dsr of engg. cluster
TRANSCRIPT
DIAGNOSTIC STUDY ON ENGINEERING CLUSTER, CHENNAI
Prepared by
MSME – DEVELOPMENT INSTITUTE (Formerly Small Industries Service Institute)
Government of India Ministry of Micro, Small and Medium Enterprises
65/1 GST Road, Guindy, Chennai - 600 032.
1
DIAGNOSTIC STUDY ON ENGINEERING CLUSTER, CHENNAI
EXECUTIVE SUMMARY 3
1. INTRODUCTION 12
2. HISTORY OF THE CLUSTER – A RETROSPECT
17
3. CLUSTER PERFORMANCE 18
4. SWOT ANALYSIS
21
5. BROAD CLASSIFICATION OF ENGINEERING INDUSTRY
23
6. STRUCTURE AND COMPOSITION OF THE UNITS 26
7. DISTRIBUTION OF FIRMS IN THE CLUSTER 28
8. STATUS OF THE ENGINEERING SECTORS IN CHENNAI REGION
35
9. EXPORT SCENARIO 36
10. AUTOMOBILE INDUSTRY – A MAJOR SUB SECTOR OF ENGINEERING INDUSTRY
40
11. AUTO COMPONENTS AND ACCESSORIESMANUFACTURING INDUSTRIES VS OTHER ENGINEERING INDUSTRIES
45
12. RAW MATERIAL FLOW 48
13. DISTRIBUTION CHANNEL
49
14. GROWING GLOBAL FOCUS ON SUPPLY CHAIN
53
15. CLUSTER FRAMEWORK: CHENNAI 54
16. STATUS OF MICRO AND SMALL UNORGANISED ENTERPRISES
56
17. VALUE CHAIN ANALYSIS
67
18. SKILL GAPS 71
19. MAJOR AND MINOR INTERVENTIONS 72
2
ANNEXURE
LIST OF ACTIONS PROPOSED FOR ELIMINATION OF WEAKNESS IN THE CLUSTER
CRITICAL GAP AND BENCHMARK OPTION CRITICAL GAP AND BENCHMARK OPTION ACTION PLAN ENGINEERING CLUSTER CLASSIFICATION OF MACHINING PROCESS CLASSIFICATION OF ENGINEERING INDUSTRY
3
EXECUTIVE SUMMARY FACT AND PERFORMANCE SHEET
SL. NO
PARAMETERS DETAILS
1. Name of the cluster Engineering cluster -Chennai
2. • Location of cluster - Exact place of Concentration • Extend of concentration (KM Radiation) • Urban/Semi-urban/Rural
Ambattur,Guindy-Ekatuthangal, Tirumudivakkam, Perungudi, Tirumazhisai, Irungattukottai, Tiruvotriyur, Maraimalainagar,
3.
Number of firms o Large o Medium o Small o Micro
100 335 2030 8300
4. Major Items manufactured within the cluster (List of 4 major Items)
Overall
Capital goods Auto Components and accessories Industrial Machineries Power Equipment Steel Wire, Nails, Nuts & Bolts & Screws Hand Tools Electrical items & Components, Valves etc Tools and press components, etc.
Small & Tiny Structural Fabrication, Metal Fabrication Dies and moulds Auto components, Electrical items, Machine parts, Control panels Tools and press components
5. Estimated turnover of the cluster
Rs. 31909 Crores
Rs. 904 Crores
4
6. Employment Position Direct & Indirect
Male Female
1.04 lakhs 0.936 lakhs 0.104 lakhs
0.72 lakhs 0.648 lakhs 0.072 lakhs
7. Export potential Engineering products Auto components
$ 320 million $150 million
$192 million $120 million
% of contribution at State Level at National Level
65 40
45 20
8.
Special features of the cluster in terms of seasonal/main stay activities/ dependence, if any
Perennial
Perennial Mostly depend on 2nd and 3rd tires units
9. Social Environmental consideration i. Environmental problems ii. Safety standard iii. Women employment
Negligible Good Negligible
Not alarming
Not up to the mark Negligible
5
10. List of major supporting institutions/ Service providers
a. Technical Intuitions b. R & D c. Testing institutions d. Government organization e. Promotion councils f. Others
Yes
No
Yes Yes Yes Bankers, Product based association
11. Major issues
• Poor Infrastructure And Marketing Supports Faced By Tiny And Small Scale Unorganized Sectors
• Dependant In Nature And • Mostly Job Work Type Enterprises • Poor Capital Base • Weak Supplier Power • High Mobility Of Labour Force • Poor Credit Accessibility • Low Profit Margin • Low Technology Level • Low Product Orientation due To Poor Capability Creation • Inability To Compete With Medium And Big Players • Poor Economies Of Scale
• Frequent fluctuation of Raw Material prices, especially Steel
• Poor Research And Development Facilities • Under-Invoicing And Dumping Of Engineering Products
12. Priorities Major (Rank it as per priorities)
Minor (Rank it as per priorities)
6
Formation of consortia Undertaking Bench mark study Formation of Raw material bank Technology Mapping Common Production Centre Utilizing the CFC facilities of SISI & NSIC & other institutions
1. Tool room - Ekatturthangal
2. CADCAM center -
Common production center –VMC lathe –Perungudi Formation of new estates exclusively for micro and small in orakkadam phase –ii Strengthening Micro industrial estates at Ambattur under IID schemes Creation of Collaboration and tie up B 2 B meet with big auto gains in Chennai
Network, creating a market information and resource center
Internal corrective Mechanism Skill up gradation Soft intervention Unit level correction Energy auditing Working capital support (MGFC financing ) Common Marketing & Branding Marketing Linkages BDS support Preparation of Common Catalogue and Leaflet Appointment of NDA
7
13. Cluster Observation: i. Promotatbility High ii. Aspiration Level Very High iii. Attitude High iv. Linkages with other cluster: Very much possible v. Out reach - other clusters of similar nature (Reliability) 14. Suggestion and recommendation Immediate attention Medium Term attention Long Term attention creation of strong consortia
Accommodating auto ancillary industries in the phase II of Orakkadam industrial area
Visiting to dynamic clusters Establishing collaboration and tie –up
Modernization and technology injection With Italian support
Capacity Building Linkages with technical, educational Institutions
Establishing sub contract exchange
Formation of RM Identification of technological gap and injection of new technology
Formation of new industrial estates and industrial complex
Firm level correction Creation of common production and processing centre
Integration of Heavy engineering & light engineering sectors
Awareness programme for cluster actors and stakeholders
Common marketing
Outsourcing with MNSC & Global Players
Option for MGFC financing – soft financing
Injection of modern machineries
Network, creating a market information and resource centre
Utilizing the CFC facilities of SISI and direct marketing with Big players
Improving/ strengthening the infrastructure facilities in micro industrial estates Under IID scheme
8
Utilizing the facilities already existing within the cluster
B 2 B meet with big auto gains in Chennai
Conducting Training for the members
Tool room - Ekatturthangal CADCAM center - Common production center –VMC lathe –Perungudi
Training programme on production planning, line balancing
Launching common brand
Identifying of the Business service providers and identification/ sourcing of experts - suitable retired scientists, professors and management , etc
Trade mark and patent registration
Linkages with technical, educational Institutions for technology improvement
Conducting business meet with selective embassies
Preparation of Common Catalogue and Leaflet
Conducting benchmark study
Business opportunities with Italy Linking the Italian Auto cluster
Emerging as product oriented enterprises
Study on establishing new industrial estates and Complex
Elimination of multiple tiers
9
CLUSTER EXECUTIVE SUMMARY - II Pre intervention and post Intervention Tools
CRITICAL GAPS
SUGGESTED REMEDIES
INTERVENTION TOOLS
EXPECTED
RESULT
TIME FRAME
Low and inconsistency production
Modernization Technology up gradation – Setting up of production cum processing Common Facility centre in the identified 6 growth centers.
Setting up of CFC � Increase the productivity by 40%
� Increase the production level 50%
� Increasing the employment opportunity
3 Years
Low Penetration capacity
Collaboration / tie –up / capacity building
• Marketing tie up • Utilizing the CFC
facilities already existing in the cluster
• Working capital support
• Big brothers arrangements
Increase the production level 50% Diversify the production
Poor market penetration and product image
Formation of Marketing Consortia
Launching of Common Branding and Marketing
Improving the business by manifold and create a niche market
2 years
Poor skill workers
Skill up-gradation Conducting intensive skill up-gradation training programmes
Improving & honing the skill of workers
1 year
10
Low level of operation
Emerging as product oriented enterprises
• Creation of brand image and
• Technology up-gradation
Improving the business by manifold
2 year
Poor finance support
Easy access to finance
Option for MGFC financing – soft financing
Solving working capital problem of the micro enterprises
1 ½ years
Poor Infra structure facilities
Improving & strengthening the infrastructure facilities
Option under IID Scheme & ASIDE
Scheme
Creating sound infrastructure base for smooth operation of the firms
3 years
Improving Value chain
Improving the core business
Horizontal and vertical integration
Manufacturing of composite & value added products
3 years
11
CONCENTRATION OF ENGINEERING INDUSTRIES- GROWTH CENTRE
Concentration of engineering industries
Maramalainagar
Growth centres
Thirumudivakkam
12
1.0 INTRODUCTION
1.1.0 BACKGROUND
Engineering industry is the largest manufacturing industry comprising different
sub sectors and manufacturing diversified products. Any industrial product has its
root in the engineering industry. It is known as mother of all industries. Further, India
has a strong engineering and capital goods base. The entire gamut of engineering
industry can be brought under two major categories. One is heavy engineering
category and the other one is light engineering category. The engineering sector
employs over 4 million skilled and semi-skilled workers both direct and indirect in
India. The total production from the engineering sector was in the order of US$ 22
billion in the year 2003-04.
Similarly, the engineering industry is an age-old industry having a strong
footing in Tamilnadu. The industry is witnessing the presence of Large, medium,
small and micro industries. The last one is a dependent sector, which has a lion’s
share in numbers. Everything from automobiles, railway coaches, battle-tanks,
tractors and motorbikes to heavy vehicles are manufactured in Tamilnadu.
Global vehicle manufacturing giants like Ford, Renault, Nissan, Caterpillar,
Hyundai, BMW and Mitsubishi as well as domestic heavyweights like MRF, TI cycles
of India, Ashok Leyland, Royal Enfield, Mahindra & Mahindra, TAFE Tractors and
TVS are in the first tire. They are controlling the entire industrial movements in
Tamilnadu. Apart from Auto component sector, there are other engineering sectors
like machine tool components, dies and mould making, Nuts and bolts, Valves,
cutting tools, pumps & pump spares, Pistons, Electrical and equipment
Manufacturing, structural fabrication and casting & forging industrial sectors in
Tamilnadu. Due to the presence of such industrial base Chennai is known as “The
Detroit of Asia”.
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In order to strengthen the engineering industries in Chennai, SISI, Chennai
has adopted the sector under Small Industries Cluster Development Programme to
promote under Cluster mode. Subsequently, diagnostic study has been conducted.
1.1.1. Strong presence of engineering units is witnessed in Chennai.
1.1.2. A cluster diagnosis study on pilot basis was conducted in Ambattur,
Ekkattuthangal, Perungudi, Guindy, Thirumudivakkam regions wherein 60% of
the engineering units are concentrated.
1.1.3. A diagnostic study of a cluster helps in laying down the broad path for initiation
of cluster intervention. Special focus was given to Auto component
manufacturing sector. One of the main objectives of such a study is to
suggest a vision for the future and draw a strategic plan for undertaking
various developmental activities within the cluster.
1.1.4. Yet another reason for conducting the study is to measure and suggest the
type of intervention necessary for improving the overall status of the
Engineering industry in Chennai.
