CERC issues open access norms

Not so long ago, in 2004, there was a real threat that Indian roads would be swamped by Chinese motorcycles. While no Indian motorcycles was avilable for less than Rs 31,000, there was talk of Chinese motorcycles being launched at Rs 25,000.

The threat never materialised. Local companies brought their prices down to Rs 26,000 and the Chinese numbers have remained insignificant on Indian roads.

Unlike motorcycles, Chinese truck tyres did make an apperance on Indian roads at 10-12 cheaper prices, but again the numbers remained small. At these price points, Chinese tyres couldn't deliver the quality.

Exposure to international competition and a recession which lasted till early-2003 have made Indian companies more competitive than ever before. Rising exports of steel, textiles, automobiles and auto components and drugs go to prove the point.

The country's largest automobile maker Tata Motors has been able to turn around not only by introducing more products, but also through major cost rationalisation, which includes rationalisation of its vendor base.

The company has brought down its vendor base from 1,200 to 700 and intends to bring it down to 450, according to a report by research firm ICRA. The same report says that Bajaj Auto which had 1,400 vendors in March 1998, was scheduled to reduce it to 400 by 2001.

The growing pressure on the auto-makers' margins has resulted in increasing pressure for the automobile component manufacturers to deliver at lower costs.

As a result, component manufacturers have enhanced productivity through various means which includes tear-down value analysis (where the cost savings are shared by the supplier and the manufacturer), lean manufacturing processes (which eliminates wastages at the shop-floor), and increased role of product lifecycle management and collaborative research.

A recent McKinsey & Co. report called "Building Global Champions in Indian Manufacturing" says that auto component companies attained raw material yield improvement of 86 per cent in 2002 through a combination of process and product redesign, SKU optimization, layout change, kaizen, root-cause failure analysis and visual management.

The two cost elements of the auto component industry are material cost and employee cost.

Together they comprise almost 75 per cent of the total operating cost and over 60 per cent of the total operating income of component makers. Data suggests, industry has been able to bring about reductions in material costs, while keeping employee costs under control.

After emerging as the chosen suppliers of bulk drugs to Big Pharma, Indian pharmaceutical companies are now claiming that they can develop new molecules at a fraction of the cost of multinational companies. While it can cost upto $1 billion in the West, Ranbaxy said it could do it for as little as $300 million.