E&y acma presentation_5th_septembr_2012

Growing beyond manufacturingOpportunities in India as an emerging auto product development hub

ACMA Annual Convention 20125th September, 2012

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

• India will emerge as the largest producer of small cars by 2013• Further, India’s production of small commercial vehicles (<3.5 T) has

grown at >25% in the past five years; faster than the global average

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

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

Leadership position in the automotive world

Manufacturing

Vehicles and components manufactured 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 be done in this area to improve India’s innovation quotient

Cost and Quality (Strong Foundation)

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

Rising customer expectations and increasing volumes have driven OEMs 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 product development capability

- Localize and adapt

Start-up

Pre 2002

- Develop India specific products

Respond to local market

2002 to 2007

- Develop global platforms

Global market ambition

2007 to 2012Source: EY Analysis

OEMs and component manufacturers are responding to the opportunity 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



• John Deere• Visteon

•Eaton•GM

• Mahindra Research Valley

• Paccar• Renault-

Nissan• Sharda

Motor• SKF

• Arvin Meritor• Continental• Daimler India

Comm Veh• Dana• DuPont• Faurecia• Hyundai

The number of engineers employed in product development centers in India is estimated to have grown from <1,000 in 2002 to >25,000 in 2012

Global market ambitionRespond to local market

Pre 2002



Start-up

~ 10 centers

~20 centers

~40 centers

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

Development of Global

Platforms

Developed End-to-End product

and process design

capabilities

Developed Global Centers of Excellence in

India

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

OEMs Suppliers

Development of Eeco, New Alto

XUV5OO Ace, Nano

Global centre of excellence for virtual testing and analysis

Development of 3 cylinder diesel

engine

Development for global markets

Ownership of global market products

Engine components

Low cost condensers

One of the global product

development hubs

Global Centre of Excellence for gear

pumps

Illustrative List

Development of Pulsar, Discover

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


EBIT

DA

Mar

gin

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%

ACMA Annual Conference: India as a product development hub

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

Design value chain (From Infancy to maturing )

Explorers

Visionaries

Dependents

Problem resolutionQFDProcess

EngineeringProto-typing

Basic and applied

researchStateProgram

MgmtProduct design

Initial step

Current state

Future state

Testing &

validation

21 3

1 2

1 2

Initial step

Current state

Future state

Initial step

Current state

Future state

Source: Primary research, EY AnalysisPage 8

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

Ecosystem enablers:Institution

Testing facilities Policy

OEM/Parent

2

3

11Triggers

►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 validation►Developed few products► Increased spend on R&D to 1%

of sales

Future state►Product and

system design capabilities

►Process engineering capabilities

4Approach: Collaborate with OEMs and learn

Dependents: Followed OEM pull towards better engineering capabilities to support faster product development cycles

Investment•Initially shared resources as “Collaborative learning” approach•Increased after initial success

LOW MEDIUM HIGH

Page 10

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

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

Investment•Initially low investment as “Explore and watch” approach•Increased after initial success



OEM/Parent

2

3

11Triggers

►Entry by Global players ► Increasing product

launches►Global expansion

opportunityInitial steps►Setup Design

cell for process engineering and problem solving

►Setup basic test facilities

Next stepsNext steps

Future state4Approach: Establish

success and then invest

LOW MEDIUM HIGH

► Increase spend on R&D to 1-2% of sales

►Strengthened process engg►Testing and validation

capabilities

►Product and system design & test capabilities

►Process engineering capabilities

Page 11

Visionary Technocrats: Envisioned an integrated design and manufacturing capability

ACMA Annual Conference: India as a product development hub

Investment•Planned investment in facilities and manpower development•Advanced testing, research labs


LOW MEDIUM HIGH



OEM/Parent

2

3

11Triggers

►Leadership vision and risk-taking propensity

►Use Indian engineering talent►Global expansion opportunity Initial steps

► Invested in facilities, manpower for understanding design, prototyping, testing and validation

Next stepsNext steps►End-to-end product design►Program management of many

projects►Risk sharing with OEMs on

specific opportunities

Future state►Basic and

applied research (collaborative)

4Approach:

Set vision & pursue

leadership

►Application of India developed tech. for global applications

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

Page 12 ACMA Annual Conference: India as a product development hubSource: Primary research, EY Analysis

- “The testing infrastructure has improved, but is still not comparable to global standards”Testing Infrastructure

- “Effort at building Industry –institute relationship, is driven mainly by the industry”- “Institute capability on applied research is still evolving”- “Engineers require 3 years of On-Job training”

Industry-Institution Tie-Up

- “The government has taken steps,

but a longer term vision is required”

- “Government needs to play the

anchor role in bringing focus on

India’s automotive R&D”

Policy

Product Development Ecosystem

“Few OEM-Suppliers have started

adopting a collaborative

product development

approach, but limited to a few vehicle systems”

OEM – Supplier collaboration

An expectation mismatch exists between OEMs and suppliers on 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 other

suppliers to provide a system solution

Provide proven products

Expectation Mismatch

To take advantage of affordable R&D and develop India as an integrated hub, OEM’s and suppliers need to increase collaboration for mutual benefit


Government policies



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

OEMs

Supp

liers Institutes

Government policies in other automotive hubs have facilitated and 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 Parts Innovation Center

Source: Secondary research, EY Analysis

Government policies


Industry –Institute

Interaction

Industry–institute 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 for institutes 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 3 months in Germany”

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

Government policies


Testing and validation infrastructure is critical to product development 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

India’s 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 India’s product development ambitions

• Visionary OEMs and suppliers have not waited for infrastructure to come up, they have invested in own advanced testing facilities

Source: Primary research, Secondary research

Government policies


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 in other 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

Investment

Essentials

Initial steps

Dependents Explorers Visionaries Identify areas of need

with OEM on a specific component/ product design

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 OEMs Access to

technology/design skills

Setup team of high performing individuals

Test facilities for problem solving and new product testing

Setup PD centre Build advanced test

facilities Hire experts for product

designKnowledge 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 AnalysisPage 18 ACMA Annual Conference: India as a product development hub

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


Collaboration

Culture

Profitability

Ecosystem

Leadership visionA

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


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 Division Cummins 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 industry and we take this opportunity to thank all participants for their inputs

Thank you

E&y acma presentation_5th_septembr_2012

Education

global development capability

global platform development

product development

global averagesource

vehicles india

end product

global centre ofdevelopment

global standards platforms