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1.2.0. SCOPE OF THE STUDY
1.2.1. The scope of the study is to ascertain the present condition of engineering industry in Chennai. Special emphasis has been given to the auto component and accessory-manufacturing sector.
1.2.2 In essence, the study aims at obtaining a comparative analysis of engineering
cluster with regard to the working, effectiveness and dynamics of the cluster. It is also meant to identify the factors impeding the smooth functioning and growth of the cluster.
1.2.3 The core of this approach is to identify the right tools and techniques and to
apply these inputs to achieve quicker development in the sub sectors of the engineering industry.
1.3.0. METHODOLOGY
1.3.1. The methodology involved for the study includes the following activities: -
1) Review of Secondary Data Sources relating to engineering industry; the major sources accessed include publications of associations and related sites.
2) Primary Research through limited but focused in nature
In all, about 50 informal interviews were carried out among a cross-section of
stakeholders, apart from the formal interaction that has taken place during the visit to
the cluster. The idea was to identify the existing critical gaps and draw concrete plan
for filling the gaps. The questionnaire was prepared in both Tamil and English. The
study was undertaken by involving enumerators and engineering college students.
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1.4. OBJECTIVE
It is a fact-finding study, which aims to bring out the present status of
engineering industry in Chennai and to contemplate strategies and modalities to
promote the MSM engineering enterprises in Chennai under cluster mode. There is a
strong postulation to promote this sector under cluster mode. This document aims to
present the status of the industry in Chennai.
Engineering Industry comprises predominantly Micro and small-sized
enterprises (MSEs) serving largely as contract manufacturers and component
suppliers for product manufacturers.
THE MAIN OBJECTIVES OF THIS STUDY ARE:
� To highlight the present status � To access the relative exploitative nature of the sub-sectors– micro
engineering enterprises � To identify the critical gaps � To undertake a benchmark study to seal the weak linkages � To take effective corrective measures to strengthen the under performing
micro enterprises � To select appropriate tools for effective soft and hard Interventions for
alround growth � To examine the present manufacturing practices and technologies relevant
and vital to enhance capabilities and competitiveness of the core units � To suggest measures for improving the working conditions of the micro
enterprises
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VISION STATEMENT
Transforming the Chennai-based engineering cluster into a fast emerging outsourcing destination for design and manufacture of engineering products, machinery, equipment and auto components by 2010 by infusing technology, quality standards and cultural changes
among the micro enterprises to impel them from the tier 5 to tier 3
MISSION STATEMENT
� Enhancing the production level by 25% within 3 years � Increasing the productivity by 20% � Embarking upon composite Engineering products � Upgrading 15% of the job work based micro enterprises to
full-fledged enterprises in the next 3 years � Exploring new export markets within 3 years � Exporting 25 % of the production within 3 years � Attempting to attract employment for 6 lakh people by
2015 � Providing a platform to the MSMEs to facilitate their
interface with potential global partners and buyers
17
2. HISTORY OF THE CLUSTER – A RETROSPECT
The origin of engineering industry in Chennai was started even before
independent. The invasion of TVS group, Simpson, Ashok Leyland, Addison,
Integral Coach Factory, the then Standard Motor, Heavy Vehicles Factory - Battle
Tanks, Caterpillar - Earthmoving equipment plant, ICF - Rail coaches and Enfield
Motors besides formation of Industrial Estates in Ambattur, Guindy and adjoining
places in and around Chennai have created a big push to this sector. Further, the
birth of electrical goods, machine tools, dies and moulds, capital goods
manufacturing industries in Chennai is also strengthened this industry. The ever-
increasing demand for fabricated engineering products due to population explosion
has created an opportunity to the fabrication industry to thrive.
The engineering industries faced serious set back in the 80’s. However, the
auto components sector picked up growth after mid 80s due to the incursion of Car
manufactures in adjoining districts of Chennai.
18
3. CLUSTER PERFORMANCE
The performance of the engineering sector is linked to the performance of the
end user industries for this sector. The share of Tamilnadu in selected engineering-
based sectors in India is given in the following table:
Table-1
Share of Tamilnadu in Select Sectors
Heavy Commercial Vehicles 27 %
Auto components 30 %
Railway coaches 49 %
Motor cycles & mopeds 26 %
Heavy Engineering Industry is one of the largest segments of Engineering
Industry. It occupies a whole range of industries such as Heavy Electrical Machinery,
Turbines, Generators, Transformers, Switchgears, Textile Machinery etc. As per the
Index of Industrial Production figures eight out of the 16 major industry groups show
substantial growth ranging from 6% to 28%.
Heavy engineering industry is well integrated with various core sectors to meet
their demand. The demand is derived primarily from capacity creations in sectors like
infrastructure and general manufacturing including process industries. The Indian
engineering industry, including the transport equipment segment, is estimated at
around Rs. 1.2 trillion. The share of heavy engineering sector is about 70% while rest
was contributed by light engineering sector.
19
The enterprise mix of the Indian engineering industry comprises primarily large
Indian companies with and without foreign collaborations, subsidiaries of
multinational companies, joint ventures of domestic and foreign companies and
medium sized companies maintaining regional dominance. Majority of the players in
the heavy engineering industry have well defined markets catering to specific
sector(s) and are technology driven.
Indian market is one of the largest in the world. Indian companies are
producing quality products and services at competitive prices. Indian advantage in
designing and engineering capabilities with low labour cost make it one of the
preferred offshore destinations.
3.1 Light Engineering Industry
Light Engineering Industry is a diverse group with a number of distinctive
sectors including low-tech items like castings, forgings and fasteners to highly
sophisticated microprocessor-based process control equipment and
diagnostic/medical instruments. This group also includes industries like bearings,
steel pipes and tubes, etc. The products covered under the engineering industry are
largely used as input to the capital goods industry.
3.2 Auto components Sector
Automobile and auto component/accessories manufacturing industry is known
as sunrise industry. This industry has a new surge in recent years. It is mainly due
to the entry of international players in this sector.
The growth of this industry is spiraling around few players like Ashok Leyland,
Simson, Sundaram Clayton, Lucas-TVS, Brakes India, Hyundai, Fort, Mahindra and
Mahindra etc. After a decade full of uncertainties in the eighties, the engineering
Industry has a new life. There are more than 10,000 engineering units operating in
and around Chennai. Out of this, the total number of micro industries is reported at
about 8,000. The small-scale industries and micro industries really need support.
20
The micro industries deserve special treatment as it has created more than 41,000
plus employment opportunity directly and it is the sector facing all kinds of problems.
3.3 Machine Tools
Machine Tool Industry is the backbone of the entire industrial engineering
sector. Today this sector is in a position to export general purpose and standard
machine tools to even industrially advanced countries. During the last four decades,
the machine tool industry in India has established a sound base and there are around
125 machine tool manufactures in the organized sector and around 300 units in the
small ancillary sector. The same trend is witnessed in the state of Tamilnadu also.
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4. SWOT ANALYSIS STRENGTH
WEAKNESS
� Largest industrial segment with number of sub-segments
� Presence of world class automotive Manufacturers
� Technocrats & highly Educated Entrepreneurs, with Legacy
� expertise and new young entrepreneurs
� High export performance � Availability of low cost
human resource � Capability to produce high
volumes competitively and capture niche markets
� Strong presence of OEMs (original equipment manufacturer)
� Presence of vast number of engineering colleges, Polytechnics/ ITI etc
� Strategic location of the cluster
� Wide gap in population to vehicle ratio coupled with increasing purchasing power offers high potential for automobile industry
� Major contributor to the State's Gross State Domestic Product (7-8 per cent)
� Presence of huge number of micro enterprises with Obsolete technology
� Dependent Market behavior
� Absence of economies of scale in case of micro enterprises
� Poor infrastructure and marketing supports
� shortage of skilled manpower � Absence of Product Engineering &
system development facility (CAD/CAM/CAE)
� More of low-value added services (job shops)
� Poor delivery schedule
� Poor infrastructure and marketing supports
� Dominance of few big players � Poor financial background of the tiny
units
22
OPPORTUNITIES THREAT � Growing domestic market having
demands from both low-end and high-end segments
� Ever growing demand for auto components
� Growing user industries � Emerging Engineering export
markets � Robust Engineering exports (could
touch US$ 30 billion by 2008-09). � Ever growing demand for auto
components � Presence of large number of Engg
colleges in around Chennai � India Emerging as a key global
manufacturing hub (India) � shift from ‘job shops’ to ‘system
solution providers’ and ‘technology integration’ than just ‘component supplies’
� Conventional machines unable to meet the precision manufacturing
� High fluctuation in the cost of RM � High cost of utilities � frequent fluctuation of rupee –
dollar value � Fast development of IT units
replacing Engineering industries
23
5. BROAD CLASSIFICATION OF ENGINEERING INDUSTRY
Engineering Industry can be classified as Capital goods and heavy and light
engineering products. The main classification of engineering industry is illustrated
below.
The sector can be categorized into
– Heavy engineering – Light engineering segments.
• Heavy engineering segment contributes over 80% of the total engineering production. • The heavy electrical industry meets the entire domestic demand. • Indian engineering industry is dominated by organized players.
Sector 1: Mechanical components
Type of Products • Precision components • Connectors, pistons, special screws • Special equipment Machines and Mechanical Devices
Sector 2: Machines and Mechanical Devices
Type of Products
Machines & mechanical devices for thermo-plumping
Air-conditioning
Concrete articles production
Home Appliances
Industrial use engines.
24
Sector 3: Industrial Moulds Type of Products 1. Plastic injection moulds. 2. Compression moulds 3. Investment die casting moulds 4. Blow moulds 5. Pressure die casting moulds.
Sector 4: Mechanical Designing Type of Products/Services • Mechanical designing • Engineering designing
• Developing prototypes and final products (This also comprises computer-aided
designing and computer-aided manufacturing)
Tamilnadu is emerging as a preferred outsourcing destination for design and
manufacture of machinery and equipment. It has a large pool of skilled labour force
and the labour costs are amongst the lowest. The heavy engineering industry is an
intermediate industry and its demand depends on a variety of end-user industries
such as power, mining, oil and gas, consumer goods, automotive and the general
manufacturing sector. A diverse mix of industries in the end-user segment results in
low volatility in revenues in a normal business cycle. But, beginning of a widespread
economic slowdown leads to cancellation of investments on capital goods across the
industries. Thus, a slowdown adversely impacts the heavy engineering industry much
before it affects other sectors. On the other hand, the heavy engineering industry is
among the last to benefit from an upturn since capacity creation occurs after end-
user industries fully utilize their own capacities and feel positive about the long-term
demand scenario.
25
Table -2
Though the Chennai engineering cluster is witnessing the presence of
divergent enterprises manufacturing engineering products, the automotive
component and accessories manufacturing units are more vibrant in the recent
years, witnessing the presence of foreign players in the tier I and II. These two
segments have created a niche markets with the support of new – state of art of
technology and modernization ensuring quality standards.
Range of Engineering Products manufactured in the cluster
Air Compressors Fabrication of Boilers
Electrical & Electrical M/c Parts
Dies and moulds, pulleys
Industrial values, Iron casting, Tools and pressed components
Power Equipment Computer hardware accessories
Structural fabrication Tractor & Agricultural Equipments
Steel Wire, Nails & Nettings Etc.
Steel Furniture
Bolts, Nuts & Screws Auto Parts & Accessories, Aluminum castings
Machineries for capital goods industries
Hand Tools
Light & Heavy Vehicles Bicycle & Parts
26
6. STRUCTURE AND COMPOSITION OF THE UNITS
NUMBER, TYPE AND SIZE OF FIRMS:
In the context of tierised enterprises, the key/core enterprises are distributed
as under:
Table.3.
