e&y acma presentation 5th septembr 2012

7/30/2019 E&Y ACMA Presentation 5th Septembr 2012

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Growing beyond manufacturingOpportunities in India as an emerging autoproduct development hub

ACMA Annual Convention 2012

5th September, 2012


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India is fast emerging as the one of the largest global manufacturinghubs for small cars and other vehicles

India will emerge as the largest producer of small cars by 2013

Further, Indias production of small commercial vehicles (25% in the past five years; faster than the global average

Source: LMC, IHSPage 2 ACMA Annual Conference: India as a product development hub


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To achieve global industry leadership India needs to evolve as anintegrated development & manufacturing hub

Leadership position in the automotive world

Manufacturing

Vehicles and

componentsmanufactured in

India are

increasingly

meeting global

standards of

Quality,Reliability and

Durability

Product & Process

Development

However, today there is

limited end-to-end

product development

and process engineering

capability across the

supply chain

Innovation

Significant work

needs to bedone in this

area to improve

Indias

innovation

quotient

Cost and Quality (Strong Foundation)

Page 3 ACMA Annual Conference 2012: India as a product development hub


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Rising customer expectations and increasing volumes have drivenOEMs to evolve from localization to global platform development

Page 4 ACMA Annual Conference: India as a product development hub

- Reduce time to market- Incorporate global standards

- Build local productdevelopment capability

- Localize and adapt

Start-up

Pre 2002

- Develop India specificproducts

Respond to local market

2002 to 2007

- Develop globalplatforms

Global market ambition

2007 to 2012

Source: EY Analysis


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OEMs and component manufacturers are responding to theopportunity by investing in local product development capabilities


2002 to 2007 2007 to 2012

Source: EY Analysis

Upcoming /expanding

2012 -

Maruti

Mercedes

Tata

TVS

Bajaj

Bosch

Caterpillar

Cummins

Delphi

Eaton

GM

John Deere

Visteon

Maruti

Mercedes

Tata

TVS

Bajaj

Bosch

Caterpillar

Cummins

Delphi

John Deere

VisteonEaton

GM

Mahindra

Research

Valley Paccar

Renault-

Nissan

Sharda

Motor

SKF

Arvin Meritor

Continental

Daimler IndiaComm Veh

Dana

DuPont

Faurecia

Hyundai

The number of engineers employed in product development centers in

India is estimated to have grown from 25,000 in 2012

Global market ambitionRespond to local market

Pre 2002

Maruti

Mercedes

Tata

TVS

Bajaj

Bosch

Caterpillar

Cummins

Delphi

Start-up

~ 10 centers

~20 centers

~40 centers


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Organizations, who have invested into R&D in India, are taking upgreater product development roles for local and global markets

Development ofGlobal

Platforms

Developed End-

to-End productand processdesign

capabilities

DevelopedGlobal Centersof Excellence in

India

Source: Primary research, Secondary research, EY AnalysisPage 6 ACMA Annual Conference: India as a product development hub

OEMs Suppliers

Development ofEeco, New Alto

XUV5OO Ace, Nano

Global centre ofexcellence for virtualtesting and analysis

Development of 3cylinder diesel

engine

Development forglobal markets

Ownership of globalmarket products

Enginecomponents

Low costcondensers

One of the globalproduct

development hubs

Global Centre ofExcellence for gear

pumps

Illustrative List

Development ofPulsar, Discover


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Our analysis of global suppliers identifies 2.5X returns by companieswho are investing a higher percentage in R&D


EBIT

DA

Margin

R&D/sales

R&D/sales* and EBITDA Margin*

* R&D/Sales and EBITDA numbers are averaged over duration of 4 years (2008-2011)

EBITDA

> 12%

EBITDA9% to 12%

EBITDA< 9%

Source: Primary research, EY Analysis

Median 18.5%

Median 7.3%


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ACMA Annual Conference: India as a product development hub

Analysis of Indian suppliers during our research reveals three pathsadopted in developing capabilities across the design value chain

Design value chain (From Infancy to maturing )

Explorers

Visionaries

Dependents

Problem

resolutionQFD

Process

Engineering

Proto-

typing

Basic and

applied

researchState

Program

Mgmt

Product

design

Initial step

Current state

Future state

Testing

&

validatio

n

21 3

1 2

1 2

Initial step

Current state

Future state

Initial step

Current state

Future state

Source: Primary research, EY AnalysisPage 8


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Page 9 ACMA Annual Conference: India as a product development hubSource: Primary research, EY Analysis

Ecosystem enablers:

Institution

Testing facilitiesPolicy

OEM/Parent

2

3

11

Triggers

OEM pull on suppliers

to take up product

design / prototyping

Initial steps

Identified

specific projects

to support OEM

needs

Shared financial

risk and

resources

Next stepsNext steps

Defined product design strategy

Enhanced testing and validationDeveloped few products

Increased spend on R&D to 1%

of sales

Future state

Product and

system design

capabilities

Process

engineering

capabilities

4

Approach:Collaborate

with OEMsand learn

Dependents:Followed OEM pull towards better engineering capabilities to

support faster product development cycles

InvestmentInitially shared resources as

Collaborative learning approach

Increased after initial success

LOW MEDIUM HIGH


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Page 10

Explorers:Setup design cell to resolve design problems, understand product &

process development



InvestmentInitially low investment as Explore and

watch approach

Increased after initial success

Ecosystem enablers:

Institution


OEM/Parent

2

3

11

Triggers

Entry by Global players

Increasing product

launches

Global expansion

opportunityInitial steps

Setup Design

cell for process

engineering and

problem solving

Setup basic test

facilities


Future state4

Approach:Establish

success andthen invest

LOW MEDIUM HIGH

Increase spend on R&D to

1-2% of salesStrengthened process engg

Testing and validation

capabilities

Product and

system design &

test capabilities

Process

engineering

capabilities


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Page 11

Visionary Technocrats:Envisioned an integrated design and manufacturing capability


InvestmentPlanned investment in facilities and

manpower development

Advanced testing, research labs


LOW MEDIUM HIGH

Ecosystem enablers:

Institution


OEM/Parent

2

3

11

Triggers

Leadership vision and risk-

taking propensity

Use Indian engineering talent

Global expansion opportunity Initial steps

Invested in

facilities,

manpower for

understanding

design,

prototyping,

testing and

validation


End-to-end product design

Program management of manyprojects

Risk sharing with OEMs on

specific opportunities

Future stateBasic and

applied

research

(collaborative)

4

Approach:Set vision &

pursueleadership

Application of

India developed

tech. for global

applications


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The product development ecosystem in India is in its infancy and isevolving



- Thetestinginfrastructurehas

improved,butisstillnotcomparabletoglobalstandardsTestingInfrastructure

- EffortatbuildingIndustryinstituterelationship,isdriven

mainlybytheindustry- Institutecapabilityonappliedresearchisstillevolving

- Engineersrequire3yearsofOn-Jobtraining

Industry-InstitutionTie-Up

- Thegove

rnmenthasta

kensteps,

butalongertermvisionis

required

- Governme

ntneedstopla

ythe

anchorrolein

bringingfocus

on

Indiasautom

otiveR&D

Policy

Product DevelopmentEcosystem

FewOEM-Suppliershave

started

adoptingacollaborative

productdevelopmentapproach,butlimited

toafew

vehiclesystems

OEM Suppliercollaboration


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An expectation mismatch exists between OEMs and supplierson the approach to develop suppliers product development

capabilities


Suppliers Expectations OEMs Expectations

Explore joint development

opportunities with suppliers

Share resources and

financial risks

India specific product

development can be best

done in India Honour commitments during

design/development phase

Suppliers should build

capabilities in basic areas

Problem solving

Design understanding

Program management

Invest in testing facilities

Collaborate with othersuppliers to provide a

system solution

Provide proven products

ExpectationMismatch

To take advantage of affordable R&D and develop India as an integrated

hub, OEMs and suppliers need to increase collaboration for mutual benefitSource: Primary research, EY Analysis

Government policies

Product Development Ecosystem


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Universities/Research Institutes

Areas of basic research for country

Inputs

Germany

China

Government defines

strategic direction for

future R&D

Korea

Policy led to automotive innovation

clusters in Bavaria, Baden-Wurttemberg

OEMsS

upplie

rs Institu

tes

Government policies in other automotive hubs have facilitatedand anchored a long term R&D roadmap

Policies ensure that FDI

is accompanied by

technology transfer

Indian policy needs to anchor a long term product development roadmap

Government funded

efforts to strengthen

local R&D capability

Ulsan - Auto PartsInnovation Center

Source: Secondary research, EY Analysis

Government policies



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Industry

Institute

Interaction

Industryinstitute tie-up is an essential part of the ecosystem,wherein Institutes provide basic and applied research input


Pre-competitive or basic

research is happening in India

wherein Industry and institutes

interact for common minimum

programs

Industry-Institute relationship is

more mature in Germany and UK,

where development, prototyping

happens. It is mandatory forinstitutes to do applied research

While few institutions have started

focusing on applied research,

institutional R&D is piecemeal and

applied research is largely missing

Industry is ahead of the level of

manpower provided by institutes;

