Global Competitive Strategy
– Research Paper on the Auto-Ancillary Industry
Mr. Yateesh Wahaala,*, Ms. Mani Agrawalb, and Mr. Sanjay Bhattacharyac
a
MBA Student, Jaipuria Institute of Management, Noida, India
MBA Student, Jaipuria Institute of Management, Noida, India
c
M.Tech. IIT Delhi, B.Arch IIT Kharagpur, Assistant Professor, Jaipuria Institute of Management, Noida, India
b
Accepted in October 2006
Available online
Abstract
Global Competitiveness is a term which refers to the combination of several economic, business and performance aspects, which include effectiveness, efficiency, competencies, challenge-readiness and flexibility, and is demonstrated by superior business practices
like ‘adaptability to market situations’, ‘astute planning’, ‘effective utilization of resources’ and ‘maximization of revenue’.
In the wake of the liberalization and deregulation policies of the Asian Economy with prime focus on the Indian Economy in particular
the concept of Global Competitiveness has become highly significant not just in context of large organizations but also for small and
medium enterprises (SMEs), creating tremendous pressure on companies to be more competitive than ever before and maintain global
standards of operation which requires an overall excellence in all aspects of operation of business. Until now, most Indian companies
have been using two types of strategies namely ‘low-cost strategy’ and ‘differentiation strategy’ whereby the companies would stick to
the conventional process of defining their objectives and then strive to achieve them; focusing primarily on profitability while ignoring
‘consistency’ and ‘flexibility’.
The Indian auto ancillary industry is a very vibrant industry of the Indian Economy with about 402 players and provides direct employment to 2.5 lakh people. With an investment of over $ 2.3 billion, the industry caters to about 24 automobile units in India. The
output of the industry is around $ 8700 million and it exports goods worth $ 1400 million. India has emerged as a significant exporter of
auto parts. From US$ 578 million in 2001-02, overseas sales of Indian companies have jumped to US$ 1.4 billion in 2004-05. Exports of
auto components from India have grown at a compounded growth rate of 19 per cent over the past six years. During the fiscal year 2004,
the industry achieved a milestone of US$ 1 billion worth of exports.
According to a Auto Component Manufacturers Association (ACMA)-McKinsey study, India can achieve a 3-4 per cent share of the
potential sourcing market (estimated by them at US$ 700 billion) by 2015 given India's strengths, especially its competitiveness in
manufacturing labor intensive, skill-intensive parts and parts in evolving technology aggregates among others.
From an investor’s perspective, we rate the auto ancillary sector as a Long-term Overweigh. The reasons are:
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High domestic demand potential for automobiles, resulting in rising stock of automobiles in India, translating to a higher
demand for ancillaries.
High Export potential, which is the reason for global majors to set manufacturing facilities in India.
Keeping this in mind we have analyzed and studied the global competitive strategies adopted by the Indian auto ancillary sector, particularly through Sona Koyo Steering Systems Limited, Sundram Fasteners Ltd and Sundram Brake Linings–prominent players of this
sector in their journey towards attaining global competitiveness. We have identified the competitive strategies adopted by them in the
global context which could be used as a reference model by other organizations in attaining the same with the minimum bottlenecks and
have further given few suggestions, which could further smoothen the road towards attaining the same.
Keywords: Competitiveness, TQM, Quality.
1. Defining Competitiveness
competencies, challenge-readiness and flexibility, and is
demonstrated by superior business practices like ‘adaptability to market situations’, ‘astute planning’, ‘effective
utilization of resources’ and ‘maximization of revenue’.
Competitiveness has relevance at different levels and
Global Competitiveness is a term which refers to the
combination of several economic, business and performance aspects, which include effectiveness, efficiency,
* Corresponding Author: MBA Student, Jaipuria Institute of Management, Noida
India.
A-32 A Sector 62, Noida- 201301 India
Tel: 91 120 2403379– 81, 91 120 2403850 - 54, Fax: 91 120 2403378,
E-mail: yateeshwahaal@gmail.com
1
achieving global competitiveness at any level often requires synergistic linkages with other levels. For instance
the remarkable competitive success of Japan can be contributed to globally competitive steel, shipping, automobile and electronic industries progressively over the last
few decades. Conversely, macro economic environments
at the Industry and Country levels play crucial roles in
shaping competitiveness of firms and Industries. Understanding linkages among different levels is essential for
enhancing competitiveness at any level and an essential
first step is to define competitiveness at each of these
levels.
Nations, competitiveness is perceived as the measure of
its success of its strategic policies. Thus, competitiveness
emerged as a versatile indicator of the socio-economic
well being of a country. It is heartening that the concept
has of late started receiving its due attention in India also
with the presence of annual competitiveness ranks of GCR
and WCY prominently being published in business
newspapers and magazines. Most of the findings hint at
grave crisis of competitiveness, being faced by Indian
Industries and firms and is why the importance of competitiveness as a means to improve the standard of living
needs to be clearly defined, articulated and understood.
Competitiveness can be defined at three levels: Nation,
Industry/Sector and Company.
3. Model used for Analysis
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We have made use of Michael Porter’s Diamond framework for our analysis. The Diamond model of Michael Porter for
the Competitive Advantage of Nations is a model that can help understand the competitive position of a nation and the industry in global
competition.
Country Competitiveness: Extent to which a
national environment is conducive or detrimental to business.
Industry/Sector Competitiveness: Extent to
which an industry or a business sector offers
potential to growth and attractive return on Investment. The concept can also be defined as a
collective ability of firms in the sector to compete internationally.