Table: Number, type and size of core enterprises
(indicative estimates)
Sl. No. Number of
firms
Type Size
1. 100 Tier I Large (Investment in P&M of above
Rs. 10 crore)
2. 265 Tier II Medium (Investment in P&M of
between Rs. 5-10 crore)
3. 400 Tier III Small –I (Investment in P&M
between Rs. 50 lakhs - 5 crore)
4. 1630 Tier IV Small –II (Investment in P&M
between Rs. 25 - 50 lakhs)
5. 8000 * Tier V Micro/Tiny (Investment in P&M
below Rs. 25 lakh)*
(*most of the units are having an average investment of Rs. Less than 5 lakhs)
27
STRUCTURE OF THE ENGINEERING CLUSTER- CHENNAI
Large players
Medium players
Small scale Units organized
(Mostly ancillary units)
Small scale un organized units
(Partially job work)
Micro units (mostly job work)
28
7. DISTRIBUTION OF FIRMS IN THE CLUSTER
The distribution of firms in the cluster has to be visualized in geographical as
well as scalar terms.
In geographical terms, there are many distinct pockets in the Chennai region
where engineering units are agglomerated. These include:
7.1. AMBATTUR POCKET: Enterprises in this (largest) pocket are located in
Ambattur, Padi, Korattur and Villivakkam in North Central Chennai. They are
located in the vicinity of 10 km. area. There are about 4300 tiny units, 1000
small units, 30 plus medium sized units (Eg. Autotech) concentrated in this
region. Some leading Tier I units include Lucas TVS, Greaves India, Brakes
India are also presence. The small and tiny units are mostly depending on
Railways for job orders apart from TVS, Ashok Leyland, Greaves India,
Brakes India, etc. The micro enterprises are either concentrated inside the
tiny estates or outside the tiny estates. They are engaged in undertaking
various job works like manufacturing of Auto spare parts and components,
pressed metal components, Structural fabrication, etc. AIEMA is the leading
industrial association representing SMEs in the pocket. TACT is representing
the tiny sector.
• Important Items Manufacturing In this region:
Auto Components Ancillary works to Integral coach factory, Accessories for Ashok Leyland Pressed components Precision tools Foundries/ Forging industry Machine Tools, Machine Shops – light Machine Shops – heavy
Heat Treatment and electrical equipments
29
Big players
Aero Pistons Pvt. Ltd., Ashok Leyland Ltd, TVS Auto Tech Industries Ltd
Hi-Tech Components & Pressings, TI Cycle, TVS Groups
Addition & Co.Ltd., Auto Tech, Auto Tech, Madras Radiator, TT Miller
Indrad Auto Components, Jagathesan Industries,Mini Max,
7.2. GUINDY-EKKATUTHANGAL POCKET:
Enterprises in this pocket are concentrated in south Chennai. There are about
1600 tiny units, 300 small units and 15-20 medium sized units housed in this area.
There is no Tier I enterprise in this location. The apex industry association for smaller
Tamilnadu based enterprises TANSTIA is also located here. Most of the micro
units are engaged in manufacture of Moulds and dies. They are expert in
Manufacturing dies and moulds for plastic industry. Further, 40% of the micro units
are manufacturing auto components and accessories on job work basis. Some press
metal component manufacturing units are also concentrated in this area. The
Guindy Industrial Estate is a very old industrial estate, which was inaugurated by the
then prime minister, Pandit Jawaharlal Nehru. There are more than 200 units
concentrated in this estate. The glory of this industrial estate started to fade away
due to the sudden appearance of IT based units. The IT sector industry is started to
engulf the Engineering based industries. The Guindy Industrial Estate is well known
for the presence of electrical based engineering products, press tools and structural
fabrication.
Important Items manufacturing in this region:
Control Panel, Auto components, Electrical items, moulds and dies, industrial
vales, Gears, precession turned components, wind mill components
manufactures.
30
Big Players:
ESSOR Industries , Kirloskar Electric Co Ltd, S C G EXD Tech Pvt Ltd, Empee
Engineers Pvt Ltd, New Delta Gear Mfrs Pvt Ltd, Pee Vee Precision Works Pvt
Ltd, Donvey Power Control Systems Private Limited, Twin Star Metal Products
Pvt Ltd, Pars Tekhnologies Private Limited, Paraflat Machines Manufacturers,
CRP (India) Pvt Ltd, Ignition Products (India) Private Limited, Holwart Engineering
Company
7.3. TIRUMUDIVAKKAM POCKET:
Enterprises in this pocket are largely located in the SIDCO industrial estate near
Pallavaram in South Chennai. They are concentrated with in a radius of 10 Kms.
There are about 400 tiny units, 300 small units and about 10 medium sized units
housed in this pocket. Bon Figlioli is also located in this pocket. It was informed that
the unit namely Bon Figlioli is controlling entire auto components and accessory
products of Hyundai. This foreign company used to give sub contract work to
organized small-scale units.
Important Items manufacturing in this region
Auto components, moulds and dies, industrial vales, Gears, precession turned
components
Big Players:
GEE GEE ENGINEERING, Star pack, CRP (India) Pvt Ltd, INDSOLDERS, United
Engineering Industries, Chennai, Bon Figlioli
7.4. PERUNGUDI POCKET:
Enterprises in this pocket are located near the Tidel Park – the IT hub in
Chennai city in South East Chennai. The enterprises are located in about a 5 km
radius. There are about 250 Micro units, 80 small units and about 10 medium sized
units concentrated in this area. Most of the units are engaged in manufacturing auto
components. There is a strong presence of micro industries in this area. The
Perugudi Engineering cluster Association which represents the tiny units in the area
31
is a well-organized association promoted by 20 like-minded micro entrepreneurs.
This consortium has established a CNC lathe for the common benefit of their
members.
Important Items manufacturing in this region:
Electrical machinery, Pressed Components, Auto components, Industrial gears
Big Players:
Mak Industrial Products, Fal Industries Ltd, Guindy Machine Tools Limited,
Powercap Systems (Madras) Private Limited, Technokrats
Inca Radiant Engineering (India) Pvt. Ltd. Keelakatal, G.A. Shock Absorbers Pvt.
Ltd., Rane Nastech Limited, Industrial Spares Mfg & Trg.Co, Index Auto
Components P Ltd., India Radiators Ltd Plant Iii, I.M. Gears Private Limited
(Plant-Ii
Igp Engineers Ltd.,(Unit Ii) Im Gears Private Ltd. Plant Ii, Himu Accessories Pvt
Ltd, , Geo Engineering Industries
7.5 TIRUMAZHISAI POCKET:
Enterprises in this pocket are concentrated West of Chennai on the Chennai –
Bangalore Highway. This pocket is located in about an hour’s drive from Guindy.
There are about 100 tiny units, 80 small units and about 20 medium sized units.
Important Items Manufacturing In this region:
Pressed Components, Auto components
Big Players:
Forge tools & Allied Services, Indotech Transformers Ltd, Hsi Automotives
Limited , Stanley Electric Engineering India Pvt. Ltd. Auto Components, India-
Japan Lighting Pvt. Ltd. , General Auto Engineering Industries (P), Koito
Industries,. Limited, Musashi Auto Parts, Visoka Engineering Private Limited
32
7.6 IRUNGATTUKOTTAI POCKET:
Enterprises in this pocket are concentrated in the SIPCOT industrial estate
Tirumazhisai, also West of Chennai on the Chennai – Bangalore Highway. About 100
tiny units, 70 small units and 30 medium sized units are situated in this pocket. The
Rane group and Hyundai have their operations in this pocket. Most of the SSI units
are having ancillary status to Rane and Hyundai. They are manufacturing auto
components and spare parts.
Important Items Manufacturing In this region:
Automotive components, Sheet Metal components, Hydraulic braking systems,
Exhaust system, Car door products, Slitting of steel coils into sheets, High quality
metallic tips for ballpoint pens, Hydraulic Actuators/Cylinders & Hard Chroma
plated rods.
Big Players
Dynamatic Technologies, JKM Daerim AutomotiveLtd. Iljin Automotive P Ltd.,
JBM Sungwoo Ltd., Mando Brake Systems Pvt. Ltd., Pos-Hyundai Steel
Mfg.India Pvt. Ltd., Schwing Stetter India P.Ltd., Hwashin Automotive India P.
Ltd., IHD Industries Ltd., Addison & Co. Ltd.
7.7 TIRUVOTRIYUR POCKET: Enterprises in this pocket are concentrated in North
East Chennai. There are about 1000 tiny units, 100 small units and 20 medium
sized units concentrated in this pocket. Ashok Leyland, India Pistons are some of
the large players in the location.
33
7.8 MARAIMALAINAGAR POCKET:
Enterprises in this pocket are concentrated just beyond South Chennai past
Vandalur. In this location there are about 500 tiny units, 100 small units and 30
medium sized units. The American giant Ford’s production facilities are located
herein.
Big Players
UCAL Fuel Systems Ltd. INDRAD AUTO COMPONENTS, INDRAD AUTO
COMPONENTS, INDIA FORGE & DROP STAMPINGS, INDIA PISTONS LIMITED,
In addition to concentration of engineering units in the above said pockets,
micro/tiny units particularly are located almost the length and breadth of the city.
Dispersal of units
Table.4.
Dispersal of engineering industries in the cluster
Location Large Medium SSI SSI Micro
Ambattur 37 125 200 800 4350
Guindy-Ikkatuthangal 6 20 50 250 1600
Perungudi 10 10 25 55 250
Tirumudivakkam 2 10 30 270 400
Tirumazhisai 15 20 20 60 100
Irungattukottai 5 30 25 45 100
Tiruvotriyur 15 20 30 70 1000
Maraimalainagar 10 30 20 80 500
Total 100 265 400 1630 8300
34
Table.5.
Sector wise distribution of industries
It is evident from the above table that there is a strong presence of micro
enterprises in Ambattur and Guindy - Ekkattuthangal regions. 46% of the micro
enterprises are concentrated in Ambattur region alone. Similarly, the small scale
units are widely concentrated in this region.
The average investment of micro enterprise is reported at Rs.3 lakhs. In case
of small scale industries, it is Rs.150 lakhs per unit. The total employment
generated in the engineering industry is estimated at 84,550 numbers. The micro
enterprises is the single most segment which has created direct employment to the
tune of 41,500 persons, cornering the share of 47% in the overall engineering
industries in Chennai region (comprising Chennai and surrounding areas).
An average size of medium scale units is reported at Rs.500 Crores. The
details regarding size of units, average investment per unit, the total production and
employment in each category are furnished below.
Sector No of
units
Large scale 100
Medium 265
Small -1 400
Small -2 1630
Micro 8300
Total 10765
100 265400
1630
8300
Large scale Medium Smallscale I Smallscale II Micro
35
8. Status of the engineering sectors in Chennai Region
Table.6.
Glimpse of Engineering industry, Chennai
The State targets to achieve an output of $18 billion in automotive and
employ 6 lakh people by 2015 in the sector. To achieve this growth Tamilnadu
needs investments of $5 billion in automotive sector in the coming 10 years to
expand the existing capacities; 60-70 per cent of which would have to be from
global multinational companies and the balance from Indian companies to make
the State a manufacturing hub for automotive sectors on the demand of the
capital goods industry.
Large Medium Small Small Micro Total
No. of units 100 265 400 1630 8300 10695
Average investment per
unit 8000 500 150 27 3 8680
Average production per
unit 40000 650 250 30 8 4938
Average Employment in
Numbers 210 50 17 10 5 292
Total Investment 250000 132500 60000 24450 24900 491850
Total Production (Rs. in
lakhs)
4000000 172250 100000 48900 66400
4387550
Total Employment
Numbers 21000 13250 6800 16300 41500 98850
36
9. EXPORT SCENARIO
The Engineering sector is the largest industrial segment of the Indian
economy, characterized by the presence of a large number of sub-segments.
