Dsr Of Engg. Cluster

DIAGNOSTIC STUDY ON ENGINEERING CLUSTER, CHENNAI

Prepared by

MSME – DEVELOPMENT INSTITUTE (Formerly Small Industries Service Institute) Government of India Ministry of Micro, Small and Medium Enterprises 65/1 GST Road, Guindy, Chennai - 600 032.

DIAGNOSTIC STUDY ON ENGINEERING CLUSTER, CHENNAI 1.

EXECUTIVE SUMMARY INTRODUCTION

3 12

2.

HISTORY OF THE CLUSTER – A RETROSPECT

17

3. 4.

CLUSTER PERFORMANCE SWOT ANALYSIS

18 21

5.

BROAD CLASSIFICATION OF INDUSTRY

6. 7. 8.

26 28 35

12. 13.

STRUCTURE AND COMPOSITION OF THE UNITS DISTRIBUTION OF FIRMS IN THE CLUSTER STATUS OF THE ENGINEERING SECTORS IN CHENNAI REGION EXPORT SCENARIO AUTOMOBILE INDUSTRY – A MAJOR SUB SECTOR OF ENGINEERING INDUSTRY AUTO COMPONENTS AND ACCESSORIESMANUFACTURING INDUSTRIES VS OTHER ENGINEERING INDUSTRIES RAW MATERIAL FLOW DISTRIBUTION CHANNEL

14.

GROWING GLOBAL FOCUS ON SUPPLY CHAIN

53

15. 16.

54 56

17.

CLUSTER FRAMEWORK: CHENNAI STATUS OF MICRO AND SMALL UNORGANISED ENTERPRISES VALUE CHAIN ANALYSIS

18. 19.

SKILL GAPS MAJOR AND MINOR INTERVENTIONS

71 72

9. 10. 11.

1

ENGINEERING

23

36 40 45

48 49

67

ANNEXURE LIST OF ACTIONS PROPOSED FOR ELIMINATION OF WEAKNESS IN THE CLUSTER CRITICAL GAP AND BENCHMARK OPTION CRITICAL GAP AND BENCHMARK OPTION ACTION PLAN ENGINEERING CLUSTER CLASSIFICATION OF MACHINING PROCESS CLASSIFICATION OF ENGINEERING INDUSTRY

2

EXECUTIVE SUMMARY FACT AND PERFORMANCE SHEET PARAMETERS DETAILS

SL. NO

Name of the cluster

1. 2.

3.

4.

5.

•

Engineering cluster -Chennai

Location of cluster Exact place of Concentration

•

Extend of concentration (KM Radiation)

•

Urban/Semi-urban/Rural

Ambattur,Guindy-Ekatuthangal, Tirumudivakkam, Perungudi, Tirumazhisai, Irungattukottai, Tiruvotriyur, Maraimalainagar,

Number of firms o Large Medium o o Small Micro o

100 335 2030 8300

Major Items manufactured within the cluster (List of 4 major Items)

Estimated cluster

turnover

of

Overall

Small & Tiny

Capital goods Auto Components and accessories Industrial Machineries Power Equipment Steel Wire, Nails, Nuts & Bolts & Screws Hand Tools Electrical items & Components, Valves etc Tools and press components, etc.

Structural Fabrication, Metal Fabrication Dies and moulds Auto components, Electrical items, Machine parts, Control panels Tools and press components

Rs. 31909 Crores

Rs. 904 Crores

the

3

6.

7.

8.

Employment Position Direct & Indirect

1.04 lakhs

0.72 lakhs

Male

0.936 lakhs

0.648 lakhs

Female

0.104 lakhs

0.072 lakhs

Export potential Engineering products Auto components

$ 320 million $150 million

$192 million $120 million

65 40

45 20

% of contribution at State Level at National Level Special features of the cluster in terms of seasonal/main stay activities/ dependence, if any

9.

Perennial

Perennial Mostly depend on 2nd and 3rd tires units

Social Environmental consideration i. Environmental problems ii. Safety standard

Negligible Good

iii. Women employment

Negligible

Not alarming Not up to the mark Negligible

4

10.

List of major supporting institutions/ Service providers

a.

Technical Intuitions Yes

b.

R&D

c.

Testing institutions

No Yes

d.

Government organization

e.

Yes

Promotion councils Yes

f.

Others Bankers, Product based association

11.

Major issues • • • • • • • • • • • • • • •

12.

Poor Infrastructure And Marketing Supports Faced By Tiny And Small Scale Unorganized Sectors Dependant In Nature And Mostly Job Work Type Enterprises Poor Capital Base Weak Supplier Power High Mobility Of Labour Force Poor Credit Accessibility Low Profit Margin Low Technology Level Low Product Orientation due To Poor Capability Creation Inability To Compete With Medium And Big Players Poor Economies Of Scale Frequent fluctuation of Raw Material prices, especially Steel Poor Research And Development Facilities Under-Invoicing And Dumping Of Engineering Products

Priorities

Major (Rank it as per priorities)

5

Minor (Rank it as per priorities)

Formation of consortia

Internal corrective Mechanism

Undertaking Bench mark study

Skill up gradation

Formation of Raw material bank

Soft intervention Unit level correction

Technology Mapping

Energy auditing

Common Production Centre Utilizing the CFC facilities of SISI & NSIC & other institutions 1. Tool room Ekatturthangal 2. CADCAM center Common production center –VMC lathe – Perungudi Formation of new estates exclusively for micro and small in orakkadam phase –ii Strengthening Micro industrial estates at Ambattur under IID schemes Creation of Collaboration and tie up B 2 B meet with big auto gains in Chennai Network, creating a market information and resource center

6

Working capital support (MGFC financing ) Common Marketing & Branding

Marketing Linkages BDS support Preparation of Common Catalogue and Leaflet Appointment of NDA

13. Cluster Observation: i. Promotatbility

High

ii. Aspiration Level

Very High

iii. Attitude

High

iv. Linkages with other cluster:

Very much possible

v. Out reach - other clusters of similar nature (Reliability) 14. Suggestion and recommendation

Immediate attention creation of strong consortia

Medium Term attention

Visiting to dynamic clusters

Establishing collaboration and tie –up

Capacity Building

Linkages with technical, educational Institutions Identification of technological gap and injection of new technology

Formation of RM

Firm level correction

Creation of common production and processing centre

Awareness programme for cluster actors and stakeholders Option for MGFC financing – soft financing

Common marketing

Utilizing the CFC facilities of SISI and direct marketing with Big players

Improving/ strengthening the infrastructure facilities in micro industrial estates Under IID scheme

Injection of modern machineries

7

Long Term attention Accommodating auto ancillary industries in the phase II of Orakkadam industrial area Modernization and technology injection With Italian support Establishing sub contract exchange Formation of new industrial estates and industrial complex Integration of Heavy engineering & light engineering sectors Outsourcing with MNSC & Global Players Network, creating a market information and resource centre

Utilizing the facilities already existing within the cluster

B 2 B meet with big auto gains in Chennai

Conducting Training for the members

Tool room - Ekatturthangal CADCAM center Common production center – VMC lathe –Perungudi Launching common brand

Training programme on production planning, line balancing Identifying of the Business service providers and identification/ sourcing of experts - suitable retired scientists, professors and management , etc

Conducting business meet with selective embassies Conducting benchmark study Emerging as product oriented enterprises

Trade mark and patent registration

Linkages with technical, educational Institutions for technology improvement Preparation of Common Catalogue and Leaflet Business opportunities with Italy Linking the Italian Auto cluster Study on establishing new industrial estates and Complex Elimination of multiple tiers

8

CRITICAL GAPS Low and inconsistency production

Low Penetration capacity

CLUSTER EXECUTIVE SUMMARY - II Pre intervention and post Intervention Tools INTERVENTION SUGGESTED TOOLS EXPECTED REMEDIES RESULT Modernization Setting up of CFC Increase the Technology up productivity gradation – by 40% Setting up of Increase the production cum production processing Common level 50% Facility centre in the Increasing identified 6 growth the centers. employment opportunity Collaboration / tie – up / capacity building

• •

• •

Marketing tie up Utilizing the CFC facilities already existing in the cluster Working capital support Big brothers arrangements

Poor market penetration and product image

Formation of Marketing Consortia

Launching of Common Branding and Marketing

Poor skill workers

Skill up-gradation

Conducting intensive skill up-gradation training programmes

9

TIME FRAME 3 Years

Increase the production level 50% Diversify the production

Improving the business by manifold and create a niche market Improving & honing the skill of workers

2 years

1 year

Low level of operation

Poor finance support Poor Infra structure facilities

Improving Value chain

Emerging as product oriented enterprises

•

Creation of brand image and Technology upgradation

Improving the business by manifold

2 year

Easy access to finance

Option for MGFC financing – soft financing

Solving working capital problem of the micro enterprises Creating sound infrastructure base for smooth operation of the firms Manufacturing of composite & value added products

1 ½ years

Improving strengthening infrastructure facilities Improving the business

& the

core

•

Option under IID Scheme & ASIDE Scheme Horizontal and vertical integration

10

3 years

3 years

CONCENTRATION OF ENGINEERING INDUSTRIES- GROWTH CENTRE

Thirumudivakkam

Maramalainagar

Concentration of engineering industries

Growth centres

11

1.0 INTRODUCTION 1.1.0 BACKGROUND Engineering industry is the largest manufacturing industry comprising different sub sectors and manufacturing diversified products.

Any industrial product has its

root in the engineering industry. It is known as mother of all industries. Further, India has a strong engineering and capital goods base. The entire gamut of engineering industry can be brought under two major categories. One is heavy engineering category and the other one is light engineering category.

The engineering sector

employs over 4 million skilled and semi-skilled workers both direct and indirect in India. The total production from the engineering sector was in the order of US$ 22 billion in the year 2003-04. Similarly, the engineering industry is an age-old industry having a strong footing in Tamilnadu.

The industry is witnessing the presence of Large, medium,

small and micro industries. share in numbers.

The last one is a dependent sector, which has a lion’s

Everything from automobiles, railway coaches, battle-tanks,

tractors and motorbikes to heavy vehicles are manufactured in Tamilnadu.

Global vehicle manufacturing giants like Ford, Renault, Nissan, Caterpillar, Hyundai, BMW and Mitsubishi as well as domestic heavyweights like MRF, TI cycles of India, Ashok Leyland, Royal Enfield, Mahindra & Mahindra, TAFE Tractors and TVS are in the first tire.

They are controlling the entire industrial movements in

Tamilnadu. Apart from Auto component sector, there are other engineering sectors like machine tool components, dies and mould making, Nuts and bolts, Valves, cutting tools, pumps & pump spares, Pistons, Electrical and equipment Manufacturing, structural fabrication and casting & forging industrial sectors in Tamilnadu. Due to the presence of such industrial base Chennai is known as “The Detroit of Asia”. 12

In order to strengthen the engineering industries in Chennai, SISI, Chennai has adopted the sector under Small Industries Cluster Development Programme to promote under Cluster mode. Subsequently, diagnostic study has been conducted.

1.1.1. Strong presence of engineering units is witnessed in Chennai. 1.1.2. A cluster diagnosis study on pilot basis was conducted in

Ambattur,

Ekkattuthangal, Perungudi, Guindy, Thirumudivakkam regions wherein 60% of the engineering units are concentrated. 1.1.3. A diagnostic study of a cluster helps in laying down the broad path for initiation of cluster intervention. Special focus was given to Auto component manufacturing sector.

One of the main objectives of such a study is to

suggest a vision for the future and draw a strategic plan for undertaking various developmental activities within the cluster. 1.1.4. Yet another reason for conducting the study is to measure and suggest the type of intervention necessary for improving the overall status of the Engineering industry in Chennai.