Company Competitiveness: Ability to design, to
produce and/or market products or services superior to those offered by competitors, considering the price and non-price qualities.
Traditionally, economic theory mentions the following factors for
comparative advantage for regions or countries:
A. Land
B. Location
C. Natural resources (minerals, energy)
D. Labor, and
E. Local population size.
2. Importance of Competitiveness
Competition is a necessity in today’s changing world
order, as with the worldwide globalization process Darwin’s theory of “Survival of the Fittest” has become more
relevant to the business world and therefore there arises
the need of being competitive if one has to succeed against
competition. Competitiveness is a foundation for the
success of any company or industry or country. It is a
concept that has long term implications for the industries
and is initial point of strategic thinking for the organizations. The success or failure of a company depends on the
extent of competitive advantage it enjoys vis-à-vis its
rivals in delivering the quality product/service to the
customer at lower cost. Organizations need to learn about
creations and sustenance of competitive advantages in
their respective segments. Organizations interested in
winning medals in global business Olympics need to
monitor their performance constantly against their competitors in terms of market share, cost competitiveness,
because as is in Olympics here one has to compete with
the best players from all around the globe as the boundaries are fast disappearing and the world becoming a global
village.
Figure 1. Porter’s Diamond Model
Because these factor endowments can hardly be influenced, this fits in
a rather passive (inherited) view towards national economic opportunity.
Porter says sustained industrial growth has hardly ever been built on
above mentioned basic inherited factors. Abundance of such factors
may actually undermine competitive advantage! He introduced a
concept of "clusters," or groups of interconnected firms, suppliers,
related industries, and institutions that arise in particular locations.
Competitiveness has increasingly become important, as it
shapes survival and success in today’s globally competitive business arena. The positive correlation between
economic development and competitiveness of a country
is evident from the examples of Japan and Germany. For
As a rule Competitive Advantage of nations has been the
outcome of 4 interlinked advanced factors and activities in
and between companies in these clusters. These can be
influenced in a pro-active way by government.
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These interlinked advanced factors for Competitive Advantage for countries or regions in Porters Diamond
framework are:
ties and grew tremendously with the globalization period in nineties.
There were five phases in the industry’s growth. In the late sixties and
first half of seventies, the growth of the industry was governed by the
demand from domestic vehicle manufacturers. Exports were difficult,
and so was capacity building due to licensing restrictions. After
1975-76, some liberalization take place, and the vehicle industry raised
production. There was some insistence on phased manufacturing
programme (PMP) during this period. The era of modernization
started with the advent of Maruti Udyog Ltd. in the early eighties.
From 1990, the nature of exports underwent a change. Exposure to
quality products in the international market brought a sense of quality
consciousness to the industry. Also, it opened up the international
market for the auto components manufacturers. Collaboration with
Suzuki Motors Co. of Japan was the single factor that brought the
concept of outsourcing, and thus, the auto components industry into its
being in India.
1. Firm Strategy, Structure and Rivalry: The world is
dominated by dynamic conditions, and it is direct competition that impels firms to work for increases in
productivity and innovation.
2. Demand Conditions: The more demanding the customers in an economy, the greater the pressure facing
firms to constantly improve their competitiveness via
innovative products, through high quality, etc.
3. Related Supporting Industries: Spatial proximity of
upstream or downstream industries facilitates the exchange of information and promotes a continuous exchange of ideas and innovations.
Indian industry is very small by global standards and has a long way to
go. The advent of globalization was new for many in the industry. In
1992-93, out of total production of Rs 41.6 billion in auto components
industry, Rs 5 billion, i.e. 12 percent was exported. However, the exports from India in 1992-93 constituted about just 0.2 percent of
world’s exports in the early nineties (ACMA, 1997b).
4. Factor Conditions: Contrary to conventional wisdom,
Porter argues that the "key" factors of production (or
specialized factors) are created, not inherited. Specialized
factors of production are skilled labor, capital and infrastructure. "Non-key" factors or general use factors, such
as unskilled labor and raw materials, can be obtained by
any company and, hence, do not generate sustained
competitive advantage. However, specialized factors involve heavy, sustained investment. They are more difficult
to duplicate. This leads to a competitive advantage, because if other firms cannot easily duplicate these factors,
they are valuable).
Presently, the auto ancillary industry is a very vibrant
industry of the Indian Economy with about 402 players
and provides direct employment to 2.5 lakh people (Capitaline, Auto Ancillary Report, 2004). With an investment
of over $ 2.3 billion, the industry caters to about 24 automobile units in India. The output of the industry is
around $ 8700 million and it exports goods worth $ 1400
million. The industry has been growing at a CAGR of
18% for the past five years, whereas the exports have
grown with a CAGR of 26% for the past six years (ACMA,
2004). During the fiscal year 2004, the industry achieved a
milestone of US$ 1 billion worth of exports.
The role of government in Porter's Diamond Model is "acting as a
catalyst and challenger; it is to encourage - or even push - companies
to raise their aspirations and move to higher levels of competitive
performance". They must encourage companies to raise their performance, stimulate early demand for advanced products, and focus on
specialized factor creation and to stimulate local rivalry by limiting
direct cooperation and enforcing anti-trust regulations.
According to a Auto Component Manufacturers Association (ACMA)-McKinsey study, India can achieve a 3-4
per cent share of the potential sourcing market (estimated
by them at US$ 700 billion) by 2015 given India's
strengths, especially its competitiveness in manufacturing
labor intensive, skill-intensive parts and parts in evolving
technology aggregates among others.
