Wednesday, December 12, 2007
S Kalyana Ramanathan / Chennai December 13, 2007
To invest $178 million in setting up sales and service outlets.
In a little over a year, Mahindra & Mahindra’s (M&M’s) all-Indian utility vehicle, Scorpio, will enter the quality-conscious US market, which is also the largest in the world with 15 million vehicles in annual sales.
The company already has firm orders for 45,000 units of Scorpio for the first year, which is more than the 40,000 it sold in India in the last financial year.
More importantly, 285 US dealers have signed up to sell the vehicle and are investing $178 million in setting up sales and service outlets.
Mahindra & Mahindra had spent $120 million on developing the Scorpio platform five years ago, and there are 140 Scorpio dealers.
The enthusiastic response to the vehicle in the US comes amid a clamour of protest by US dealers against selling Jaguar to an Indian company for the fear that it would erode the image and sustainability of the brand.
“The timing of M&M’s entry into the US is perfect. With the price of the fuel going up, Americans want to buy SUVs and trucks that are not too costly to operate,” John Perez, the chief executive of Alpharetta, Georgia-based Global Vehicles, which will be handling Scorpio sales in the US, told Business Standard over the phone.
Starting March 2009, three diesel variants of Scorpio will be sold in the US. “We already have 45,000 bookings for the first year. All of them are backed by letters of credit,” said Perez, adding that Scorpio would not be priced cheap. He hinted at a tag of $25,000.
Pawan Goenka, the president of the automotive division of M&M, said he was not surprised by the demand for Scorpio in the US, though he conceded that it had exceeded the company’s target.
The current annual capacity of 52,000 units of Scorpio in India will have to be expanded to meet the US demand.
“It could either be in Nasik or Chakan (near Pune). We have not decided that,” he said, adding that the company would spend $50 million on upgrading the vehicle to meet the US National Highway Traffic Safety Administration requirement.
Thursday, November 15, 2007
Small Car, Big Questions
Whether it rolls off smoothly or sputters, the vaunted Rs 1-lakh car has the potential to make or mar Tata reputation.
S. KALYANA RAMANATHAN
The reverse countdown to the launch of Ratan Tata’s Rs 1-lakh car has begun. The world’s cheapest car will be unveiled just six months from now at Auto Expo 2008 in New Delhi. And when the first commercial unit of the still nameless car rolls out of Tata Motors’ new plant at Singur in West Bengal by July-August next year, it will make or break Ratan Tata’s reputation as a visionary and test Tata Motors’ ability to execute its chairman’s much-vaunted plans.
As things stand right now, Tata’s dream of creating a car that will sell for less than the price of an expensive mountain bicycle could disrupt the auto industry almost as much as Henry Ford’s introduction of the first mass produced car, the Model-T, did in 1908.
While Ford’s innovation has turned auto makers into behemoths manufacturing millions of cars out of massive factories spread across the world, Tata Motors is putting in place a distributive manufacturing plan for its Rs 1-lakh car, where dealers spread across the country will receive car kits that they will assemble in local workshops for their customers.
There are other innovations as well. While most cars today are front-engine designs, the Tata dream car will hark back to the first-ever “people’s car”, the Volkswagen Beetle, and sport a rear-engine. And at a time when the market is gravitating to high-powered engines, with even entry models from Maruti moving from 800-cc engines to 1,000-cc-plus engines, Tata’s car will have only 667-cc of power — not much more than the 500-cc powering Royal Enfield’s Machismo motorcycle.
All this makes the Rs 1-lakh car sound like a glorified rickshaw. Not so, insists Tata Motors’ Managing Director, Ravi Kant. “Small often implies it’s going to be a dinky car,” he told BW in an exclusive interview (see ‘We’ll Have The First Mover Advantage’ on page 34). “But the car we are talking about will not be so small... It will be a good-looking car that will attract both the old and the young. You can sit in the car with a sense of pride and sense of equality, and not feel disadvantaged about driving it.”
Hmmm, murmur sceptics. Can you really do that? But Tata Motors has made and kept tall promises before. When designing India’s first indigenous car, the Indica, Ratan Tata had promised consumers “a car with the Zen’s size, the Ambassador’s internal dimensions, and the price of a Maruti 800”. And he delivered. If Tata keeps his promise this time around as well, he could make all global car makers go back to the drawing board, says Pawan Goenka, president of Mahindra & Mahindra’s automotive division. “If one is able to make a four-wheeler (for Rs 1 lakh), it will change the industry dynamics,” he says.
But failure would prove everybody, but Tata himself, right. Now in the sunset of his remarkable career, Tata could end up being remembered as a dreamer whose actions failed to match his ambitions.
A lot more rides on the car than just Ratan Tata’s dream and Tata Motors’ backbreaking effort to fulfil it. Over 100 component suppliers, whom Tata has converted from sceptics to partners, are inextricably tied to the project and are investing in dedicated ancillary facilities to feed the car. Though Tata Motors refuses to confirm how much it has invested in the small car, various reports have estimated the figure to be around $450 million (Rs 1,800 crore). Additionally, suppliers — the main suppliers as well as the tier II and III suppliers who will feed them — are estimated to be putting in roughly $150 million or Rs 600 crore. This includes support services such as the logistics companies that will buy massive trucks and trailers to transport the between 250,000 and 1 million small cars Tata hopes to sell every year to dealers across the country.
With sales of 250,000 units annually, Tata Motors’ revenues would rise by Rs 2,500 crore about 8 per cent of its current revenues of Rs 32,000 crore and if the company met the million-unit mark, its revenues would go up by Rs 10,000 crore. But profitability is another matter. A low cost car, by its very nature, is unlikely to have a net margin of more than 5 per cent (Rs 5,000 per unit). At that level of profitability, Tata Motors would need to sell at least 4 million units to recoup the $450 million it is estimated to have invested in the small car.
Besides, the project also has to make sense for ancillary businesses, most of whom are run by small businessmen who have hypothecated their futures to Tata’s dream. Right now, they are probably having sleepless nights.
Tata Motor’s Singur facility, where the car is slated to be made, is embroiled in a bitter political tussle that could blow up into a conflict any day. Both Tatas and the West Bengal government have already been bruised by the allegations that the land in Singur was obtained by evicting local farmers and handed to Tata Motors for a song. Many political parties, and many of the evicted farmers, have been crusading over the issue. They are reportedly backed by powerful players in the auto and motorcycle industry that have a vested interested in delaying, if not killing, the small car project.