13

1.2.0. SCOPE OF THE STUDY 1.2.1. The scope of the study is to ascertain the present condition of engineering industry in Chennai. Special emphasis has been given to the auto component and accessory-manufacturing sector. 1.2.2

In essence, the study aims at obtaining a comparative analysis of engineering cluster with regard to the working, effectiveness and dynamics of the cluster. It is also meant to identify the factors impeding the smooth functioning and growth of the cluster.

1.2.3

The core of this approach is to identify the right tools and techniques and to apply these inputs to achieve quicker development in the sub sectors of the engineering industry.

1.3.0. METHODOLOGY 1.3.1. The methodology involved for the study includes the following activities: 1) Review of Secondary Data Sources relating to engineering industry; the major sources accessed include publications of associations and related sites. 2) Primary Research through limited but focused in nature In all, about 50 informal interviews were carried out among a cross-section of stakeholders, apart from the formal interaction that has taken place during the visit to the cluster. The idea was to identify the existing critical gaps and draw concrete plan for filling the gaps. The questionnaire was prepared in both Tamil and English. The study was undertaken by involving enumerators and engineering college students.

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1.4. OBJECTIVE It is a fact-finding study, which aims to bring out the present status of engineering industry in Chennai and to contemplate strategies and modalities to promote the MSM engineering enterprises in Chennai under cluster mode. There is a strong postulation to promote this sector under cluster mode. This document aims to present the status of the industry in Chennai. Engineering Industry comprises predominantly Micro and small-sized enterprises (MSEs) serving largely as contract manufacturers and component suppliers for product manufacturers. THE MAIN OBJECTIVES OF THIS STUDY ARE:

To highlight the present status To access the relative exploitative nature of the sub-sectors– micro engineering enterprises To identify the critical gaps To undertake a benchmark study to seal the weak linkages To take effective corrective measures to strengthen the under performing micro enterprises To select appropriate tools for effective soft and hard Interventions for alround growth To examine the present manufacturing practices and technologies relevant and vital to enhance capabilities and competitiveness of the core units To suggest measures for improving the working conditions of the micro enterprises

15

VISION STATEMENT Transforming the Chennai-based engineering cluster into a fast emerging outsourcing destination for design and manufacture of engineering products, machinery, equipment and auto components by 2010 by infusing technology, quality standards and cultural changes among the micro enterprises to impel them from the tier 5 to tier 3

MISSION STATEMENT Enhancing the production level by 25% within 3 years Increasing the productivity by 20% Embarking upon composite Engineering products Upgrading 15% of the job work based micro enterprises to full-fledged enterprises in the next 3 years Exploring new export markets within 3 years Exporting 25 % of the production within 3 years Attempting to attract employment for 6 lakh people by 2015 Providing a platform to the MSMEs to facilitate their interface with potential global partners and buyers

16

2. HISTORY OF THE CLUSTER – A RETROSPECT The origin of engineering industry in Chennai was started even before independent.

The invasion of TVS group, Simpson, Ashok Leyland, Addison,

Integral Coach Factory, the then Standard Motor, Heavy Vehicles Factory - Battle Tanks, Caterpillar - Earthmoving equipment plant, ICF - Rail coaches and Enfield Motors besides formation of Industrial Estates in Ambattur, Guindy and adjoining places in and around Chennai have created a big push to this sector. Further, the birth of electrical goods, machine tools, dies and moulds, capital goods manufacturing industries in Chennai is also strengthened this industry.

The ever-

increasing demand for fabricated engineering products due to population explosion has created an opportunity to the fabrication industry to thrive. The engineering industries faced serious set back in the 80’s.

However, the

auto components sector picked up growth after mid 80s due to the incursion of Car manufactures in adjoining districts of Chennai.

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3.

CLUSTER PERFORMANCE

The performance of the engineering sector is linked to the performance of the end user industries for this sector. The share of Tamilnadu in selected engineeringbased sectors in India is given in the following table: Table-1

Share of Tamilnadu in Select Sectors Heavy Commercial Vehicles

27 %

Auto components

30 %

Railway coaches

49 %

Motor cycles & mopeds

26 %

Heavy Engineering Industry is one of the largest segments of Engineering Industry. It occupies a whole range of industries such as Heavy Electrical Machinery, Turbines, Generators, Transformers, Switchgears, Textile Machinery etc. As per the Index of Industrial Production figures eight out of the 16 major industry groups show substantial growth ranging from 6% to 28%. Heavy engineering industry is well integrated with various core sectors to meet their demand. The demand is derived primarily from capacity creations in sectors like infrastructure and general manufacturing including process industries. The Indian engineering industry, including the transport equipment segment, is estimated at around Rs. 1.2 trillion. The share of heavy engineering sector is about 70% while rest was contributed by light engineering sector.

18

The enterprise mix of the Indian engineering industry comprises primarily large Indian companies

with and without foreign collaborations, subsidiaries of

multinational companies, joint ventures of domestic and foreign companies and medium sized companies maintaining regional dominance. Majority of the players in the heavy engineering industry have well defined markets catering to specific sector(s) and are technology driven. Indian market is one of the largest in the world.

Indian companies are

producing quality products and services at competitive prices. Indian advantage in designing and engineering capabilities with low labour cost make it one of the preferred offshore destinations. 3.1 Light Engineering Industry Light Engineering Industry is a diverse group with a number of distinctive sectors including low-tech items like castings, forgings and fasteners to highly sophisticated

microprocessor-based

process

control

equipment

and

diagnostic/medical instruments. This group also includes industries like bearings, steel pipes and tubes, etc. The products covered under the engineering industry are largely used as input to the capital goods industry.

3.2 Auto components Sector Automobile and auto component/accessories manufacturing industry is known as sunrise industry.

This industry has a new surge in recent years. It is mainly due

to the entry of international players in this sector.

The growth of this industry is spiraling around few players like Ashok Leyland, Simson, Sundaram Clayton, Lucas-TVS, Brakes India, Hyundai, Fort, Mahindra and Mahindra etc. After a decade full of uncertainties in the eighties, the engineering Industry has a new life.

There are more than 10,000 engineering units operating in

and around Chennai. Out of this, the total number of micro industries is reported at about 8,000. The small-scale industries and micro industries really need support. 19

The micro industries deserve special treatment as it has created more than 41,000 plus employment opportunity directly and it is the sector facing all kinds of problems.

3.3 Machine Tools Machine Tool Industry is the backbone of the entire industrial engineering sector. Today this sector is in a position to export general purpose and standard machine tools to even industrially advanced countries. During the last four decades, the machine tool industry in India has established a sound base and there are around 125 machine tool manufactures in the organized sector and around 300 units in the small ancillary sector. The same trend is witnessed in the state of Tamilnadu also.

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4.

SWOT ANALYSIS

STRENGTH

WEAKNESS Presence of huge number of micro enterprises with Obsolete technology

Largest industrial segment with number of sub-segments Presence of world class automotive Manufacturers Technocrats & highly Educated Entrepreneurs, with Legacy expertise and new young entrepreneurs High export performance Availability of low cost human resource Capability to produce high volumes competitively and capture niche markets Strong presence of OEMs (original equipment manufacturer)

Dependent Market behavior Absence of economies of scale in case of micro enterprises Poor infrastructure and marketing supports shortage of skilled manpower Absence of Product Engineering & system development facility (CAD/CAM/CAE) More of low-value added services (job shops) Poor delivery schedule Poor infrastructure and marketing supports Dominance of few big players Poor financial background of the tiny units

Presence of vast number of engineering colleges, Polytechnics/ ITI etc Strategic location of the cluster Wide gap in population to vehicle ratio coupled with increasing purchasing power offers high potential for automobile industry Major contributor to the State's Gross State Domestic Product (78 per cent)

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OPPORTUNITIES Growing domestic market having demands from both low-end and high-end segments Ever growing demand for auto components Growing user industries Emerging Engineering export markets Robust Engineering exports (could touch US$ 30 billion by 2008-09). Ever growing demand for auto components Presence of large number of Engg colleges in around Chennai India Emerging as a key global manufacturing hub (India) shift from ‘job shops’ to ‘system solution providers’ and ‘technology integration’ than just ‘component supplies’

THREAT Conventional machines unable to meet the precision manufacturing High fluctuation in the cost of RM High cost of utilities frequent fluctuation of rupee – dollar value Fast development of IT units replacing Engineering industries

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5.

BROAD CLASSIFICATION OF ENGINEERING INDUSTRY Engineering Industry can be classified as Capital goods and heavy and light

engineering products.

The main classification of engineering industry is illustrated

below. The sector can be categorized into – Heavy engineering – Light engineering segments. • Heavy engineering segment contributes over 80% of the total engineering production. • The heavy electrical industry meets the entire domestic demand. • Indian engineering industry is dominated by organized players.

Sector 1: Mechanical components Type of Products • Precision components • Connectors, pistons, special screws • Special equipment Machines and Mechanical Devices

Sector 2: Machines and Mechanical Devices Type of Products Machines & mechanical devices for thermo-plumping Air-conditioning Concrete articles production Home Appliances Industrial use engines.

23

Sector 3: Industrial Moulds Type of Products 1. Plastic injection moulds. 2. Compression moulds 3. Investment die casting moulds 4. Blow moulds 5. Pressure die casting moulds.

Sector 4: Mechanical Designing Type of Products/Services • Mechanical designing • Engineering designing • Developing prototypes and final products (This also comprises computer-aided designing and computer-aided manufacturing) Tamilnadu is emerging as a preferred outsourcing destination for design and manufacture of machinery and equipment. It has a large pool of skilled labour force and the labour costs are amongst the lowest. The heavy engineering industry is an intermediate industry and its demand depends on a variety of end-user industries such as power, mining, oil and gas, consumer goods, automotive and the general manufacturing sector. A diverse mix of industries in the end-user segment results in low volatility in revenues in a normal business cycle. But, beginning of a widespread economic slowdown leads to cancellation of investments on capital goods across the industries. Thus, a slowdown adversely impacts the heavy engineering industry much before it affects other sectors. On the other hand, the heavy engineering industry is among the last to benefit from an upturn since capacity creation occurs after enduser industries fully utilize their own capacities and feel positive about the long-term demand scenario.

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Table -2

Range of Engineering Products manufactured in the cluster Air Compressors

Fabrication of Boilers

Electrical & Electrical M/c Parts

Dies and moulds, pulleys

Industrial values, Iron casting,

Tools and pressed components

Power Equipment

Computer hardware accessories

Structural fabrication

Tractor & Agricultural Equipments

Steel Wire, Nails & Nettings Etc.

Steel Furniture

Bolts, Nuts & Screws

Auto Parts & Accessories, Aluminum castings

Machineries for capital goods industries

Hand Tools

Light & Heavy Vehicles

Bicycle & Parts

Though the Chennai engineering cluster is witnessing the presence of divergent

enterprises

manufacturing

engineering

products,

the

automotive

component and accessories manufacturing units are more vibrant in the recent years, witnessing the presence of foreign players in the tier I and II.

These two

segments have created a niche markets with the support of new – state of art of technology and modernization ensuring quality standards.

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6.

STRUCTURE AND COMPOSITION OF THE UNITS

NUMBER, TYPE AND SIZE OF FIRMS: In the context of tierised enterprises, the key/core enterprises are distributed as under: Table.3. Table: Number, type and size of core enterprises (indicative estimates) Sl. No.

Number of

Type

Size

firms 1.

100

Tier I

Large (Investment in P&M of above Rs. 10 crore)

2.