4.0 The Indian Auto Ancillary Industry
The Auto industry has been at the heart of everybody’s lives. Wheels
of motion provide dynamism to the society, as the freedom of movement has been one of the greatest innovations of modern times. Post
liberalization period also has seen a jump in the purchasing power of
people. Aided by the numerous financing schemes, loans and discounts offered by the auto makers, the automobile has become a
house hold commodity, a bare necessity for middle-class and better off
families. The auto component segment of the industry has played
crucial back stage role in the transformation.. Technical changes
brought about by the auto component manufacturers have also
brought about a revolution in the related industries.
4.1 The Extent of the Industry
Automobile Ancillary industry (hence forth referred to as auto components industry) is the core segment of the Indian economy. It has
become highly promising industry post liberalization. The industry
started its journey in the country from the assembler days in the twen-
Figure 2. Domestic Production and Components Exports
of the Indian Auto Component Industry
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The High growth experienced in the past, have been
driven by growing domestic new vehicle sales base, increasing global penetration of locally manufactured cars
and India becoming an alternate auto parts outsourcing
base.
Value chain of the industry helps identify major point of value added.
Upstream industry that is raw material and capital equipment manufacturers add almost 70 per cent of the value added. Imports account
for about 30 per cent in those upstream industries. Considering the low
exports of the industry, it may be running significant trade deficits.
With increasing trend toward outsourcing in the Indian industry, the
share of upstream industries and trade deficit may even increase.
OEMs account for more than half of the output of the industry. After
sales market is other large buyer of the components. The figure for the
value chain of the Indian components industry is given below.
4.2 Industry Segments
Industry scope can be defined on vertical and geographical lines. The
product varieties produced and served are included in the segmental
scope of the industry. Indian auto components industry produces various parts that go into manufacturing automobiles: auto rickshaw, car,
motorcycle, truck, tractor, etc. The auto-ancillary industry has
been classified into six major product segments by the
Automotive Component Manufacturers Association
(ACMA), namely engine parts (32.7%), transmission and
steering (20.2%), suspension and braking (16.8%), electrical parts (6.7%), equipment (5.9%) and others (17.7%).
The transmission and steering products include gears,
steering gears and systems, wheel, clutch plate and discs.
The requirement of the automobile industry is met
through domestic auto-ancillary units, but some special
items are imported. The domestic auto ancillary industry
contributes 87% of the automobile sector needs, while the
rest is imported. The demand for ancillaries arises from
Original equipment Manufacturers (OEM) market, replacement market and through exports. However, the
replacement market for steering systems is very small, due
to less mechanical wear and tear. Approximately 80% of
the industry output originates from the organized industry,
leaving a 20% share to the unorganized sector which has
10-12 more number of players.
Figure 3. Value Chain for the Indian Auto Component
industry (source Mukherji)
5. Organizations Being Studied
5.1 Sona Koyo Steering Systems Ltd
The vertical scope of an industry is defined by the extent to which
activities are performed in-house instead of by the independent firms.
Car makers like Hindustan Motors (HM), Premier Automobiles Ltd
have been highly vertically integrated, whereas in the new organizations like Maruti Udyog Ltd., Indica Division of TELCO, etc. the
out-sourced components value is quite high. For instance, the extent of
outsourcing in MUL was estimated to be close to 62 per cent , as
compared to 35 per cent in just HM.
Sona Koyo Steering System Limited, the flagship company of the Sona Group is currently the largest manufacturer of steering systems for the passenger car and utility
vehicle market in India, with a market share of 45% and
was promoted by Dr. Surinder Kapur in 1984. It entered
into a joint venture with Maruti Udyog Limited in 1986
under which the latter took a 10% stake in the company.
Its collaborator and partner Koyo Seiko Company Limited,
Japan with a stake of 20.5%, is the market leader in Japan
and has recently announced a merger with Toyota Machine Works, making it the number one steering systems
manufacturer in the world.
Globally, auto industry is more into outsourcing, and the
trend is reflected in India also which has led to proliferation of ancillary units in India. The prospect of exports
from India is bright on account of its cost advantage.
However, firms face tough competition from Malaysia,
Taiwan and other South Asian countries, which also have
cost advantages in terms of labor cost, productivity, larger
volumes and after sales service.
The Deming Award, the world’s most coveted honor for
excellence in Total Quality Management was awarded to
SKSSL on 11th November 2003. Its clients include almost
all the major auto manufacturers in the country with
Maruti Udyog Limited as its largest client.
The industry is scale sensitive and hence larger volumes
are needed for cost effectiveness and improving quality.
The industry is also capital and labor intensive. The
players therefore have to think global and deliver accordingly.
Sona Koyo’s product portfolio includes two distinct
product families — steering systems and driveline products. Steering Systems portfolio includes both manual and
hydraulic power steering systems – steering gears and
columns. Driveline product portfolio includes case differentials, axle components, rear axle assemblies and
propeller shafts.
4.3 Value Chain
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The groups vision is “To make Sona Koyo a supplier of
choice for global customers” by 2010.
The implementation of TQM helped develop a systematic
work culture that emphasized process ownership across
all levels of the organization. These initiatives, which
emanated from the shop-floor, have been extended across
the organization.
5.1.1 Indicators of Sona’s competitiveness
The group flagship company, Sona Koyo Steering System
Ltd., with ISO 9002 certification from TUV of Germany
is the largest manufacturer of steering system in India. It
has a 45 percent market share in the car, jeep and light
commercial vehicle segment. It has technical and financial
collaboration with Koyo Seiko Co. Ltd., Japan, the largest
producer of steering systems in Japan in Japan and the
second largest in the world. Sona Steering makes steering
gears, steering columns and drive line products and is the
major source for collapsible columns in India. Power
steering is a product that the company has recently begun
to manufacture and will be concentrating on. Sona’s major
customer is Maruti Udyog Ltd., others customers include
Eicher motors, Swaraj Mazda , Hindustan Motors,
Mitsubishi, Hyundai Motors and TELCO.
