Download - E&Y ACMA Presentation 5th Septembr 2012
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Growing beyond manufacturingOpportunities in India as an emerging autoproduct development hub
ACMA Annual Convention 2012
5th September, 2012
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India is fast emerging as the one of the largest global manufacturinghubs for small cars and other vehicles
India will emerge as the largest producer of small cars by 2013
Further, Indias production of small commercial vehicles (25% in the past five years; faster than the global average
Source: LMC, IHSPage 2 ACMA Annual Conference: India as a product development hub
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To achieve global industry leadership India needs to evolve as anintegrated development & manufacturing hub
Leadership position in the automotive world
Manufacturing
Vehicles and
componentsmanufactured in
India are
increasingly
meeting global
standards of
Quality,Reliability and
Durability
Product & Process
Development
However, today there is
limited end-to-end
product development
and process engineering
capability across the
supply chain
Innovation
Significant work
needs to bedone in this
area to improve
Indias
innovation
quotient
Cost and Quality (Strong Foundation)
Page 3 ACMA Annual Conference 2012: India as a product development hub
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Rising customer expectations and increasing volumes have drivenOEMs to evolve from localization to global platform development
Page 4 ACMA Annual Conference: India as a product development hub
- Reduce time to market- Incorporate global standards
- Build local productdevelopment capability
- Localize and adapt
Start-up
Pre 2002
- Develop India specificproducts
Respond to local market
2002 to 2007
- Develop globalplatforms
Global market ambition
2007 to 2012
Source: EY Analysis
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OEMs and component manufacturers are responding to theopportunity by investing in local product development capabilities
Page 5 ACMA Annual Conference: India as a product development hub
2002 to 2007 2007 to 2012
Source: EY Analysis
Upcoming /expanding
2012 -
Maruti
Mercedes
Tata
TVS
Bajaj
Bosch
Caterpillar
Cummins
Delphi
Eaton
GM
John Deere
Visteon
Maruti
Mercedes
Tata
TVS
Bajaj
Bosch
Caterpillar
Cummins
Delphi
John Deere
VisteonEaton
GM
Mahindra
Research
Valley Paccar
Renault-
Nissan
Sharda
Motor
SKF
Arvin Meritor
Continental
Daimler IndiaComm Veh
Dana
DuPont
Faurecia
Hyundai
The number of engineers employed in product development centers in
India is estimated to have grown from 25,000 in 2012
Global market ambitionRespond to local market
Pre 2002
Maruti
Mercedes
Tata
TVS
Bajaj
Bosch
Caterpillar
Cummins
Delphi
Start-up
~ 10 centers
~20 centers
~40 centers
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Organizations, who have invested into R&D in India, are taking upgreater product development roles for local and global markets
Development ofGlobal
Platforms
Developed End-
to-End productand processdesign
capabilities
DevelopedGlobal Centersof Excellence in
India
Source: Primary research, Secondary research, EY AnalysisPage 6 ACMA Annual Conference: India as a product development hub
OEMs Suppliers
Development ofEeco, New Alto
XUV5OO Ace, Nano
Global centre ofexcellence for virtualtesting and analysis
Development of 3cylinder diesel
engine
Development forglobal markets
Ownership of globalmarket products
Enginecomponents
Low costcondensers
One of the globalproduct
development hubs
Global Centre ofExcellence for gear
pumps
Illustrative List
Development ofPulsar, Discover
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Our analysis of global suppliers identifies 2.5X returns by companieswho are investing a higher percentage in R&D
Page 7 ACMA Annual Conference: India as a product development hub
EBIT
DA
Margin
R&D/sales
R&D/sales* and EBITDA Margin*
* R&D/Sales and EBITDA numbers are averaged over duration of 4 years (2008-2011)
EBITDA
> 12%
EBITDA9% to 12%
EBITDA< 9%
Source: Primary research, EY Analysis
Median 18.5%
Median 7.3%
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ACMA Annual Conference: India as a product development hub
Analysis of Indian suppliers during our research reveals three pathsadopted in developing capabilities across the design value chain
Design value chain (From Infancy to maturing )
Explorers
Visionaries
Dependents
Problem
resolutionQFD
Process
Engineering
Proto-
typing
Basic and
applied
researchState
Program
Mgmt
Product
design
Initial step
Current state
Future state
Testing
&
validatio
n
21 3
1 2
1 2
Initial step
Current state
Future state
Initial step
Current state
Future state
Source: Primary research, EY AnalysisPage 8
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Page 9 ACMA Annual Conference: India as a product development hubSource: Primary research, EY Analysis
Ecosystem enablers:
Institution
Testing facilitiesPolicy
OEM/Parent
2
3
11
Triggers
OEM pull on suppliers
to take up product
design / prototyping
Initial steps
Identified
specific projects
to support OEM
needs
Shared financial
risk and
resources
Next stepsNext steps
Defined product design strategy
Enhanced testing and validationDeveloped few products
Increased spend on R&D to 1%
of sales