265

Tier II

Medium (Investment in P&M of between Rs. 5-10 crore)

3.

400

Tier III

Small –I (Investment in P&M between Rs. 50 lakhs - 5 crore)

4.

1630

Tier IV

Small –II (Investment in P&M between Rs. 25 - 50 lakhs)

5.

8000 *

Tier V

Micro/Tiny (Investment in P&M below Rs. 25 lakh)*

(*most of the units are having an average investment of Rs. Less than 5 lakhs)

26

STRUCTURE OF THE ENGINEERING CLUSTER- CHENNAI Large players Medium players Small scale Units organized (Mostly ancillary units)

Small scale un organized units (Partially job work)

Micro units (mostly job work)

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7.

DISTRIBUTION OF FIRMS IN THE CLUSTER The distribution of firms in the cluster has to be visualized in geographical as

well as scalar terms. In geographical terms, there are many distinct pockets in the Chennai region where engineering units are agglomerated. These include: 7.1.

AMBATTUR POCKET: Enterprises in this (largest) pocket are located in Ambattur, Padi, Korattur and Villivakkam in North Central Chennai. They are located in the vicinity of 10 km. area. There are about 4300 tiny units, 1000 small units, 30 plus medium sized units (Eg. Autotech) concentrated in this region. Some leading Tier I units include Lucas TVS, Greaves India, Brakes India are also presence. The small and tiny units are mostly depending on Railways for job orders apart from TVS, Ashok Leyland, Greaves India, Brakes India, etc.

The micro enterprises are either concentrated inside the

tiny estates or outside the tiny estates. They are engaged in undertaking various job works like manufacturing

of

Auto spare parts and components,

pressed metal components, Structural fabrication, etc. AIEMA is the leading industrial association representing SMEs in the pocket. TACT is representing the tiny sector. • Important Items Manufacturing In this region: Auto Components Ancillary works to Integral coach factory, Accessories for Ashok Leyland Pressed components Precision tools Foundries/ Forging industry Machine Tools, Machine Shops – light Machine Shops – heavy Heat Treatment and electrical equipments

28

Big players Aero Pistons Pvt. Ltd., Ashok Leyland Ltd, TVS Auto Tech Industries Ltd Hi-Tech Components & Pressings, TI Cycle, TVS Groups Addition & Co.Ltd., Auto Tech, Auto Tech, Madras Radiator, TT Miller Indrad Auto Components, Jagathesan Industries,Mini Max,

7.2.

GUINDY-EKKATUTHANGAL POCKET: Enterprises in this pocket are concentrated in south Chennai. There are about

1600 tiny units, 300 small units and 15-20 medium sized units housed in this area. There is no Tier I enterprise in this location. The apex industry association for smaller Tamilnadu based enterprises TANSTIA is also located here. units are engaged in manufacture of Moulds and dies.

Most of the micro They are expert in

Manufacturing dies and moulds for plastic industry. Further, 40% of the micro units are manufacturing auto components and accessories on job work basis. Some press metal component manufacturing units are also concentrated in this area.

The

Guindy Industrial Estate is a very old industrial estate, which was inaugurated by the then prime minister, Pandit Jawaharlal Nehru. concentrated in this estate.

There are more than 200 units

The glory of this industrial estate started to fade away

due to the sudden appearance of IT based units. The IT sector industry is started to engulf the Engineering based industries. The Guindy Industrial Estate is well known for the presence of electrical based engineering products, press tools and structural fabrication. Important Items manufacturing in this region:

Control Panel, Auto components, Electrical items, moulds and dies, industrial vales,

Gears,

precession

turned

components,

manufactures.

29

wind

mill

components

Big Players: ESSOR Industries , Kirloskar Electric Co Ltd, S C G EXD Tech Pvt Ltd, Empee Engineers Pvt Ltd, New Delta Gear Mfrs Pvt Ltd, Pee Vee Precision Works Pvt Ltd, Donvey Power Control Systems Private Limited, Twin Star Metal Products Pvt Ltd, Pars Tekhnologies Private Limited, Paraflat Machines Manufacturers, CRP (India) Pvt Ltd, Ignition Products (India) Private Limited, Holwart Engineering Company

7.3.

TIRUMUDIVAKKAM POCKET: Enterprises in this pocket are largely located in the SIDCO industrial estate near

Pallavaram in South Chennai. They are concentrated with in a radius of 10 Kms. There are about 400 tiny units, 300 small units and about 10 medium sized units housed in this pocket. Bon Figlioli is also located in this pocket. It was informed that the unit namely Bon Figlioli is controlling entire auto components and accessory products of Hyundai.

This foreign company used to give sub contract work to

organized small-scale units.

Important Items manufacturing in this region Auto components, moulds and dies, industrial vales, Gears, precession turned components

Big Players: GEE GEE ENGINEERING, Star pack, CRP (India) Pvt Ltd, INDSOLDERS, United Engineering Industries, Chennai, Bon Figlioli

7.4.

PERUNGUDI POCKET: Enterprises in this pocket are located near the Tidel Park – the IT hub in

Chennai city in South East Chennai. The enterprises are located in about a 5 km radius. There are about 250 Micro units, 80 small units and about 10 medium sized units concentrated in this area. Most of the units are engaged in manufacturing auto components.

There is a strong presence of micro industries in this area.

The

Perugudi Engineering cluster Association which represents the tiny units in the area 30

is a well-organized association promoted by 20 like-minded micro entrepreneurs. This consortium has established a CNC lathe for the common benefit of their members.

Important Items manufacturing in this region: Electrical machinery, Pressed Components, Auto components, Industrial gears Big Players: Mak Industrial Products, Fal Industries Ltd, Guindy Machine Tools Limited, Powercap Systems (Madras) Private Limited, Technokrats Inca Radiant Engineering (India) Pvt. Ltd. Keelakatal, G.A. Shock Absorbers Pvt. Ltd., Rane Nastech Limited, Industrial Spares Mfg & Trg.Co, Index Auto Components P Ltd., India Radiators Ltd Plant Iii, I.M. Gears Private Limited (Plant-Ii Igp Engineers Ltd.,(Unit Ii) Im Gears Private Ltd. Plant Ii, Himu Accessories Pvt Ltd, , Geo Engineering Industries

7.5 TIRUMAZHISAI POCKET: Enterprises in this pocket are concentrated West of Chennai on the Chennai – Bangalore Highway. This pocket is located in about an hour’s drive from Guindy. There are about 100 tiny units, 80 small units and about 20 medium sized units.

Important Items Manufacturing In this region: Pressed Components, Auto components Big Players: Forge tools & Allied Services, Indotech Transformers Ltd, Hsi Automotives Limited , Stanley Electric Engineering India Pvt. Ltd. Auto Components, IndiaJapan Lighting Pvt. Ltd. , General Auto Engineering Industries (P), Koito Industries,. Limited, Musashi Auto Parts, Visoka Engineering Private Limited

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7.6 IRUNGATTUKOTTAI POCKET: Enterprises in this pocket are concentrated in the SIPCOT industrial estate Tirumazhisai, also West of Chennai on the Chennai – Bangalore Highway. About 100 tiny units, 70 small units and 30 medium sized units are situated in this pocket. The Rane group and Hyundai have their operations in this pocket. Most of the SSI units are having ancillary status to Rane and Hyundai.

They are manufacturing auto

components and spare parts.

Important Items Manufacturing In this region: Automotive components, Sheet Metal components, Hydraulic braking systems, Exhaust system, Car door products, Slitting of steel coils into sheets, High quality metallic tips for ballpoint pens, Hydraulic Actuators/Cylinders & Hard Chroma plated rods.

Big Players Dynamatic Technologies, JKM Daerim AutomotiveLtd. Iljin Automotive P Ltd., JBM Sungwoo Ltd., Mando Brake Systems Pvt. Ltd., Pos-Hyundai Steel Mfg.India Pvt. Ltd., Schwing Stetter India P.Ltd., Hwashin Automotive India P. Ltd., IHD Industries Ltd., Addison & Co. Ltd.

7.7 TIRUVOTRIYUR POCKET: Enterprises in this pocket are concentrated in North East Chennai. There are about 1000 tiny units, 100 small units and 20 medium sized units concentrated in this pocket. Ashok Leyland, India Pistons are some of the large players in the location.

32

7.8 MARAIMALAINAGAR POCKET: Enterprises in this pocket are concentrated just beyond South Chennai past Vandalur. In this location there are about 500 tiny units, 100 small units and 30 medium sized units. The American giant Ford’s production facilities are located herein. Big Players UCAL Fuel Systems Ltd. INDRAD AUTO COMPONENTS, INDRAD AUTO COMPONENTS, INDIA FORGE & DROP STAMPINGS, INDIA PISTONS LIMITED,

In addition to concentration of engineering units in the above said pockets, micro/tiny units particularly are located almost the length and breadth of the city. Dispersal of units Table.4.

Dispersal of engineering industries in the cluster Location

Large

Medium

SSI

SSI

Micro

Ambattur

37

125

200

800

4350

6

20

50

250

1600

10

10

25

55

250

2

10

30

270

400

15

20

20

60

100

5

30

25

45

100

Tiruvotriyur

15

20

30

70

1000

Maraimalainagar

10

30

20

80

500

100

265

400

1630

8300

Guindy-Ikkatuthangal Perungudi Tirumudivakkam Tirumazhisai Irungattukottai

Total

33

Table.5. Sector wise distribution of industries

Sector

No of

8300

units Large scale

100

Medium

265

Small -1

400

Small -2

1630

Micro

8300

Total

10765

1630 100

Large scale

265

Medium

400

Smallscale I

Smallscale II

It is evident from the above table that there is a strong presence of micro enterprises in Ambattur and Guindy - Ekkattuthangal regions. 46% of the micro enterprises are concentrated in Ambattur region alone. Similarly, the small scale units are widely concentrated in this region. The average investment of micro enterprise is reported at Rs.3 lakhs. In case of small scale industries, it is Rs.150 lakhs per unit.

The total employment

generated in the engineering industry is estimated at 84,550 numbers. The micro enterprises is the single most segment which has created direct employment to the tune of 41,500 persons, cornering the share of 47% in the overall engineering industries in Chennai region (comprising Chennai and surrounding areas). An average size of medium scale units is reported at Rs.500 Crores.

The

details regarding size of units, average investment per unit, the total production and employment in each category are furnished below.

34

Micro

8. Status of the engineering sectors in Chennai Region

Table.6. Glimpse of Engineering industry, Chennai The State targets to achieve an output of $18 billion in automotive and employ 6 lakh people by 2015 in the sector. To achieve this growth Tamilnadu Large Medium No. of units Average investment per unit Average production per unit Average Employment in Numbers Total Investment

Total Production (Rs. in

Small

Small

Micro

Total

100

265

400

1630

8300

10695

8000

500

150

27

3

8680

40000

650

250

30

8

4938

210

50

17

10

5

292

250000

132500

60000

24450

24900

491850

172250 100000

48900

66400 4387550

16300

41500

4000000

lakhs) Total Employment Numbers

21000

13250

6800

98850

needs investments of $5 billion in automotive sector in the coming 10 years to expand the existing capacities; 60-70 per cent of which would have to be from global multinational companies and the balance from Indian companies to make the State a manufacturing hub for automotive sectors on the demand of the capital goods industry.

35

9. EXPORT SCENARIO The Engineering sector is the largest industrial segment of the Indian economy, characterized by the presence of a large number of sub-segments. The engineering sector in India has been growing on the back of growth in the user industries and several new projects being undertaken in various core industries such as railways, power, infrastructure, etc. Capacity creation in sectors such as infrastructure, oil & gas, power, mining, automobiles, auto components, steel, refinery, consumer durables, etc, is driving the growth of the engineering industry. This industry has come up over the years.

