`Quality and productivity must rise 200%' -- Mr K. Mahesh, Chairman and Managing Director, Sundaram Brake Linings Ltd.

Raghuvir Srinivasan

In the auto components industry, his has been the lone voice crying out for change.

He is passionate about investing in R&D, promoting exports and adopting the latest production techniques in his own company. In this interview with Business Line, Mr K. Mahesh, Chairman and Managing Director, Sundaram Brake Linings, and President of ACMA Centre for Technology feels that unless the Indian component industry pulls up its socks it will perish.

Excerpts from the interview:

How long do you think the current downturn is likely to last? What are the steps the industry and Government should take to get things back into shape?

I expect it to last for at least another six months to a year. I do not see any signs of a recovery. It is the same old story -- no infrastructure spending, no roads, no major investment coming in and no load for trucks. With fuel prices going up (but not quality), truckers are not making any money, and to top it, vehicle prices are also going up thanks to the new pollution norms. According to a leading fleet operator, it is impossible to get any returns on a new vehicle and it is not viable any more. I am not protecting pollution but I think that it has to be done without pushing vehicle prices upwards.

The other thing is fragmentation of passenger car capacities. Except for the Santro, the Maruti and Indica, all other car volumes are small. The result is that localisation is low and, even if it is done, it is not profitable. Except for Hyundai, Maruti and Tata Engineering, all the others import their engines. Maruti has to begin the indigenisation process all over again for its new models, the Alto and Wagon R. The benefits of the new models will not be felt immediately.

What possible role could the Government have in a turnaround?

They have done the damage. After the `open door' policy, all the global majors have come into India and will stay even though volumes are low. I do not think the Government can do anything. Of course, it has to implement reforms with more commitment. The Budget was excellent, but there has been little follow-up action. We have had scams after that... nothing is being done, everything is at a standstill. Let the Government govern. Anyway, they cannot help the auto industry any more. What else does the industry need? It has got 180 per cent protection on second-hand vehicles. Two-wheelers have also got some protection.

Between globalisation of the Indian component industry and the technological upgradation vital to survival, which do you think is the biggest challenge facing the component industry?

The Indian component industry is not going to get globalised. We are too small to become global players. We are like tiny ants on the global stage. The turnover of our biggest company must be around $200 million. If you take the likes of Delphi, Visteon, Bosch and Federal Mogal, we are nowhere in the picture. If I am right, Delphi's turnover must be around $28 billion, while the total turnover of the Indian component industry is no more than $4 billion!

Forget about being global players. The point is to survive. How do you do that? That can be done by ensuring quality, productivity and R&D. We have done nothing on R&D till now. The vehicle manufacturers did not want to change till the Government/Supreme Court forced them to adopt Euro norms and the component manufacturers said `Everything is hunky-dory, so why should we change?'. R&D is considered a waste of money and time. Quality is given the go-by and productivity is so bad that we are ranked as one of the lowest in the world.

Unless these are addressed, we cannot survive. Spending on R&D is the only area where the Government can help. Our Government still does not have an R&D policy for the auto components industry. Without R&D, leave alone Tier I, we cannot even aspire to be Tier II suppliers. The British Government has given the industry about 8 million to improve productivity and quality. This is entirely WTO-compatible. Even the US has done it. It is done through a quasi-government organisation, with the funding shared equally by the industry, federal and state governments. If the US and UK can do it, why cannot India?

But do you mean to say that the Indian component industry does not have strengths in the technology-intensive product segments? Where do you place Indian companies in this respect?

In terms of the ability to innovate I think we are way behind. We are used to importing technology always, have never done any original research -- the joint venture partner usually provides the technology. `Know-how' is always given but `know-why' is never given. It is only a question of time before all joint-venture companies become majority-owned because they want worldwide homologation. With Tier 0.5 coming in, they and Tier I will control the complete design. They will be in the inside track with vehicle manufacturers at the design stage. They are not going to design a vehicle for India alone. For instance, Fiat will take out the Palio and modify it for Indian road conditions. The original design is done in Italy. Sitting here in India you are not going to be designing that unless you are on the inside track. So our ability to be in Tier I is just not there.

In that case, where do you put Indian component manufacturers?

In Tier II, if they improve productivity and quality or in Tier III.

That will essentially be in low technology products...

Commodity products, yes. Such as castings, forgings, brake linings, fasteners, wheels (it cannot be made in any other way, it has to be round!). It is a shame but that is what we are coming to. Look at the change in voltage -- all electrical circuits are going to be made into 42 volts. Who in India is thinking of making 42-volt products? We are still happy with 12-volt products. Denso, Visteon and Delphi have all agreed to the worldwide change after which everything will be electronically-controlled. They find that the current voltage is not high enough. That is just one example. And then there are hybrid engines. Okay, you may say that they are still a few years away. But where are we in terms of hybrid engine technology? We do not even have a track to what is happening, leave alone financial clout to do any research. We can certainly be good Tier II suppliers provided our quality and productivity levels are increased -- not by 10 or 20 per cent but by 200 per cent. At Sundaram Brake Linings, after the modification of some of our lines we have seen productivity per man increase in those lines from 150 per cent to 600 per cent.

Do you think that Indian component manufacturers have the capability to be global Tier II or Tier III suppliers?

Commodity products, yes. But then, we do not have infrastructure support in this country. You currently have a power plant strike and a port strike... the international customer is not bothered about these things. This is where the Government has failed. Roads, ports and power are all in bad shape. Again, where is the money? There is no market for us to raise money. The cost of finance is still high at around 12 per cent, while it is less than 5 per cent in the developed world.

Leaving the environment aside, what is it that component manufacturers lack -- focus on the export market or a lack of ability to service it?

Both. Exports, like R&D, takes time. Whether you are ISO 9001 or QS 9000 is only a means of entering the country. You have to then provide quality, cost and delivery over a period of time. That requires a lot more effort than supplying in the domestic market. Of course, quality and price have also got to be right.

You are the President of the ACMA Centre for Technology (ACT). What is ACT doing to upgrade the components industry?

The ACT which was started nine years ago has been re-activated. We have put 14 companies on a three-year programme to introduce them to TQM, TPM and lean manufacturing techniques. It has been on for four months now and we have already seen a big change. The CIIs TQM division has also been roped in to help us. We are finalising a programme with UNIDO and the Automotive Industry Forum, UK, to do what they are doing in the UK.

Where is the money for this coming from?

The current programme is self-funded. But for the UNIDO programme of $500,000, ACMA will provide 25 per cent with the balance coming equally from UNIDO and the Government.

In the near future, is a shake-out likely in the components industry?

Yes, I think so. People will vanish. They have been pushed around from all sides -- vehicle manufacturers demanding lower and lower prices, high production costs, inability to access technology, low volumes... five years down the line, I would not be surprised if Tier I is dominated by multinationals such as Delphi and Visteon.

How do you foresee the future for Sundaram Brake Linings?

Exports will be our focus. Ours is a commodity product. We now export to 52 countries and are adding to it. I make more money in exports than in the domestic market. Having said this, I should also say that you cannot survive on exports alone. The domestic market has to be steady. Spurious products pose a huge problem in the replacements market -- up to 40 per cent of all components sold are spurious. That cuts into my domestic business. This year will be flat for SBL as I do not expect the domestic market to revive soon. I am expecting some fresh breakthroughs in exports.