An August 2006 report by consulting firm Booz Allen Hamilton and India’s software lobby National Association of Software and Services Companies (Nasscom) predicted that Indian companies could pursue business opportunities worth over $40 billion by 2020 in offshoring engineering services from automotive, defence and utilities companies.
At Wipro, senior executives see a niche market for India in design-to-manufacturing services. “India is not in the mass manufacturing game. Our strengths are in producing things that require deep engineering and design skills,” said Anurag Behar, managing director of Wipro Infrastructure, which has designed and built hydraulic components for backhoe loaders of Terex Corp., a US construction and mining equipment maker.
Wipro engineers worked with Terex for over a year to study the pressure on hydraulic components when backhoe loaders dig ground or lift material; designed those components; and began making them at their Chennai facility. Wipro now supplies 1,500 such hydraulic components every month to Terex’s subsidiary in Coventry in the UK and has begun work on a second set of components for Terex.
Experts say competing head-to-head with manufacturing rivals in China, where goods are manufactured on a mass scale at very low costs, is several years away for Indian companies. “The skill sets for design and manufacturing on a large scale are different. They both will coexist,” said B.V.R. Mohan Reddy, chairman of the Nasscom’s engineering services forum, and chairman and chief executive of Infotech Enterprises Ltd, a Hyderabad-based engineering services company catering to aerospace and automotive clients.
Yet, there are enough trying to perfect the design-to-manufacturing model. Aravind Melligeri, chief executive of Quest, which focuses on the automotive and aerospace sector, said due to repeat orders, manufacturing offers four times the volume of business, compared with engineering services.
Quest, which earns less than 10% of its $40 million revenue from manufacturing, has supplied engine components designed and manufactured in India for an unnamed heavy-duty truck maker in the US. The company is in talks with top-tier suppliers of systems for Boeing Co. to provide design-to-manufacturing solutions for Boeing’s 787 Dreamliner, a mid-range aircraft.
Foreign customers are turning to Indian firms for their design skills and then tag it together with manufacturing that has a high-level of expertise going into it.
“If an Indian offers to take on process design for a project by employing an army of CAD (computer-aided design) engineers, it will perhaps shave off $2 on per employee cost—that is not a proposition a Fortune 100 company would be interested in,” said Satya Rao, founder of Axiom Consulting.
Instead, he said, if a can of talcum powder that uses five different pieces can be redesigned with just three pieces, and large-scale manufacturing capability is available locally at a lower cost, it will mean a saving in tooling costs of about $2 million. “Now that is a proposition that a global company would be interested in talking about,” said Rao.