Engineering goods exports Though the engineering industries are composite in nature, there is more number of sub sectors functioning with in the categories. performance of the engineering industries and contribution of

Over all

highly depends upon the function

each sub sector. The total exports of engineering goods

from Tamilnadu, as a whole, are reported at Rs. 10538 Crores in ther year 200506. Out of this, the total engineering goods exported from Chennai region is alone estimated at Rs. 5323 Crore. The total worth of auto components and accessories exported from Tamilnadu is Rs.2590 Crores in the year 2005-06 as against the country export of auto components and accessories of Rs.10000 Crore showing the share of 25%.

36

Table.7. Export of Engineering products India vis-à-vis Tamilnadu

India Tamilnadu Engineering goods export

Auto component

Chennai

90108

10538

5322.8

10000

2590

1942

Further, total number of SSI units directly involved in exporting of engineering products as per EEPC is reported at 860 numbers as against 1794 numbers for the entire Southern region.

37

Total Number of Export worthy units in Tamilnadu Vis-à-vis Southern region i.e Andhra, Karnataka and Kerala states.

Table.8. Total Number of Export worthy units in Tamilnadu Vis-à-vis Southern Engineering goods exports (fig. in) Region Southern region

SSI

Non SSI

TOTAL

1794

887

2681

860

486

1346

Tamilnadu

MAJOR PRODUCTS-WISE EXPORT OF ENGINGING GOODS FROM SOUTHERN REGION FOR THE PERIOD 2006-2007 (PROVISIONAL) AS COMPARED TO 2005-96 Products

2005-2006

2006-07(P)

Rs. In Crores

Rs. In Crores

Commercial vehicles & Passenger cars

3476.35 4150

Automobile components & accessories

2672.60 3700

Prime steel products

1520.53 1500

Industrial castings

833.98 900

Textile machinery and spares

694.41 690

Electric power Machinery and spares

615.32 625

Industrial Machineries (Inclg. Cement, sugar etc,)

480.81 880

Industrial vales

431.57 450

Industrial Fasteners

392.21 400

Machine Tools & Accessories

385.23 410

Earth Moving Equipments

380.00 450

Steel Pipes, Tubes & Fittings

338.09 350

Ferro Alloy Products

301.10 550

Electrical Home Appliances

298.87 350

Precision components

297.38 350

38

Other Steel Products

295.42 325

Two/three wheelers, complete

260.00 360

Air Compressors & Compressors

250.55 350

Pumps & Spares

234.65 400

Aerospace Equipments

185.58 300

Stainless Steel Utensils

181.55 250

Steel Forgings

181.49 250

Aluminum Products

168.22 250

Small & Cutting Tools

166.10 235

Electric Wires and Cables

136.10 215

Batteries

91.08 110

Heating and Cooling Equipments

62.12 250

Projects & Services

50.56 100

Pressure Cookers

25.80 50

Boilers & presser vessels

25.78 50

Fabricated Steel Structural

25.42 150

Welding Electrodes

16.72 75

Diesel Engines

10.48 50

Agricultural Machinery/ Equipments/ Implements,

317.98 400

including tractors Miscellaneous items, such as Mica Products, Rigs,

190.00 500

LPG cylinders, S.S. Hose, Office, equipments, Titanium products, Copper/ Brass products, building hardware etc. Total

15994.05

39

20425

10.

AUTOMOBILE INDUSTRY – A MAJOR SUB SECTOR OF ENGINEERING INDUSTRY The automotive components industry is more aptly described as an

"agglomeration of industries" rather than a single industry. An automobile consists of more than 20,000 components, each performing a different function. Components are broadly categorized as body parts, engine/engine assembly parts, electrical parts, power train & chasse parts and interior trim parts. The production processes of different parts are mixture of different processes. The domestic vehicles industry continued to achieve a healthy growth of 15%. For the 3rd year in a row, exports of vehicles shows a recording 28% growth. India is on the road to being a preferred hub for the global vehicle manufacturing industry. The auto component sector in the State received about $800 million Foreign Direct Investment in the recent years. Major players in the world's automobile industry have come to Chennai. Automobile sector is clearly emerging as a technologically component sector capable of forging long term alliances with global OEM’s and Tier 1 companies. This sector is now witnessing many complexes and diverse forces coming together to work in tandem and create new opportunities for the Indian Auto Industry. The auto component industry grew by 15% to breach the US $10 Billion mark in within 2 years. Direct exports of auto components increased by 28% and touched a new high of US 2.21 Billion. This robust growth is expected to continue in 2007-08 and beyond.

40

As far as the foundry segment is concerned, there are about 200 small, medium and large foundries in the Chennai region. Out of these about 30 are large enterprises with high/low pressure die casting facilities, aluminum casting etc. Some of these large foundries include Ennore foundries, Brakes India, etc. In this broad segment about 20 forging units are very active. Ancillary/vendor type units: Most firms in the cluster are vendors to larger units. The larger Tier I ancillary units such as Sundaram Clayton, Lucas-TVS, Brakes India, Simsons etc., avoid high fixed cost of in-house manufacture by outsourcing manufacture of non-critical and even several precision components of assemblies to Tier II, III and even IV manufacturers. The larger units (buyers) provide the component drawings for manufacture and often get products manufactured on job work basis The current major players are > Hyundai - currently scaling up capacity to 400,000 cars and making Chennai its export hub for small cars > FORD - has an installed plant capacity of 100,000 cars > Ashok Leyland - scaling up capacity from current 50,000 cars > HM-Mitsubishi - Lancer assembly plant - capacity at 44,000 cars > TAFE - tractors project - 60,000 tractors per annum > Caterpillar - Earthmoving equipment plant > Enfield and TVS Motors - Motorcycles > ICF - Rail coaches - Perambur > Heavy Vehicles Factory - Battle Tanks - at Avadi

Tamilnadu had long been established as a leader in the supply of auto components to the existing auto manufacturers.

41

Rapid pace of globalization and the tierisation of the global supply chains has posed new challenges to the Auto Component Industry in the form of higher efficiencies and competitiveness.

Auto components production split

Segment Electrical Parts Equipment Suspension & Braking Parts Drive & Transmission Steering Parts Engine Parts Others

% 0 0 1 2 2 3

Fact Sheet Tamilnadu accounts for 21% of the passenger cars 33% of the commercial vehicles 35% of automobile components produced in India Over 100 large companies in the Auto & Ancillary industry

42

Large number of cars in North America, Europe and in other auto marts of the world now carries Indian brands under their bonnets. Of the US$ 2.21 billion worth of component exports by the Indian auto component industry, around 70 per cent are bought by global majors such as General Motors, Ford Motor and DaimlerChrysler, among others. Leading manufacturers of auto components in India include Motor Industries Company of India, Bharat Forge, Sundaram Fasteners, Wheels India, Amtek Auto, Motherson Sumi, Rico Auto and Subros. India's Top 500 Companies, published by Dun & Bradstreet in 2006, listed 22 auto component manufacturers as top companies in India with a total turnover of US$ 3 billion. These companies are in the process of making a mark on the global arena, and some have already acquired assets abroad. Table.10. Major players and presence in value chain Company

Revenues ($ million)

Value Chain Presence in India Design

Domestic Private Players1 Bharat Forge Limited1

466

Tata Auto Component Systems

250

Sundaram Fasteners

234

Brakes India (FY 04)

178

International Private Players2 MICO (FY 04)

572

Visteon

NA

Delphi

NA

43

Manufacturing

Exports

Table.11.

44

11. AUTO COMPONENTS AND ACCESSORIESMANUFACTURING INDUSTRIES VS OTHER ENGINEERING INDUSTRIES Though Chennai region has a strong Engineering base, the contribution and the growth of engineering sub sectors are showing varied results. As in the case of Auto components manufacturing sector, it is being dominated by the big players in the tier I and tier II.

The backward entry of multinational companies

in some regions, especially in Sriperumputhur region, posed serious problems to other tiers. Most of the MNCs are controlling this sector in the name of tie-ups and collaboration.

The theme of outsourcing accrues benefits to very few.

The small players in the bottom are dependent in nature and they are prone to exploitation and price war. The job work type micro enterprises are being exploited by the big players in the name of low technology and investment size, uneconomic size and more so, the unorganized nature.

Micro enterprises are

capable of manufacturing quality products as per job specifications. The sector is undertaking job works from the tier III and IV mostly and the prices offered from the above tiers are different from unit to unit. Such a practice escalates the cost of production to the tier I. Out sourcing from the bottom tiers will reduce the cost of production to the extent of more than 5%, which will have the sizable impact on the price of the end products.

It is a well-established fact as in the

case of auto components. The heavy engineering market contributed over 70 per cent with the light engineering segment accounting for the remaining. Engineering industry is a well-developed and diversified industrial machinery/ capital base capable of manufacturing the entire range of industrial machineries and also producing wide range of items. Capacity creation in the sectors like infrastructure, power, mining, oil & gas, refinery, steel, automotive and consumer durables drives the engineering industry.

45

General Evaluation of Market Prospects o

Currently, the auto parts manufacturing industry is not able to cater the increasing demand of automobiles in the country.

•

Looking into the projection of high growth rate in the automotive industry, it is reasonable to expect that the auto parts industry will grow in tandem.

•

This may not only lead to greater utilization of existent capacity in the auto parts industry, but possibly also to an expansion in the capacity.

•

For the 11% of the companies in the auto parts industry (organized sector only) who are currently engaged in exports because their products comply with international standards, it is possible to see potential for a further increase in their exports.

46

The engineering sector is ever growing. Especially, the advent of liberalization, globalization and urbanization has given a new life to the engineering sectors. The sudden out bust of capital and infrastructure sectors has supported the heavy engineering industry to thrive.

However, the growth of automotive

industry has superseded the rate of growth of other engineering industries. The growth of engineering industries is well confided to the concentration of big industries in that location.

Presence of Ashok Lyland in North Chennai has

supported the small and micro industries in and around the regions. They are mostly like vendor and ancillary type units to such big players. Similarly, the Sundaram Clayton, Lucas-TVS, Brakes India, Simsons have supported to the small and micro industries in Ambattur, Padi and other regions. It is also the case of the micro and small units situated nearer to the big players like Hyundai, Ford etc. A key driver for increased engineering exports is the trend towards shifting of global manufacturing bases to low cost countries like India. This trend is expected to boost exports of engineering goods from India over the next five years.

According

to

Engineering

Exports

Promotion

Council

(EEPC),

engineering exports could touch US$ 30 billion by 2008-09. In such a scenario, India, driven by the engineering sector, would emerge as a key global manufacturing hub.

47

12

RAW MATERIAL FLOW

Key related enterprises include dealers and alloy casters, foundry units (200 firms), machine tool and machinery manufacturers (170 firms) and support activity related units such as heat treaters (240 firms). Smaller units procure raw material related to steel, aluminum etcetera through dealers of large manufacturers. Larger units source raw material like steel and ferro-alloys directly from SAIL.

In the case of non-ferrous alloys like Aluminium, local

smelting units and foundries manufacture alloys with different composition depending on required specifications. Core inputs are normally sourced from NALCO/HINDALCO and imports from Bahrain etc. industries are job shop type nature.

Micro engineering

The big players from whom the orders

obtained are supplying the raw materials.

The big players do not face RM

problems. The micro and small players used to get conversation charges on piece rate basis. However, they are also used to procure small accessories and tools from the traders.