Then there are the mounting concerns over the ultra-low cost car’s quality, safety and emission standards. Since Tata Motors has had to squeeze out every penny from suppliers’ manufacturing costs, potential customers are now questioning the reliability of the parts they will deliver. “It (Tata small car) won’t be good,” says Alka Naphade, a homemaker in her mid-30s who was scouting for a small car at a Maruti outlet in central Delhi. “And I don’t think they will sell this car at Rs 1 lakh. That’s a typical Indian mentality. There are always some hidden costs. I won’t trust such a model for safety, even if the government approves it.”
Since the 1 million units of the small car Tata hopes to sell will almost double the number of cars sold in the country, citizens and NGO activists are already raising their voices against the congestion it will create (see ‘The Smog Will Get Worse’on page 42). And environmentalists are raising concerns about the damage these vehicles will cause the earth’s already fragile atmosphere.
Gold At The Base Of The Pyramid
All these were predictable problems. So, why did Ratan Tata persevere with his dream? For one, the architect and designer inside this incredibly fresh-minded 69-year-old probably just couldn’t resist the idea. More importantly, Tata has long been seduced by the “gold at the bottom of the pyramid” theory, which holds that companies can make the most money by penetrating the mass market.
That’s essentially what Henry Ford did with the Model-T. It was launched with a price tag of $850 in 1908. As Ford worked relentlessly on innovations such as the conveyor belt, he brought the price down to $500 in 1914. By 1924, the Model-T was selling for just $290, a third of its original price, and Ford Motor Company was rolling out a third of the world’s car production.
Tata’s strategy is more akin to what happened in the personal computer industry. Once, PCs were high-priced business machines made by select manufacturers. Players such as Compaq and Dell multiplied the size of the market by turning PCs into easily assembled, cheap units that could be afforded by middle-class families, who began buying PCs to replace electronic typewriters, board games, accounting machines, etc.
Tata says his strategy is to do the same — to create a low-cost design, and get it assembled on the cheap so that the car can be afforded by middle-class families, who he hopes will begin buying it in place of the two-wheelers they currently use.In this way, Tata has said earlier he hopes to sell a million units of the small car. The same figure was also reiterated by Canada's CVtech, which will be a key supplier to the project. On the face of it, the number is achievable. Two-wheeler sales are currently about 7.5 million units a year, while car sales are about 1 million units. Hence, if Tata convinces just 10 per cent of India’s two-wheeler owners to upgrade to his cheap car, he will sell 750,000 units a year. Add another 300,000 units sold to car buyers attracted to Tata’s pet project for its intrinsic appeal and the 1-lakh cars will be among a handful of brands selling over a million units annually.
But that premise has a flaw. More than 90 per cent of two-wheelers sold in India are in the Rs 30,000-45,000 range. These are commuter bikes used for travelling from point A to point B. These buyers are highly sensitive to purchase price, fuel efficiency and maintenance costs. Since the Tata car will cost three times as much and is expected to give just 20-25 km to the litre, as against a bike’s 60 km per litre, experts believe this segment may not migrate to cars in such large numbers.
“I don’t talk about other people’s dreams, ambitions or views,” says Rahul Bajaj, chairman of two-wheeler maker Bajaj Auto, which could be among the companies most affected by Tata’s car. “Ratan Tata is a very old friend, we were in school together and I wish him all the best. But as for us (at Bajaj Auto), we are not worried at all about the entry of this car in the Indian auto market. There are three wheelers, four wheelers and low cost four wheelers. How they will do will depend on the price and specifications of the product. Let the customer decide based on the price-quality matrix as well as technology compared to competition. Please remember, price also includes annual maintenance costs.”
Besides this, even minor changes in interest rates can play havoc with buyer decisions at the base of the pyramid.
Between April and June this year, as interest costs rose 4-5 per cent, the otherwise throbbing two-wheeler market came to a grinding halt. In the first quarter of this year, market leader Hero Honda reported a 4 per cent drop in volumes, while that of Bajaj Auto and TVS Motor fell by 13 per cent and 15 per cent, respectively.
Assuming the on-road price of Tata’s 1-lakh car will really end up being between Rs 1.3 lakh and Rs 1.5 lakh (Tata Motors says it is working towards meeting the target of Rs 1 lakh), at the current rate of interest, the monthly cash payment on a five-year car loan for this amount works out to Rs 3,200. Given that the monthly running costs would be about Rs 3,000, the total cost of owning Tata’s car will be about three times the total cost of owning a two-wheeler. Analysts, however, are willing to look beyond the challenges arising out of total cost of ownership for the Rs 1-lakh car. “The success of this model would depend a lot on the product itself,” says Mohit Arora, a senior director at JD Power, an auto intelligence agency. “If it really exists, then the chances of success are pretty high”.
The Secret Design
There’s little known about the product yet. Tata officials have been tight-lipped about the project, and few people outside the company, other than some key suppliers, have even seen the car. Sources, including those who have seen the car, say it resembles the Daewoo Matiz. Sources say the design came from IDEA, the same UK-based design house that created the Indica. A company spokesperson, however, says that the car has been designed by Tata Motors with the personal involvement of Tata, who is an architect by training.
A paradigm shift in costs also necessitated innovative thinking in the use of materials, says Ravi Kant. While he confirmed that the car would use plastics, steel and non-ferrous alloys, he refused to say in what proportion. But industry sources say the car will make more use of cheaper plastics and composite materials than any other vehicle on the road, mostly in an effort to keep the car light.
Where the design is also light is in safety features. While the car will have seat belts — these were made mandatory about five years ago — it is unlikely to have air bags, which cost about Rs 25,000 and are still not mandatory in India. “It’s a volume game and the margins will be tighter,” says Yezdi Nagporewalla, national industry director at consulting firm KPMG. “So, the costs have to be cut to the bone. (The) winner will be the one who manages to offer cars at the lowest price.”
The first challenge is to place the car on the right road. Tata has chosen the kuchcha road. “It’s not an urban-centric car,” says Ravi Kant. “It will go where people travel either by unmechanised transportation or on foot.”
