The Chinese threat and the need to focus on R&D

India has developed into a dynamic market for the machine tool industry over the past years. Bangalore and Chennai are becoming important industrial centres in addition to the traditional markets like Delhi and Mumbai. Today, many European countries as well as neighbouring countries and other South East Asian nations are importing machine tools from India. Even our neighbour China has been importing from Indian manufacturers.

But the machine tool industry is still a fledgling and is to a large extent dependent on servicing the domestic market and the burgeoning automobile components manufacturers. Though India has made strides to do away with the technology gap that existed earlier we still are a long way from matching the quality standards expected by consumers like The UK and other European nations both in terms of product quality and design aspects. We still have to go a long way before we can introduce our own innovations based on the international market requirements.

The growth in the domestic market has provided a boost to the growth in the machine tool sector. But this fillip is not enough for us to establish ourselves on international standards and provide cutthroat competition to MNC manufacturers.

China, for instance, pose a big threat to Indian exports. The rapid growth in the domestic market and its emergence as a low cost manufacturing hub has made it one of the biggest markets for machine tools. And with investments from the more developed nations pouring in both in terms of resources as well as technology they have an advantage over India as far as quality technology is concerned. The volumes generated through domestic consumption alone is enough for Chinese machine tool manufacturers to not just survive but remain profitable and look outwards. Many Chinese manufacturers are already exporting machine tools to the UK and various European nations. Even India is a big consumer of Chinese products. And their biggest advantage is cost.

Says Ajmera, SPM Machines, “In China, there are lots of factories in the small scale as well as large-scale space. Big companies like HMT in China are selling to countries like UK. They also meet the demand in other European nations as well as in American. They have already established their market there and now they are focusing on the Indian market. That is why I am saying that the Indian machine tool industry will face a very big problem. The Chinese manufacturers are following European standards. There are many big companies there who are manufacturing machines that match European standards. They have got the certifications required to sell in these countries and their products have already met with approval there.”

The Chinese manufacturers are following the pricing strategy to capture market share in India as well. Says Sanjay Suri-managing director, Legris, “India is a price sensitive market. Chinese manufacturers are lowering their prices in terms of machines and technology. We do face a threat on Chinese product lines. We have come across a number of cases and as a counter action we have developed a product line, which is price-wise by and large competitive to the Chinese products. It is our second line of products and I think we will be able to compete with them as well. We do face competition but there are market segments of customers who prefer to buy a standard, branded product, which have been built over a period of time, because it carries a reputation.”

ADVANTAGE INDIA

China is doing very aggressive marketing but, according to Ashiesh Chandavarkar-vice president-Nugen Machineries, they can’t match Indian technology as far as quality is concerned. They can give products at a low price point but it is harmful for Indian customers in the long run. Says he, “Of course, Indian customers are conscious about price. But in the long run I don’t think the Chinese will able to sustain themselves in the Indian market.”

One of the major plus points of India over China is the language. The Chinese are still not fluent in the English language though they have been making studious attempts to undo this gap. Hence, MNCs find it easier to handle joint venture and partnerships with Indian manufacturers and industry bodies, government agencies. Says Mr.Volker- Carl Zeiss India, “

Thanks to India’s command over the English language it is easy to handle communication with India. The understanding of business, the methodology of doing business is easy to achieve dealing with an Indian partner and it is harder to deal with a Chinese company.”

According to a CII study, during January-May 2004, Indian machinery exports to China registered a 178 per cent increase touching $51.32 million as compared to $18.49 million in the corresponding period of the previous year.

India's exports have increased in absolute terms in every successive month this year, rising from $6 million in January 2004 to $15 million in May 2004, stated the report.

While China imports large number of machinery products to meet its growing domestic demand and to complement its production, India's share in Chinese imports of engineering goods has been consistently going up. In 2002-03, the value of exports increased by 80 per cent to touch $76.82 million as compared to $42.29 million in 2001-02.

The CII study also notes that the auto component sector offers an excellent opportunity to Indian companies for export to China. Continuous high growth of the industry is expected to produce 5.1 million-5.3 million vehicles, including the 2.5 million-2.6 million cars this year, predicts the CII study.

China has the world's largest machine tool market with $5.7 billion worth of annual consumption. However, the study points out that Indian machine tool industry is yet to tap this market.

The CII suggests that a market research study be conducted on the price, pattern, tariffs and source of the imported products by China to identify a niche of products in which India has both quality and price advantages for export to China.

The export of machine tools to India generated 77.4 million euros (Rs 414 crore) from the German machine tool industry in 2004, and the first half of 2005 saw a growth rate of 123 per cent against the same period in the previous year. With a growth rate of over 30 per cent, India was the fastest growing automobile market in 2004.

IN the backdrop of increasing exports of Indian machinery to China, the Confederation of Indian Industry (CII) has said that there is a tremendous potential for exports as well as technological collaboration between India and China.

R&D For Success

R&D is critical, as it is responsible for our technology getting upgraded regularly. There are many parts involved in press brakes and shears and each part is advancing technologically. The market is being inundated with innovations on a constant basis. And we have to cater to new technology. R&D and design go hand in hand. Every Company should have a well-knit in-house R&D team, equipped with the latest computer software and well-defined goals and headed by veterans. Improvisation, transformation and improvement are the tools with which the R & D department should work. In addition to this, the R&D department should take into consideration customer suggestions, special requirements, and feedback before setting out on any on new inventions. So the role of R&D is very important, as far as business is concerned in today’s world.

