India’s engineering skill triggers JVs in auto industry
THE automobile industry is witnessing the second wave of alliances and joint ventures between global and Indian companies. As many as four tie-ups in the CV space and one in the passenger car segment (Bajaj-Renault) have been announced this year, a repeat of the 1990s when Toyota, Daewoo, Honda, Ford and GM entered into JVs with Indian partners. But there’s a crucial difference. Those tie ups were done to comply with FDI regulations and to leverage the local partner’s clout and understanding of the environment and market. This time round, however, the foreign companies want to leverage India’s engineering skills for costefficient manufacturing and source components from India for both global and local operations. Even when there are no JVs in the offing, nearly all MNCs are using India as a component sourcing hub. From there to move to a partnership is just a hop, skip and jump away. Indeed Nissan-Renault’s first foray into India was with a sourcing arrangement. And as India hones its low-cost vehicle development and marketing skills, the two get combined to encourage more global-local marriages. Which explains why despite being significant hubs other top-gear emerging markets like Thailand and Brazil have not attracted the kind of JV interest that India and China have. Consider some of the names in the JV roster – everyone from Iveco to Nissan-Renault is hooking up with local partners. And some, like Volvo, Daimler (and even perhaps Ford) is adding a partner despite already having a wholly-owned subsidiary in India. As many as four alliances were announced this year starting off with Tata-Iveco earlier on followed by Nissan-Ashok Leyland in October and now Volvo-Eicher and Daimler-Hero in quick succession. The fifth and sixth JVs in commercial vehicles — between MAN and Force Motors and Mahindra and ITEC —have been functional for a couple of years. Although there are differences in their micro focus — the Nissan-ALL JV for instance is only for light commercial vehicles while ITEC has just signed an engine JV with Mahindra—all the alliances broadly have the same focus. Namely use India’s engineering skills for cost-efficient manufacturing and source components from India for both global and local operations. Auto analysts say this second flush of Jvs is totally different from the auto marriages in the early 90s. Back then, apart from a certain knowledge of the local market and a degree of distribution skill, the Indian partners brought little to the table. Most JVs made way for whollyowned subsidiaries as the foreign partner increased investment levels in India. Some of them, like TVSSuzuki and Premier-Peugeot, also turned ugly. Nearly a decade on, the new rash of marriages are quite different. The MNC partner this time round is looking to tap into India’s engineering and oursourcing skill pool. And in most cases the Indian partner retains both majority and the right to call the shots in the JV. That’s true as much of commercial vehicles as of passenger vehicles. The recent Renault-Bajaj Auto plans or Renault’s larger tie-up with Mahindra all hinge on the Jvs ability to help develop and market cost effective vehicles. Says a partner with a Delhi-based MNC consultancy: “As margins wear thin in their home markets in Europe and the US, auto companies are looking for cost nirvana in places like India and China.” In China, where a policy mandate still remains, Jvs have been a popular choice. But beyond that, Chinese companies like Chery are attracting interest from OEMs like Chrysler for joint development of small vehicles. In India too the focus is on small and light vehicles. In passenger cars it’s the $3000 vehicle while in commercial vehicles it’s the sub-1 tonner, Ace-type vehicle. Both products are segment innovations that have attracted global interest. Says Stephen J Rohleder, chief operating officer, Accenture: “The innovation that comes out of India is going to constantly challenge not just the price points but the thinking of the western world. For years most of the automotive industry had competed on a scale basis. So when Tata comes out with a 2000$ car for the emerging market or for the young middle class market, it creates all kinds of opportunities to figure out how to manufacture in scale, how to define quality and how to get a supply chain in space.” No wonder, he says, global OEMs are drooling at the prospect. Indeed at the launch of the Logan, Renault boss Carlos Ghosn had talked about something similar. “The main weakness of today’s global automakers is that they are incapable of delivering an extremely low cost, basic product and still make money out of it,” he said