The Cost-Quality Tussle
While embarking on the project, Tata Motors brought in a convinced group of suppliers who were set near-impossible price targets. Said one leading supplier, “Our usual payback period is 3-4 years for a component made for a new car. In case of the Rs 1-lakh car, it’s going to be five years.” Price negotiation with suppliers usually started at 50 per cent of what they quoted. Some managed to push it up to 80-85 per cent. Those like Sona Steering managed to get nearly what they had quoted. “We have had a fair deal and got the price we had bid for,” says Surinder Kapur, chairman of Sona Group.
But what keeps Kapur, like many of his peers involved in the project, is the promise of unprecedented volumes of between 250,000 and 1 million units per annum, numbers that are huge by the standards of the domestic automobile industry. “This is the first time we would be seeing such numbers,” says Arvind Walia, CEO of Delhi-based Gabriel India, which is supplying suspension parts. If Tata’s car does indeed sell 1 million units, its parts business alone could be worth between Rs 7,000 cr and Rs 9,000 cr, says a supplier. That’s almost a fourth of the total domestic component business in India today.
Riding On Concessions
One controversial way in which Tata Motors is trying to keep to its ultra-low cost targets is by getting concessions and tax breaks. Though most large industrial projects get tax breaks from state governments and the Centre, the incentives and tax breaks given to the Tata project were shrouded in mystery. It was only in March this year that discussions in the West Bengal assembly revealed just how many sops the state’s government had given Tatas. These included a loan of Rs 200 crore at just 1 per cent interest, and an annual lease rate of just Rs 8,000 an acre for about 290 of the 997 acres of land it was given in Singur. For the remaining land, Tatas were exempted from making any upfront payments. Ravi Kant defends the sops. “If incentives are such a bad thing, don’t give it to anybody,” he says. “However, do not single out projects. Incentives to move in a certain direction are given across the world. We decided to work with West Bengal because they were able to close the deal faster than anyone else”.
With this product, Tata Motors could turn the concept of economies of scale and single-location mass manufacturing on its head. Right from the start of the project, including in an interview to BW in 2005, Ratan Tata insisted the small car would be built using a distributed manufacturing system. Under this, a completely knocked-down kit of the car will be built at three Tata-owned plants, the brand new one at Pant Nagar in Uttarakhand, its old plant at Pune in Maharashtra, and Singur. Distributed manufacturing was also aimed at a social dimension of providing rural entrepreneurship.
The kits will then be ferried to warehouses across the country, where they would be assembled by dealers. “This innovation is the key in the supply chain and distribution,” says Nagporewalla. The idea is that a dealer would have a warehousing terminal to house the semi-knocked down kits, an assembly plant and a sales office where a few vehicles will be displayed. As soon as a customer placed a firm order, the dealer would withdraw a kit from the warehouse, assemble it at his plant and deliver it to the customer. This is unheard of in the automobile industry, especially since multiple manufacturing locations require multiple vendor bases, which affect the viability of suppliers due to the additional capital expenditure of setting up the plant. The closest example of a similar practice is in the furniture business, where small packages of home furnishings can be assembled at home with little help from the manufacturer.
The company says it chose this model because it believes that to handle large volumes, especially in non-metros, it needed to be closer to customers. Currently, Tata Motors reportedly plans to set up warehousing facilities in developing cities like Aurangabad, Nasik and Nagpur in the West, and Coimbatore and Cochin in the South. Other cities are also being identified. These facilities will be built either by the company or by the dealers. But market sources say there have been some mid-course corrections in the way Tata Motors is implementing the project vis-à-vis its ‘distributed manufacturing’ plans. “It doesn’t seem this model is being pursued any more,” says the CEO of a leading car company. “We would have got to know from the market if such a novel method of assembling the car is tried by them.”
Another major surprise could be the rollout of the first vehicle. Though work is on in full swing at the Singur facility, component makers suggest that the first car is likely to come out of Tata Motors’ facility at Pantnagar, where commercial production is set to begin in February next year. The Pantnagar plant was originally set up for Tata’s top-selling light commercial vehicle, Ace. But the delays in acquiring land at Singur appear to have led to a change in plans, sources say. But Tata Motors is unlikely to announce this until the last moment due to possible fallout on the progress of the Singur facility. In an interview to BW, Ravi Kant reiterated that the Rs 1-lakh car would roll out of Singur.
Posing a challenge to the Tata car has certainly been a hot topic of discussion in the boardrooms of several car makers. But, for the moment, Tata Motors seems to have a 2-3 year lead over every other company — except Maruti-Suzuki.
While Renault chief Carlos Ghosn has indicated he may be examining a $3,000 car, Renault’s Senior Vice-President of corporate design Patrick le Quement confirmed to BW that it was just an idea from Ghosn, albeit a motivating one. “The challenge of designing a sub-3K car will be tremendous,” Quement said. “It will push us to think differently. I have no idea what will come out, but it would (require) a lot of ingenuity from everyone. I’m looking forward to the challenge.” Mahindra & Mahindra, Renault’s likely partner in the domestic market, has also discounted the idea. “We need not react to everything others do,” says M&M’s Goenka.
Among other car makers in India, Japanese majors Honda and Toyota, and the US-based General Motors and Ford Motor have all announced that they are not in the game for the ultra-low cost car. Of the rest, Hyundai hasn’t yet indicated it will counter Tata with its own low-priced car. Among Indian auto players, Bajaj Auto is believed to be working on a small car but Managing Director Rajiv Bajaj has clarified that it is not in the Rs 1-lakh range. Bangalore-based Reva Electric Car Company, though, plans its own answer to the Tata car with a Rs 1-lakh green car that runs on battery.
That leaves just the Maruti-Suzuki combine. When Tata launches this car, it would actually step onto Maruti’s turf. This would mean a full circle for Tata Motors, which started its car ambition with Indica, with project code name MINT. Tata insiders say that more than freshness, it was an acronym for Maruti In Trouble. But Maruti believes that making a car for less than $3,000 is simply not its view of things. Suzuki’s top boss Osamu Suzuki had rubbished the possibility of a Rs 1-lakh car as early as 2005. Maruti’s Managing Director Jagdish Khattar says, “It costs Rs 1.3 lakh to make the Maruti 800. I don’t think we can push it down any further.”