In order to illustrate the change that the quality initiatives
has brought about, one needs to compare the prevailing
scenario today with that of 1998, the year the initiatives
began. Absenteeism, an indication of employee commitment, has reduced from 11.3 per cent in 1998 to 6 per cent
in 2004-05.
Suggestion per employee, a proxy for the sense of ownership that employees have in the Company, has increased
from 2.5 suggestions per employee per year to 29 suggestions per employee per year.
The Company constantly undertakes training activities to
enhance skills of its human resource. This also includes
programmes in partnership with Koyo Seiko (Japan).
During 2005, the Company imparted 69 hours of training
per person. With the FAF Joint Venture, the Company
intends to undertake employee exchange programmes to
impart best practices across its plants.
Prior to the economic liberalization reforms instituted by
the Indian government in 1991, the Indian automobile
segment was dominated by Maruti Udyog Limited, and
SKSSL with its collaboration with MUL enjoyed a strong
competitive position of being its largest supplier. Post
liberalization, with the advent of MNC’s in the Indian
market, MUL sales were hit and they were faced with the
pressures of immense cost cutting, which were in turn
passed on to the vendors like SKSSL, and thus they too
had to bring in organizational improvements to face the
competitive scenario.
After the TQM process was set in motion, the lead-time
for new products has come down to 5.67 months from
12.33 months in 1998. The customer rejection index has
also decrease from 100 to 5.8, the in-house rejection index
is down to 2.9 and the supplier rejection index is down to
1.3 thus reflecting on the success of the program.
The company is a certified and approved vendor of Koyo
and exports components that are used for Suzuki, John
Deere and Mitsubishi. It is the only auto component in
India that supplies to original equipment manufacturers in
Japan. By the turn of the century, Sona Koyo hopes to
increase it’s exports by 10 percent of sales. The company
also aims to become a global source for manual steering
systems for Koyo Seiko and to manufacture hoses and
pumps for the Indian automotive industry. Additional
manufacturing facilities are being created at Pune and
Chennai.
Despite the general slowdown of the economy, the company was able to marginally increase its turnover from Rs.
146 crores in 1996-97 to Rs 151 crores in 1997-98. The
company has initiated WoW (War on Wastage) programme for productivity improvement and waste elimination programmes. The company is focused on the implementation of Sona Production System (SPS), - a derivative of Toyota Production System and Koyo Production System, upgradation of supplier quality and education
and training of its employees, all with the objective of
customer satisfaction, quality products/services, timely
delivery (JIT), and competitive costs. The morale of the
employees is high on account of achievement of these
objectives.
Figure 4. Rejection Rates Comparison
The Inventory Turnover ratio has increased to 30 from 7.5
in 1998 whereas the Manufacturing Cost has come down
to 4.53 from 8 in 1998. The number of Sona Koyo designed products has increased to 44 from 11 in 1998 and
the number of accidents reduced to zero from 18 in 1998.
The quality initiatives were recognized in 2003-04 when it
was awarded the coveted Deming Award.
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Figure 6. Supplier Rejection Rates
The Company’s Kaizen Activities (GKA) achieved yet
another milestone it was awarded the Best Improvement
QC Award among Koyo’s overseas factories. This team
was also invited by Koyo to participate in the ‘All Koyo
Kaizen Convention’ in Osaka, Japan.
Figure 5. Inventory Turnover Ratio and Manufacturing
Cost over a pre and post TQM
As part of its strategy SKSSL is stressing on its quality
management initiatives to continuously improve its internal organizational efficiencies. Though having won the
Deming Award it however, considers the award to be just
a milestone in its quality management journey. The
Company continues to relentlessly pursue its internal
quality programmes, which are not applied to the shop
floor but are integral to Sona Koyo’s planning process. To
further strengthen these activities, it has started some new
initiatives last in 2004 which include:
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To ensure that the improvements achieved through various change management programmes are sustained over a
long time horizon, the Company plans to institutionalize
these through various initiatives, one of which being the
B2B or ‘Back to Basics’ programme.
Under this initiative, each manager has been assigned one
production line under his mentorship. He spends an entire
day in a month at this line to closely observe various aspects of manufacturing activities. Managers are trained to
synthesize the observed facts to create a model, which is
then used to discover the underlying problems. During the
rest of the month, the manager works towards solving
these problems and to improve the overall operation of the
manufacturing line assigned to him. The ‘B2B’ programme, thus, not only increases the involvement of
management by getting them in direct contact with the
shop floor, but also helps in strengthening on-site observation skills of managers. Performance of this programme
is reviewed on a monthly basis and continuous changes
are being made to further improve it. Rewards and
recognition schemes are also in place to recognize the
good performers.
_ Just-in-time (JIT) implementation.
_ Flow Manufacturing.
_ Breakthrough Management.
_ Supplier Development through TPM.
_ Supplier Development through Maruti Center
for Excellence.
_ Risk Hazard Analysis.
_ Jishu Hozen Kaizen Conference.
_ Concept of doctors on the shop floor.
_ Back to Basics (B2B) Programme.
JIT and Flow Manufacturing practices are augmenting
already existing Toyota Production System techniques.
Breakthrough Management assists senior management in
deciding which business ideas to pursue for ensuing long
term survival of the Company.