Future state
Product and
system design
capabilities
Process
engineering
capabilities
4
Approach:Collaborate
with OEMsand learn
Dependents:Followed OEM pull towards better engineering capabilities to
support faster product development cycles
InvestmentInitially shared resources as
Collaborative learning approach
Increased after initial success
LOW MEDIUM HIGH
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Page 10
Explorers:Setup design cell to resolve design problems, understand product &
process development
ACMA Annual Conference: India as a product development hub
Source: Primary research, EY Analysis
InvestmentInitially low investment as Explore and
watch approach
Increased after initial success
Ecosystem enablers:
Institution
Testing facilitiesPolicy
OEM/Parent
2
3
11
Triggers
Entry by Global players
Increasing product
launches
Global expansion
opportunityInitial steps
Setup Design
cell for process
engineering and
problem solving
Setup basic test
facilities
Next stepsNext steps
Future state4
Approach:Establish
success andthen invest
LOW MEDIUM HIGH
Increase spend on R&D to
1-2% of salesStrengthened process engg
Testing and validation
capabilities
Product and
system design &
test capabilities
Process
engineering
capabilities
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Page 11
Visionary Technocrats:Envisioned an integrated design and manufacturing capability
ACMA Annual Conference: India as a product development hub
InvestmentPlanned investment in facilities and
manpower development
Advanced testing, research labs
Source: Primary research, EY Analysis
LOW MEDIUM HIGH
Ecosystem enablers:
Institution
Testing facilitiesPolicy
OEM/Parent
2
3
11
Triggers
Leadership vision and risk-
taking propensity
Use Indian engineering talent
Global expansion opportunity Initial steps
Invested in
facilities,
manpower for
understanding
design,
prototyping,
testing and
validation
Next stepsNext steps
End-to-end product design
Program management of manyprojects
Risk sharing with OEMs on
specific opportunities
Future stateBasic and
applied
research
(collaborative)
4
Approach:Set vision &
pursueleadership
Application of
India developed
tech. for global
applications
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The product development ecosystem in India is in its infancy and isevolving
Page 12 ACMA Annual Conference: India as a product development hub
Source: Primary research, EY Analysis
- Thetestinginfrastructurehas
improved,butisstillnotcomparabletoglobalstandardsTestingInfrastructure
- EffortatbuildingIndustryinstituterelationship,isdriven
mainlybytheindustry- Institutecapabilityonappliedresearchisstillevolving
- Engineersrequire3yearsofOn-Jobtraining
Industry-InstitutionTie-Up
- Thegove
rnmenthasta
kensteps,
butalongertermvisionis
required
- Governme
ntneedstopla
ythe
anchorrolein
bringingfocus
on
Indiasautom
otiveR&D
Policy
Product DevelopmentEcosystem
FewOEM-Suppliershave
started
adoptingacollaborative
productdevelopmentapproach,butlimited
toafew
vehiclesystems
OEM Suppliercollaboration
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An expectation mismatch exists between OEMs and supplierson the approach to develop suppliers product development
capabilities
Page 13 ACMA Annual Conference: India as a product development hub
Suppliers Expectations OEMs Expectations
Explore joint development
opportunities with suppliers
Share resources and
financial risks
India specific product
development can be best
done in India Honour commitments during
design/development phase
Suppliers should build
capabilities in basic areas
Problem solving
Design understanding
Program management
Invest in testing facilities
Collaborate with othersuppliers to provide a
system solution
Provide proven products
ExpectationMismatch
To take advantage of affordable R&D and develop India as an integrated
hub, OEMs and suppliers need to increase collaboration for mutual benefitSource: Primary research, EY Analysis
Government policies
Product Development Ecosystem
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Page 14 ACMA Annual Conference: India as a product development hub
Universities/Research Institutes
Areas of basic research for country
Inputs
Germany
China
Government defines
strategic direction for
future R&D
Korea
Policy led to automotive innovation
clusters in Bavaria, Baden-Wurttemberg
OEMsS
upplie
rs Institu
tes
Government policies in other automotive hubs have facilitatedand anchored a long term R&D roadmap
Policies ensure that FDI
is accompanied by
technology transfer
Indian policy needs to anchor a long term product development roadmap
Government funded
efforts to strengthen
local R&D capability
Ulsan - Auto PartsInnovation Center
Source: Secondary research, EY Analysis
Government policies
Product Development Ecosystem
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Industry
Institute
Interaction
Industryinstitute tie-up is an essential part of the ecosystem,wherein Institutes provide basic and applied research input
Page 15 ACMA Annual Conference: India as a product development hub
Pre-competitive or basic
research is happening in India
wherein Industry and institutes
interact for common minimum
programs
Industry-Institute relationship is
more mature in Germany and UK,
where development, prototyping