Nobody, however, is buying Maruti’s stance just yet. “I think Maruti would try to come with multiple answers (to counter Tata’s Rs 1 lakh car),” says JD Power’s Arora. Industry experts like him believe that the company, which sells over 50 per cent of all cars sold in India, will not let a new player come and slice away its market. There are other reasons not to believe this stance. Suzuki already has 660-cc petrol engines that are used in products like the Wagon R and the Alto in the Japanese domestic market. Both these products have also been designed to take engine sizes from 660-cc to 1,100-cc. Possibly, the Zen Estilo could also sport the engine.
So, pushing down the cost of Maruti 800 is just one arrow in Maruti’s quiver. There is a good possibility that the real firepower for this dominant player lies in the used car market. Maruti’s used car business, branded as TrueValue, is a well-oiled machine now. Since its launch in 2001, the business has grown to a critical size with 85,000 deals reported in financial year 2006-07. That’s nearly one-sixth the new cars Maruti sells.
This year, TrueValue is expected to do a million valuations, almost as many as India’s entire new car market. Arora believes that this is a potent weapon Maruti holds and is one among the many salvos it may fire at Tata Motors.
But Tata’s lead over other players may get shortened if the product sets the roads on fire. For, once Tata Motors proves the effectiveness of its unique manufacturing, sourcing and distribution model, fence-sitters could well jump into the fray. Possibly, that’s the waiting game they are playing out. Tata’s dream, it seems, could soon be usurped.
Monday, November 5, 2007
S Kalyana Ramanathan / Chennai November 06, 2007
Allegations of mismanagement at Apollo Tyres made by Narinder Jeet Kanwar against his elder brother, Onkar Singh Kanwar, might not hold in the Company Law Board (CLB) because the younger brother was not a shareholder in the company, said Apollo Tyres officials.
“Narinder Jeet Kanwar has no stake in the company,” said a company official, adding that he was, therefore, not in a position to take up the issue before the CLB.
“The petitioner or petitioners as a group must hold at least a 10 per cent stake in the company for the CLB to accept the petition. It is not an easy process, unless this 10 per cent stake is held by a person,” said M R Venkatesh, a Chennai-based company law expert.
In a family partition that took place many years ago, Onkar Singh Kanwar had got control of Apollo Tyres, a leading producer of tyres.
Last Friday, Narinder Jeet Kanwar moved the CLB in Chennai, seeking an investigation into manipulation, fraud and insider trading by his brother to acquire a controlling stake in the company.
Meanwhile, the All India Tyre Dealers Federation (AITDF) is expected to join the fray, alleging trade malpractices by the company’s management. A Delhi-based AITDF member said today that a petition was being filed with the CLB in Chennai.
“Our petition is not intended to support Narinder Jeet Kanwar. We are merely using the opportunity to enable the CLB hear our woes too,” said the member.
He added that the trade body was contemplating sending a copy of this petition to the economic offences wing of the ministry of finance under the Union government.
The AITDF has claimed that Apollo Tyres has created a creamy layer among the dealer network, whereby 25-30 per cent of its businesses are distributed among 200-300 dealers, while the company’s sales network is spread across 4,500 dealers in the country.
Meanwhile, Apollo Tyres today issued a media statement contesting the validity of the petition. “We wish to clarify that the reference to the petition that is made in the report has not even been admitted by the CLB’s additional principal bench in Chennai. The very maintainability of the same has been challenged by the company,” it said.
The Apollo Tyres scrip today closed at Rs 36.70 on the National Stock Exchange, which was 3.29 per cent lower than the previous closing price of Rs 37.95.
WAR OF WORDS
# The petitioner or petitioners as a group must hold at least a 10 per cent stake in the company for the CLB to accept the petition
# The All India Tyre Dealers Federation (AITDF) is expected to join the fray, alleging trade malpractices by the company’s management
# Apollo Tyres today issued a media statement contesting the validity of the petition
Saturday, November 3, 2007
|The future is here|
|S Kalyana Ramanathan / New Delhi October 20, 2007|
|A clutch of innovators, entrepreneurs and researchers are heralding a revolution that combines the academic and the real world within the IIT Madras campus.|
|It is almost six in the evening when I rush in to meet Professor M Kumaravel in his office at IIT Madras. But the senior faculty member brushes all excuses of being held up by his colleagues aside, ready instead to talk about his work and his association with former President of India, Dr A P J Abdul Kalam.|
|“I met him early this week along with some American scientists for a brainstorming session on how to place photovoltaic solar panels in space to capture energy from the sun to send back to a dish on earth.”|
|It’s the kind of grand plan either a genius or a madman would think up to solve the country’s energy crisis, and it’s a no-brainer which of those the good professor is.|
|Still, I joke that we perhaps ought to talk about his work on earth before taking a trip into space, to which he rapidly acquiesces. He shows me a working prototype of a reverse osmosis plant that draws power from solar panels without the aid of a battery.|
|“It’s the first of its kind in the world,” he says. Seawater in a 500-litre Syntex drum is made potable using this process.|
|Kumaravel next takes me to the fifth floor of his office where there is an entire section of the lab illuminated with white LED bulbs placed on silver foiled tubes.|
|Though these are under observation on test-beds, they are almost as good as the incandescent lights that glow in the rest of his office. It may not look it but these are connected to one of his dream projects of “building integrated photovoltaic” panels.|
|In layman’s parlance, he explains that doors, windows, curtains and every other exposed part of a building can double up as photovoltaic panels to draw energy during the day from sunlight and take care of household energy needs.|
|A few minutes’ walk takes us to another part of the fifth floor, to a few rundown bicycles and workout cycles, the kind you’re more likely to see in a gym. Since the professor does not look the kind who hits the gym, I’m mystified.|
|“You cycle on one for a half-hour and you can get enough power for the next three hours,” he explains. “We had sent 12 of these to the Andaman Islands. They landed there on 24 December, 2004,” he says sadly.|
|As if acknowledging my incomprehension over the significance of the date, he explains “Tsunami”. All the samples sent to the islands were destroyed by the great wave that hit the Indian Ocean and the project has since been on the backburner.|
|In spite of living in Chennai for over three-and-a-half decades, this is my first visit to the IIT Madras campus. The stories I had heard about the 632-acre campus so far had more to do with wildlife than any groundbreaking research here.|
|And any curiosity I might have had to visit had more to do with unconfirmed reports about the availability of, shall we say, stimulants among students than to study the result of their toils.|
| All this changed when Professor M S Ananth, director of IIT Madras, delivered a lecture at the ICE seminar Connect 2007 hosted by the Confederation of Indian Industry (CII). It was not exactly in the same league as Martin Luther King’s “I have a dream” speech, but for an IIT novice, it might well have been.|
Ananth, who studied and taught chemical engineering for most part of his life, spoke about the new era in the industry/academia relationship.