5.2 Sundram Fasteners Limited
Sundram Fasteners Limited is one of the leading manufacturers of auto components with a turnover of over
Rs.750 crores (US$ 160 million). The Company manufactures high tensile fasteners, automotive components,
automotive and other miscellaneous cold formed/extruded
parts, powder metal parts, precision formed gears, iron
powders, radiator caps, gear shifters & tyre carriers.
Sundram Fasteners Limited was established in the year
1966 to manufacture high-tensile fasteners. Driven by a
consistent policy of achieving excellence in all areas of
operation, the company has grown into a multi-product
market leader today, with a strong presence in international markets.
The Company considers all its suppliers as partners. To
strengthen this partnership and develop the capabilities
across its supply chain, Sona Koyo has been advocating
TPM and TQM practices with suppliers. This involved a
special programme where suppliers were grouped into
two clusters. Quality improvements achieved by this activity with two key suppliers is shown in Figure. 6.
6
The first manufacturing facility was set up at Padi to
manufacture high tensile fasteners for OEMs. In order to
meet the increasing customer requirement and to cater to
international markets, two additional manufacturing facilities were set up at Krishnapuram near Madurai and at
Pondicherry.
necting rod bolts. Then it had a problem as the German
suppliers thought that SFL could be a potential threat and
told the company to choose between them and Sundram
Fasteners and it realized though what though the value of
what it supplied was not much the fact was that its quality
had been accepted.
The company diversified its area of operation from manufacturing fasteners to automotive components, automotive and other miscellaneous cold formed/extruded parts,
powder metal parts, precision formed gears, iron powders,
radiator caps, gear shifters & tyre carriers.
That was the end of a chapter but not the end of the
company looking globally. In fact, it was goaded on to do
so by the sluggishness in the Indian automobile market.
As soon as it started seriously looking outward, treating
exports not as an aditionality but as a regular business, it
realized that it had to change its entire organizational
structure which was till then geared only to the domestic
market. It got on initiatives like ‘war on waste’ and ‘policy
deployment’ with the help of Lucas Engineering Services,
UK. It was at this juncture between 1998 and 1999, that
the company won the order to supply to Opel and started
its journey outward in right earnest.
The company is the largest manufacturer and exporter of
high-tensile fasteners and is poised to cross Rs.200 crores
(US$ 45 million) export in sales, for the year 2004-05.
Sundram Fasteners has been in the Indian corporate
limelight the longest by virtue of having become a star
OEM supplier to General Motors. The story of its association with GM goes back to the year 1988, when it landed
a sizeable order form Opel, the European brand of GM. A
couple of years later, GM came to Sundram Fasteners and
asked if it was interested in buying a radiator cap plant in
England, which GM was closing down, and supply the
entire output to it. Sundram Fasteners successfully bid for
the plant, set it up in Chennai and for the last 11 years been
supplying its output to GM. It has been awarded five times
for being the best supplier of radiator caps to GM. GM had
around 30,000 suppliers and around 150 of them are so
honored every year for being the best suppliers. Being a
persistent winner has given it tremendous confidence of
being not only the best in terms of quality but also in terms
of competitiveness.
The Company has retained the accreditation of its quality
systems being in line with ISO 9001 –2000. All the major
factories of the Company have obtained accreditation
according to the latest ISO/TS 16949-2002 standards.
Exports during the year 2005-06 under review grew from
Rs. 261.11 crores to Rs. 323.33 crores, a growth of 24%.
Prices, however, have continued to remain depressed
because of competitive pressures. The Company’s list of
customers include ASC, Case New Holland, Caterpillar,
Concentric Pumps, Cummins Engine, Daimler Chrysler,
Deere and Co, Delphi Automotive, Deutz Motors, General
Motors, Holset, Iveco, Mack Trucks, MTU, Perkins,
Proton, Streparava, Valeo, ZF. Besides widening the range
of products to be supplied to existing customers, the
Company hopes to add Bosch, GM Holden, Scania and
Volvo to its prestigious list of customers. In the context of
rising costs / non-availability of steel, cost reduction and
development of new sources of supply continue to be the
prime areas of focus. The Company has developed new
and reliable sources of supply and has been able to limit
the impact of increases in the cost of steel. Cost reduction
efforts and kaizens aimed at rationalization of consumption of raw materials continue to receive the maximum
attention. Efforts to reduce consumption of power and fuel
have yielded satisfactory results. It has achieved “Supplier
of the Year" Award 1996, 1997, 1998, 1999 and 2000 from
General Motors, USA. GM Saturn Quality Award for the
year 2002 & 2003. Valeo PQA Award for the year 2003.
Sundram Fasteners journey down the road of excellence in
quality began in the mid-nineties when it took the help of
the Japan Institute of Plant Maintenance to introduce the
Total Productive Maintenance process. The company
opted for this as TPM, which addressed manufacturing
most suited the company’s needs. TPM put a lot of emphasis on zero breakdowns, zero consumer complaints,
zero accidents and hundred percent consumer satisfaction.
In just four years, the company won the institute’s award
for TPM excellence. This has convinced the group in the
last ten years that it is extremely competitive globally in
terms of price, know-how and sustaining customer satisfaction. So, the company has now started looking for
acquisitions or even setting up Greenfield ventures overseas in order to become truly global. A key consideration
driving this is the local content requirements rules that
exist in China and the Asean region.
At SFL, quality is a discipline, a way of life. The aim is
not just to do things right, but find ways of doing things
better. It is offering Value-added Services.