happens. It is mandatory forinstitutes to do applied research
While few institutions have started
focusing on applied research,
institutional R&D is piecemeal and
applied research is largely missing
Industry is ahead of the level of
manpower provided by institutes;
Indian engineers need 3 years of
on-job training as compared to 3months in Germany
Institutes need to be mandated and incentivized for applied researchSource: Primary research, Secondary research
Government policies
Product Development Ecosystem
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Testing and validation infrastructure is critical to productdevelopment in India
Page 16 ACMA Annual Conference: India as a product development hub
GOI Facilities
OEM/Supplier captive testing
facilities
Legend*
* Height of column is directly
proportional to number of testing
centers
Chennai
Pune
Delhi/ NCR
Coimbatore
Bangalore
MumbaiAhmednagar
Indore
Silchar
Rae BareillyJaipur
Hyderabad
Rohtak
Baramati
Lucknow
Indias automotive R&D testing infrastructure There has been an effort
towards improvement of
testing and validation
infrastructure in India
The testing infrastructure
is insufficient for Indias
product developmentambitions
Visionary OEMs and
suppliers have not waitedfor infrastructure to come
up, they have invested in
own advanced testing
facilitiesSource: Primary research, Secondary research
Government policies
Product Development Ecosystem
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ECOSYSTEM
OEM-Supplier collaboration Industry-Institute Tie-up
Policy Testing Infrastructure
Set roadmap for future technology
leadership in specific areas e.g.,
Powertrain, Electric mobility etc.
Encourage innovation clusters
Mandate and incentivize research
by academic institutions
Enhance Government and private
testing facilities to global standards
Benchmark with test facilities
required by suppliers and OEMs inother product development hubs
Greater collaboration through
resource and financial risk sharing
Collaboration is essential to India
achieving global industry
leadership as an integrated
development and manufacturing
hub
Pro-active role of institutes with
industry for research, skill
management
Progress towards applied research
Update curriculum to improve
knowledge and skills of engineers
ACMA Annual Conference: India as a product development hubPage 17
Roadmap for Automotive Product Innovation and Development(RAPID) for the Ecosystem
Source: EY Analysis
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Investment
Essentials
Initial
steps
Dependents Explorers Visionaries
Identify areas of need
with OEM on a specific
component/ productdesign
Setup design cell
Problem resolution
Process engineering
Component design
Setup PD vision
Product strategy
Technology strategy
Investment plan
Basic testing facilities
Advanced facilities
shared with OEMsAccess to
technology/design skills
Setup team of high
performing individuals
Test facilities forproblem solving and
new product testing
Setup PD centre
Build advanced test
facilities Hire experts for product
design
Knowledge and Skill Management
Tie-up with institutes for training and research
Investment would
depend on nature of
product/cost of
technology
Initial Investment in
R&D is not substantial
as basic facilities
Investment is higher as
manpower and facilities
need to evolve quickly
Roadmap for Automotive Product Innovation and Development(RAPID) for Suppliers
Source: EY Analysis
Page 18 ACMA Annual Conference: India as a product development hub
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India can become a global industry leader, to do so it needs toevolve as an integrated development & manufacturing hub
Page 19 ACMA Annual Conference: India as a product development hub
Collaboration
Culture
Profitability
Ecosystem
LeadershipvisionA
B
C
D
E
Provide direction, determine evolution path and invest for
the future
OEM-Supplier collaboration a key enabler to
build/enhance Indian model of affordable R&D solution
Suppliers and OEMs will need to inculcate and absorb an
organization-wide design and innovation culture
Invest for the future, to achieve higher levels of
profitability and customer satisfaction
Ecosystem is a key enabler; need to enhance deployment
monitoring, applied research, testing facilities
Source: EY Analysis
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Page 20 ACMA Annual Conference: India as a product development hub
OEMs Component Manufacturers Institutions
Bajaj Auto Ltd. Bharat Forge Ltd.Automotive Research Association of
India (ARAI)
Daimler India Commercial Vehicles
Pvt. Ltd. (DICV)Bosch Ltd. Fraunhofer India
Mahindra & Mahindra Automotive
DivisionCummins India Ltd.
National Automotive Testing and
R&D Infrastructure Project (NATRiP)
Maruti Suzuki India Ltd. Gabriel India Ltd.Indian Institute of Technology, Delhi
(IITD)
Tata Motors Ltd. Hi Tech Gears Ltd.
Tractors and Farm Equipment
Limited (TAFE) Lucas-TVS Ltd.
Minda Group
Hi Tech Gears Ltd.
Rane Group
RICO Auto Industries
Sharda Motor Industries Ltd.Shiram Pistons & Rings Ltd.
Sona Koyo Steering Systems Ltd.
Subros Ltd.
Varroc Engineering Pvt. Ltd.
The team interacted with various stakeholders from the industryand we take this opportunity to thank all participants for their inputs
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Thank you