|In a reversal of the brain-drain that India had suffered for long until the early nineties, it seemed educated Indians now wanted to keep coming back. Not only were the alumni of IIT Madras returning, it seemed that many of those who were studying here were wanting to turn — sacrilege till a few years ago — entrepreneurs.|
|After two weeks of exchanging mails and phone calls, the director’s office finally agreed to give me a guided tour of the campus and let me have access to some of the more interesting projects incubated here.|
|My 12-hour guided tour proved insufficient to form any meaningful opinion, though what came through clearly was that a lot of the work underway on campus has the capability to make meaningful changes to the lives of hundreds of thousands of people outside.|
|What was more reassuring was the culture that is fostered here, some of it rather obviously reflected in signage that explains the existence quite simply of “Socially Relevant Projects” or “Rural Technology Action Group” (RuTAG).|
| Professor Bhaskar Ramamurthi, dean-planning, also part of the TeNet group, talks about achieving great things in a very short time.|
“The idea is to find out how technology can play a role in improving rural GDP. Migration from rural to urban areas in a country like India could be a major problem 10 years from now,” he says.
|TeNet’s mission is to improve rural per capita income from the present level of Rs 3,500 (Ramamurthi’s estimates) to Rs 7,000 in the next 10 years. One product of this mission is the setting up of a rural business process outsourcing company called DesiCrew Solutions, run by a woman entrepreneur, Saloni Malhotra.|
|This small BPO, which currently has 50 seats, provides a handful of services like publishing, digitisation of government records, employee benefits outsourcing and directory building services. The operating software to run this business is a product of the TeNet group within IIT Madras.|
|Another working model of the TeNet Group is a “rural ATM” machine that can handle soiled notes and costs as little as Rs 1 lakh apiece or just about one-eighth the cost of a conventional ATM.|
|“Did you know that rural people don’t accept mint-fresh notes in this part of the world?” Prof Ramamurthi asks. He doesn’t wait for my answer — it’s true, though, that I had no idea of their suspicion of new, possibly fake currency.|
|This innovative cash vending machine is a product of a company called Vortex, developed in association with IIT Madras with support from ICICI Bank. Not just the capital cost, even the operating cost for these machines are ensured at bare minimum levels.|
|Given the low frequency in the usage of these machines in villages, the machines are manned by bank staff from a remote location.|
|For filling cash in these machines, the doors are opened remotely through commands sent over the Internet. These ATMs dispense cash over limited hours during the day, so saving on the cost of security.|
|Research within IIT Madras, unlike in any corporation, is spread across the entire organisation and is not limited just to a few pockets of excellence.|
|Departments like Industrial Consultancy and Sponsored Research (ICSR) work closely with industrial houses for a fee to deliver research output that can be commercialised by the latter. This happens under three groups — research-based industrial consulting, institutional research, and retainer research.|
|On average, IIT Madras’s total revenue from these funded activities is estimated at Rs 15-17 crore annually. Based on the nature of research, the faculty involved gets a share as a percentage of the income. On average, 60 per cent of net income from such work goes to the faculty and the balance is retained by the institution.|
|Low cost, lower cost and lowest cost is the very essence of innovation that researchers work on day in and day out. While IIT Madras acts as a catalyst via its research and laboratories, it stays away from the business of selling these innovations as branded products.|
|Most projects, and particularly those undertaken by RuTAG or the Lemelson Recognition & Mentoring Programme (L-RAMP), is undertaken in cooperation with an innovator and a via-media, usually an NGO. Unlike ICSR, research here is usually honorary, meaning neither the faculty nor the institution make any money from it. A nominal 10 per cent of the cost of the project is taken by IIT towards administrative cost.|
|Among its more recent successes are low-cost but clinically safe sanitary napkins made out of wood pulp, herbally treated baby diapers, an improved raingun (sprinkler) used in sugarcane farms that saves water and sprinkles water more efficiently, stronger artificial feet (Jaipur limbs), mud-blocks for low cost housing, even banana fibre extraction machines developed in cooperation with the PSG College of Technology.|
| Focusing on grassroots level innovations is the cornerstone for special projects like L-RAMP.|
“The projects we support must adhere to certain conditions. One, the benefit must go to the disadvantaged; two, it must be truly innovative; finally, it must be commercially viable,” says Professor R Nagarajan, principal coordinator at L-RAMP.
|Most products coming out of RuTAG and L-RAMP are still in nascent stages as far as marketability is concerned. But to cite a case to understand their competitive cost — the wood pulp-based sanitary napkin (branded Relax) is available at Rs 2.30 a piece while commercially available products from famous brands cost Rs 5 and upwards.|
| With innovations and discoveries on the rise in IIT Madras, the awareness of patentability is also improving. Professor T T Narendran in the department of management studies, whose office helps in the patenting processes, says on average four patents are filed every month.|
“Except for math, humanities and management, most departments have patentable innovations developed consistently. Of course, electronics and communications are the most prominent group,” he says.
|A committee of three members checks out all patentable cases. Based on the branch of engineering, three more faculty members are called on board to sit on judgement over whether a particular work is worthy of patenting or not.|
|“It takes two-three years to actually get a patent number. Very rarely are patent applications turned down by the patent office,” says an officer attached to the ICSR. IIT Madras has retained two law firms to do the paperwork for its patent applications.|
|Several innovations like the wireless local loop (WLL) technology developed by the TeNET group are operational communication technologies that have reached the masses, mainly in rural and semi-urban areas where conventional technologies are commercially unviable.|
|Remote diagnostics like ReMeDi allow doctors sitting in district headquarters to take healthcare delivery mechanisms where even mobile hospitals cannot reach.|
|At the simple tap of a mouse, doctors can see live ECG graphs on their computer screens and hear the heat beat. This kit even allows health workers to measure blood pressure remotely — all of it over regular Internet channels without any broadband.|
|There is even a video conference system on display that works well on low-band width, as low as 16Kbps, while conventional systems expect downlink speeds in the range of 640Kbps to 1.6Mbps.|
|The cost of research is an attractive feature that draws innovators and entrepreneurs towards IIT. Though no reliable comparative data is available on the economy of doing research in IIT Madras, insiders would like to believe it is half or less for conducting similar research in a private lab outside the campus.|
|On the question of the quality of research and how it compares with its Western counterparts, B Subramanian, professor of German studies, is scathing: “The industry and universities in the West have a long history of evolution. You cannot expect this here in a short span of time. We have very good professors and researchers but inadequate support staff in the form of research assistants to facilitate the emergence of distinct research groups doing sustained research.”|
|Yet, there appears to be serious research happening in different branches of engineering, even if they do seem to be working in isolation.|
|What is less obvious is the fundamental philosophy and the motivation that is shared by these researchers and innovators. Listen carefully, as I did, and you might hear almost inaudible voices murmuring that necessity is the mother of all innovation.|
Masahiro Takedagawa is now Honda’s point man in India. Why is he here? And what does it mean for the Munjals?