It was only in the early seventies that Sundram Fasteners
started looking globally. It felt the need to measure its
quality against the world’s best, and the company landed
with an order from Mercedes-Benz in Germany. It got
reasonably good offers for one and a half years from
Mercedes-Benz in Manheim for critical items like con-
SFL's customer focus ensures total solutions through
specialized services, such as:
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Inventory Management Services.
Specialized packaging.
Self-certification.
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Advisory inputs at design stage.
Cost and variety reduction.
Rationalization of parts.
Design inputs.
SFL has undertaken many steps to ensure its long-term
global competitiveness, which include:
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Zones of Autonomous Production (ZAPs) to
ensure quick customer response.
An organizational structure based on processes
rather than functions and departments.
Total Productive Maintenance program (TPM)
was initiated in 1995 in consultation with JIPM
(Japan Institute of Plant Maintenance) with the
aim of achieving high quality and low cost in its
operations. The primary objectives of TPM are:
o Create a management system that plans,
implements, monitors and continuously
improves OPE (Overall Plant Effectiveness) of the manufacturing facility.
o Create processes that assure zero defects, zero breakdowns, zero accidents
and zero losses.
o TPM Circles that stimulate total employee involvement in continuous improvement programs.
Figure 9.Labour Productivity
5.3 Sundram Brake Linings
Established in 1976 as a joint venture with a world famous
friction materials manufacturer, Sundaram Brake Linings
(SBL) is now a fully Indian owned company manufacturing automotive, non-automotive and industrial friction
materials. SBL products are extensively used in commercial vehicles, passenger cars, tractors (agricultural) and
motor cycles.
SBL has three manufacturing plants with one plant dedicated exclusively to manufacturing asbestos-free brake
linings. The combined production capacity of all three
manufacturing plants exceeds one million brake blocks
per month. SBL also manufactures Asbestos-free Woven
Clutch Facings, Disc Pads, Flexible rolls, and insitu
Bonded Shoes.
All manufacturing plants are strategically located near
major Indian ports to improve the turnaround time in
servicing global customers. SBL exports to more than 60
countries catering to the after market needs of international applications like Mercedes Benz, Volvo, Scania,
Renault. SBL is also the preferred supplier to some of the
well known axle manufacturers as original equipment.
Figure 7. In Process Defects
SBL is a ISO / TS 16949 and ISO-14001 certified company. SBL products have been tested to meet European
ECE-R90, American FMVSS 121, Australian ADR 35/38,
South African SABS 1506 requirements besides the Indian IS 11852.
SBL has the singular distinction of being the first friction
material manufacturer in the world to win the coveted
Deming Application Prize for practicing Total Quality
Management (TQM).
TQM, TPM and Lean Manufacturing systems are practiced to achieve world class standards. Environmentally
and socially responsible, SBL assures total health protection to its employees.
Figure 8. Overall Plant Efficiency
Sundram Brake Linings was an outward looking company
from a very early stage. It started exporting in 1978 to
meet an export obligation given to the government. After
29 years it is now exporting 54 percent of its turnover to
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56 countries. “We got hooked onto exports because it gave
us an exposure to what was happening in the rest of the
world” says K Mahesh, CMD Sundram Brake Linings.
When the journey down the road to global competitiveness began in earnest in 1987, it was a typical, traditional,
floundering Indian company whereas today it is confident
o meeting the challenge of global competition.
noted at the end of the month and then the gaps identified,
but, by that time it was history anyway. So he introduced
daily work management – everyday, what is it you
planned, what is it you did, what is the gap and why did
the gap arise, alongwith a PDCA quality cycle – plan, do,
check and act. So the company started doing it everyday,
now it is done every hour. From a month to a day to a shift
to an hour is the change in thinking which has happened.
This change took place through 1997 to 2001. But it required 10 to 12 years preparation before that.
The transformation of Sundram Brake Linings can be
broken up into two phases – from 1987 to 1996 and 1996
to 2001, when the company won the Deming Prize, the
only brake lining company in the world to so. The initial
phase began with the adoption of statistical quality control
tools and continued in an exploratory fashion by picking
up ideas here and there, often from books, and trying to
implement them in a do it yourself fashion. A key landmark happened in the year 1989 when the company took
the help of Lucas Engineering Services of the UK and set
itself certain goals to improving its manufacturing practices. These goals were all over fulfilled and a point to
point comparison, between 1989-90 and 1996-97, captures some of the change. Sales per employee rose from 10
to 30, the order book fell from one month to three days
(why sit on orders) and the internal defect rate, which
measures quality fell from 6.2 percent to less than 3
percent. A British consultant benchmarked the company
in1996 and ranked it “pretty close to the British auto
components industry” and indicated that “in five to six
years it should be world class”
From its daily management, the company went in for a
deep analysis which involved designing of experiments to
optimize the process and reduce the cycle time. This also
led to a reduction of scrap. Thereafter, Prof. Tsuda introduced managing points and checking points so that each
manager had a set of checking points which are the subordinate managing points. This created a tiered system of
controls of what the person is supposed to check and what
he is supposed to do. Finally, he introduced what is called
policy deployment where one aligns the company’s policy
and all departments down the line get aligned. One normally takes three objectives for the year and then accordingly aligns every department for the year. So the
whole company and all divisions became aligned to one
goal of achieving those three targets.
At the end of the second phase, where did Sundram Brake
Linings stand? Between 1997 and 2002, in the passenger
car brake lining, finishing cell, productivity per man per
shift has went up by 437 percent, floor space use came
down by 50 percent and line scrap reduced from 10,000
ppm to zero. A longer time perspective makes the change
process clearer. For the same cell, a key ratio, value added
time to production lead time, rose from 2.9 percent before
1990 to 8.3 percent in June 1999 to 22.2 percent in March
2002. The benefits of the processes adapted can also be
gauged from the changes that took place in the passenger
car finishing U line – scrap was down by 93 percent,
downtime reduced by 85 percent, changeover time took
four minutes, labor productivity was up by 424 percent,
and customer service level was up 789 percent. Where
was the human element in this? The number of workers in
this line was reduced from seven to two and supervision
was no longer required.
