|ET: The Indian engineering research and development & design industry has witnessed a paradigm shift from being automobile-industry centric to now include various other verticals. Please share your observations on this trend.
SG: For the last few years the automotive market has shown a marked slowdown – both in the passenger vehicles and the commercial vehicles segments. This has as a result led to a slow down in development activities at OEMs for new models. Due to this, industries which are focused on automotive business only are severely affected, and for many, it is a question of their own survival. The slowing market has led many R&D and design industries to shift their focus from pure automotive to other sectors, such as white goods, shipping, aerospace, railways, etc. All these industries have something common which is engineering. With this, many companies are able to mitigate the risk of low automotive growth.
In parallel to the slowdown in the automotive industry, there has been an increase in opportunities in aerospace, shipping and defence engineering – especially due to the off-set clause which alone offers over USD 3 bn per year. You will see various new ventures have been formed and are doing good business here.
Overall the total global engineering outsourcing spend in 2004 was USD 750 bn – expected to grow up to USD 1.1 tn by 2020. The fastest growing and largest chunk of this will be in telecom space with a 30% share – followed by automotive at 19% and aerospace at 8%.
On the domestic front, though India has the largest railway network, it has a tremendous scope for improvement. Improvement has been initiated in this direction and the Indian government has signed pacts with other countries to improve the infrastructure as well as other areas of rail technology including high speed rail, heavy haulage and station development. All this means opportunities for domestic business in the E&RD space.
ET: Nasscom has estimated that the size of the Indian engineering research and development and design outsourcing industry will touch US$ 40-45 bn in 2020. What do you see as key challenges in reaching this milestone?
SG: Yes, it is true that there is definitely a huge scope for expansion. As Indian OEMs try to keep up and compete with global OEMs, the R&D outsourcing effort will only increase. One of the key factors that we need to work on is how much of this outsourcing will be done out of India using Indian expertise and how much of this will be outsourced to European and American engineering centres. This is the challenge that we need to overcome. One can understand the scale of the challenge when we understand the type of work that is outsourced to India currently and the type that is actually done out of India – both at the OEM level and at the engineering service centre level. The challenge here is linked to being able to develop facilities and competencies that can duplicate the competencies available overseas. If we look at the automotive segment we need to develop facilities and competencies for:
- Platform Development
- Prototype Development
- Development Testing
It is not that these competencies are not available in India – but these are not nearly enough and the efficiency and knowledge is not available in India. If we take the example of our own company, Magna Steyr, the engineering knowledge related to passenger vehicles that is available in our European centres is very difficult to duplicate here – especially since this knowledge has been developed over the last 100 years. We have a program of how to increase the competencies and pass this knowledge over to India and Asian Design Centres.
The key lies in our ability at a company level to be able to devise a strategy how to transfer knowledge from our international design centres to offshore locations and how we are able to retain that and grow that knowledge. This to us is the key challenge.
ET: If we are to look at the value chain analysis for this industry, where would India’s skills and potentials be perched?
SG: If I look at the value chain of this industry I think we are somewhere midway and still need to walk a long distance. I think Indian industry has good potential and the skills, but what we need to improve is our understanding of quality. For various reasons, the definition of quality is different for different suppliers. Some big global suppliers are at par with rest of the developed world but some are not even acceptable to Indian customers; however they all exist under the same sky. This exists because we have buyers or customers whose expectations are also equally wide. I think this needs a serious improvement if we have to grow our industry.
To increase operational efficiencies, reinvent and embrace new business models which will offer customers a transformed business proposition. For example, based on the customer requirement, shift to transaction-based pricing which facilitates revenue-generating projects drive concerted initiatives to strengthen the innovation capacity and research capabilities through specific domain focus and by encouraging R&D collaborations and public-private partnerships. Pursue continued efforts to further build a high-calibre R&D pool, not only from an educational perspective, but also by instilling the relevant research aptitudes and capabilities.
Continue to strengthen the long-term entrepreneurial environment.
Enhance the skilled talent pool in the country and focus on specialisation.
ET: Please share your thoughts about the readiness of the Indian education system to cater to the burgeoning demand from the industry.
SG: The biggest challenge today is the education system, as our colleges and universities are not teaching the subjects that are required for the industry, especially in the automotive domain.
What we study is too generic and is not really enough for a person to get started in an organisation. This is one of the reasons why we see many automotive OEMS or engineering services companies have started domain specific courses with which a university graduate can gain some basic knowledge about the current industry trends with which they can apply for jobs.
Out of the 550,000 engineering graduates passing out every year, anywhere between 10% and 25% cannot be readily employed by any technology firm in the country according to Nasscom. The skill gap is not only in engineering domain knowledge – but it is also in communication and presentation skills which today are seen as extremely important in the business environment. It is estimated that the industry spends up to USD 1 bn per year just on training.
Companies like ours have an extremely rigorous and elaborate training and mentoring program in place that helps us take care of this – but this does take time and leads to a lot of unproductive time.
ET: While the Magna Group is well known in the Auto industry globally, in India it is still relatively unknown. Could you please share what Magna Steyr India does?
SG: Magna with its various verticals is slowly building up its presence in India. Overall we have over 1,000 employees in India spread over COSMA, MAGNA SEATING, MAGNA POWERTRAIN and Magna Steyr. We are working on increasing our presence in several sectors.
Magna Steyr India has been in the country since the mid 90’s in engineering services. Initially we were catering to our group companies globally, but off late we are aggressively marketing ourselves as an engineering service provider – taking advantage of our strengths in passenger vehicle and commercial vehicle verticals. Our company in India is a JV with two Magna group companies – Magna Steyr and Magna Powertrain. This gives us a wide range of expertise – from platform development, BIW (Body in white) development to driveline and all-wheel drive systems.
Magna Steyr with its over 100 years of experience in vehicle production and a broad range of services makes it the worldwide leading brand-independent engineering and manufacturing partner for OEMs.
Magna Steyr India is also into automotive engineering services with branches in Pune and Gurgaon. From these locations it is catering to global OEMs as well as to the Indian OEMs. Apart from this, it also works extensively for shipping, defence and railways as well. We provide end to end solutions to the automotive industry ranging from styling to production release. Since Magna Steyr in Austria is into contract manufacturing, as a result, we have strong know-how available within the organisation to convert a concept to a finished product which is manufacturable.
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