Most international manufacturers focus heavily on R&D and invest a large part of their profits into R&D activities. Says Volker, Carl Zeiss, “R&D is a very important part of our product strategy. I think more than 30 percent of our revenues each year is generated from products younger than three years. We have up to 400 patents. And we are adding new patents every year. And so we focus really on new development.”

In India, R&D is one of the most neglected factors. If you see big companies abroad, they spend 30-50 percent of their gross earnings into R&D because R&D is not for the currently available product line. R&D is for patching up with the future and to be prepared with innovations when the time comes. Says Mr Lim, international sales manager, Autonics, “We are, as it is, behind on the technological level because our R&D is not very strong. We are learning to catch up with the existing products. We will continue to be 20 years behind if we don’t change our style of functioning, if we don’t invest in R&D today for the result tomorrow. R&D makes you feel much more comfortable when you invent, when you create something which was not there earlier. We improvise and call that R&D. We upgrade and call that R&D. R&D is not just these two.

We have to do a proper research with a proper environment with those people who have an ability to create. Once we create something new, I would say in the world we are among the very few creative nations.” For example, we say we have a history, a lot of original monuments, constructions. When we say R&D, everything is new. But we also learn, take ideas from the past. We have forts in India standing on top of the hill made 400-500 years back and they are still standing. So what we had as skills we have forgotten. R&D is improvising these skills into converting into modern environment and learning from the past. Convert for the future but absorb today.

Issues

As far as export import policies are concerned most manufacturers are comfortable. But many have raised their voice against the existing excise duty structure. Says Chandavarkar, “I think there has to be some relaxation. For small and medium companies it has become difficult to invest in new machinery. Because of excise the price of my machines has gone up. And most of my machines start at a price point of Rs 3 lakh upward. So paying Rs 45,000 in excise has become too much for small-scale industries. So the government should think excise relaxation especially for small-scale industries. They want to buy our machines but they cannot because they find 16 percent excise too steep. This are the things government should take care as far as small scale industry is concerned.”

One of the key issues is safety. In India, most product manufacturers in order to cut costs compromise on the safety aspects. And this has become the rule rather than the exception. Whereas in Europe and the US there are regulations to handle the safety aspect and to basically take care of human life and limb. In India we do not have any such restrictions or rules at the moment. In India industrial safety means wearing helmets and boots and things like that. But optoelectronic devices for industrial safety where you have real certified systems are almost non-existent in India. Says Nair, GM, Sick India, “I am really hoping that very soon the concerned authorities like the national safety council (NSC) and the heavy industries ministry takes a serious view of things and formulate some rules wherein manufacturers will have to abide to some restrictions for safety.”

The most important issue is how to make that product workable at the premises of your customers, how much fool-proof you can make the product. You cannot make it idiot-proof, but you can make it fool-proof. Indian manufacturers have to make quality the first motto of manufacturing. And quality comes from within, so we have to produce our right environment, right culture, and trained manpower to produce quality at the grassroot level. Only then, after five years, you can see that every where else we have reached a certain level of acceptability. This means that our labour, our secondary staff, our clerical and supporting staff, our helpers, our production labour, our skilled labour, etc have to be woken up to the need to strive to achieve a certain standards of quality in everything they do. From there, we should start training people for quality consciousness.

Secondly, services is the most important factor today. Its increasing importance can be gauged from the fact that the government has started taxing services almost at par with manufacturing. Any products, the best of the products made in the best of countries also need a service department. So we should be more service friendly. Rather than only manufacturing and implementing a product we should ensure products and services to the customers are available at all times from the technological package side, physical conditioning, physical help at the site but there should be a reservoir of information available at every head quarter at every manufacturer, which should be connected with I-net. The customer should be able to just connect to the head office of the manufacturer and connect directly to the information. He does not have to be available in front of the machine. This is something we should do as early as possible so that the products will have lesser downtime. Productivity will improve. And if we improve the quality of life, the quality of workmanship automatically improves.

The government has supported the globalization of the machine tool industry allowing imports by doing away with DGTD and DGS&D and licensing and delicensing processes. The government should provide the platform and industry should be free to work within the norms. Government probably should not be necessarily involved in the industry in future. We are already talking of public sector being decentralized. There will be resistance, there will be time when everything will be accepted but the government should focus only on governance and industry should be given a free hand to import and export at their will within the norms and policies of the government. The policies should be uniform and consistent.

The government should encourage industries by reducing customs duty. Especially the customs duty for small scale industries is very high. Where the export-oriented units pay only 5 percent, and the large industries pay only 15.65 percent, the small scale industry, which is the backbone for all the big industries pay 34.55 percent. This is too exorbitant. Without these small scale industries none of the big industries can make profits. If you see any large industry their profits lie in sub-contracting to small scale industries. So the government should revise the duty structure so that the small scale industries can afford to buy good quality imported machines.

Steps should be taken to harmonize the tariffs at least to Asian countries. And since India is a signatory to WTO, we can harmonize the structures of our taxation at the same level, this will help the market grow faster.

In addition to this, the industry needs to prove its capacity and output quality. We have to prove that our product quality and technology are equivalent to what is being offered by the multinational companies. Indian companies should go up to that level otherwise they will face a very big problem in the near future.

R&D plays an extremely important role here— not only on the product side but also on the services front. What customers want is more value for money and obviously at a very competitive price. Manufacturers need to come up with a lot of innovative ideas to serve customers. A lot of research needs to be done by all the companies not only for product improvement but also enhancing quality standards. Product quality becomes a standard with everybody starting with quality. So, what one offers after the quality is going to be the selection criteria for the customers.