A consortium approach in procurement is worth emulating/replicating cluster worldwide Some large Tier-I players and OEMs such as Ashok Leyland have established direct linkages with raw material manufacturers such as SAIL. An informal consortium approach is adopted by Ashok Leyland vendors for pooled purchase of steel requirements. In bulk purchase discounts are reaped.

48

13

DISTRIBUTION CHANNEL

As this market segment is a mix of Organized and Unorganized sector and is involved in production of a very high-diversified range of products, so the channel of distribution in this segment varies according to the dynamics of manufacturing units.

The channel of distribution in market segment is very simple. The auto parts manufacturers directly get the others from their registered Original Products Manufactures (OPM) and then they directly dispatch the good to OEMs. The OEM enterprises used to give partial orders to down to the tier 4 and 5 based on volumes and capabilities of the small players. The tier 5 does not have direct access to Tier II & Tier III.

In case of other engineering products, the channel of distribution is complex and composite in nature.

It has both single and multi channels. The

single channel is mostly direct, that is direct supply to the end users. As of Auto component sector is concerned, most of the engineering units are vendors and ancillary types. The main product manufactures are big players. OEMs are very less in case of micro and small enterprises. It is prone to multi channel system.

49

Pre intervention Map

Tier - I

Tier -II

Tier -III

Tier -IV

Tier -V

Tier -III

Tier -IV

Tier -V

Tier -II

Tier -III

Tier -IV

Tier -IV

Tier -V

Tier -V

50

Post intervention Map

Tier - I

Tier - II

Tier - III

Tier - II

Tier - III

Tier - II

Tier - III

Consortia OEM/OPM

Tier - IV

Tier - IV

Tier - IV

Consortia

Tier - V

Tier - V

51

Tier - V

•

The pre intervention map reveals the presence of multi channel. In

case of automotive industry, the channels between tier one and two are very direct. The multi channel starts only thereafter. The tier V players are noway in the race in case of pre-intervention stage.

Whereas, formation of

consortia would improve the capabilities and capacity of the core units in the tier V segment and also help to attract direct business from all the tiers.

52

14

GROWING GLOBAL FOCUS ON SUPPLY CHAIN There is also a growing global focus on supply chain especially with the

auto component industry expected to significantly increase its exports from 19 per cent in 2004-05 to 27 per cent in 2006-07 due to increase in demand of casting in European and Japanese automotive markets. The state’s automotive industry, which accounts for 25% share of the Indian automotive industry at present, should target a 30-35% share by 2015, which would translate into $18-20 billion in net output terms. Exports of automotive components would be about $6-$7 billion and the domestic sales components and completely built units (CBUs) at $ 5 billion. Exports of CBUs and engineering design services could contribute around $ 1.5-2 billion to the total output by 2015.

Indian automotive industry has started mirroring the

global auto industry now. Auto ancillary sector continue to grow on a fast track due to its low-cost advantage and their newfound high quality & productivity with synchronized production systems with tierised channels. The two major segments—Commercial Vehicles and Passenger Vehicles—are expected to report high production growth. Chennai is emerging as a preferred destination as a low costoutsourcing base due to abundance of cheap skilled labour. Over the medium term, there may be a few Tier-I vendors servicing the OEMs, and Tier II & Tier-III suppliers in turn will service Tier-I vendors With technology changing at a fast pace, access to technology through collaborations or joint ventures with foreign players is likely to be a key success factor for this industry. Units below Tier-III would need to operate at different scales and invest upfront in design, development and capacity, as well as require much higher levels of working capital for catering to the export market.

53

15 CLUSTER FRAMEWORK: CHENNAI Engineering industry has got a strong institutional support. This sector is very lucky to have several, active and renowned supporting agencies. presence

of

Research

Institutes,

government

organizations,

The

Banks/

Institutions/associations in the cluster have mulled the growth of this industry. Though this sector is witnessing presence of multiple BDS service providers, the interface and support and the linkages between various promotional agencies are not so strong. Some key Institutions/Associations that enjoy the trust of entrepreneurs are listed below. Scope to enhance effective and appropriate linkages between enterprises – institutions exists. The institutions/associations in this context are as under: 1.

Small Industries Service Institute (SISI), Chennai

2.

Department of Industries and Commerce, GoTN.

3.

RTC

4.

SIDBI

5.

EEPC

6.

NSIC

7.

ACMA

8.

National Productivity council

9.

Confederation of Indian Industry (CII)

10.

Central Institute of Plastics Engineering & Technology (CIPET)

11.

TANSTIA-FNF Service Centre

12.

Indo Italian Chamber of Commerce

13.

Export Import Bank of India

14.

TN Small and Tiny industries Association (TANSTIA)

15.

Ambattur Industrial Estate Manufacturers Association (AIEMA)

16.

AIEMA Technology Centre (ATC)

17.

TIIC

18.

LESA (Lucas TVS Electrical Suppliers Association)

19.

TNSIDCO/SIPCOT 54

20.

TN Association of Tiny and cottage enterprises – TACT

21.

TISIA-Perungudi association; Tiny and Small Scale Industrial

22.

Owners Welfare Association- Ikkatuthangal Association.

23.

SMERA

24.

ITCOT

25.

Engineering colleges, IIT, Technical and Vocational Training Institutes and Anna University

26.

IFMR

55

16. STATUS OF MICRO AND SMALL UNORGANISED ENTERPRISES

………..Constraints identified include low volume/lack of economics of scale; technology gaps pertaining to quality and reliability; poor local support in components and subassemblies; weakness in technology innovations; insufficient cooperation among companies in joint sourcing of materials, capacity sharing, and product/process innovation; poor horizontal integration; excessive tax burden; too little inhouse R&D; limited access to new technologies; bureaucratic obstacles; insufficient access to common facilities; high cost of capital and infrastructure; and inadequate applications of e-business and supply chain management…….. It is imperative to bring out the present working conditions of the micro industrial units functioning inside the industrial estates as well as outside the industrial estates. Most of the tiny industrial units seem to appear as an industrial slum situated in the very corner of the industrial estates. There are many reasons for such ineffable situation. Poor Infrastructure facilities, inaccessible approach road, denial of fundamental facilities like drainage, sewage, sanitation, waste disposable system, public toilet facilities, first aid and primary care centre etc make the estate more vulnerable.

All the micro units are job work units.

They

are in the Vth tier in the hierarchical structural hierarchy. The average investment per unit is less than Rs. 3 lakhs. Most of the units are functioning in a build up area 350 Sq feet to 500 Sq. feet. It is also interesting to note that some of them are “absentee ownership type”. The access to direct market and finance are like ‘day dreaming’ and ‘daunting’ task for the tiny units. These units are dependent in nature. The critical growth circle is given below.

56

Threat of Substitutes Substitutes is low not possible

No Inter-Firm integration

Low capital base: majority of the MS engineering units being promoted by individual mostly labour termed entrepreneurs

more than 5 tires functioning within the clusters. No integration both vertically and horizontally causes for mass exploitation

Low Bargaining

Large number of small players and a fragmented market results in weak supplier power

Critical Growth Circle Small/

Low Barriers to entry: remains low in case of micro enter prices on account of relatively low investment and adoptable technology

micro Enterprises Low Inter-Firm Rivalry

not warrant as the small players are having low capabilities not wholly depend on big players for survival

Shortage of labour force: remains high case of micro enters prices on account of High mobility of labour force

Low Technology Level and technology option

relatively low

of technology and

collaboration

Poor Infra structure facilities

57

I. MICRO ENTERPRISES a. POOR CAPITAL BASE: Micro units have poor capital base.

The investment in plant and

machinery is relatively very low. The worker turned entrepreneurs have promoted most of the micro enterprises. These units are concentrated even in residential areas like an octopus. The micro units have been left untouched for the years and they appear like an “Industrial slum” in the industrial township of Ambattur, Padi, Guindy, Ekkattuthangal and Perungudi. These units are dependent in nature. Though they have every capacity and capabilities to manufacture any type of engineering products, the level of operation is very much limited due to the dependent nature of this sector.

A cursory glance of performance of the units

reveals the fact that the units are crippled due to the poor capital and infrastructure facilities. b. POOR PRODUCT RANGE: Micro units have poor product diversification. 95% of the units are job work type units concentrated mostly in one logistic location. The tiny engineering units in Ekkattuthangal are well known for manufacturing dies and moulds especially for plastic industry.

The small welding units operating in the

roadside manufacturing items like auto components and fabrication work, operating in the small premises fall under this category. They have a strong work Force.

They do not have the financial support to expand their manufacturing

base. Hence, cluster is the only solution to improve their capabilities.

58

c. POOR CREDIT ACCESSIBILITY: Most of the micro units are suffering from severe working capital problem. The

availability of credit to this sector is very poor. It is revealed from

the diagnostic study that only 12% of the micro enterprises have availed financial assistance from the banks. d. LOW PROFIT MARGIN: Yet another hindering factor is poor profit margin.

The micro units are

prone to multiple exploitation. The units are being exploited in all stages. Most of the units are not getting the orders directly from the big firms. intermediate firms, which exploits the units.

There are

The price offered to them is

considerably low and volatile in nature. However, such intermediary firms used to fetch sizeable payment from the big players. e. LOW TECHNOLOGY LEVEL: Yet another hindering factor is low technology level. Most of the micro engineering units do their operation with old/obsolete machineries. They have small lathe/Drilling/turning/grinding and shaping machines, etc. that too an old machinery. As a result, these units are unable to manufacture integrated and composite products. For each operation they will have to depend upon other micro units, which are having piecemeal facilities and concentrated in one location. Very limited units are having combination of machine. The productivity level is very low. It is felt that the technology intervention will be a factor, which would increase the competitiveness of this sector. Even, small technology intervention will bring notable changes in this sector.

59

f. POOR CLUSTER-TO-CLUSTER INTEGRATION: The main reason for over dependency is depending on few channels for souring the orders.

There are ample opportunities existing within the cluster to

diversify the operation. For example, the mould and die-making cluster with user industrial cluster like plastic manufacturing units. There is considerable demand for manufacturing of moulds and dies for plastic products.

These clusters may

be integrated. This will eliminate the decency on one source. Similarly, the other engineering clusters should be integrated with respective clusters. The entire micro and small-scale units are having either in-built capacity or out sourcing capacity to manufacture composite products. Hence, this bottom most tire has to be united and integrated. g. LOW DEMAND DRIVEN: The sector has relatively low product orientation due to poor capability creation. The growth is one sided. Though there is strong presence of

micro

enterprises in the engineering sector, the entire micro units are dependent in nature. The replacement demand is an important component. h. INABILITY TO COMPETE WITH SMALL AND MEDIUM PLAYERS: As illustrated, the entire sector is being dominated by big players and it is in the threshold of big and small organized players. is not in a position to achieve break even.

As a result, the tiny sector

The normal earning of a unit is

reported to be around Rs.4 to 5 lakhs. i. DELAYED PAYMENT: Delayed payment is the curse to the micro enterprises. enterprises are not getting the payment even from the big groups.

The micro The big

players are withholding the payment some time for more than 90 days prompting them to take recourse to the delayed payments Act. During the study still more chronic cases were come across wherein the payment is pending for even more than 6 months. 60

j. LABOUR SHORTAGES AND SHIFTING OF OCCUPATION: Shifting of occupation is witnessed in this sector. Labour is presently not as easily available as once it was. The changed life style, high wage rate offered by readymade garment units and other industrial sectors are the major reasons for frequent mobility of working force. k. LACK OF FAVOURABLE POLICY SUPPORT FOR MICRO ENTERPRISES: It was felt by the tiny units that the policy measures are more favourable to big players and multinational companies rather than the micro units. Hence, they opined that the government should contemplate a progressive supporting mechanism to protect this sector. l. COMPETITIVE ENHANCING INITIATIVES: According to the Small/tiny units the present competitiveness enhancing exercise and initiatives are very weak. It may be given more teeth to achieve the ultimate goal. m. TYPICAL ENTERPRISE STRATEGY (Continuous Improvement of products & processes) The firms have adapted to the changing market demands of few major customers, but have not in real terms done product or process changes that could have a positive impact on growth. But the knowledge level and know-how for transformation is very high with individual entrepreneurs.