The engineering sector in India has been growing on the back of growth in the
user industries and several new projects being undertaken in various core
industries such as railways, power, infrastructure, etc. Capacity creation in
sectors such as infrastructure, oil & gas, power, mining, automobiles, auto
components, steel, refinery, consumer durables, etc, is driving the growth of the
engineering industry. This industry has come up over the years.
Engineering goods exports
Though the engineering industries are composite in nature, there is more
number of sub sectors functioning with in the categories. Over all
performance of the engineering industries highly depends upon the function
and contribution of each sub sector. The total exports of engineering goods
from Tamilnadu, as a whole, are reported at Rs. 10538 Crores in ther year 2005-
06. Out of this, the total engineering goods exported from Chennai region is
alone estimated at Rs. 5323 Crore. The total worth of auto components and
accessories exported from Tamilnadu is Rs.2590 Crores in the year 2005-06 as
against the country export of auto components and accessories of Rs.10000
Crore showing the share of 25%.
37
Table.7.
Export of Engineering products India vis-à-vis Tamilnadu
India Tamilnadu Chennai
Engineering
goods export 90108 10538 5322.8
Auto component 10000
2590
1942
Further, total number of SSI units directly involved in exporting of engineering
products as per EEPC is reported at 860 numbers as against 1794 numbers for
the entire Southern region.
38
Total Number of Export worthy units in Tamilnadu Vis-à-vis
Southern region i.e Andhra, Karnataka and Kerala states.
Table.8.
Total Number of Export worthy units in Tamilnadu Vis-à-vis Southern
Engineering goods exports
(fig. in)
Region SSI Non SSI TOTAL
Southern region 1794 887 2681
Tamilnadu 860 486 1346
MAJOR PRODUCTS-WISE EXPORT OF ENGINGING GOODS FROM SOUTHERN REGION FOR THE PERIOD 2006-2007 (PROVISIONAL) AS COMPARED TO 2005-96
Products 2005-2006
Rs. In Crores
2006-07(P)
Rs. In Crores
Commercial vehicles & Passenger cars 3476.35 4150
Automobile components & accessories 2672.60 3700
Prime steel products 1520.53 1500
Industrial castings 833.98 900
Textile machinery and spares 694.41 690
Electric power Machinery and spares 615.32 625
Industrial Machineries (Inclg. Cement, sugar etc,) 480.81 880
Industrial vales 431.57 450
Industrial Fasteners 392.21 400
Machine Tools & Accessories 385.23 410
Earth Moving Equipments 380.00 450
Steel Pipes, Tubes & Fittings 338.09 350
Ferro Alloy Products 301.10 550
Electrical Home Appliances 298.87 350
Precision components 297.38 350
39
Other Steel Products 295.42 325
Two/three wheelers, complete 260.00 360
Air Compressors & Compressors 250.55 350
Pumps & Spares 234.65 400
Aerospace Equipments 185.58 300
Stainless Steel Utensils 181.55 250
Steel Forgings 181.49 250
Aluminum Products 168.22 250
Small & Cutting Tools 166.10 235
Electric Wires and Cables 136.10 215
Batteries 91.08 110
Heating and Cooling Equipments 62.12 250
Projects & Services 50.56 100
Pressure Cookers 25.80 50
Boilers & presser vessels 25.78 50
Fabricated Steel Structural 25.42 150
Welding Electrodes 16.72 75
Diesel Engines 10.48 50
Agricultural Machinery/ Equipments/ Implements,
including tractors
317.98 400
Miscellaneous items, such as Mica Products, Rigs,
LPG cylinders, S.S. Hose, Office, equipments,
Titanium products, Copper/ Brass products, building
hardware etc.
190.00 500
Total 15994.05 20425
40
10. AUTOMOBILE INDUSTRY – A MAJOR SUB SECTOR OF ENGINEERING INDUSTRY
The automotive components industry is more aptly described as an
"agglomeration of industries" rather than a single industry. An automobile
consists of more than 20,000 components, each performing a different function.
Components are broadly categorized as body parts, engine/engine assembly
parts, electrical parts, power train & chasse parts and interior trim parts. The
production processes of different parts are mixture of different processes.
The domestic vehicles industry continued to achieve a healthy growth
of 15%. For the 3rd year in a row, exports of vehicles shows a recording 28%
growth. India is on the road to being a preferred hub for the global vehicle
manufacturing industry.
The auto component sector in the State received about $800 million
Foreign Direct Investment in the recent years. Major players in the world's
automobile industry have come to Chennai.
Automobile sector is clearly emerging as a technologically component
sector capable of forging long term alliances with global OEM’s and Tier 1
companies. This sector is now witnessing many complexes and diverse forces
coming together to work in tandem and create new opportunities for the Indian
Auto Industry.
The auto component industry grew by 15% to breach the US $10 Billion
mark in within 2 years. Direct exports of auto components increased by 28%
and touched a new high of US 2.21 Billion. This robust growth is expected to
continue in 2007-08 and beyond.
41
As far as the foundry segment is concerned, there are about 200 small,
medium and large foundries in the Chennai region. Out of these about 30 are
large enterprises with high/low pressure die casting facilities, aluminum casting
etc. Some of these large foundries include Ennore foundries, Brakes India, etc.
In this broad segment about 20 forging units are very active.
Ancillary/vendor type units: Most firms in the cluster are vendors to larger
units. The larger Tier I ancillary units such as Sundaram Clayton, Lucas-TVS,
Brakes India, Simsons etc., avoid high fixed cost of in-house manufacture by
outsourcing manufacture of non-critical and even several precision components
of assemblies to Tier II, III and even IV manufacturers. The larger units (buyers)
provide the component drawings for manufacture and often get products
manufactured on job work basis
The current major players are
> Hyundai - currently scaling up capacity to 400,000 cars and making Chennai
its export hub for small cars
> FORD - has an installed plant capacity of 100,000 cars
> Ashok Leyland - scaling up capacity from current 50,000 cars
> HM-Mitsubishi - Lancer assembly plant - capacity at 44,000 cars
> TAFE - tractors project - 60,000 tractors per annum
> Caterpillar - Earthmoving equipment plant
> Enfield and TVS Motors - Motorcycles
> ICF - Rail coaches - Perambur
> Heavy Vehicles Factory - Battle Tanks - at Avadi
Tamilnadu had long been established as a leader in the supply of auto
components to the existing auto manufacturers.
42
Rapid pace of globalization and the tierisation of the global supply
chains has posed new challenges to the Auto Component Industry in the form
of higher efficiencies and competitiveness.
Fact Sheet
Tamilnadu accounts for
� 21% of the passenger cars
� 33% of the commercial vehicles
� 35% of automobile components produced in India
� Over 100 large companies in the Auto & Ancillary industry
3Others 2Engine Parts 2Drive & Transmission
Steering Parts
1Suspension & Braking Parts 0Equipment 0Electrical Parts % Segment
Auto components production split
43
Large number of cars in North America, Europe and in other auto marts of the
world now carries Indian brands under their bonnets. Of the US$ 2.21 billion
worth of component exports by the Indian auto component industry, around 70
per cent are bought by global majors such as General Motors, Ford Motor and
DaimlerChrysler, among others.
Leading manufacturers of auto components in India include Motor
Industries Company of India, Bharat Forge, Sundaram Fasteners, Wheels India,
Amtek Auto, Motherson Sumi, Rico Auto and Subros. India's Top 500
Companies, published by Dun & Bradstreet in 2006, listed 22 auto component
manufacturers as top companies in India with a total turnover of US$ 3 billion.
These companies are in the process of making a mark on the global arena, and
some have already acquired assets abroad.
Table.10.
Major players and presence in value chain
Company Revenues ($ million)
Value Chain Presence in India
Design Manufacturing Exports
Domestic Private Players1
Bharat Forge Limited1 466
Tata Auto Component Systems 250
Sundaram Fasteners 234
Brakes India (FY 04) 178
International Private Players2
MICO (FY 04) 572
Visteon NA
Delphi NA
44
Table.11.
45
11 . AUTO COMPONENTS AND ACCESSORIESMANUFACTURING INDUSTRIES VS
OTHER ENGINEERING INDUSTRIES
Though Chennai region has a strong Engineering base, the contribution
and the growth of engineering sub sectors are showing varied results. As in the
case of Auto components manufacturing sector, it is being dominated by the big
players in the tier I and tier II. The backward entry of multinational companies
in some regions, especially in Sriperumputhur region, posed serious problems to
other tiers. Most of the MNCs are controlling this sector in the name of tie-ups
and collaboration. The theme of outsourcing accrues benefits to very few.
The small players in the bottom are dependent in nature and they are prone to
exploitation and price war. The job work type micro enterprises are being
exploited by the big players in the name of low technology and investment size,
uneconomic size and more so, the unorganized nature. Micro enterprises are
capable of manufacturing quality products as per job specifications. The sector
is undertaking job works from the tier III and IV mostly and the prices offered
from the above tiers are different from unit to unit. Such a practice escalates the
cost of production to the tier I. Out sourcing from the bottom tiers will reduce the
cost of production to the extent of more than 5%, which will have the sizable
impact on the price of the end products. It is a well-established fact as in the
case of auto components.
The heavy engineering market contributed over 70 per cent with the light
engineering segment accounting for the remaining. Engineering industry is a
well-developed and diversified industrial machinery/ capital base capable of
manufacturing the entire range of industrial machineries and also producing
wide range of items. Capacity creation in the sectors like infrastructure, power,
mining, oil & gas, refinery, steel, automotive and consumer durables drives the
engineering industry.
46
General Evaluation of Market Prospects
o Currently, the auto parts manufacturing industry is not able to cater the
increasing demand of automobiles in the country.
• Looking into the projection of high growth rate in the automotive industry, it is
reasonable to expect that the auto parts industry will grow in tandem.
• This may not only lead to greater utilization of existent capacity in the auto
parts industry, but possibly also to an expansion in the capacity.
• For the 11% of the companies in the auto parts industry (organized sector
only) who are currently engaged in exports because their products comply
with international standards, it is possible to see potential for a further increase
in their exports.
47
The engineering sector is ever growing. Especially, the advent of liberalization,
globalization and urbanization has given a new life to the engineering sectors.
The sudden out bust of capital and infrastructure sectors has supported the
heavy engineering industry to thrive. However, the growth of automotive
industry has superseded the rate of growth of other engineering industries. The
growth of engineering industries is well confided to the concentration of big
industries in that location. Presence of Ashok Lyland in North Chennai has
supported the small and micro industries in and around the regions. They are
mostly like vendor and ancillary type units to such big players. Similarly, the
Sundaram Clayton, Lucas-TVS, Brakes India, Simsons have supported to the
small and micro industries in Ambattur, Padi and other regions. It is also the
case of the micro and small units situated nearer to the big players like Hyundai,
Ford etc.
A key driver for increased engineering exports is the trend towards
shifting of global manufacturing bases to low cost countries like India. This trend
is expected to boost exports of engineering goods from India over the next five
years. According to Engineering Exports Promotion Council (EEPC),
engineering exports could touch US$ 30 billion by 2008-09. In such a scenario,
India, driven by the engineering sector, would emerge as a key global
manufacturing hub.
48
12 RAW MATERIAL FLOW
Key related enterprises include dealers and alloy casters, foundry units
(200 firms), machine tool and machinery manufacturers (170 firms) and support
activity related units such as heat treaters (240 firms). Smaller units procure raw
material related to steel, aluminum etcetera through dealers of large
manufacturers. Larger units source raw material like steel and ferro-alloys
directly from SAIL. In the case of non-ferrous alloys like Aluminium, local
smelting units and foundries manufacture alloys with different composition
depending on required specifications. Core inputs are normally sourced from
NALCO/HINDALCO and imports from Bahrain etc. Micro engineering
industries are job shop type nature. The big players from whom the orders
obtained are supplying the raw materials. The big players do not face RM
problems. The micro and small players used to get conversation charges on
piece rate basis. However, they are also used to procure small accessories and
tools from the traders.
