In its monthly flash report for November 2006, the Society of Indian Automobile Manufacturers (SIAM) proudly stated that automotive production in 11 months had crossed the 10-million mark, a feat that took the whole of 2005, even when tractors were added to it.
A commendable performance that may be, but this enthusiasm to push the topline is not exactly reflected in the vigour with which investments are happening in research and development.
Going by the numbers put out by listed automobile and component companies for the year ended 31 March 2006, investment in R&D as a percentage of turnover is an abysmal 1.6 per cent. Even if borrowed technology (the royalty and fees paid by these companies to their JV partners abroad) were to be included, the number does not go beyond 2.5 per cent of the revenues.
Global automobile and component makers, on the other hand, invest anywhere between 5 and 8 per cent in R&D, and that too, on much higher revenue numbers. Ford Motor, for example, is the world’s biggest R&D spender ($8 billion last year or 5 per cent of its revenues), despite all its financial woes.
But that’s not a new story. India’s automotive industry has always lagged way behind global peers. That was acceptable for three reasons. First was the want of volumes in the marketplace. Traditionally, heavy investments in fixed cost with long gestation periods have discouraged any serious attempts at basic research in India. Second, the global aspirations of the industry is a recent phenomenon. The earlier ‘India is enough’ mindset did not demand much research. Three, very little product development was happening.
Now all three have changed. India’s passenger vehicle market alone will double to two million units by 2010.
In the past eight years, automotive companies have put at least four or five new platforms on Indian roads like Tata Motors’ Indica, Safari and micro truck Ace, Mahindra & Mahindra’s (M&M) Scorpio and Sonalika Group’s Rhino. They are also developing at least four to five new platforms. M&M and International Truck and Engine Corporation are working on a complete range of commercial vehicle platforms for Indian and global markets. Tata Motors’ Rs 1-lakh car, currently under development, could well turn out to be India’s own Model T — a car that will allow mass production and give consumer access a new meaning altogether. Indian two-wheeler makers like Bajaj Auto and TVS Motor, too, have been working on new platforms, not to mention their diversification into cargo carriers on four and three wheels.
This is beginning to show in the sector’s R&D spending data, though India will take many years to get into the global league. In the past four years, the automotive industry’s (excluding component makers) spending on R&D has increased from Rs 243 crore to Rs 954 crore. The industry also invests 1.5 per cent of revenues in R&D (0.68 per cent four years ago.)
“A lot of R&D is happening in India outside the public purview and, therefore, does not get reflected in the annual reports. In fact, one of the industry’s recommendations is to expand the scope of allowing tax concessions on investments by Indian companies in such collaborative work,” says Dilip Chenoy, director general, SIAM.
Chennai-based Ucal and TVS Group are working on pioneering engine management systems that on successful completion can find their way into the global arena. “The transition from Euro II to Euro III emission norms saw some pioneering work in India — it had no parallel even in the West. In terms of fuel efficiency, too, some of the models made in India have been giving better results,” Chenoy points out.
But Indian auto companies are not the only ones investing in R&D in the country. Two other groups of companies are joining the fray. Global automobile giants are keen to outsource research work to India, and Indian information technology companies are beginning to do interesting work. Investments in R&D in the automotive sector in India is likely to take three paths, with some overlapping at different points.
Given the cost advantages India offers, more and more global automobile and component players are likely to scale up their R&D outsourcing to India. A simplistic explanation offered for this is the shrinking of concept-to-commissioning from 36 months to 12 months — a truly attractive proposition for the automobile majors in the developed markets where the timely launch of a new car, or even a new breakthrough feature, matters the most.
Many global automobile and parts companies like General Motors, Volvo, DaimlerChrysler, Bosch and Honda are scaling up their investments in R&D done out of India. A few others, like Ford and Nissan, have tread different paths, where part of the work is done out of dedicated Indian IT companies. “Indian engineers are very efficient and have a sense of frugality,” Patrick Pelata, executive vice-president (product planning and programme) with French carmaker Renault told Businessworld.
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The role of IT in the automotive space has so far treaded a very familiar path — much as in any other sector. IT support systems like supply chain management, customer relationship management and payroll continue to play key roles. But now, embedded software that go into chip management systems that drive cars are increasingly being developed in India.
All that is well documented. But more importantly, a few IT companies have started showing interest in developing solutions for the automotive sector. This is by far the closest the IT industry in India has come to research in the automobile sector.
Already, a large number of domain experts, traditionally found in shop floors in the US, Germany or Japan are keen to join IT companies. “Making automobiles more intelligent like building collision avoidance systems, engine management systems and even entertainment features in cars are some of the areas the IT companies in India are working on,” says Subu D. Subramanian, director and senior vice-president (manufacturing and automotive business group), Satyam Computer Services. Satyam is working with seven out of 10 global automotive makers. “In the next two to three years, we will see several collaborations signed between global automotive giants and Indian IT companies. This will call for software coding, domain knowledge and deep pockets,” he adds. He believes that the $1-billion automotive vertical now has the potential to grow into, say, $50 billion-60 billion by 2020.
For that to happen, the three stakeholders will have to work closely. In the future, it is very likely that global auto firms, their Indian counterparts and IT companies will get into collaborative research. In fact, the first such loose alliance may already be in the making. Tata Motors uses its engineering and design services subsidiary Tata Technologies (it recently acquired the US-based INCAT) extensively.
Besides, in many areas, TCS and INCAT also work seamlessly as one organisation and collaborate on various projects. Now, with the Tata-Fiat alliance unfolding, analysts expect the INCAT-TCS combine to do more development work for Fiat. If that happens, the first research triumvirate will be in place.
Source:-businessworld.com
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