The year 1997, marked the beginning of the second phase
of change in Sundram Brake Lining as a key year. That
year, it began the process of adopting “lean manufacturing”, one of the names by which the Toyota Production
System is known. Prof. Daniel T Jones, head of the Lean
Manufacturing Centre in the UK, visited its factory in
1997 and lit a bomb, stating that the material flow was not
smooth which hurt its people, as the company had worked
for ten years and then suddenly a man walks in and says
too much mooda (waste) and ranked the company three
out of ten while Toyota was awarded a nine on ten. SBL
was told that it would take the company nearly three to
five years to become world class and maybe reach 70
percent of Toyota. In quick succession the company
adopted TQM (total quality management) in 1998 and
TPM (total productive maintenance) in 1999. So, the
company simultaneously had three sensei (a teacher
whose learning curve you borrow) – for TPM, TQM and
lean! It was one of the few companies which were doing
TPM on one side and TQM on the other side something
that Toyota had done 38 years ago. After it got the Deming
award, it borrowed TPM from Denso which was part of
Toyota. So they merged the two to form the base of the
Toyota Production System.
To sum it up, the labor productivity increased four times,
the throughput time came down from six days to 1.5 days.
The velocity of movement through the plant became so
high that no ERP could catch it, and by the time you
captured it and displayed it, it had become out of date. The
company has started working with its suppliers and collected 60 percent of its materials everyday. It has also
started working with its distributors who earlier used to
keep six to eight weeks stock, however the company reduced this to 10 days and plans to reduce it even further to
6 days, as the whole question of mooda or waste of inventory starts from the supplier to the end customer, and
by reducing mooda, waste is eliminated and the costs
reduced, which is the principle Toyota works on. Another
In 1997 Prof. Y Tsuda became its sensai for TQM. He put
TQM in a completely different perspective. While the
company was doing elements of TQM, fundamentals, he
made the company start thinking differently, the TQM
method of thinking. Earlier production and sales were
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feather in the cap of the company has been its ability to
make its own machine and not buying it from outside, a
principle followed by Toyota, who believe that nobody
builds a machine for you. In this manner Sundram Brake
Linings System has managed to make its own machines
50 percent cheaper as they know exactly what they want
and in the process have saved tremendously on capital
costs.
6.1 Factor Conditions
Skilled Human Resources: The labor available in India is
relatively cheap, and fairly skilled but not so productive.
The industry has tried to reduce the labor content in its
products progressively making this factor advantage less
important and also brought about rigorous and continuous
training programs fro development of skilled Human
Resources.
Employee-Orientation: Employee orientation appears to
be high in the companies, which have started following
Japanese manufacturing systems/quality practices.
Natural Physical Resources: Raw material availability,
especially steel had a problem regarding availability and
cost. But in 1990s, the liberalization of imports led to the
possibility of the manufacturers importing steel if they
chose to, at international prices. However, the quality of
many raw materials in some cases remains very poor.
Figure 10. Passenger Car Brake Lining – Finishing Cell
Machine Scrap Trend
Capital Resources: The banks and other financial institutions are willing to invest in this sector. Also the boom in
the economy has led to wider channels for raising funds
through offering equity, debentures. And thus there are not
much problems in raising money. Larger firms with brand
equity are also raising funds from abroad, thus reducing
their cost of capital.
Advanced infrastructure: India has only few engineering
colleges that specialize in automobile engineering sector.
Some large automobile players such as TELCO, Maruti,
Bajaj and Eicher have been enhancing their technological
capabilities through R&D, but only few of their suppliers
have become very active in developing advance infrastructure.
Figure 11. Setup Time Trends
6. 2 DEMAND CONDITIONS
Since, cars were considered a luxury item in India prior to
1990s, the car production in India were highly stagnant,
both in terms of quality and quantity. There were only two
car manufacturers in the country. In 1982, a state enterprise, Maruti Udyog Ltd., was established in collaboration
with Suzuki of Japan; Suzuki having 20 percent equity.
Maruti adopted high standards of quality set by Suzuki. It
set up large production capacity of 1 lakh cars as against
78,600 for the existing manufacturers. Maruti pursued a
vigorous indigenization program, which enabled the Indian auto component industry to build its volume of demand and its sophistication. In commercial vehicle segment also, there was remarkable increase in production.
There were steep increase in production in two wheeler
segment.
Figure 12. Lean Manufacturing Improvements
6. ANALYSIS OF INDIAN AUTO COMPONENT
INDUSTRY
The upward kinks in production of components in
1979-80, 1983-84 & 1986-87 correspond roughly to the
sharp increase in vehicle production in 1977-79,
1980-81& 1982-83. The lag is due to the time it took for
the component industry to adjust itself to the enhanced
Based on the analysis of the journey towards competitiveness by the above companies, the competitiveness of
the Indian Auto Component Industry can be analyzed by
using the Porter Diamond Framework Model:
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demand and also because the replacement market develops only two to three years after the new vehicles are put
on the road.
three percent and top fifty account for four percent of sales
(Manikutty, 1995). Small units could not compete on
quality and large competitiors were at cost disadvantage.
Rivalry does exist technically but not very much in reality.
The market being seller market for a long time, much
quality and technology upgradation did not take place.