A consortium approach in procurement is worth emulating/replicating cluster
worldwide Some large Tier-I players and OEMs such as Ashok Leyland have
established direct linkages with raw material manufacturers such as SAIL. An
informal consortium approach is adopted by Ashok Leyland vendors for pooled
purchase of steel requirements. In bulk purchase discounts are reaped.
49
13 DISTRIBUTION CHANNEL
As this market segment is a mix of Organized and Unorganized sector and is
involved in production of a very high-diversified range of products, so the channel
of distribution in this segment varies according to the dynamics of manufacturing
units.
The channel of distribution in market segment is very simple. The auto parts
manufacturers directly get the others from their registered Original Products
Manufactures (OPM) and then they directly dispatch the good to OEMs. The
OEM enterprises used to give partial orders to down to the tier 4 and 5 based on
volumes and capabilities of the small players. The tier 5 does not have direct
access to Tier II & Tier III.
In case of other engineering products, the channel of distribution is
complex and composite in nature. It has both single and multi channels. The
single channel is mostly direct, that is direct supply to the end users.
As of Auto component sector is concerned, most of the engineering units are
vendors and ancillary types. The main product manufactures are big players.
OEMs are very less in case of micro and small enterprises. It is prone to multi
channel system.
50
Tier - I
Tier -III
Tier -II
Tier -V
Tier -III Tier -III
Tier -IV
Tier -V
Tier -IV
Tier -IV
Tier -IV
Tier -V Tier -V
Tier -II
Pre intervention Map
51
Post intervention Map
Tier - I
Tier - II Tier - II Tier - II
Tier - III Tier - III Tier - III
Tier - IV Tier - IV Tier - IV
Tier - V Tier - V Tier - V
Consortia
Consortia OEM/OPM
52
• The pre intervention map reveals the presence of multi channel. In
case of automotive industry, the channels between tier one and two are very
direct. The multi channel starts only thereafter. The tier V players are no-
way in the race in case of pre-intervention stage. Whereas, formation of
consortia would improve the capabilities and capacity of the core units in the
tier V segment and also help to attract direct business from all the tiers.
53
14 GROWING GLOBAL FOCUS ON SUPPLY CHAIN
There is also a growing global focus on supply chain especially with the
auto component industry expected to significantly increase its exports from 19
per cent in 2004-05 to 27 per cent in 2006-07 due to increase in demand of
casting in European and Japanese automotive markets.
The state’s automotive industry, which accounts for 25% share of the
Indian automotive industry at present, should target a 30-35% share by 2015,
which would translate into $18-20 billion in net output terms. Exports of
automotive components would be about $6-$7 billion and the domestic sales
components and completely built units (CBUs) at $ 5 billion. Exports of CBUs
and engineering design services could contribute around $ 1.5-2 billion to the
total output by 2015. Indian automotive industry has started mirroring the
global auto industry now.
Auto ancillary sector continue to grow on a fast track due to its low-cost
advantage and their newfound high quality & productivity with synchronized
production systems with tierised channels.
The two major segments—Commercial Vehicles and Passenger
Vehicles—are expected to report high production growth.
Chennai is emerging as a preferred destination as a low cost-
outsourcing base due to abundance of cheap skilled labour.
Over the medium term, there may be a few Tier-I vendors servicing the
OEMs, and Tier II & Tier-III suppliers in turn will service Tier-I vendors
With technology changing at a fast pace, access to technology through
collaborations or joint ventures with foreign players is likely to be a key
success factor for this industry.
Units below Tier-III would need to operate at different scales and invest
upfront in design, development and capacity, as well as require much higher
levels of working capital for catering to the export market.
54
15 CLUSTER FRAMEWORK: CHENNAI
Engineering industry has got a strong institutional support. This sector is
very lucky to have several, active and renowned supporting agencies. The
presence of Research Institutes, government organizations, Banks/
Institutions/associations in the cluster have mulled the growth of this industry.
Though this sector is witnessing presence of multiple BDS service providers, the
interface and support and the linkages between various promotional agencies are
not so strong.
Some key Institutions/Associations that enjoy the trust of entrepreneurs are
listed below. Scope to enhance effective and appropriate linkages between
enterprises – institutions exists. The institutions/associations in this context are as
under:
1. Small Industries Service Institute (SISI), Chennai
2. Department of Industries and Commerce, GoTN.
3. RTC
4. SIDBI
5. EEPC
6. NSIC
7. ACMA
8. National Productivity council
9. Confederation of Indian Industry (CII)
10. Central Institute of Plastics Engineering & Technology (CIPET)
11. TANSTIA-FNF Service Centre
12. Indo Italian Chamber of Commerce
13. Export Import Bank of India
14. TN Small and Tiny industries Association (TANSTIA)
15. Ambattur Industrial Estate Manufacturers Association (AIEMA)
16. AIEMA Technology Centre (ATC)
17. TIIC
18. LESA (Lucas TVS Electrical Suppliers Association)
19. TNSIDCO/SIPCOT
55
20. TN Association of Tiny and cottage enterprises – TACT
21. TISIA-Perungudi association; Tiny and Small Scale Industrial
22. Owners Welfare Association- Ikkatuthangal Association.
23. SMERA
24. ITCOT
25. Engineering colleges, IIT, Technical and Vocational Training Institutes and
Anna University
26. IFMR
56
16. STATUS OF MICRO AND SMALL UNORGANISED ENTERPRISES
………..Constraints identified include low volume/lack of economics of scale; technology gaps pertaining to quality and reliability; poor local support in components and subassemblies; weakness in technology innovations; insufficient cooperation among companies in joint sourcing of materials, capacity sharing, and product/process innovation; poor horizontal integration; excessive tax burden; too little in-house R&D; limited access to new technologies; bureaucratic obstacles; insufficient access to common facilities; high cost of capital and infrastructure; and inadequate applications of e-business and supply chain management……..
It is imperative to bring out the present working conditions of the micro
industrial units functioning inside the industrial estates as well as outside the
industrial estates. Most of the tiny industrial units seem to appear as an industrial
slum situated in the very corner of the industrial estates. There are many reasons
for such ineffable situation. Poor Infrastructure facilities, inaccessible approach
road, denial of fundamental facilities like drainage, sewage, sanitation, waste
disposable system, public toilet facilities, first aid and primary care centre etc
make the estate more vulnerable. All the micro units are job work units. They
are in the Vth tier in the hierarchical structural hierarchy. The average investment
per unit is less than Rs. 3 lakhs. Most of the units are functioning in a build up
area 350 Sq feet to 500 Sq. feet. It is also interesting to note that some of them
are “absentee ownership type”. The access to direct market and finance are like
‘day dreaming’ and ‘daunting’ task for the tiny units. These units are dependent in
nature. The critical growth circle is given below.
57
Threat of Substitutes Substitutes is low not possible
Low Bargaining
Large number of small players and a fragmented market results in weak supplier power
Low capital base: majority of the MS engineering units being promoted by individual mostly labour termed entrepreneurs
Low Inter-Firm Rivalry
not warrant as the small players are having low capabilities not
wholly depend on big players for survival
Low Barriers to entry: remains low in case of micro enter prices on account of relatively low investment and adoptable technology
No Inter-Firm integration
more than 5 tires functioning within the clusters. No integration both vertically and horizontally causes for mass exploitation
Shortage of labour force: remains high case of micro enters prices on account of High mobility of labour force
Critical Growth
Circle Small/
micro Enterprises
Low Technology Level and technology option
relatively low of technology and
collaboration
Poor Infra structure facilities
58
I. MICRO ENTERPRISES
a. POOR CAPITAL BASE:
Micro units have poor capital base. The investment in plant and
machinery is relatively very low. The worker turned entrepreneurs have promoted
most of the micro enterprises. These units are concentrated even in residential
areas like an octopus. The micro units have been left untouched for the years
and they appear like an “Industrial slum” in the industrial township of Ambattur,
Padi, Guindy, Ekkattuthangal and Perungudi. These units are dependent in
nature.
Though they have every capacity and capabilities to manufacture any
type of engineering products, the level of operation is very much limited due to the
dependent nature of this sector. A cursory glance of performance of the units
reveals the fact that the units are crippled due to the poor capital and
infrastructure facilities.
b. POOR PRODUCT RANGE:
Micro units have poor product diversification. 95% of the units are job
work type units concentrated mostly in one logistic location. The tiny engineering
units in Ekkattuthangal are well known for manufacturing dies and moulds
especially for plastic industry. The small welding units operating in the
roadside manufacturing items like auto components and fabrication work,
operating in the small premises fall under this category. They have a strong work
Force. They do not have the financial support to expand their manufacturing
base. Hence, cluster is the only solution to improve their capabilities.
59
c. POOR CREDIT ACCESSIBILITY:
Most of the micro units are suffering from severe working capital
problem. The availability of credit to this sector is very poor. It is revealed from
the diagnostic study that only 12% of the micro enterprises have availed financial
assistance from the banks.
d. LOW PROFIT MARGIN:
Yet another hindering factor is poor profit margin. The micro units are
prone to multiple exploitation. The units are being exploited in all stages. Most
of the units are not getting the orders directly from the big firms. There are
intermediate firms, which exploits the units. The price offered to them is
considerably low and volatile in nature. However, such intermediary firms used to
fetch sizeable payment from the big players.
e. LOW TECHNOLOGY LEVEL:
Yet another hindering factor is low technology level. Most of the micro
engineering units do their operation with old/obsolete machineries. They have
small lathe/Drilling/turning/grinding and shaping machines, etc. that too an old
machinery. As a result, these units are unable to manufacture integrated and
composite products. For each operation they will have to depend upon other
micro units, which are having piecemeal facilities and concentrated in one
location. Very limited units are having combination of machine. The productivity
level is very low.
It is felt that the technology intervention will be a factor, which would increase
the competitiveness of this sector. Even, small technology intervention will bring
notable changes in this sector.
60
f. POOR CLUSTER-TO-CLUSTER INTEGRATION:
The main reason for over dependency is depending on few channels for
souring the orders. There are ample opportunities existing within the cluster to
diversify the operation. For example, the mould and die-making cluster with user
industrial cluster like plastic manufacturing units. There is considerable demand
for manufacturing of moulds and dies for plastic products. These clusters may
be integrated. This will eliminate the decency on one source. Similarly, the other
engineering clusters should be integrated with respective clusters. The entire
micro and small-scale units are having either in-built capacity or out sourcing
capacity to manufacture composite products. Hence, this bottom most tire has to
be united and integrated.
g. LOW DEMAND DRIVEN:
The sector has relatively low product orientation due to poor capability
creation. The growth is one sided. Though there is strong presence of micro
enterprises in the engineering sector, the entire micro units are dependent in
nature. The replacement demand is an important component.
h. INABILITY TO COMPETE WITH SMALL AND MEDIUM PLAYERS:
As illustrated, the entire sector is being dominated by big players and it
is in the threshold of big and small organized players. As a result, the tiny sector
is not in a position to achieve break even. The normal earning of a unit is
reported to be around Rs.4 to 5 lakhs.
i. DELAYED PAYMENT:
Delayed payment is the curse to the micro enterprises. The micro
enterprises are not getting the payment even from the big groups. The big
players are withholding the payment some time for more than 90 days prompting
them to take recourse to the delayed payments Act. During the study still more
chronic cases were come across wherein the payment is pending for even more
than 6 months.