Indian engineers need 3 years of

on-job training as compared to 3months in Germany

Institutes need to be mandated and incentivized for applied researchSource: Primary research, Secondary research

Government policies



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Testing and validation infrastructure is critical to productdevelopment in India


GOI Facilities

OEM/Supplier captive testing

facilities

Legend*

* Height of column is directly

proportional to number of testing

centers

Chennai

Pune

Delhi/ NCR

Coimbatore

Bangalore

MumbaiAhmednagar

Indore

Silchar

Rae BareillyJaipur

Hyderabad

Rohtak

Baramati

Lucknow

Indias automotive R&D testing infrastructure There has been an effort

towards improvement of

testing and validation

infrastructure in India

The testing infrastructure

is insufficient for Indias

product developmentambitions

Visionary OEMs and

suppliers have not waitedfor infrastructure to come

up, they have invested in

own advanced testing

facilitiesSource: Primary research, Secondary research

Government policies



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ECOSYSTEM

OEM-Supplier collaboration Industry-Institute Tie-up

Policy Testing Infrastructure

Set roadmap for future technology

leadership in specific areas e.g.,

Powertrain, Electric mobility etc.

Encourage innovation clusters

Mandate and incentivize research

by academic institutions

Enhance Government and private

testing facilities to global standards

Benchmark with test facilities

required by suppliers and OEMs inother product development hubs

Greater collaboration through

resource and financial risk sharing

Collaboration is essential to India

achieving global industry

leadership as an integrated

development and manufacturing

hub

Pro-active role of institutes with

industry for research, skill

management

Progress towards applied research

Update curriculum to improve

knowledge and skills of engineers

ACMA Annual Conference: India as a product development hubPage 17

Roadmap for Automotive Product Innovation and Development(RAPID) for the Ecosystem

Source: EY Analysis


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Investment

Essentials

Initial

steps

Dependents Explorers Visionaries

Identify areas of need

with OEM on a specific

component/ productdesign

Setup design cell

Problem resolution

Process engineering

Component design

Setup PD vision

Product strategy

Technology strategy

Investment plan

Basic testing facilities

Advanced facilities

shared with OEMsAccess to

technology/design skills

Setup team of high

performing individuals

Test facilities forproblem solving and

new product testing

Setup PD centre

Build advanced test

facilities Hire experts for product

design

Knowledge and Skill Management

Tie-up with institutes for training and research

Investment would

depend on nature of

product/cost of

technology

Initial Investment in

R&D is not substantial

as basic facilities

Investment is higher as

manpower and facilities

need to evolve quickly

Roadmap for Automotive Product Innovation and Development(RAPID) for Suppliers

Source: EY Analysis



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India can become a global industry leader, to do so it needs toevolve as an integrated development & manufacturing hub


Collaboration

Culture

Profitability

Ecosystem

LeadershipvisionA

B

C

D

E

Provide direction, determine evolution path and invest for

the future

OEM-Supplier collaboration a key enabler to

build/enhance Indian model of affordable R&D solution

Suppliers and OEMs will need to inculcate and absorb an

organization-wide design and innovation culture

Invest for the future, to achieve higher levels of

profitability and customer satisfaction

Ecosystem is a key enabler; need to enhance deployment

monitoring, applied research, testing facilities

Source: EY Analysis


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OEMs Component Manufacturers Institutions

Bajaj Auto Ltd. Bharat Forge Ltd.Automotive Research Association of

India (ARAI)

Daimler India Commercial Vehicles

Pvt. Ltd. (DICV)Bosch Ltd. Fraunhofer India

Mahindra & Mahindra Automotive

DivisionCummins India Ltd.

National Automotive Testing and

R&D Infrastructure Project (NATRiP)

Maruti Suzuki India Ltd. Gabriel India Ltd.Indian Institute of Technology, Delhi

(IITD)

Tata Motors Ltd. Hi Tech Gears Ltd.

Tractors and Farm Equipment

Limited (TAFE) Lucas-TVS Ltd.

Minda Group

Hi Tech Gears Ltd.

Rane Group

RICO Auto Industries

Sharda Motor Industries Ltd.Shiram Pistons & Rings Ltd.

Sona Koyo Steering Systems Ltd.

Subros Ltd.

Varroc Engineering Pvt. Ltd.

The team interacted with various stakeholders from the industryand we take this opportunity to thank all participants for their inputs


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Thank you

e&y acma presentation 5th septembr 2012

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