Market demand

generation and finance for capital investments have to take place simultaneously. n. RAW MATERIALS & INTERMEDIATE GOODS Raw Material availability is adequate for the current production levels. Since very few suppliers are available locally, there is a great dependency. Cost of raw materials is high as compared to the volume consumed by the clusters. Also, generally, there is lack of knowledge about alternate sources for raw materials in

61

the cluster. There is potential scope for reducing the cost of raw materials, consumables, machine maintenance / spares and packing materials. The cluster firms were unable to quote competitive prices for higher volumes due to this factor. Technical know-how is the major field where it needs guidance and assistance for achieving required growth rate and progress. Advancement in technology has necessitated going for a proper development of human and technological resources. In this changing scenario following problems and the issues have been identified in the industry: •

Information Dissemination (Technical know how, Information on standards, Processing techniques, Design criteria)

•

Product design & engineering capabilities constrained due to absence of economies of scale

•

No long term vision or policy

•

Low volume of production by micro enterprises

•

Systems are labor intensive

•

Competent/skilled labor is very scarce.

•

Conventional machines are not able to meet the precision manufacturing.

•

Available labor is not familiar with modern technology

•

Scarcity of raw material especially steel

•

High cost of utilities

•

Poor research and development facilities

•

High cost of financing and lease purchase

•

Absence of membership in any Trade Bloc

•

Under-invoicing and dumping of engineering products and auto parts

•

Inconsistent policies and regularity procedures by Government

•

Lack of coordination and linkages with Government/Semi Government Supporting Bodies and Technical Training Institutes

•

Lack of infrastructure facilities in respect of micro industries 62

•

Poor cluster-to-cluster integration.

II. STATUS OF SMALL (ORGANIZED), MEDIUM ENTERPRISES: The small and medium enterprises are enjoying lion’s share. As illustrated, the automobile industry has made a big push. The entire industry is being controlled by the large and medium players.

There are 265 large and

medium enterprises engaged in manufacturing various engineering products, of which only 30 plus units are having full control. Among 30 units some units are engaged in manufacturing heavy engineering products and items for capital goods industries. High value /high technology components as well as low value/low technology products manufactured in the cluster: The small and organized SSI units are composite in nature. They have high-end technology.

Such industrial group is having all the capacity and

capability to undertake any kind of engineering works like fabrication, machineries tools and components and engineering products for various industrial sectors. The cluster at Chennai makes a mix of high value/technology components targeting the OEM and export markets as well as high volume low technology products targeting the domestic market. This group takes big orders from the top and also outsourcers some of the operation to the unorganized SSI and micro enterprises. It has direct linkages with the big players. fetching higher rate for their job orders.

They are

However, they used to outsource the

same job for lesser price. Access to a progressively diversified customer base: The group has been successful in progressively attracting a diversified basket of OEMs and Tier I

63

firms. The customer base viz. end-user segment is diversified and domestic enterprises are well networked with them. For eg: Table.11. Table: Successfully attracted a diverse basket of OEMs

2/3 wheelers

Cars/utility

LCVs/CVs

Tractors

vehicles TVS

Motor Hindustan

Co. (Hosuri) Hero

Motors

Honda Hyundai

(Hosur).

Engines/Earth movers

Ashok

TAFE

Leyland

Caterpillar India

Eicher Motors

Motor India

Escorts

Simsons

&

Co.

Royal Enfield Ford India motors

Status of Big Players: Majority of big players in the engineering industry have well defined markets catering to specific sector(s) and are technology driven. Turnkey engineering capacity is also limited to a few Domestic entities and competition in this segment is also expected to be limited. This sector is driven primarily by technology. This, coupled with the fact that the initial investment required for creation of manufacturing facilities is relatively high, creates a relatively high entry barrier. The technology requirement however goes down as one moves towards the light engineering industry. Small players (including some unorganized players) are present in the light engineering industry, however, they primarily act as vendors to medium and large players in the heavy engineering industry.

64

A

progressively

diversified

export

basket:

The

tabulation

below

illustratively presents the progressively diversified export basket for cluster enterprises. Table: Sample exporting enterprises and basket of countries exporting to Table.12. Sl. No

1

Firm

Countries to

Sl.

which exported

No

Amalgamation

USA, Italy,

9.

Repco Ltd.

Mexico, France,

Firm

Countries exported to :

Sundaram

USA, Sri

Clayton

Lanka,

Turkey, Austr.,

Germany,

U.K

UAE, Bangladesh, China, Korea, Malaysia, Thailand, Kenya etc.

2.

Guha

Australia

10.

Perfect Gears

USA

Denmark

11

K.G. Metal

Australia,

precision

Malaysia

Globe

USA

industries 3.

4.

Springs India

Classic

Malaysia

12.

chemical

components

seals 5.

Southern auto

U.K., Spain,

castings

USA, Italy,

13.

Super Auto

USA, Japan,

Forge

Brazil, Poland,

Germany, USA,

Germany, etc.

Syria, Japan

6.

Vibromech

USA

14.

eng. and

Vanjax Sales Pvt. Ltd.

65

Australia

services Ltd. 7.

India Pistons

U.K., Russia,

15.

Austria, USA,

Nav Indus

USA

auto parts

UAE, France, Italy, Bangladesh, Sri Lanka etc. 8.

Shard low

Dubai, USA, Sri

India

Lanka,

16.

Ucal Fuel

Japan

systems Ltd.

STRONG CAPITAL BASE: The units falling under this category is having good capital base and easy access to working capital.

They have direct business with

big firms, and have strong

borrowing options. CHENNAI - A LEADING INVESTMENT DESTINATION: In the last 3 years outstanding investment in the auto-component sector increased by 93%. CMIEs survey indicated investments on hand stood at Rs. 7646 crore compared to about Rs. 3962 crores in 2003. The survey showed Tamil Nadu (largely Chennai) ranked second with Rs. 1479 crore followed by Maharashtra with Rs. 1210 crore (Source: Investments in auto-components sector up at Rs. 7646 crore’, V. Balasubramaniam, Times News Network, Jan.03, 2007). Karnataka ranked first with Rs. 2617 crore. Larger units often lead in technology initiatives: The auto component cluster at Chennai is effectively an induced one, largely linked to the establishment of larger industries like Ashok Leyland, TVS Group, Rane Group and Amalgamation group of companies. It has gradually grown in line with the levels of sophistication and product range of larger units who encourage/take the lead in technology advancement in their own vendors. This serves as a confidence building measure for vendors to invest in up-gradation.

66

17.VALUE CHAIN ANALYSIS Value chain position: The automotive value chain consists of several activities from the concept stage till the vehicle is eventually scrapped.

The key activities in the chain include design, engineering, product development and manufacturing and marketing. Other related activities include financing and after sale services. Components and vehicle assembly and its manufacture both together constitute about 40-45% of overall vehicle cost. (a). Evidence of moving up the value chain - OEMs than the replacement market: The auto-component segment at Chennai has made a shift towards the global Tier I market for their products. A decade earlier hardly 65% of exports targeted the replacement market. Today 75% targets Tier I players/OEMs. (b). Value drivers: Chennai based firms have the advantage of •

Proficiency in understanding technical drawings with all global standards (Japanese, American, European, Korean standards etc.)

•

Flexibility in manufacturing due to high degree of vertical depth-small batch production ability

•

IT capabilities for design, development and simulation

•

Largely, appropriate automation at the cluster level to reduce production costs

( c). Presence of related enterprises-other actors lending value to the product: Chennai also has the advantage of the presence of

and proximity to relatively

competitive related enterprises. This may be in terms of tyres from the MRF at Chennai, auto electrical from Lucas – TVS, gears and related parts, castings (grey iron/ aluminium) etc. Proximity to different segments of the automotive value chain lends several agglomeration economies to Chennai based enterprises. 67

(d). Diversified user industry base: The Chennai region, as indicated earlier, also has a diversified user industry base in addition to automotives. Hence, even Tier IV suppliers can service for other sectors in addition to the automotive sector and hence operate at high capacity of at least 2 shifts a day indicating greater potential for even micro/tiny enterprises. Further, greater resilience to risks and adverse demand shocks in any one sector is facilitated. (e). Domestic growth drivers strengthening forward linkages in the chain: The growth in forward linkages of the chain has been a facilitating factor resulting in sustained returns and hence encouraging investment for Co-Value chain illustration: Consider a sample product - jaw end/fork in the brake chamber. It is basically a linking mechanism between the brake cylinder and pneumatic cylinder. Consider the sample value chain of a product manufactured by a sample Tier III (small scale component manufacturer):

68

Illustration: Sample value chain

Raw material - steel forgings (Rs. 30) ↓ Machining – turning, milling etc. (Rs. 45) ↓ Heat treatment, zinc plating (Rs. 51) ↓ Other overheads-transport, gauging (Rs. 55) ↓ Supply to Tier I firm (Rs. 60) ↓ Supply to OEM/Export (Rs. 140)

The small component manufactures procure inputs worth Rs. 30 to make one piece/unit of the finished product. He machines the input in-house, outsources heat treatment and related activities, gauges and packs and delivers the product to a Tier I firm. He supplies it to the Tier I firm at Rs. 60 making a net profit margin of hardly about Rs. 5 or a profit margin on sale of about 8-10%. (g). For Indian car exports to grow, while infrastructure at home will have to improve considerably, car companies will have to integrate their domestic and overseas operations and provide the same support in terms of service, warranty and spare parts in markets abroad as they do in India. (Source: The Hindu survey of Indian Industry, 2006). (h). Chennai’s potential to move up the value chain: The global OEMs are not only attracted to Chennai’s relatively low-cost advantage for different value chain activities

69

(casting, machining etc,) but are also progressively keen on design skills in suppliers. Here Chennai has a decisive advantage with a strong design and engineering base coupled with advanced IT skills. Also, with increasing competition in the global automobile industry, the automobile manufacturers are striving to involve Tier I component suppliers in vehicle design, where again Chennai could evolve significant strength. (i). In terms of manufacturing costs (raw material, power, labour), China may generally have an advantage. Clusters like Chennai, in India, may have an advantage more in terms of the whole package. This is in terms of value addition and product development. The IT skill sets of Chennai and electronics – more on the lines of assistance in braking, engine performance and the like is going to lead to an increased application of IT in the automotive industry(Source: The Hindu survey of Indian Industry, 2006). (j). Value chain activities outsourced to Chennai auto-component units: In the vehicle value chain, activities such as component sourcing, vehicle assembly and manufacture targeting the replacement and spares market may be outsourced to SMEs. It is in such activities that MSMEs from Tier 1-V are involved in the auto-component cluster at Chennai. In fact auto-majors may, as the next phase of outsourcing cover contract manufacturing and assembly of vehicles, product engineering and development activities. Even business processes such as accounting, finance and IT (also see: `A vision for the Tamilnadu auto industry’: CII Continuous upgradation)

70

18.SKILL GAPS

The entire engineering industries are under the stress of shortage of manpower. The frequent mobility of manpower posed serious problems to this sector. The shift in occupancy is created by many factors. The change in life style, perception on

job and sophisticated job

environment, attraction from other sectors, expansion of business operation etc has created havoc in this sector. Machine handing, process knowledge, CMC operations etc are some of the skill gaps identified. The industry needs operators and technicians with the basic understanding of environmental, safety practices and quality concepts.