61
j. LABOUR SHORTAGES AND SHIFTING OF OCCUPATION:
Shifting of occupation is witnessed in this sector. Labour is presently
not as easily available as once it was. The changed life style, high wage rate
offered by readymade garment units and other industrial sectors are the major
reasons for frequent mobility of working force.
k. LACK OF FAVOURABLE POLICY SUPPORT FOR MICRO ENTERPRISES:
It was felt by the tiny units that the policy measures are more favourable
to big players and multinational companies rather than the micro units. Hence,
they opined that the government should contemplate a progressive supporting
mechanism to protect this sector.
l. COMPETITIVE ENHANCING INITIATIVES:
According to the Small/tiny units the present competitiveness
enhancing exercise and initiatives are very weak. It may be given more teeth to
achieve the ultimate goal.
m. TYPICAL ENTERPRISE STRATEGY
(Continuous Improvement of products & processes)
The firms have adapted to the changing market demands of few major
customers, but have not in real terms done product or process changes that could
have a positive impact on growth. But the knowledge level and know-how for
transformation is very high with individual entrepreneurs. Market demand
generation and finance for capital investments have to take place simultaneously.
n. RAW MATERIALS & INTERMEDIATE GOODS
Raw Material availability is adequate for the current production levels. Since
very few suppliers are available locally, there is a great dependency. Cost of raw
materials is high as compared to the volume consumed by the clusters. Also,
generally, there is lack of knowledge about alternate sources for raw materials in
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the cluster. There is potential scope for reducing the cost of raw materials,
consumables, machine maintenance / spares and packing materials. The cluster
firms were unable to quote competitive prices for higher volumes due to this
factor.
Technical know-how is the major field where it needs guidance and
assistance for achieving required growth rate and progress. Advancement in
technology has necessitated going for a proper development of human and
technological resources.
In this changing scenario following problems and the issues have been
identified in the industry:
• Information Dissemination (Technical know how, Information on
standards, Processing techniques, Design criteria)
• Product design & engineering capabilities constrained due to
absence of economies of scale
• No long term vision or policy
• Low volume of production by micro enterprises
• Systems are labor intensive
• Competent/skilled labor is very scarce.
• Conventional machines are not able to meet the precision
manufacturing.
• Available labor is not familiar with modern technology
• Scarcity of raw material especially steel
• High cost of utilities
• Poor research and development facilities
• High cost of financing and lease purchase
• Absence of membership in any Trade Bloc
• Under-invoicing and dumping of engineering products and auto parts
• Inconsistent policies and regularity procedures by Government
• Lack of coordination and linkages with Government/Semi Government
Supporting Bodies and Technical Training Institutes
• Lack of infrastructure facilities in respect of micro industries
63
• Poor cluster-to-cluster integration.
II. STATUS OF SMALL (ORGANIZED), MEDIUM ENTERPRISES:
The small and medium enterprises are enjoying lion’s share. As
illustrated, the automobile industry has made a big push. The entire industry is
being controlled by the large and medium players. There are 265 large and
medium enterprises engaged in manufacturing various engineering products, of
which only 30 plus units are having full control. Among 30 units some units are
engaged in manufacturing heavy engineering products and items for capital
goods industries.
High value /high technology components as well as low value/low technology
products manufactured in the cluster:
The small and organized SSI units are composite in nature. They have
high-end technology. Such industrial group is having all the capacity and
capability to undertake any kind of engineering works like fabrication,
machineries tools and components and engineering products for various
industrial sectors. The cluster at Chennai makes a mix of high value/technology
components targeting the OEM and export markets as well as high volume low
technology products targeting the domestic market. This group takes big orders
from the top and also outsourcers some of the operation to the unorganized SSI
and micro enterprises. It has direct linkages with the big players. They are
fetching higher rate for their job orders. However, they used to outsource the
same job for lesser price.
Access to a progressively diversified customer base: The group has been
successful in progressively attracting a diversified basket of OEMs and Tier I
64
firms. The customer base viz. end-user segment is diversified and domestic
enterprises are well networked with them. For eg:
Table.11.
Table: Successfully attracted a diverse basket of OEMs
2/3 wheelers Cars/utility
vehicles
LCVs/CVs Tractors Engines/Earth
movers
TVS Motor
Co. (Hosuri)
Hindustan
Motors
Ashok
Leyland
TAFE Caterpillar
India
Hero Honda
(Hosur).
Hyundai
Motor India
Eicher Motors Escorts Simsons &
Co.
Royal Enfield
motors
Ford India
Status of Big Players:
Majority of big players in the engineering industry have well defined
markets catering to specific sector(s) and are technology driven. Turnkey
engineering capacity is also limited to a few Domestic entities and competition in
this segment is also expected to be limited. This sector is driven primarily by
technology. This, coupled with the fact that the initial investment required for
creation of manufacturing facilities is relatively high, creates a relatively high
entry barrier. The technology requirement however goes down as one moves
towards the light engineering industry. Small players (including some
unorganized players) are present in the light engineering industry, however, they
primarily act as vendors to medium and large players in the heavy engineering
industry.
65
A progressively diversified export basket: The tabulation below
illustratively presents the progressively diversified export basket for cluster
enterprises.
Table: Sample exporting enterprises and basket of countries exporting to
Table.12.
Sl. No Firm Countries to
which exported
Sl.
No
Firm Countries
exported to :
1
Amalgamation
Repco Ltd.
USA, Italy,
Mexico, France,
Turkey, Austr.,
U.K
9. Sundaram
Clayton
USA, Sri
Lanka,
Germany,
UAE,
Bangladesh,
China, Korea,
Malaysia,
Thailand,
Kenya etc.
2. Guha
industries
Australia 10. Perfect Gears USA
3. Springs India Denmark 11 K.G. Metal
precision
Australia,
Malaysia
4. Classic
chemical
seals
Malaysia 12. Globe
components
USA
5. Southern auto
castings
U.K., Spain,
USA, Italy,
Germany, USA,
Syria, Japan
13. Super Auto
Forge
USA, Japan,
Brazil, Poland,
Germany, etc.
6. Vibromech
eng. and
USA 14. Vanjax Sales
Pvt. Ltd.
Australia
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services Ltd.
7. India Pistons U.K., Russia,
Austria, USA,
UAE, France,
Italy,
Bangladesh, Sri
Lanka etc.
15. Nav Indus
auto parts
USA
8. Shard low
India
Dubai, USA, Sri
Lanka,
16. Ucal Fuel
systems Ltd.
Japan
STRONG CAPITAL BASE:
The units falling under this category is having good capital base and easy access to
working capital. They have direct business with big firms, and have strong
borrowing options.
CHENNAI - A LEADING INVESTMENT DESTINATION: In the last 3 years
outstanding investment in the auto-component sector increased by 93%. CMIEs
survey indicated investments on hand stood at Rs. 7646 crore compared to about
Rs. 3962 crores in 2003. The survey showed Tamil Nadu (largely Chennai) ranked
second with Rs. 1479 crore followed by Maharashtra with Rs. 1210 crore (Source:
Investments in auto-components sector up at Rs. 7646 crore’, V. Balasubramaniam,
Times News Network, Jan.03, 2007). Karnataka ranked first with Rs. 2617 crore.
Larger units often lead in technology initiatives: The auto component
cluster at Chennai is effectively an induced one, largely linked to the establishment of
larger industries like Ashok Leyland, TVS Group, Rane Group and Amalgamation
group of companies. It has gradually grown in line with the levels of sophistication
and product range of larger units who encourage/take the lead in technology
advancement in their own vendors. This serves as a confidence building measure for
vendors to invest in up-gradation.
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17. VALUE CHAIN ANALYSIS
Value chain position: The automotive value chain consists of several activities from
the concept stage till the vehicle is eventually scrapped.
The key activities in the chain include design, engineering, product
development and manufacturing and marketing. Other related activities
include financing and after sale services. Components and vehicle assembly
and its manufacture both together constitute about 40-45% of overall vehicle cost.
(a). Evidence of moving up the value chain - OEMs than the replacement market:
The auto-component segment at Chennai has made a shift towards the global Tier I
market for their products. A decade earlier hardly 65% of exports targeted the
replacement market. Today 75% targets Tier I players/OEMs.
(b). Value drivers: Chennai based firms have the advantage of
• Proficiency in understanding technical drawings with all global standards
(Japanese, American, European, Korean standards etc.)
• Flexibility in manufacturing due to high degree of vertical depth-small batch
production ability
• IT capabilities for design, development and simulation
• Largely, appropriate automation at the cluster level to reduce production
costs
( c). Presence of related enterprises-other actors lending value to the product:
Chennai also has the advantage of the presence of and proximity to relatively
competitive related enterprises. This may be in terms of tyres from the MRF at
Chennai, auto electrical from Lucas – TVS, gears and related parts, castings (grey
iron/ aluminium) etc. Proximity to different segments of the automotive value chain
lends several agglomeration economies to Chennai based enterprises.
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(d). Diversified user industry base: The Chennai region, as indicated earlier, also has
a diversified user industry base in addition to automotives. Hence, even Tier IV
suppliers can service for other sectors in addition to the automotive sector and hence
operate at high capacity of at least 2 shifts a day indicating greater potential for even
micro/tiny enterprises. Further, greater resilience to risks and adverse demand
shocks in any one sector is facilitated.
(e). Domestic growth drivers strengthening forward linkages in the chain: The growth
in forward linkages of the chain has been a facilitating factor resulting in sustained
returns and hence encouraging investment for Co-Value chain illustration: Consider a
sample product - jaw end/fork in the brake chamber. It is basically a linking
mechanism between the brake cylinder and pneumatic cylinder.
Consider the sample value chain of a product manufactured by a sample Tier III
(small scale component manufacturer):
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Illustration: Sample value chain
Raw material - steel forgings (Rs. 30)
↓
Machining – turning, milling etc. (Rs. 45)
↓
Heat treatment, zinc plating (Rs. 51)
↓
Other overheads-transport, gauging (Rs. 55)
↓
Supply to Tier I firm (Rs. 60)
↓
Supply to OEM/Export (Rs. 140)
The small component manufactures procure inputs worth Rs. 30 to
make one piece/unit of the finished product. He machines the input in-house,
outsources heat treatment and related activities, gauges and packs and
delivers the product to a Tier I firm. He supplies it to the Tier I firm at Rs. 60
making a net profit margin of hardly about Rs. 5 or a profit margin on sale of
about 8-10%.
(g). For Indian car exports to grow, while infrastructure at home will have to
improve considerably, car companies will have to integrate their domestic and
overseas operations and provide the same support in terms of service,
warranty and spare parts in markets abroad as they do in India. (Source: The
Hindu survey of Indian Industry, 2006).
(h). Chennai’s potential to move up the value chain: The global OEMs are not
only attracted to Chennai’s relatively low-cost advantage for different value
chain activities
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(casting, machining etc,) but are also progressively keen on design skills in
suppliers. Here Chennai has a decisive advantage with a strong design and
engineering base coupled with advanced IT skills. Also, with increasing
competition in the global automobile industry, the automobile manufacturers
are striving to involve Tier I component suppliers in vehicle design, where
again Chennai could evolve significant strength.
(i). In terms of manufacturing costs (raw material, power, labour), China may
generally have an advantage. Clusters like Chennai, in India, may have an
advantage more in terms of the whole package. This is in terms of value
addition and product development. The IT skill sets of Chennai and electronics
– more on the lines of assistance in braking, engine performance and the like
is going to lead to an increased application of IT in the automotive
industry(Source: The Hindu survey of Indian Industry, 2006).
(j). Value chain activities outsourced to Chennai auto-component units: In the
vehicle value chain, activities such as component sourcing, vehicle assembly
and manufacture targeting the replacement and spares market may be
outsourced to SMEs. It is in such activities that MSMEs from Tier 1-V are
involved in the auto-component cluster at Chennai. In fact auto-majors may,
as the next phase of outsourcing cover contract manufacturing and assembly
of vehicles, product engineering and development activities. Even business
processes such as accounting, finance and IT (also see: `A vision for the
Tamilnadu auto industry’: CII Continuous upgradation)
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18. SKILL GAPS
The entire engineering industries are under the stress of
shortage of manpower. The frequent mobility of manpower posed serious
problems to this sector. The shift in occupancy is created by many factors.