The scenario has changed drastically with the entry of
global component giant such as Delphi and Visteon.
The sophistication of demand in the automobile sector is
reflected in the capability of the component industry. The
Indian component manufacturers upgraded there quality
through a series of foreign collaboration the results of
which are seen in the exports. The increasing sophistication of domestic demand also led many components to
perform quality audits and get the ISO or QS certification.
A few companies such as Sundaram Fasteners and
Sundaram Clayton have won global awards such as
Deming Prize.
7.0 Reasons for Competitiveness
Competitiveness of these companies can be traced to
numerous reasons. The reasons can be synthesized and
structured in the form of a influence diagram. These
competitive firms have clarity of Vision of becoming
world class quality companies indicating their aggressiveness with the mission of being globally competitive
through continuous world class quality improvements and
business practices.
6.3 Related and Supporting Industries
Sophisticated Suppliers: The suppliers in the industry are
not very sophisticated though some are emerging slowly.
Most of the “Hi-Tech” products are still imported. The
example of this is a fight between Maruti and Suzuki of
Japan on the matter relating transfer of gear box technology to Maruti. However, a few world class manufacturers like Sundaram Fasteners and Sundram Clayton
have emerged.
Huge investments in human resources have been a key
driver where they believed that technical workforce at all
levels should educate and constantly keep abreast with
development in electronics, computers and mechatronics.
The companies focus on training, especially of workers,
through long term deputation of experts from abroad and
continue to invest in the in-house training programmes in
the areas of 5S, SPC, QFD.
Related industries and supporting industries: The interaction and linkages with related and supporting industries
need significance industries. Important related and supporting industries for the auto components industry include metals, machine tools, capital goods, software and
automobiles. Before 1991, the capital goods industry in
India was protected. A number of manufacturers came up
who could manufacture quite sophisticated machines.
However, many of them are not globally competitive in
terms of cost and quality. The auto components industry
seems to present little evidence of any positive interaction
with the machine tool industry. With relatively lower duty
on machine tools, the consuming industries often found it
economical to import required machinery and machine
tools than purchase them locally.
Quality management has also been other area of focus at
these organizations. The companies have been able to
implement quality not only in its products but also in its
workplace. They have developed capabilities to develop
nurturing culture for quality learning, ability to implement
better manufacturing and quality practices. They have all
implemented Toyota Production System (TPS),
Just-in-Time (JIT) deliveries and upgraded suppliers’
quality. The companies have also implemented
E-Commerce technologies in their in-bound logistics
which helps towards attainment of JIT.
6.4 Firms strategy, structure and rivalry
Advanced management strategies: The strategies of most
of the firms were inward looking and aimed at staying
small so that the firms can get the full advantage of the
government policies for the small scale industries.
Leadership and commitment: After the emergence of
Maruti Udyog Ltd., in which most of the parts were
outsourced, some of the companies have come up to give
standard world class products. This has become possible
due to the top management commitments and leadership
quality. A few names to recall are Sona Steering,
Sundaram Fasteners, Jai Bharat Maruti, Anand Group .
Domestic internal rivalry: The industry had extremely low
degree of concentration. The top ten manufacturers account for nearly two percent of sales, top twenty only
Figure 13: Model of Attaining Competitiveness
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8.0 Challenges
downtrend, excess capacities which left the industry with
high unused capacities, which could have been utilized for
exports, had the industry been available to meet the global
standards of quality and product development at that time.
Similarly, taking heed from the past mistakes in the present context where the fundamentals are strong companies
need to keep a check on their issues even though the
economy is booming keeping in mind that the future is
uncertain and an element of risk always remain attached
and thus measures need to be in place to check things if
they do go hay-wire.
The poor technological base is emerging as the major
problem faced the industry. Poor R&D and technology
base poses yet another glaring problem for the industry.
Considering the fact that the R&D expenditure of the
Indian industry is less than 1 percent of the total turnover,
the industry is bound to suffer on the technology front.
The lack of upgradation of technology is also reflected in
the extremely poor international poor international performance as evident from the fact that the industry’s share
of global exports market is a minuscule 0.01 percent.
9.0 References
Also a possible downtrend in demand could pose as a
threat and organizations must keep that in mind while
devising their strategies. Globally their have been rising
instance of plant closures and employee retrenchment
hence while devising strategies these points need to be
kept in mind. As in the starting 1992, the industry witnessed a spurt in demand in the automobile sector. Almost
all segments in the industry – commercial vehicles, passenger cars, tractors, two-wheeler, etc. – witnessed an
average growth of 25 percent. But from 1996 onwards, the
industry started showing signs of recession. Starting with
the commercial vehicles, the downtrend then hit all the
components of the industry. In the passenger car segment,
only MUL has managed to maintained a steady growth
rate. This downtrend was in line with the general regression in the industry, which was being attributed to a
number of factors like political uncertainty, stock market
ACMA (1997a) Automobile Component Manufacturers Yearbook, 1997
ACMA (1997b) Automobile Component Manufacturers Yearbook: Facts
and Figures, 1997
Capitaline, Auto Ancillary Report, 2004
Manikutty, S (1995) Synergies in Government Policies and Global
Competitiveness of Two Indian Industries: An empirical study.
Michael E. Porter, The Competitive Advantage of Nations
Mukherjee, D. (1998) Global Competitiveness and Auto Ancillary
Industry: An evaluation In comparison with Japan and US Auto component Industry.
Sona Koyo Annual Report 2006, 2005.
Sundram Brake Linings Limited Annual Report 2005, 2006.
Sundram Fasteners Annual Report 2006, 2005.
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