S. KALYANA RAMANATHAN
Honda’s entry into India in the early 1980s was through JVs, partly because of regulation. By the mid-1980s, Honda had three JVs running. But after 1991, when investment rules were relaxed, Honda quickly bought out its partners (Shrirams) in Honda Siel and sold off its 51 per cent share in Kinetic Honda to the Firodias. Honda was no longer willing to operate through partnerships.
With the Munjals, however, Honda’s relationship was different. It was content with the dividends and royalty payments it received from Hero Honda.
Then, in August 1999, Honda announced the formation of HMSI, a 100 per cent subsidiary that would make high-end gearless scooters and 150-cc motorcycles. It is often speculated why Hero Honda gave Honda permission to set up another two-wheeler subsidiary here. (As per Press Note 18, which has only recently been amended, the nod from the local partner was a pre-requisite for the creation of another subsidiary by the overseas JV partner.)
The most obvious answer is that Hero Honda’s products didn’t overlap with what Honda was planning. But insiders add that the Munjals really didn’t have a choice in the matter since they were so dependent on Honda for technology.
While HMSI’s scooter business did well, unfortunately for Hero Honda, the 150-cc motorcycle business didn’t really take off. Compared to Bajaj Auto’s 150-cc Pulsar, which sells 35,000-40,000 units per month, Honda’s Unicorn manages barely 3,500-5,000. So, in March this year, HMSI launched the Shine, a 125-cc bike.
While the logic for entering the 125-cc segment was sound — there are five 125-cc bikes sold for every 150-cc bike — it also meant that Hero Honda and Honda were now competitors. (Observers say that had the Munjals or even Hero Honda been given a stake in HMSI, the relationship wouldn’t have been seen in such stark terms.)
And now there are reports that HMSI is planning to enter the 100-cc market, which accounts for 90 per cent of Hero Honda’s turnover by volume. Both companies deny this.
Takedagawa argues that Honda’s ace is its two-company strategy. Essentially that HMSI straddles some segments and Hero Honda the rest. “In China, we had five JVs, though they have been whittled down to three. Given the size of the Indian market, we’ll need at least two companies,” he says.
That is understandable. India is an integral part of an important geography. In Q1 06-07, Asia’s (Thailand, Indonesia, China and India) contribution to Honda’s global net sales remained at 9 per cent over Q1 2005 and Q1 2006, but its share of operating income rose from 6 to 10 per cent.
In the same period, contribution from other bigger markets like North America, Europe and Japan fell. An estimated third of the total volumes in global two-wheeler sales comes from India, with Hero Honda contributing the largest chunk. For every vehicle HMSI sells, Hero Honda sells at least five. While that is perhaps enough reason why Takedagawa may not want to destabilise Hero Honda, there is some ambiguity about how Honda perceives Hero Honda.
In a presentation to the media in July this year, Honda Motors president & CEO Takeo Fukui forecast Hero Honda’s share in Honda’s total revenue in India to fall from 67 per cent in fiscal 2005-06 to 60 per cent in 2007-08. Over the same period, HMSI’s share is expected to rise from 14 per cent to 17 per cent. (The contribution of Honda’s two other subsidiaries are expected to rise marginally.)
Clearly, at Honda’s Tokyo headquarters, the expectations are clear — that HMSI narrow the gap with Hero Honda. And given that there is already some product overlap, competition between the two is bound to intensify.
That brings us back to the moot point — how much will the Munjal-Honda equation change?
Evidence over the past 15-odd years indicates that rarely have equal JVs worked in India. Many (Mahindra-Ford, TVS-Suzuki, Kinetic-Honda, LML-Vespa) ended with one party buying the other out.
Says a Hero Honda competitor: “Look at what happened with other Japanese companies like Suzuki, Panasonic or Sharp. At some point they always go on their own.” But that still doesn’t mean that changing realities of the Hero Honda partnership will lead to a fissure.
Much will actually depend on how Takedagawa chooses to play it from now on.
People close to Takedagawa say he is a nationalist. “He strongly believes in Japan and more so in Honda,” says an associate. Takedagawa thinks the ‘nationalist’ tag is hardly a compliment. But Honda, he believes in. When he was still at school, Honda won its first Grand Prix. “I am not sure if it was 1964 or 1965. But I remember entire Japan celebrating.” That is when Takedagawa first fell in love with Honda. After college, he took the campus interview with Honda and has never looked back.
But however much of a Honda man Takedagawa may be, he has a track record of making JVs work. He did so in Italy, and a few other European countries.
Pawan has no doubt about their (Munjals’) status in the Honda world, at least in India. “People in Honda know who has been running this company,” he asserts unwaveringly.
Actually, one interpretation could be that having such a senior manager in India will actually be a boon for Hero Honda — it will no longer have to run to Bangkok or even Japan every time it needs something done.
In fact, Hero Honda seems to be aware of the circumstance in which it is operating. B.M. Munjal while stating that all is okay with the JV, doesn’t shy away from saying that Honda is in the position of control. Hero Honda may control finance, distribution and manufacturing, but it is still dependent on its partners for product development and new launches.
In fact, Bajaj’s ability to eat into Hero Honda’s market share has been purely on the back of its product portfolio. Says Rahul Bajaj, chairman, Bajaj Auto: “While Hero Honda is ahead of us in two wheelers, it’s just a matter of time before we emerge as leaders.”