It is reported from

the Ekkattuthangal cluster that this growth centre alone is in dire need of 1000 plus manpower. The best option for filling the gaps is to conduct skill oriented training programmes for the 8 pass and unsuccessfully / drop outs of engineering, ITI candidates and diploma holders and attracting the ITI student by offering integrated courses in collaboration with the locally situated ITI institutions.

71

19. MAJOR AND MINOR INTERVENTIONS

The option of intervention is the leverage to strengthen the cluster and make it more viable and sustainable.

Given the above understanding, the

following are the key interventions recommended for the cluster: 1. Formation of consortia: This cluster witness a strong presence of micro and small enterprises, which are located in some specific areas like Perungudi, Ambattur, Ekkattuthangal, Guindy, Tiruvotriyur Tirumudivakkam, Tirumazhisai, Irungattukottai and Maraimalainagar pockets. Efforts may be made to form series of consortia for various purposes within the cluster and attempt may also be made to strengthen the consortia through capacity building exercise. The awareness on cluster in each growth centre should be further improved.

2. Benchmark study: The benchmark study will facilitate to map the critical gaps existing within the engineering industrial segments. This study will give focus on core competency of the mirco and small-scale enterprises, the present business operation, etc.

3. Internal Corrective Mechanism: It is an attempt to identify the reasons and causes of under performance of the core units functioning in the cluster and suggest for positive corrective mechanism at unit level. Interventions for firm level changes are inevitable. The corrective measures will be attempted with the core units of the consortium. The findings will be replicated in all the members units.

4.

Formation of Raw material. It is an important tool, which will give focus on common procurement of critical raw material by the consortium members from the main source and allow the core units of the cluster (members of the consortia) to build a strong quality raw material warehouse. This is a hassle free system, which will facilitate the members and non-members of the consortium to utilize the raw material as and when they want. This attempt will eliminate the exploitation by middle men in the trade and also drastically reduce the cost of production and cost of caring the raw material etc. The micro 72

enterprises engaged in manufacturing engineering products on job work basis normally don’t require raw material as they area all being supplied to the OMEs. However, such units need small accessories and tools. They can create a RM bank for purchasing of accessories and tools. As in the case of small-scale units, they need to have a RM bank for purchasing of Steels and other items. The units coming under this category can come together and form a RM Bank. This will facilitate to reduce the cost of procurement and cost of production by 20%.

5. Technology Mapping: It is an important task to identify the testing and other technology supports existing within the cluster. There are sizeable number of institutions, NGOs and associations having facilities to undertake any kind of tests, R & D and jobs in the field of engineering. SISI, Chennai is having well equipped state-of-art technology to undertake any kind of jobs of sensitive nature especially for the big players in the field of engineering. Regional Testing Centre is having all facilities to undertake testing facilities for engineering products. Further there are other organizations and private firms having similar facilities, which have not been commercially exploited by the small players. Hence, it is necessary to map the existing technology and CFC facilities already available at firm level and at cluster level in Chennai.

6. Common Production Centre; As illustrated, the micro and small scale enterprises are not having capacity and capabilities to undertake big and sensitive orders due to lake of production facilities at firm level. In this juncture, it is necessary to identify a set up or institute having all the manufacturing base and facilities within the cluster. Such a set up can be integrated and the core units can use this established set up under cluster mode. This will facilitate the core units to manufacture value added products. Further, the CFC for the production of auto components and sensitive engineering products may be established in each growth centre, as the micro enterprises have the constraint on capacity building and manufacturing of value added products.

7. Marketing Linkages (Domestic & International) : Support for marketing resources and infrastructure facilities are the key requirement for the cluster firms. Though there is adequate market for engineering products, the BDS providers’ services have not properly reached the small firms. Hence best BDSs may be identified and the consortia may work with such BDS providers for establishing market linkages with the big players. 73

8. Developing Market Strategies for various Business Segments Different strategies are to be adopted to prove the competitiveness of the units in each stratum. The bottom level units – micro enterprises, need collaboration and tie – up with the other groups operating in the higher strata to keep the micro enterprise in the competitive race.

9.

10.

Scope to enhance quality and testing infrastructure in terms of adequate testing facilities: This could be in terms of radiography, spectro vac as CFCs for different tests for ferrous (steel and iron based) and non-ferrous (aluminium based) foundry units and conducting normal testing. This may be established within the growth centre. Scope to enhance productivity and quality design: by means of establishing CFCs with investment castings facilities. There is scope for twining of Italian cluster clusters and even with big players within the cluster and in the country for support on this front.-Tool room and CAD facilities may also be considered in a similar mode. Backward linkages means, resource supplies, is the key, followed with technology vendors’ partnerships for solutions and technology assistances and other suppliers of hardware, networking and real estate.

11. Brand Identity and creation of common brands and strengthening (within the cluster, suppliers are yet another factor determining the market acceptability. 12. Product & System Development Strategies - New product evaluation and system development plays a significant role for exploring new business opportunities especially in the aftermath of globalization of trade and business. 13. Labour shortages and Shifting of occupation: Shifting of occupation is witness in this sector. Labour is presently not as easily available as it once was. The changed life style, high wage rate offered by readymade garment units and other industrial sector, and contact labours engaged by organized units by attracting some pecuniary incentives are the major reasons for shifting of labour force. In order to stop this movement, the skill training may be conducted in collaboration with ITI, Polytechnic and SISI and other institutions. This will help to get the sufficient skilled manpower for the cluster. Further, it is felt that the skilled workers are not being properly treated and provided sufficient salary and other basic minimum facilities by the owners. Hence, it is the need of the hours to honour the workmanship of the workers and to provide necessary bare minimum facilities to

74

them. The workers and ownership relationship should be strengthened. 14. Forward Linkages means, end consumers, are accessible mostly by medium and large companies, otherwise for micro and small firms are largely dependent on big players. Hence, forward linkages may be created at cluster level. There is amble scope existing in this sector to integrate directly with the big players both within the country and abroad. A strong value chain should be created within the cluster.

15. Backward linkages means, resource supplies, is the key, followed with technology vendors’ partnerships for solutions and technology assistances and other suppliers of hardware. 16. Technology & Quality Upgradation at firm level & Cluster Level High value / high technology components as well as low value/low technology products are manufactured in the cluster. With regard to the core, machining segment, machinery and equipment employed in the cluster varies from basic/conventional general-purpose machine tools like lathes, drilling machines and milling machines etc. to advanced machine/tools like CNC lathes and machining centres etc. The latter is incorporating high-end technology.

17. Human Resources development and retention: HRD plays an important role in improving the efficiency and productivity of any firm. HRD training may be imparted at various levels. The Skill upgradation, orientation and tailor-made programmes may be conducted for the benefit of the cluster members. Series of workshops, seminars and debates may me conducted for the benefit of cluster members.

18. Networking within the cluster firms and BDSPs Free flow of communication among the members and the stakeholders are vital tool to achieve higher order of growth. Linkages within the members is weak or not in existence, due to competitive fear, and also very limited with the cluster actors, (a) as there is lack of strategic network and (b) technology vendors don’t have focus to small and micro firms (c) customers confidence level on the clusters are also low because of financial strengths. Hence, strong network may be created and the active service providers may be identified and involved in developmental activities with a view to achieve a quantum jump.

75

19. Creation of Financial Services Environment: Finance is the major hindering factor for under performance of the cluster. The small micro and small scale firms are facing working capital problems. An attempt may be made to prove the strength of the consortia among the bankers so as to create confidence to extend all financial supports by the bankers. In most cases, the finance is given for expansion with colloratal supports. The small firms are facing inadequate working capital supports. Hence, banker may adopt based on areas specific under cluster mode and need based and they may be involved in the cluster development exercise.

20. Use of the “big brother” arrangement to assist smaller companies to access capital-intensive equipment and get regularly orders from the big players. SISI can and product based industrial association can play a big role to create such collaboration and tie-up arrangements. 21 SME components manufacturing and foundry segment: Large firms in the cluster have most/all necessary quality and productivity enhancing infrastructure/equipment in-house. However, in the context of MSMEs many initiatives may be explored. These may be pursued either on an individual or consortium/SPV basis. 21. Why CFC? The Cluster firms largely have old production technologies and no in-house CAD/CAM/CAE facilities; for development of newer products, systems, assemblies, production technologies, tools, training of resources, Research, to compete with already established clusters of auto components (such as Ambattur who have Technology Centers); development of complete machine tools (including CNC, VMC Machine developments); development of process plant equipments; to have interoperability of data with international markets and domestic vendors; to improve productivity, to cut down delivery cycle; it is very essential to have common facilities with advanced machineries, CAD/ CAM/ CAE software / hardware, prototyping facilities, non-destructive simulation and testing for development requirements, is an important initiative. Creation of CFC depends upon the nature of operations. The Ekkattuthangal based industrial clusters requires common Tooling and designing centre. The other CFC set up is already available with SISI and NSIC, which are all, located nearer to this cluster. Hence, the facilities available within SISI and NSIC may be effectively utilized by Perungudi and Ekkattuthankal clusters and subsequently need based other facilities for manufacturing high value added products may be created for them.

76

22. Support For Establishing New Industrial Estate Or Shifting To New Logistic Centre. One of the challenging exercise is shifting of micro units from the present working place of Perungudi and Ekkattuthangal to new industrial location. The logistic support is very much necessary to protect the micro units. More than 2500 units are in the threshold of closure at any point of time due to the rapid development of IT sectors or the protest from the local residents in these areas. As illustrated, most of the micro industries functioning in these regions are now over congested and there is no basic infrastructure support available in these localities. Most of the units are functioning in the rented premises. The threat emerged from the IT sector and the pecuniary real-estate benefits enjoyed by the building owners may drive this sector to shift their operations to some other areas very soon.

77

List of actions proposed for elimination of weakness in the cluster 1.

2. 3.

WEAKNESS Dependent nature & poor production base

ACTION CONTEMPLATED big brother” arrangement to assist smaller and mircro enterprises -collaboration and tie –up Creation of common production and processing centre Inability to Compete with organized small and - do medium firms Low Productivity level Slow mechanization Utilizing the facilities already created in the institutions like SISI, NSIC and advanced training institute etc. Involving engineering colleges and IIT in R&D and especially attract simple technology intervention in the stage of production.

4. 5. 6.

Obsolete Technology Inability to Keep delivery schedule Undercutting among the members

7.

High Price of raw material

8.

Quality Inconsistency

9. 10.

Poor Marketing Strategy Poor Pricing Strategy

11. 12. 13. 14.

Closed Marketing Behavior Stagnated Product Pricing Low productivity

Attempting technology mapping Establishing common outsorucing Establishing common outsorucing Common cartel/ pricing mechanism. 1.Formation of Raw material Bank preferably for accessories and tools

Poor recognition and low capacity at firm level

Utising the facitities already existing within the cluster. Setting up of testing lab Conducting Training for the members Engaging marketing experts and networking Achieving economies of scale of operation and creating image among the clusters Common Marketing Common marketing Firm level training Formation and creation of strong consortia and obtaining ISO certification. Offering bench mark study prototype making facility, CAD/CAM/CAE centre, CNC matching centre, research and development laboratory, inspection, validation and certification centres. Testing facilities and R&D laboratories within the cluster

15.

78

CRITICAL GAP AND BENCHMARK OPTION

Sl. No

1.

2.

