Speed it up the Hyundai way6 min read . Updated: 08 Oct 2014, 11:32 PM IST
Focus on localization helps the South Korean car maker come a long way in manufacturing its vehicles in India
New Delhi: 120.
That’s the number of countries it exports them to.
That’s the number of cars it exported last year.
No other factory of the South Korean multinational corporation (MNC) manufactures as many variants; the variations may be small, but they involve a degree of complexity that go against the standardization that has been the key to assembly lines ever since Henry Ford realized that this was the best and cheapest way to make cars.
Finally, 1 in 2.
That’s Hyundai’s share in cars exported from India. Not even Maruti Suzuki India Ltd, the Indian arm of the Japanese auto company that set up shop in India in the 1980s, exports as many cars. Most of Hyundai’s exports go to Europe.
In effect, Hyundai has been making in India (and making well in India) long before the current “Make in India" campaign, exhorting MNCs to manufacture in the country, took shape.
Hyundai has focused on local production since the beginning, said Rakesh Srivastava, senior vice-president (sales and marketing) and the firm’s official spokesperson.
The beginning would be 1997, when the company entered the country, setting up its factory in Tamil Nadu. It launched its first vehicle, the popular small car Santro in 1999.
“Hyundai chooses to invest in a country which has a big domestic market and has scope for exports, and India was considered as a good proposition," said Srivastava.
The company’s experience in India is especially interesting at a time when Prime Minister Narendra Modi is pushing for local manufacturing. The share of manufacturing in gross domestic product has hovered around the 15% mark since 2004-05. Modi wants to change that, but he faces the difficult task of re-igniting investor interest in the manufacturing sector, which is plagued by issues related to land acquisition, taxation, labour and the difficulty of doing business in India. The country is currently ranked 134 in the World Bank’s ease of doing business index that grades 189 countries.
Hyundai’s example is illustrative—the company has exported 1.92 million cars of the 5 million it has produced in India. It ended 2013 with revenue of $5 billion (around ₹ 30,750 crore today). The Indian business is the third largest contributor to the South Korean MNC’s revenue after its home market and China, and in 2013, accounted for 14.5% of global sales. Since inception, Hyundai has invested $2.7 billion in India. It has two car assembly facilities, an engine manufacturing unit (all in Chennai) and a research and development centre (in Hyderabad) to show for its efforts. Hyundai ended 2013-14 with a 14.27% share in the 2.68 million passenger vehicles sold in India.
The company entered the country at a time when the states were keen to woo investments. Tamil Nadu had managed to convince Ford Motor Co. to set up a manufacturing facility in the mid-1990s. Hyundai was the state’s second big win. Still, it wasn’t as if Hyundai didn’t have any entry issues. It was, after all, an early entrant. “The processes were not mature then," said a former Hyundai executive who has now retired and does not want to be identified. “Investments then were only made by public sector undertakings. Hyundai’s investment was the second mega project in Tamil Nadu, after Ford. So the processes and systems for approval were not mature."
And despite Chennai being the hub of a cluster of high-quality auto component companies, the firm still had to work hard to develop a vendor base, and even harder to find and train people for its factory.
Hyundai was the first car maker in India to introduce a single-vendor system. While a set of South Korean vendors accompanied the car maker from Seoul to Chennai, some vendors based in north India expanded their operations to Chennai to meet Hyundai’s demand. “People said we wouldn’t be able to sell more than 35,000 cars in a year," said the former executive.
The company added a second shift in the first year of operation itself, and also broke even within a year, thanks, in part, to the growing infatuation of Indians with small cars, and, in part, to a massive cost-efficiency programme.
Hyundai also worked hard to localize its offerings, perhaps more than any other MNC car maker in India, and it stayed true to its global marketing strategy of pricing its cars competitively and ensuring that the features it offered in a certain category of cars were normally those only found in a higher category.
The manufacturing of cars is considered a complex process.
A typical car has around 30,000 parts that come from around 100 suppliers arrayed in tiers. Tier 3 suppliers supply parts to tier 2 suppliers who, in turn, supply sub-assemblies to tier 1 suppliers, who supply assemblies to the car maker. In addition, car makers source some parts. The process requires skilful inventory and quality management.
The actual assembly itself is complex and companies invest large sums of money in flexible manufacturing systems that can perform varied tasks in the shortest possible time.
Given its dependence on a chain of suppliers (which means business and jobs down the line) and also its requirement for core raw materials such as steel, manufacturing of cars was, at one time, also considered the most significant economic activity.
Hyundai started with 17 South Korean vendors and some Indian ones, brought in 23 more South Korean vendors, sacked some Indian vendors in 2006 for issues related to high costs and low quality, and now manages its operations with 42 South Korean and 77 Indian vendors. The former Hyundai executive said that the company had helped many Indian vendors become globally competitive.
In the 1970s, production systems served as differentiators for car makers. Today, most smart car makers use similar production systems, marrying the best of US assembly line systems with European finesse, and Japanese just-in-time and quality management systems.
Still, if there is something to be learnt from Hyundai’s India experience, it is the company’s emphasis on localization, according to Srivastava, and its ability to pick the best from every school of manufacturing, according to Kumar Kandaswami, senior director, Deloitte Touche Tohmatsu India.
Kandaswami claims that Hyundai, which has the capacity to make 640,000 cars in India, has redefined car manufacturing in the country. “Hyundai has perfected the blend of Indian and Korean way of manufacturing," he said.
Its command and control structure ensures minimal transmission loss and enormous efficiency. “Speed comes to its advantage. If it takes another firm 12 months to build a manufacturing facility, Hyundai could do that in six months," the consultant added. “This is why it has caught up with its global peers so fast."
Globally, over the past six years, Hyundai has been on a roll. The $70 billion company has outshone other global car makers such as Toyota Motor Corp., General Motors Co. and Ford. Surging sales—amid a slowdown—have made it the world’s fastest-growing car company. Brand consultancy Interbrand calls it the fastest-growing automotive brand in the world. Its Elantra, Sonata and Genesis models are best-sellers in developed markets.
From being a fringe auto company selling cheap and cheerful cars, Hyundai has joined the global big league within a decade. This phase has also coincided with its big push in India.
From where it is increasingly making for the world.