Adds S. Sridhar, head (marketing and sales) for Bajaj Auto’s two-wheeler business: “Customers want more in design, looks, technology and sophistication, and not just price.”
In recent years, Bajaj Auto has accurately predicted what customers want. In October 2004, it rolled out the 125-cc motorcycle, Discover DTSi, which has dual spark plugs. Earlier, in 2001 it launched the 150-cc and 180-cc twins within the Pulsar brand. Discover and Pulsar have been runaway successes, selling close to 900,000 units in 2005-06.
What Bajaj did with Discover was correctly read the shift towards the 125-cc segment from 100 cc. The 100-cc, better known as the commuter segment, dropped in its overall contribution to the motorcycle market from 86 per cent in 2003-2004 to 72 per cent in 2005-06. Around the same time, the 125-cc segment’s share improved from 9 per cent to 17 per cent.
B.M. Munjal retorts that all these new segments that are in vogue today were creations of his own company. “We had products in this segment ahead of others.”
It is perhaps a foregone conclusion that the Munjals will expect Takedagawa’s local presence to ensure Hero Honda can freely dip into Honda store of motorcycles. And given that Honda is, after all, an equal owner, why should it mind?
But what will Honda expect in return? One theory is that it will want HMSI to ride the Hero Honda distribution network. (Currently, its distribution is separate.) For, if HMSI has any weakness, it is distribution. Consider that while Hero Honda has close to 650 dealers, HMSI has barely 250. (Honda had originally partnered Hero because it was impressed with its distribution, thanks to its bicycle business.)
If that happens, a customer in a Hero Honda showroom will choose between a Hero Honda label and an HMSI label. Honda gains either way, but Hero Honda doesn’t.
The point, really, is this. JVs work as long as either party brings something of equal significance to the table. Here, Honda brings technology and product development, and Hero, market access. So far, the arrangement worked because Honda didn’t have a presence in India and was dependent on its partner. But through HMSI (and perhaps through shared distribution with Hero Honda in the future), that may change. And since Hero Honda doesn’t have its own product development, the balance of power could shift away from it.
In this context, a few analysts in Mumbai say that Honda will try and take control of Hero Honda soon.
Of course, all those who dare predict Honda moving in for the kill are quick to add that given how valuable Hero Honda still is, Honda will not risk a flare up in its relationship with the Munjals. Notwithstanding its recent woes, almost 48 per cent of the Indian motorcycles market is still with Hero Honda. Most of its dealers swear by the company and have been loyal to Hero Honda over decades, sometimes over generations.
“There is too much at stake for Honda. The change in the ownership pattern might happen slowly, if at all it happens,” says an analyst.
Takedagawa is uncomfortable discussing the future of the Honda-Munjal partnership. “Why do you insist on characterising the relationship as ‘us’ and ‘them’?” he asks somewhat testily. He emphasises that Hero Honda will continue to be run by the Munjals. “Pawan san will have to take his father’s place, whether he likes it or not,” he says. B.M. Munjal adds that when their contract was renewed (2004), “Honda executives had said our grandchildren will work together”.
A Tale Of Two Projects
Tata Steel’s travails in its Titanium project are eerily similar to what Tata Motors faces in Singur
S. KALYANA RAMANATHAN
The Tata Group’s experience with land acquisition is getting worse by the day. First came Singur, where the group’s auto company, Tata Motors, is struggling to construct the plant for its Rs 1-lakh car. Now, it is Tata Steel that has run into rough weather in Tuticorin, Tamil Nadu. It is caught in another controversy over acquisition of land for the Titanium project, its first serious foray into the non-ferrous metals business. For the Tatas, the situations in Singur and Tuticorin are much too similar for comfort.
Ironically, both projects are mired in controversy despite having the blessings of the chief ministers of the both the states. The opposition parties are demanding that the state governments rethink the efficacy of the projects in terms of their social impact.
The opposition in Singur was led by Mamata Banerjee of Trinamool Congress with the extreme left CPI(ML) bringing up the rear whereas the Titanium project has seen established and fringe political powers in Tamil Nadu such as AIADMK, PMK and MDMK, and new faces in the state’s politics such as actors Vijaykanth and Sharath Kumar joining forces. The biggest objection again is about the location of the project, which they allege is coming up on agricultural land and could dislocate people from their ancestral landholdings. Tata Steel executives as well as state officials in Tamil Nadu have rubbished this notion, claiming that less than 4 per cent of the land they plan to acquire is wetland.
“Less than 4 per cent of this is wetland,” says S. Asokan, a veteran geologist and executive-in-charge of the Titanium project. “So where is the question of we mining in agricultural land?” “All you see there is red dry land looking almost like a desert,” says a senior state government official. “Visit the proposed project site for yourself and you will be convinced.”
However, there are subtle differences between Singur and Tuticorin. Land for the first phase of the Titanium project — expected to cover close to 10,500 acres — has been identified, but hasn’t been handed over to the company yet. In Singur, land has already been allocated and construction begun.
Then, the Buddhadeb Bhattacharjee government in West Bengal has not just expressed support for the project, but has also put the state machinery behind the Tatas. The DMK government in Tamil Nadu, however, has taken a cat-on-the-wall stand despite signing a MoU with Tata Steel (through its investment promotion arm TIDCO) in June this year. Chief Minister M. Karunanidhi appointed a committee of ministers and government officials in July, who will visit Tuticorin to see if there is any real resistance at the ground level. “He (Karunanidhi) does not want a Singur or Nandigram kind of situation to erupt in Tamil Nadu,” says a Delhi-based analyst.
View From The Ground
Despite the opposition, large sections of the local community in Tuticorin support the project. S.P. Sudalamuthu, a trader and a supporter of the ruling DMK, says that only a project of this size can pull the local economy out of the ravines. “There is no semblance of any major industrial project here, he says. “It is an opportunity we can’t miss.”
S. Ganapathi, a retired school headmaster, agrees, “The opposition is based on false propaganda.” He believes that people are willing to sell their land as long as they get a fair price. Land owners in the area bear this out. M. Murugan, who owns 300 acres in the area, is willing to part with it. “We have owned this piece of land for three generations,” says P. Kumararaj, a small land owner who is willing to sell off his 14 acres to Tata Steel. “But it is hardly fit for any agricultural use.”