3

4

Cluster circumstance

Benchmarked Options technology/productivity enhancement needs/gaps Low Current level of Firms level productivity productivity seems to integration and and limited be very low. Technology tiecapabilities up and upgradation may be carried out. R&D and CFC support from alraedy created facilities within the cluster. In efficient Inadequate facilities Injection of production affecting relative quality modern operation and low level of machineries and operation. plants may be set up in each growth center as common facilities. Availability of Poor quality of Setting up of RM poor RM accessories and tools Common affects the operation banks for and efficiency level.

Present marketing channel and forward and backward integration

Dominated by Elimination of organized small and big middle players firm

High skill mobility

Demand for force Low production

labour Absorption of labour force by conducting skill upgradation and skill 79 development programmes

Possible partnership

Support of leading enterprise, institutions and R & D centres.

Technology/equipment may also be sourced with the government assistance and necessary service facilities need be strengthened Encouraging continuum members may be encouraged to set up Rawmaerial banks for accessories and tools

o

Establishing a tie – up and collaboration with the big players and involving SISI and NSIC and Industries departments and other stakeholders in this exercise o Conducting skill development programmes in association with SISI and other organized firms.

o

Critical gap and Cluster option CRITICAL GAPS

SUGGESTED REMEDIES

INTERVENTION TOOLS

Low and Inconsistency production

Modernization Setting up of CFC Technology up gradation – Setting up of production cum processing Common Facility centre in the identified 5 growth centers.

Low Penetration capacity

Collaboration / tie –up / capacity building

EXPECTED RESULT

TIME FRAME

Increase the productivity 3 by 20% Increase the production level 25% Increasing the employment opportunities 3years

Marketing tie up·Utilizing the CFC facilities already existing in the cluster·Working capital Increase the production support·Big brothers level 25% arrangements Diversify the production Engineering College, ITI etc for simple automation & R & D supports

Poor market penetration Formation of Marketing Consortia Launching of Common Improving the business 2 years and product image Branding and Marketing by manifold and create a niche market Poor market penetration Formation of Marketing Consortia Launching of Common Improving the business 2 years and product image Branding and Marketing by manifold and create a niche market

80

Poor skill workers

Skill upgradation

Conducting intensive skill Improving & honing the 1 year up-gradation training skill of workers programmes

Low level of operation

Emerging as product oriented Improving the business 2 year enterprises ·Creation of brand image by manifold and Technology upgradation

Poor Finance support

Easy access to finance

Option for MGFC financing Solving working capital – soft financing problem of the micro enterprises

Poor Infra Structure facilities

Improving & strengthening the infrastructure

Option under IID Scheme & ASIDE Scheme

Creating sound 3 years infrastructure base for smooth operation of the firms Manufacturing of composite & value added products

facilities Improving Value chain

Improving the core business

Horizontal and vertical integration

Poor delivery schedule

Simple automation Firm level Correction

Establishing common Maintaining delivery arrangements / marketing/ Schedule Technology mapping

81

1& ½ years

3 years

1 year

ACTION PLAN ENGINEERING CLUSTER Amount Rs. in Crores

Nature of activity and purpose

Period

Action by Whom

Benefit

1.

Conducting Training Programme on Achievement Motivation and Team Building

Oct, 2007

CDE and cluster members

Trust building

2.

Formation of Cluster Co-ordination Committee for implantation, coordination follow-up and for pursuing the cluster activities with stake holders

OCT, 2007

CDE , MSME-DI, SDI, and cluster members

Support from all the stakeholders

Nov, 2007

CDE and cluster members

Creating awareness Among the actors

Nov – Dec, 2007

Consortium Members/ MSMEDI /RTC/ Dept of science and technology/ ITI/ Engineering colleges/ NSIC/ Productivity councils

Modernization and building up technology capacity

0.40

Dec 2007

Consortium Members/CDE, MSME-DI/ SIDBI/

Creating awareness Among the actors

0.20

Sl.No

3.

Visiting to dynamic clusters

4.

Technology mapping and Bench mark study (Identification of technological gap and injection of new technology)

5.

Conducting awareness programme for the bankers, TIIC, promotion agencies cluster members etc

82

0.30

cluster cluster

0.30

cluster cluster

6.

Training Programme on Communication

Consortium Members/CDE, MSME-DI CDE , cluster members, SIDBI and other financial institutions

Jan, 2008

7.

Option for MGFC financing – soft financing

Feb, 2008

8.

Capacity Building

March, 2008

MSME-DI and cluster members

9.

Launching of web site

March, 2008

Consortium

10.

Training Programme on cost reduction

April, 2008

Consortium Members/CDE, MSME-DI

11.

12.

13.

14.

Utilizing the CFC facilities of MSME-DIand direct marketing with Big players B 2 B meet with big auto gains in Chennai

Training programme on production planning, line balancing

Linkages with technical, educational Institutions

May, 2008 –

MSME-DI Consortia,

Sep, 2008

MSME-DI & Consortium members MSME-DI ,Consortium members & Productivity councils CDE, Cluster members, Dept of science and technology/ ITI/ Engineering colleges/ NSIC/ Productivity councils

June, 2008

July, 2008

Aug, 2008

83

Learning the art of communication by the cluster members

0.20 500

Availing Easy timely credit

and (For 100 members)

Undertaking cluster development works effectively

1.00

Skill up gradation

1.00

Rationalization of cost pattern and reduction of overhead costs Capacity & improvement and business expansion

0.20

0.75

Establishing business linkages

1.25

Achieving higher order of growth and improving the penetration and efficiency level

0.30

Creaking inter institutional linkages

0.30

15.

Workshop on Identifying of the Business service providers and identification/ sourcing of experts suitable retired scientists, professors and management, etc with in the country

Consortium/MSMEDI, Directorate of industries/ Dept of science & technology/Universi ty/ D

Sep, 2008

Establishing strong BDS supports

0.35

CFC 16.

3. Tool room - Ekattuthangal Sept, 20084. CADCAM center 5. Common production center –VMC lathe –Perumugai

17.

Formation of Raw material bank

May-2009

Oct, 2008 – Jam,2009

18.

Monitoring, evolving, Coordination committee for effective implementation of cluster development programmers

2000

Consortia/ MSMEDI,

Oct. 2008

84

Consortium Members/CDE, MSMEDI,/Financial institutions

Achieving best stock inventory management and reduction of cost of production, delimitation of middleman exploitation, procurement of quality RM and achieving quality consistency

CDE/Consortium/ MSME-DI /Directorate of Industries / Lead Bank/ Engineering promotion council / SIDBI/NSIC/EDI/En gineering college/MIET/ / Productivity council

Effective performance and implementation of the projects

50.00

19.

Launching common brand

Nov, 2008

20.

Study on higher level of energy loss

Dec, 2008

21.

Preparation of Common Catalogue and Leaflet

22.

Modernization and technology injection

Feb, 2009

23.

Training Programme on Skill Development/Quality Management

March, 2009

Cluster members/ CDE, MSME-DI /Mudhra advertising agency Consortium/ CDE, MSME-DI /RTC/ NPC/Engineering colleges/ Consortium/ MSME-DI

Jan, 2009

Consortium/ MSME-DI .Engineering colleges/ Consortium/ MSME-DI / productivity council/BIS Consortium/ MSME-DI / Directorate of Industries Consortium/ MSME-DI /patent office Consortium/ MSME-DI / Dept of science & technology/R & D Department/ Madurai Kamaraj University

April, 24.

Formation of CFC June 2009

25.

Trade mark and patent registration

May, 2009

26.

Customized Training Programme and measures for supporting R & D Activities

June, 2009

85

Launching attract to brand to improve the product image

0.30

Efficiency in Energy utilization

0.35

improve the product image/Publicity

1.00

Revitalizing and modernization of industry

0.40

Skill up gradation

0.20

Cost reduction and availability quality Raw material

125.00

Trade protection

0.25

New Product evolution

0.40

27.

Network, creating a market information and resource centre

July, 2009

28.

Attending trade fairs

August, 2009

29.

Intra cluster intervention

Sep, 2009

30.

31.

32.

Conducting business meet with selective embassies

October, 2009

Business opportunities with Italy Linking the Italian Auto cluster

Dec, 2009

Improving the infrastructure facilities in micro industrial estates

Jan, 2010

Consortium/ MSME-DI /core units/ ISRO/ Consortium/ MSME-DI /core units/ STC/Directorate of industries/ Consortium/ MSME-DI / Directorate of industries/ Core units/ Department of science & technology/ Depts. Explosive

Consortium/ MSME-DI / Directorate of industries/ selected embassies/ SIDBI Consortium/ MSME-DI / core units/ Directorate of industries/ M/o Indst. & Commerce/ DC, SSI Consortium/ MSME-DI / core units/ Directorate of industries/ SIDBI

86

Mass communication

50.00

Creating Trade Link /New market penetration

2.5

New business opportunities

0.30

New business opportunities

0.40

Exploring New Business Opportunities

2.00

Creating world class working environment

300

Intera cluster linkages

Consortium/ MSME-DI /core units Consortium/ MSME-DI

Feb, 2010

33. 34.

Establishing sub contract exchange

March, 2010

35.

Study on Quality improvement after cluster intervention

April , 2010

36.

ISO Certification

May – June, 2010

37.

Bar Coding

July, 2010

38.

Induction of new technology

August, 2010

39.

Exist

Sept, 2010

Consortium/ MSME-DI Consortium/ MSME-DI Consortium/ MSME-DI Consortium/ MSME-DI

87

Intergradations all clusters

0.40

Soft intervention

5.00

Analysis the impart of cluster intervention Quality assurance International Standards Modernization

VALIDATION PROGRAMME FOR THE DIAGNOSTIC STUDY REPORTS OF PLASTIC, PHARMACEUTICAL AND ENGINEERING CLUSTERS, CHENNAI DATE: 11.07.2007 VENUE: DIRECTORATE OF INDUSTRIES AND COMMERCE, CHENNAI

The validation of the Diagnostic Study Report of Engineering Cluster, Chennai was conducted on 11.07.2007 at Directorate of Industries and Commerce, Chennai in the presence of cluster members, Officers from Dte. Of Industries and MSME-DI, Chennai and Other Stakeholders. (List of participants enclosed). Shri M Raman, Special Commissioner & Director of Industries and Commerce, Govt. of Tamilnadu, presided over. S Sivagnanam Director, MSME-DI, Chennai welcomed the gathering. Shri A Muthuvezhappan, AD(EI) and Diagnostic Study Expert of Engineering Cluster made a presentation of the Diagnostic Study Report of Engineering Cluster. The cluster members and stakeholders gave the following suggestions and recommendations.

Engineering Cluster, Chennai Sl No

1

Points highlighted in the report

Volume of Exports emerged from Chennai for auto components.

Suggestion / Recommendation from the cluster members and Stakeholders Volume of exported reports is low. May be rechecked. Rectification: Figures reported in Billion The same will be converted and given in uniform terms.

88

LIST OF PATRICIANS IN THE VALIDATION PROGRAMME Sl. No

List of Participant

Designation and organization/ association name Special Commissioner, Directorate of Industries & Commerce, Government of Tamilnadu, Chennai

1

SHRI M. RAMAN,

2

SHRI S. SIVAGNANAM

3

Shri A. Shanmuga Velayutham

4

Shri V. Raman

5. 6

Shri Athmanesan Shri Jayaprakash

7

Shri Mathimurugan

8

Shri Jagathish

Director, MSME_DI, Chennai President TANSTIA Executive Member TACT, Chennai TACT, Chennai President Perungudi Engineering Cluster (P), Ltd, Perungudi Chennai Secretary Perungudi Engineering Cluster (P), Ltd, Perungudi Chennai

General Mangers , Kancheepuram

9

Officers from EI Division

89