The change in life style, perception on job and sophisticated job
environment, attraction from other sectors, expansion of business
operation etc has created havoc in this sector. Machine handing, process
knowledge, CMC operations etc are some of the skill gaps identified. The
industry needs operators and technicians with the basic understanding of
environmental, safety practices and quality concepts. It is reported from
the Ekkattuthangal cluster that this growth centre alone is in dire need of
1000 plus manpower. The best option for filling the gaps is to conduct skill
oriented training programmes for the 8 pass and unsuccessfully / drop outs
of engineering, ITI candidates and diploma holders and attracting the ITI
student by offering integrated courses in collaboration with the locally
situated ITI institutions.
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19. MAJOR AND MINOR INTERVENTIONS
The option of intervention is the leverage to strengthen the cluster and
make it more viable and sustainable. Given the above understanding, the
following are the key interventions recommended for the cluster:
1. Formation of consortia: This cluster witness a strong presence of micro and small enterprises, which are located in some specific areas like Perungudi, Ambattur, Ekkattuthangal, Guindy, Tiruvotriyur Tirumudivakkam, Tirumazhisai, Irungattukottai and Maraimalainagar pockets. Efforts may be made to form series of consortia for various purposes within the cluster and attempt may also be made to strengthen the consortia through capacity building exercise. The awareness on cluster in each growth centre should be further improved.
2. Benchmark study: The benchmark study will facilitate to map the critical gaps existing within the engineering industrial segments. This study will give focus on core competency of the mirco and small-scale enterprises, the present business operation, etc.
3. Internal Corrective Mechanism: It is an attempt to identify the reasons and causes of under performance of the core units functioning in the cluster and suggest for positive corrective mechanism at unit level. Interventions for firm level changes are inevitable. The corrective measures will be attempted with the core units of the consortium. The findings will be replicated in all the members units.
4. Formation of Raw material. It is an important tool, which will give focus on common procurement of critical raw material by the consortium members from the main source and allow the core units of the cluster (members of the consortia) to build a strong quality raw material warehouse. This is a hassle free system, which will facilitate the members and non-members of the consortium to utilize the raw material as and when they want. This attempt will eliminate the exploitation by middle men in the trade and also drastically reduce the cost of production and cost of caring the raw material etc. The micro
73
enterprises engaged in manufacturing engineering products on job work basis normally don’t require raw material as they area all being supplied to the OMEs. However, such units need small accessories and tools. They can create a RM bank for purchasing of accessories and tools. As in the case of small-scale units, they need to have a RM bank for purchasing of Steels and other items. The units coming under this category can come together and form a RM Bank. This will facilitate to reduce the cost of procurement and cost of production by 20%.
5. Technology Mapping: It is an important task to identify the testing and other technology supports existing within the cluster. There are sizeable number of institutions, NGOs and associations having facilities to undertake any kind of tests, R & D and jobs in the field of engineering. SISI, Chennai is having well equipped state-of-art technology to undertake any kind of jobs of sensitive nature especially for the big players in the field of engineering. Regional Testing Centre is having all facilities to undertake testing facilities for engineering products. Further there are other organizations and private firms having similar facilities, which have not been commercially exploited by the small players. Hence, it is necessary to map the existing technology and CFC facilities already available at firm level and at cluster level in Chennai.
6. Common Production Centre; As illustrated, the micro and small scale enterprises are not having capacity and capabilities to undertake big and sensitive orders due to lake of production facilities at firm level. In this juncture, it is necessary to identify a set up or institute having all the manufacturing base and facilities within the cluster. Such a set up can be integrated and the core units can use this established set up under cluster mode. This will facilitate the core units to manufacture value added products. Further, the CFC for the production of auto components and sensitive engineering products may be established in each growth centre, as the micro enterprises have the constraint on capacity building and manufacturing of value added products.
7. Marketing Linkages (Domestic & International) :
Support for marketing resources and infrastructure facilities are the key requirement for the cluster firms. Though there is adequate market for engineering products, the BDS providers’ services have not properly reached the small firms. Hence best BDSs may be identified and the consortia may work with such BDS providers for establishing market linkages with the big players.
74
8. Developing Market Strategies for various Business Segments - Different strategies are to be adopted to prove the competitiveness of the units in each stratum. The bottom level units – micro enterprises, need collaboration and tie – up with the other groups operating in the higher strata to keep the micro enterprise in the competitive race.
9. Scope to enhance quality and testing infrastructure in terms of adequate testing facilities: This could be in terms of radiography, spectro vac as CFCs for different tests for ferrous (steel and iron based) and non-ferrous (aluminium based) foundry units and conducting normal testing. This may be established within the growth centre.
10. Scope to enhance productivity and quality design: by means of
establishing CFCs with investment castings facilities. There is scope for twining of Italian cluster clusters and even with big players within the cluster and in the country for support on this front.-Tool room and CAD facilities may also be considered in a similar mode. Backward linkages means, resource supplies, is the key, followed with technology vendors’ partnerships for solutions and technology assistances and other suppliers of hardware, networking and real estate.
11. Brand Identity and creation of common brands and strengthening
(within the cluster, suppliers are yet another factor determining the market acceptability.
12. Product & System Development Strategies - New product evaluation
and system development plays a significant role for exploring new business opportunities especially in the aftermath of globalization of trade and business.
13. Labour shortages and Shifting of occupation: Shifting of occupation is
witness in this sector. Labour is presently not as easily available as it once was. The changed life style, high wage rate offered by readymade garment units and other industrial sector, and contact labours engaged by organized units by attracting some pecuniary incentives are the major reasons for shifting of labour force. In order to stop this movement, the skill training may be conducted in collaboration with ITI, Polytechnic and SISI and other institutions. This will help to get the sufficient skilled manpower for the cluster. Further, it is felt that the skilled workers are not being properly treated and provided sufficient salary and other basic minimum facilities by the owners. Hence, it is the need of the hours to honour the workmanship of the workers and to provide necessary bare minimum facilities to
75
them. The workers and ownership relationship should be strengthened.
14. Forward Linkages means, end consumers, are accessible mostly by medium and large companies, otherwise for micro and small firms are largely dependent on big players. Hence, forward linkages may be created at cluster level. There is amble scope existing in this sector to integrate directly with the big players both within the country and abroad. A strong value chain should be created within the cluster.
15. Backward linkages means, resource supplies, is the key, followed with
technology vendors’ partnerships for solutions and technology assistances and other suppliers of hardware.
16. Technology & Quality Upgradation at firm level & Cluster Level
High value / high technology components as well as low value/low technology products are manufactured in the cluster. With regard to the core, machining segment, machinery and equipment employed in the cluster varies from basic/conventional general-purpose machine tools like lathes, drilling machines and milling machines etc. to advanced machine/tools like CNC lathes and machining centres etc. The latter is incorporating high-end technology.
17. Human Resources development and retention: HRD plays an important role in improving the efficiency and productivity of any firm. HRD training may be imparted at various levels. The Skill upgradation, orientation and tailor-made programmes may be conducted for the benefit of the cluster members. Series of workshops, seminars and debates may me conducted for the benefit of cluster members.
18. Networking within the cluster firms and BDSPs - Free flow of communication among the members and the stakeholders are vital tool to achieve higher order of growth. Linkages within the members is weak or not in existence, due to competitive fear, and also very limited with the cluster actors, (a) as there is lack of strategic network and (b) technology vendors don’t have focus to small and micro firms (c) customers confidence level on the clusters are also low because of financial strengths. Hence, strong network may be created and the active service providers may be identified and involved in developmental activities with a view to achieve a quantum jump.
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19. Creation of Financial Services Environment: Finance is the major hindering factor for under performance of the cluster. The small micro and small scale firms are facing working capital problems. An attempt may be made to prove the strength of the consortia among the bankers so as to create confidence to extend all financial supports by the bankers. In most cases, the finance is given for expansion with colloratal supports. The small firms are facing inadequate working capital supports. Hence, banker may adopt based on areas specific under cluster mode and need based and they may be involved in the cluster development exercise.
20. Use of the “big brother” arrangement to assist smaller companies to access capital-intensive equipment and get regularly orders from the big players. SISI can and product based industrial association can play a big role to create such collaboration and tie-up arrangements.
21 SME components manufacturing and foundry segment: Large firms in the cluster have most/all necessary quality and productivity enhancing infrastructure/equipment in-house. However, in the context of MSMEs many initiatives may be explored. These may be pursued either on an individual or consortium/SPV basis.
21. Why CFC?
The Cluster firms largely have old production technologies and no in-house CAD/CAM/CAE facilities; for development of newer products, systems, assemblies, production technologies, tools, training of resources, Research, to compete with already established clusters of auto components (such as Ambattur who have Technology Centers); development of complete machine tools (including CNC, VMC Machine developments); development of process plant equipments; to have interoperability of data with international markets and domestic vendors; to improve productivity, to cut down delivery cycle; it is very essential to have common facilities with advanced machineries, CAD/ CAM/ CAE software / hardware, prototyping facilities, non-destructive simulation and testing for development requirements, is an important initiative. Creation of CFC depends upon the nature of operations. The Ekkattuthangal based industrial clusters requires common Tooling and designing centre. The other CFC set up is already available with SISI and NSIC, which are all, located nearer to this cluster. Hence, the facilities available within SISI and NSIC may be effectively utilized by Perungudi and Ekkattuthankal clusters and subsequently need based other facilities for manufacturing high value added products may be created for them.
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22. Support For Establishing New Industrial Estate Or Shifting To New Logistic Centre. One of the challenging exercise is shifting of micro units from the present working place of Perungudi and Ekkattuthangal to new industrial location. The logistic support is very much necessary to protect the micro units. More than 2500 units are in the threshold of closure at any point of time due to the rapid development of IT sectors or the protest from the local residents in these areas. As illustrated, most of the micro industries functioning in these regions are now over congested and there is no basic infrastructure support available in these localities. Most of the units are functioning in the rented premises. The threat emerged from the IT sector and the pecuniary real-estate benefits enjoyed by the building owners may drive this sector to shift their operations to some other areas very soon.
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List of actions proposed for elimination of weakness in the cluster
WEAKNESS ACTION CONTEMPLATED
1. Dependent nature & poor production base big brother” arrangement to assist smaller and mircro enterprises -collaboration and tie –up Creation of common production and processing centre -
2. Inability to Compete with organized small and medium firms
- do -
3. Low Productivity level Slow mechanization Utilizing the facilities already created in the institutions like SISI, NSIC and advanced training institute etc. Involving engineering colleges and IIT in R&D and especially attract simple technology intervention in the stage of production.
4. Obsolete Technology Attempting technology mapping
5. Inability to Keep delivery schedule Establishing common outsorucing
6. Undercutting among the members Establishing common outsorucing Common cartel/ pricing mechanism.
7. High Price of raw material 1.Formation of Raw material Bank preferably for accessories and tools
8. Quality Inconsistency Utising the facitities already existing within the cluster. Setting up of testing lab Conducting Training for the members
9. Poor Marketing Strategy Engaging marketing experts and networking
10. Poor Pricing Strategy Achieving economies of scale of operation and creating image among the clusters
11. Closed Marketing Behavior Common Marketing
12. Stagnated Product Pricing Common marketing
13. Low productivity Firm level training
14. Poor recognition and low capacity at firm level
Formation and creation of strong consortia and obtaining ISO certification. Offering bench mark study
15. prototype making facility, CAD/CAM/CAE centre, CNC matching centre, research and development laboratory, inspection, validation and certification centres. Testing facilities and R&D laboratories within the cluster
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CRITICAL GAP AND BENCHMARK OPTION
Sl. No
Cluster circumstance
Benchmarked technology/productivity
enhancement needs/gaps
Options Possible partnership
1. Low productivity and limited capabilities
Current level of productivity seems to be very low.
