and Ford have but significantly India is a focus for us for electricals and electronics. Our current business situation here is very positive, I think more positive than some other companies and we continue to build on that. We have very good business relationships with Mahindra & Mahindra and Maruti Suzuki and on the seating side we are supplying most of the car companies.
We now need to make sure that our business in electricals and electronics builds on those partnerships and provides a competitive advantage.
We are also driven by our target customers. In India there are several, Maruti Suzuki was part of this plan when we created APGP a couple of years ago. A year later, we were fortunate enough to win business with it because we are shifting our product focus to make sure that it is what the local market needs and in this case it is the eco-structure concept.
We will clearly have to invest in additional plants and probably additional engineering and technology centres in India. We also now see the synergies between seating and electricals driven by intelligent seats and by electronics and connectivity from the electrical side. So there is a significant change underway in the industry right now.
We will be building a plant for Maruti Suzuki in the north, so that will involve a fresh investment. We will for sure look at Manesar but I cannot announce any specific location right now. This needs to happen rather quickly, given the start of production for the new vehicle. The plans are in place and the capital investment has been determined. What we need to do now is to take the final decision.
Which would you cite as the challenges to your growth in India?
Certainly Mr Narendra Modi is doing his level best but he has a significant task on his hands. I would say doing business in India is to a point relatively easier.
Still, there is a long way to go but the atmosphere of doing business in India has simplified. Of course, infrastructure challenges are significant and will take time to streamline but if this continues to feed into the higher rates of growth in auto industry, then India is well on its way.
Will the upcoming safety regime in India involve changing Lear’s product plans in any way?
Potentially yes, and this could present the opening for introducing products such as intelligent seats. Seats are safety items and there are various electronics that we can use in technologies that we are working on. So if the government in India changes its safety requirement, this could accelerate the introduction of some of these new technologies to the
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