N Narasimhan: A lesson from Bologna

A heavy-vehicle seat manufacturer in Italy shows how industrial clusters can work in India too.

Industrial clusters in India are by no means a novel concept. They have, however, rarely proved successful in the country. Yet industrial clusters have the potential to transform India's troubled small-scale sector.

To understand how and why, I had the opportunity to study, under a United Nations Industrial Development Organisation (UNIDO) programme in 1991, a successful small unit named Lorenzini, which manufactured good-quality driver seats for heavy vehicles in Bologna (pronounced Balongya). A city in central Italy, like Nagpur in India, Bologna has plenty of high and low land levels like Bangalore.

Lorenzini's secret of high consistent quality, lower cost and early, almost off-the-shelf deliveries lay in the nearby cluster of industrial units with which it successfully networked.

A former truck driver, Lorenzini had felt that a good-quality seat could be a tool to improve the comfort and, therefore, productivity of the truck he drove for many years. A self-made engineer, quality, cost and delivery time were critical to his marketing efforts. Lorenzini was also a workaholic "" he was still working in his unit when I met him for the first time a little after 8 one night.

I was surprised to observe that there were no machines for manufacturing components, welding or painting facilities in his unit. Lorenzini had installed pneumatically-operated assembly jigs that rejected components and sub assemblies that had even the slightest of inaccuracies, which we in India would dismiss as flimsy reasons.

He also had in operation extensive quality assurance, "trace back", packing and documentation facilities.

Mini trucks collected and brought inputs to the Lorenzini unit everyday. The level of inventory items in his unit was low. He had no investment in any of these clusters of units.

"How do you manage the inputs?" I asked.

"Tomorrow you will see!" he said.

The next day's visit was an eye-opener. Lorenzini first took me to a unit where a large quantity and variety of tubes and pipes were neatly stacked.

I was surprised to see that the processing started with cleaning the tubes and pipes. Fed through CNC-operated bending and cutting machines they had no wrinkles at the corners. The consistency of bending accuracy was total.

He then took me to an upholstery processing shop where materials were being punched to the required shapes using moulds and stitched on high-tech machines with pre-cut foam placed inside and sealed. I saw no hand markings or scissor-cuts.

In the welding unit, components were being placed in jigs and held in fixtures with axis movements that ruled out welding distortions in sub-assemblies and assemblies.

Lorenzini also took me to the automatic plating shop where components were placed in cages suspended on computerised conveyors that controlled the dip time at each tank.

The effluent treatment involved a process that not only made the treated water fit for discharge into the public drain, but the mud used to absorb the effluents was also ferried away by a contractor.

Lorenzini's unit and those with which he networked are a live example of what an industrial cluster can achieve. In the Bologna experiment each unit specialised in some activities "" often only one activity "" with high-tech in-house facilities.

Thus, each unit was able to attain and sustain high productivity and consistently excellent quality, and all at much lower cost of operation since capacity utilisation in each unit was high. (Production costs would have been much higher if Lorenzini had invested in setting up these specialised facilities in his plant.)

For these reasons, each unit attracted business load. No unit solely or heavily depended for survival on one or two customers but had a diversified customer base as distinct from India's "ancillary" units, where the customer calls all the shots and often ends up destroying the units.

This networking approach helped Lorenzini produce a couple of hundred seats a day employing no more than a handful of people.

Contrast this with India, where the entrepreneur hesitates to load his jobs on units in an industrial cluster either because he is insecure that his "process secrets" may leak out or because he is unaware of how expensive idle capacities can be.

This has been the shop-floor reality for decades. Often it is his customers who insist that he should have all facilities available within his unit, in a myopic view of what they consider to be in their interest.

What has been happening, thanks to this mind-set, with the capital definition of a small unit on the one hand and the limited resources that an entrepreneur can access on the other, is the establishment of a low-cost, low-quality but "comprehensive range of facilities" that inhibits consistency in quality of output, dependable productivity and breakdown-free operations.

In the pre-liberalisation era, idle capacity was not an issue, regardless of the size of the industry, because of the absence of any worthwhile competition. This also made price increases of virtually any input item easy.

Now, with the onset of liberalisation, the pressure on prices has become so severe that negotiations not only mean reduction in prices, but also steps to assure capacity to meet stringent quality standards and delivery schedules.

Increasingly, therefore, there is no alternative but to pursue the concept of industrial clusters to achieve these challenges. Today, "buy or make" decisions as strategies for achieving these objectives and improving value addition are the subject of most seminars.

A quarter century ago in Bangalore, the Hegde Golay experiment to produce the Golay brand of watches used the industrial cluster approach. But there was a difference "" the founder owned all the units through his relatives. His haphazard functioning and lack of vision, planning and integrity of key people resulted in rapid failure.

If successfully implemented, industrial clusters can dramatically reduce cost, improve significantly the quality of Indian manufactured products and quicken deliveries as nothing else can, providing a huge boost to exports as well.

Industrial clusters help establish a strong nucleus of industrial activity. The Sivakasi offset printing example is one such, perhaps the oldest in India, that other offset printers elsewhere in the country find impossible to compete against.

In Ludhiana, the cycle parts manufacturers have attained global standards and witnessed booming exports while sewing machine manufacturers are on the verge of collapse because they operate on antiquated technologies and have shunned the industrial cluster approach.

In Rajkot in Gujarat, the diesel engines complex failed miserably when exposed to Chinese competition. They neither followed the industrial cluster approach that would have allowed for high-tech inputs to be produced by separate specialised units, nor did they ever believe, for five decades, that better technology existed elsewhere.

In brief, the industrial cluster approach is really not new, as the Indian examples themselves so amply demonstrate. But it is the execution that can make all the difference.