Bangalore: Ayear ago, state-owned construction equipment maker Bharat Earth Movers Ltd (BEML) decided to leverage its decades-long expertise in designing and manufacturing equipment such as road movers and rail coaches and become an outsourcer for overseas companies looking for manufacturing solutions.
BEML has made some progress—it now makes auto components for Ingersoll Rand, an industrial products company in the US. But it has a more ambitious objective of becoming a vendor to overseas firms looking for design-to-manufacturing solutions. It wants to bid for “end-to-end solution” projects: design, test and build prototypes followed by commercial production at its plant in Bangalore. “We don’t want to miss an opportunity in the areas where we are strong. This will add value to our business,” said V.R.S. Natarajan, chairman and managing director of BEML.
It isn’t a big trend yet, but many Indian firms have made or plan to make a small beginning in ‘manufacturing outsourcing’ in a country that has made a mark for itself offering tech and back-office services, billing over $31 billion (Rs1.27 lakh crore) in exports last year.
Several companies such as Wipro Infrastructure Engineering Ltd, the precision-engineering subsidiary of India’s third largest software exporter Wipro Technologies Ltd; Quest (short for Quality Engineering & Software Technologies Private Ltd), a Bangalore-based engineering services company; and Axiom Consulting, another Bangalore company involved in product design and development, are all bullish about their ability to manufacture the products they help design for their customers.
Others such as BEML, Bharat Electronics Ltd (Bel) and Titan Industries Ltd, India’s largest watchmaker, are working the other way, leveraging their manufacturing expertise to offer design services.
BEML, which has around 300 engineers in its technology division in Bangalore and Mysore for engineering services and manufacturing outsourcing business, has appointed Infosun Inc., a US-based engineering services company, to market its expertise.
Along with other state-owned units, it is locally pursuing contracts from defence and aviation companies supplying India with equipment and planes. The latter are mandated to source 30% of the value of orders from local suppliers.
Hindustan Aeronautics Ltd, the country’s largest military aircraft maker which is owned by the Union government, designs and makes components such as forgings for engines built by UK’s Rolls-Royce and France’s Safran.
Bel, the public sector defence electronics major, aims to increase exports 10-fold to $100 million in the year to March 2008 from $11.6 million last fiscal, by offering design to contract manufacturing services. “It is at the subsystem level that we can bring in our design and manufacturing abilities to our customers,” said H.S. Bhadoria, director of the Bangalore offices for the company. ’Subsystems’ such as printed circuit boards are the building blocks for electronic devices.
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.
Five-year-old Axiom, which has early-stage backing from SIDBI Venture Capital, expects to close five contracts—each valued at Rs2.5 crore—that will start with “concept design” and end with shipping manufactured products this year.
The precision-engineering division of Titan Industries, which supplies engine components for US aerospace company United Technologies Corp., has designed an analog clock that changes time zones aided by satellite-based global positioning systems for British luxury carmaker Aston Martin. A similar contract has it supplying 1,000 clocks a day to Ford Motor Co. for its Mondeo cars in Europe and the US.
“The clock has been designed to withstand extreme temperatures and shocks,” said B. G. Dwarakanath, head of the product engineering division at Titan Industries, which designs and makes products in Bangalore and Hosur in Tamil Nadu.