The two projects are not only significant to the Tatas but also to their respective industries. The Rs 1-lakh car, should it be successful, would push global car makers to re-think their efforts in making inroads into markets not taken seriously so far. The Titanium project, on the other hand, could herald a leap for India in the global titanium market. With 461.37 million tonnes of deposits of the mineral ilmenite, which is processed to make titanium, India ranks high among the top five nations along with Australia, China, Norway and South Africa. But the country’s production-to-reserve ratio stands at 0.007 per cent, say Tata Steel officials. The global business for titanium is worth about $12 billion (Rs 48,000 crore) annually.
The Tatas have a backup for Singur in Pantnagar, Uttarakhand, where it has another greenfield plant, at present making the micro truck Tata Ace. But the Titanium project cannot be done elsewhere since other locations such as Kerala, Orissa and Maharashtra are either taken by state PSUs digging for similar minerals or do not have the same quantity of minerals as Tamil Nadu does.
Because a large share of India’s ilmenite deposit is in Tuticorin, it is critical to the Tatas’ titanium plans. While insisting that it’s too early to think of Plan B, Asokan says that the group would not be averse to the idea of looking outside the country if necessary. B. Muthuraman, MD of Tata Steel, put it quite aptly in a recent press conference in Chennai, “Tata Steel is a Rs 1,00,000 crore company (post Corus acquisition) and this Titanium project is a Rs 2,500 crore project. It is for the people of Tamil Nadu to decide.”
S. Asokan has seen two state governments handling Tata Steel’s Titanium project in Tamil Nadu with little progress. The executive-in-charge of the project has spearheaded the company’s ventures in mining for non-ferrous metals since 2000, when it first got its prospecting licences in Tamil Nadu and Andhra Pradesh. He spoke to BW on the issues surrounding the project. Excerpts:
What is the strategic value of the Titanium project for Tata Steel?
We missed the opportunity in base metals such as copper and aluminium. This project should make good that loss. You will find titanium metal in aerospace applications, golf clubs, roofing and knee joints. Due to its better load carrying capacity, it has a huge market in the transport industry, too.
Is there any credibility to the controversy surrounding this project?
None at all. Of the 10,000 acres we plan to acquire, less than 4 per cent is wetland. We are not planning to mine in agricultural land. There is a guidance value for the land, plus solatium and interest charge of 42 per cent. So, the accusation about buying land for a song is also baseless. Not a single dwelling is being removed for this project.
What about the environment and health-related worries?
The mineral is found on the surface. So, we need to scoop the land and not mine deep. After extraction, we will actually leave a better land with greater water retention property than what was initially there. On health, Titanium dioxide is also used in toothpaste. So, where is the health hazard?
We have not reached a stage where we can say we are looking at alternative locations. Yes, the project has reached a critical stage and we need to start acquiring land.
|Renault - Nissan|
|S Kalyana Ramanathan / Chennai, November 04, 2007|
|Business imperatives have pitted the redoubtable manager against himself.|
|Chances are that Carlos Ghosn will have to write an update to Shift: Inside Nissan's Historic Revival, the book he published four years ago. Otherwise seminal, the book makes only a passing mention of India, dismissing it as an emerging, but fragile economy.|
|The chief executive of French mass car maker Renault, celebrated for turning around Japan’s Nissan, in which Renault owns majority equity, Ghosn seems to have seen the error of his thought.|
|Renault waited 14 years after India’s automotive sector was opened up to foreign investment to enter the country, about a decade behind General Motors, Ford and Daewoo. However, once in, Ghosn has moved quickly to sew up six ventures in India in a mere 33 months.|
|Renault first set foot in India in February 2005 through a venture with Mahindra & Mahindra to produce Logan followed by a three-way venture early this year involing Nissan, Renault and M&M to produce cars in Chennai. Each partner would put its own badge on its share of the produce.|
|Late last month, Ghosn was in Chennai to join hands with Ashok Leyland, the country’s second-largest commercial vehicles maker, to make light commercial vehicles – the partners would put their own separate badges – through three ventures. The same day, he flew to Pune to agree on an alliance with two-wheeler manufacturer Bajaj Auto for a car that would retail for $3,000. Renault is looking for a partner to make commercial vehicles.|
|Although India is widely perceived as a big market for small and cheap cars, none of Toyota, Honda, Ford and Skoda – all of which entered the country in the last decade – has one. General Motors has only now rolled out Spark, derived from the erstwhile Daewoo Matiz. Of the multinational passenger car makers, only Mercedes has entered commercial vehicles in India.|
|The method in this frenzy is what Ghosn did not tire of talking about on his visit to Nashik in April this year to roll out the first Logan from the Mahindra-Renault factory: the country’s uniquely frugal engineering and manufacturing.|
|“The (Indian) market is very attractive and the way Indians manage the cost has fascinated him (Ghosn),” says Kiho Ogha, chief executive officer, communications, at Nissan.|
|The Indian market, which is projected to grow to 3 million a year in five years from just above a million now, is the second-fastest growing among the major economies. On the other hand, the Japanese market, at the beginning of this year, witnessed falling sales for the 21st straight month. The news from Europe and North America is not comforting either. Growth in light vehicles – cars and light commercial vehicles – is coming mostly from emerging markets.|
|Last year, lower domestic demand forced Nissan to cut its earnings forecast, an event Ghosn called a crisis. Ten days ago, he told CNBC television that 2008 would be another challenging year for the car industry.|
|“The global automotive market is expected to swell by 14 million units by 2014. We expect the BRIC (Brazil, Russia, India and China) to contribute around 57 per cent of this, with India alone contributing 16 per cent and China another 25 per cent,” says Sudharshn Mhatre, manager at the PricewaterhouseCoopers’ Automotive Institute, Asia-Pacific.|
|Ultra cautious, Ghosn has taken care to put his eggs in different baskets. Mahindra is already an entrenched maker of four-wheelers and utility vehicles, but Ghosn went to Bajaj for the low-cost car and Ashok Leyland for commercial vehicles. The two separate ventures with Mahindra and three with Leyland underline this further.|
|“Having picked up the contenders for the number one position, he has managed to retain his negotiating powers and also ensured that there is not much left for any new entrant,” says the head of an automotive think-tank.|
|In essence, Ghosn is striving to dispel his own contention of four years ago. But if the eggs hatch well, he is unlikely to mind it too much.|