New Delhi/Chennai: Indian automobile companies are spending more on research and development (R&D) as they seek to become self-reliant in technology and boost sales in both local and international markets.
R&D expenses of six auto companies of Indian origin increased 70% to Rs1,384 crore in fiscal 2007 compared with Rs443 crore in fiscal 2004. The average R&D spend as a percentage of net sales has increased to 2.34% from 1.47% during this period. Sales grew 49% in the same period.
The six companies are Tata Motors Ltd, India’s largest truck maker, Mahindra & Mahindra Ltd, the country’s largest utility vehicle maker, Bajaj Auto Ltd, TVS Motor Co. Ltd, Eicher Ltd and Ashok Leyland Ltd. The other important auto companies operating in the country, such as Maruti Udyog Ltd, General Motors India Pvt. Ltd, Ford India Pvt. Ltd and Hyundai Motor India Ltd, are local arms of multinational corporations and can draw on the R&D work done by their parents, although most also spend some money on R&D in India.
The Indian companies, however, have to do it all themselves.
For Mahindra & Mahindra Ltd, which built India’s first indigenously designed sports utility vehicle, the Scorpio, in-house technology development has grown from a need to service price-conscious customers. TVS Motors scaled up R&D after it split with partner Suzuki Motor Co., and had to develop new products to defend its market share in an intensely competitive market.
“In 2005, TVS Motors did not have a bike to sell,” says Venu Srinivasan, chairman and managing director of TVS. “The company recruited and assembled a team of 160 engineers. They were mandated to bring global quality products,” he says.
TVS, which ploughs 3% of its revenues into research every year, plans to introduce as many as nine products in the next eight months. TVS ended 2006-07 with revenues of Rs3,854 crore.
Others such as Tata Motors, which developed the country’s first indigenous car, and Bajaj Auto, India’s second largest two-wheeler maker, are attempting to create new segments. Tata is working on a Rs1 lakh car, reportedly to be the cheapest car in the world, and Bajaj recently unveiled a new fuel-efficient technology at a lower price.
“It’s like standing on borrowed legs if you don’t have your own technology,” says S. Ravi Kumar, vice-president, business development, at Bajaj Auto. “How can you (then) aspire to be a world player?”
Tapping the export market is a logical end for most local R&D initiatives. Automobile exports from India have crossed one million units in 2006-07 from 629,887 units in 2004-05, as Indian companies aspire to sell more in newer markets to insulate themselves from downturns in the local market. Some companies such as Bajaj and TVS have built assembly units in South-East Asia to make locally designed motorcycles.
“Most of the R&D is targeted at developing products which foreign companies find difficult to even conceive of,” says Rajat Dhawan, partner at consulting firm McKinsey & Co., who consults on the automotive sector. “India is a good testing ground and then later they (the companies) export it,” he adds.
Typically, made-in-India vehicles are sold on the plank of price as India has cost advantages over other major vehicle-producing regions such as the US, Japan and Europe.
Frugal engineering, or low-cost engineering, is the new buzzword as companies and their suppliers adopt practices such as total productive maintenance, aimed at increasing productivity by effectively using machinery and equipment, and lean manufacturing, which tries to cut down on unnecessary processes among other things.
As the auto component industry struggles to cope with the rapid growth in automobile sales, it is increasingly looking at such practices for maintaining quality.
The Confederation of Indian Industry, an industry lobby, is introducing a programme on lean manufacturing and hopes to run projects with as many as 200 companies in three years.
However, even as they try to become technologically self-reliant, Indian auto companies are entering into alliances with other companies to speed their development along.
Thus, Bajaj is tying up with Renault SA for help in its small-car venture, Mahindra has tied up with Renault for passenger cars and Ashok Leyland has allied with Japan’s Hino Motor Co. for some aspects of engine design. Tata Motors acquired South Korean truck maker Daewoo Commercial Vehicle Co., and has a minority stake in Spanish bus maker Hispano Carrocera SA—both deals were partly, if not entirely, motivated by the desire to access technology.
“To get a car door to shut like it must shut is not easy,” Rajiv Bajaj, managing director of Bajaj Auto Ltd, had said in a recent interview with Mint, referring to his company’s partnership with Renault.
Although India boasts of one of the world’s largest pools of engineers, all companies point to human resources as the biggest stumbling block in expanding their R&D programmes.
“I have only 200 engineers” says Bajaj’s Kumar. “If I find 1,000 of them, I’ll employ all of them.”
Some companies have tried to solve this problem partially by poaching expatriates from US and Japanese companies. Arun Jaura, vice-president of R&D at Mahindra, V. Sumantran, former head of research at Tata Motors and now a consultant with Ashok Leyland, and many others have spent at least a decade in the research departments of the world’s biggest car makers. More often that not, it has been these people who have spearheaded projects to develop new products.
Still, analysts such as Dhawan believe that Indian firms have some way to go before they are able to compete effectively in the global arena. The R&D spends of Indian companies are comparable with 3-4.5% of revenues for American companies such as General Motors Corp., while some Japanese firms such as Nissan Motor Co. spend up to 10% of their revenues in research.
“They have a road to travel,” says Dhawan, referring to Indian auto firms. “The next game is to develop products which can be sold in developed markets such as Europe.”
Ashwin Ramarathinam in Mumbai contributed to this story.