Firms level integration and
Technology tie-up and upgradation may be carried out. R&D and CFC support from alraedy created facilities within the cluster.
Support of leading enterprise, institutions and R & D centres.
2. In efficient production operation
Inadequate facilities affecting relative quality and low level of operation.
Injection of modern machineries and plants may be set up in each growth center as common facilities.
Technology/equipment may also be sourced with the government assistance and necessary service facilities need be strengthened
3 Availability of poor RM
Poor quality of accessories and tools affects the operation and efficiency level.
Setting up of Common RM banks for
o Encouraging continuum members may be encouraged to set up Rawmaerial banks for accessories and tools
4 Present marketing channel and forward and backward integration
Dominated by organized small and big firm
Elimination of middle players
o Establishing a tie – up and collaboration with the big players and involving SISI and NSIC and Industries departments and other stakeholders in this exercise
High skill mobility
Demand for labour force Low production
Absorption of labour force by conducting skill upgradation and skill development programmes
o Conducting skill development programmes in association with SISI and other organized firms.
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Critical gap and Cluster option
CRITICAL GAPS SUGGESTED REMEDIES INTERVENTION TOOLS EXPECTED RESULT TIME FRAME
Low and Inconsistency production
Modernization Technology up gradation –Setting up of production cum processing Common Facility centre in the identified 5 growth centers.
Setting up of CFC Increase the productivity by 20% Increase the production level 25% Increasing the employment opportunities
3
Low Penetration capacity
Collaboration / tie –up / capacity building
Marketing tie up·Utilizing the CFC facilities already existing in the cluster·Working capital support·Big brothers arrangements Engineering College, ITI etc for simple automation & R & D supports
Increase the production level 25% Diversify the production
3years
Poor market penetration and product image
Formation of Marketing Consortia Launching of Common Branding and Marketing
Improving the business by manifold and create a niche market
2 years
Poor market penetration and product image
Formation of Marketing Consortia Launching of Common Branding and Marketing
Improving the business by manifold and create a niche market
2 years
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Poor skill workers Skill upgradation Conducting intensive skill up-gradation training programmes
Improving & honing the skill of workers
1 year
Low level of operation Emerging as product oriented enterprises
·Creation of brand image and Technology up-gradation
Improving the business by manifold
2 year
Poor Finance support
Easy access to finance Option for MGFC financing – soft financing
Solving working capital problem of the micro enterprises
1& ½ years
Poor Infra Structure facilities
Improving & strengthening the infrastructure facilities
Option under IID Scheme & ASIDE Scheme
Creating sound infrastructure base for smooth operation of the firms
3 years
Improving Value chain Improving the core business Horizontal and vertical integration
Manufacturing of composite & value added products
3 years
Poor delivery schedule
Simple automation Firm level Correction
Establishing common arrangements / marketing/ Technology mapping
Maintaining delivery Schedule
1 year
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ACTION PLAN ENGINEERING CLUSTER
Sl.No Nature of activity and purpose Period Action by Whom Benefit Amount Rs. in Crores
1. Conducting Training Programme on Achievement Motivation and Team Building
Oct, 2007 CDE and cluster members
Trust building
0.30
2.
Formation of Cluster Co-ordination Committee for implantation, co-ordination follow-up and for pursuing the cluster activities with stake holders
OCT, 2007 CDE , MSME-DI, SDI, and cluster members
Support from all the stakeholders
-
3. Visiting to dynamic clusters Nov, 2007 CDE and cluster members
Creating cluster awareness Among the cluster actors
0.30
4.
Technology mapping and Bench mark study (Identification of technological gap and injection of new technology)
Nov – Dec, 2007
Consortium Members/ MSME-DI /RTC/ Dept of science and technology/ ITI/ Engineering colleges/ NSIC/ Productivity councils
Modernization and building up technology capacity
0.40
5.
Conducting awareness programme for the bankers, TIIC, promotion agencies cluster members etc
Dec 2007 Consortium Members/CDE, MSME-DI/ SIDBI/
Creating cluster awareness Among the cluster actors
0.20
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6. Training Programme on Communication
Jan, 2008 Consortium Members/CDE, MSME-DI
Learning the art of communication by the cluster members
0.20
7. Option for MGFC financing – soft financing
Feb, 2008
CDE , cluster members, SIDBI and other financial institutions
Availing Easy and timely credit
500
(For 100 members)
8. Capacity Building March, 2008 MSME-DI and cluster members
Undertaking cluster development works effectively
1.00
9. Launching of web site March, 2008 Consortium Skill up gradation 1.00
10. Training Programme on cost reduction
April, 2008 Consortium Members/CDE, MSME-DI
Rationalization of cost pattern and reduction of overhead costs
0.20
11. Utilizing the CFC facilities of MSME-DIand direct marketing with Big players
May, 2008 –
Sep, 2008
MSME-DI & Consortia,
Capacity improvement and business expansion
0.75
12.
B 2 B meet with big auto gains in Chennai
June, 2008 MSME-DI & Consortium members
Establishing business linkages
1.25
13. Training programme on production planning, line balancing
July, 2008
MSME-DI ,Consortium members & Productivity councils
Achieving higher order of growth and improving the penetration and efficiency level
0.30
14.
Linkages with technical, educational Institutions
Aug, 2008
CDE, Cluster members, Dept of science and technology/ ITI/ Engineering colleges/ NSIC/ Productivity councils
Creaking inter institutional linkages
0.30
84
15.
Workshop on Identifying of the Business service providers and identification/ sourcing of experts - suitable retired scientists, professors and management, etc with in the country
Sep, 2008
Consortium/MSME-DI, Directorate of industries/ Dept of science & technology/University/ D
Establishing strong BDS supports
0.35
16.
CFC 3. Tool room - Ekattuthangal 4. CADCAM center - 5. Common production center
–VMC lathe –Perumugai
Sept, 2008-
May-2009
Consortia/ MSME-DI,
2000
17. Formation of Raw material bank
Oct, 2008 –
Jam,2009
Consortium Members/CDE, MSME-DI,/Financial institutions
Achieving best stock inventory management and reduction of cost of production, delimitation of middleman exploitation, procurement of quality RM and achieving quality consistency
50.00
18.
Monitoring, evolving, Co-ordination committee for effective implementation of cluster development programmers
Oct. 2008
CDE/Consortium/ MSME-DI /Directorate of Industries / Lead Bank/ Engineering promotion council / SIDBI/NSIC/EDI/Engineering college/MIET/ / Productivity council
Effective performance and
implementation of the projects
85
19. Launching common brand Nov, 2008
Cluster members/ CDE, MSME-DI /Mudhra advertising agency
Launching attract to brand to improve the product image
0.30
20.
Study on higher level of energy loss
Dec, 2008
Consortium/ CDE, MSME-DI /RTC/ NPC/Engineering colleges/
Efficiency in Energy utilization
0.35
21. Preparation of Common Catalogue and Leaflet
Jan, 2009 Consortium/ MSME-DI
improve the product image/Publicity
1.00
22. Modernization and technology injection
Feb, 2009
Consortium/ MSME-DI .Engineering colleges/
Revitalizing and modernization of
industry 0.40
23. Training Programme on Skill Development/Quality Management
March, 2009
Consortium/ MSME-DI / productivity council/BIS
Skill up gradation 0.20
24. Formation of CFC April, -
June 2009
Consortium/ MSME-DI / Directorate of Industries
Cost reduction and availability quality
Raw material 125.00
25. Trade mark and patent registration May, 2009 Consortium/ MSME-DI /patent office
Trade protection 0.25
26. Customized Training Programme and measures for supporting R & D Activities
June, 2009
Consortium/ MSME-DI / Dept of science & technology/R & D Department/ Madurai Kamaraj University
New Product evolution
0.40
86
27. Network, creating a market information and resource centre
July, 2009 Consortium/ MSME-DI /core units/ ISRO/
Mass communication 50.00
28. Attending trade fairs August, 2009
Consortium/ MSME-DI /core units/ STC/Directorate of industries/
Creating Trade Link /New market penetration
2.5
29. Intra cluster intervention Sep, 2009
Consortium/ MSME-DI / Directorate of industries/ Core units/
Department of science & technology/ Depts. Explosive
New business opportunities
0.30
30.
Conducting business meet with selective embassies
October, 2009
Consortium/ MSME-DI / Directorate of industries/ selected embassies/ SIDBI
New business opportunities
0.40
31. Business opportunities with Italy Linking the Italian Auto cluster
Dec, 2009
Consortium/ MSME-DI / core units/ Directorate of industries/ M/o Indst. & Commerce/ DC, SSI
Exploring New Business Opportunities
2.00
32.
Improving the infrastructure facilities in micro industrial estates
Jan, 2010
Consortium/ MSME-DI / core units/ Directorate of industries/ SIDBI
Creating world class working environment
300
87
33.
Intera cluster linkages
Feb, 2010 Consortium/ MSME-DI /core units
Intergradations all clusters
0.40
34. Establishing sub contract exchange
March, 2010 Consortium/ MSME-DI
Soft intervention 5.00
35. Study on Quality improvement after cluster intervention
April , 2010 Consortium/ MSME-DI
Analysis the impart of cluster intervention
36. ISO Certification May – June, 2010
Consortium/ MSME-DI
Quality assurance
37. Bar Coding July, 2010 Consortium/ MSME-DI
International Standards
38. Induction of new technology August, 2010 Consortium/ MSME-DI
Modernization
39. Exist Sept, 2010
88
VALIDATION PROGRAMME FOR THE DIAGNOSTIC STUDY REPORTS OF PLASTIC, PHARMACEUTICAL AND ENGINEERING CLUSTERS, CHENNAI
DATE: 11.07.2007 VENUE: DIRECTORATE OF INDUSTRIES AND COMMERCE, CHENNAI
The validation of the Diagnostic Study Report of Engineering Cluster, Chennai
was conducted on 11.07.2007 at Directorate of Industries and Commerce, Chennai in the presence of cluster members, Officers from Dte. Of Industries and MSME-DI, Chennai and Other Stakeholders. (List of participants enclosed). Shri M Raman, Special Commissioner & Director of Industries and Commerce, Govt. of Tamilnadu, presided over.
S Sivagnanam Director, MSME-DI, Chennai welcomed the gathering. Shri A Muthuvezhappan, AD(EI) and Diagnostic Study Expert of Engineering
Cluster made a presentation of the Diagnostic Study Report of Engineering Cluster. The cluster members and stakeholders gave the following suggestions and
recommendations.
Engineering Cluster, Chennai
Sl No Points highlighted in the report Suggestion / Recommendation from the
cluster members and Stakeholders
1 Volume of Exports emerged from Chennai for auto components.
Volume of exported reports is low. May be rechecked. Rectification: Figures reported in Billion - The same will be converted and given in uniform terms.
89
LIST OF PATRICIANS IN THE VALIDATION PROGRAMME
Sl. No List of Participant Designation and organization/ association name
1 SHRI M. RAMAN,
Special Commissioner, Directorate of Industries & Commerce, Government of Tamilnadu, Chennai
2 SHRI S. SIVAGNANAM Director, MSME_DI, Chennai
3 Shri A. Shanmuga Velayutham President TANSTIA
4 Shri V. Raman Executive Member TACT, Chennai
5. Shri Athmanesan TACT, Chennai 6 Shri Jayaprakash President
Perungudi Engineering Cluster (P), Ltd, Perungudi Chennai
7 Shri Mathimurugan Secretary Perungudi Engineering Cluster (P), Ltd, Perungudi Chennai
8 Shri Jagathish General Mangers , Kancheepuram
9 Officers from EI Division