Maruti's second skin

As you read this piece, Maruti Udyog Limited's R&D team is probably giving the finishing touches to the Zen's complete new redesign, to give a brand new lease of life to this 13-year old bestseller from the company's stable.

At a time when the market's flooded with new offerings, and the closest competition's relatively young Santro's just had a major facelift, what's so great about the Zen's impending new skin change, one may well ask.

Well, the last time Maruti undertook a major facelift of an existing model (the M 800, in 1997), apart from the usual tinkering around with headlamps and grilles that everyone does from time to time, it was Suzuki's R&D team that did the designing.

This time around, by contrast, it was Maruti's R&D engineers who created the redesign, worked on the clay models, revalidated the designs, and even created some of their dies in-house -- while Maruti always made category D and C dies in-house, this is the first time the company's ever made any category A dies, the kind that are used for making the car's outer skin, and so need to be of really superior quality.

For other dies, based on their drawings, vendors in Taiwan were selected by Maruti. All told, the cost of the design change has been around Rs 35 crore (Rs 350 million), or around 60 per cent of what it would have cost if Suzuki's people had been involved in Japan.

This core group of 40 R&D engineers, in fact, has been trained in Suzuki's Hamamatsu R&D centre for over two to three years each, a process set up after managing director Jagdish Khattar had a (deliberate?) chance meeting with Mr Toda, then Suzuki's senior managing director of engineering, on the staircase, and asked him for help in creating an in-house design team for Maruti.

Ever since, every year, eight Maruti engineers have been seconded to the Hamamatsu team. Seventeen of these engineers, in fact, are currently stationed in Hamamatsu, helping Suzuki design what's being called the Asian car, from the very beginning -- and once the concept is firmed up, these engineers will come back to begin the process of localisation in India.

In which case, Maruti's well on course to meet its target -- the statement made by O Suzuki, that by 2007, Maruti will be Suzuki's R&D hub, for developing and designing cars, from scratch, for all of Asia outside Japan.

For Maruti, clearly this means a lot. For one, it will be able to redesign cars within 18 months now, and with its increased R&D capability, the company will be able to increase localisation levels on all new models to around 80 per cent to begin with.

More important, while the company was exporting the Zen and then the Alto to European markets already, this was really based on assiduously copying Suzuki's standards -- now, the company can boast of a good in-house R&D team as well.

How this will translate into Maruti genuinely becoming a global production centre is yet to be seen, but there's an interesting piece in this context in the latest McKinsey Quarterly on offshoring, or basically the process of moving business processes from overseas to countries like India.

Basically, the McKinsey Global Institute's study argues that, rather than just replicating jobs/processes from high-wage countries to low-wage ones, it make more sense to actually use local talent to develop new processes. The study cites the example of Maruti developing its own robots for its assembly lines at a fraction of the cost of the ones used by Suzuki in Japan.

As an experiment, based on the increasing design capabilities of suppliers in countries like India, McKinsey did an exercise to figure out just how much money could be saved if automobiles were to be made in overseas locations like India, Mexico and South Africa -- an automobile BPO, so to speak.

The result was staggering: the industry stands to gain $ 150 billion annually in cost savings, and an additional $ 170 billion annually in new revenues once demand shoots up following the drop in prices, and the combination of which means a 25 per cent increase in existing revenue levels.

According to the study, over 90 per cent of automobiles today are sold in the countries they are made in, so there's a lot of money to be made by shifting the production overseas. Till recently, just 100,000 cars produced in low-cost countries were exported to high-cost ones -- presumably this figure is going up now that Altos from Maruti, Santros from Hyundai, Indicas from Tata Motors, and Ikons from Ford, among others, are being regularly exported out of India.

Yet, as McKinsey points out, since it just costs $ 500 and just three weeks (and both figures are falling) to ship out a car to anywhere in the world, why produce cars in high-wage islands? If a car was produced in India instead of in Japan, the study says, it will cost 22-23 per cent less, after factoring in higher import duties for components/steel, lower levels of automation, and transport costs.

Apart from trade union problems at home, and scepticism about the quality of production in low-wage countries given the complex supply chain -- hundreds of suppliers for the average of 7,000 components in a car, each one of which has a few hundred sub-suppliers -- few big manufacturers want to relocate their facilities today.

But given that India has component suppliers like Mico, Bharat Forge, Sundaram Fasteners and Motherson Sumi who are already Tier I suppliers to several global auto majors, involved with original equipment manufacturers right from the stage of product development ('sourcing partners', in jargon) -- others like Sundaram Clayton, Rico, Amforge, and Omax are in the stage of executing pilot orders, India's clearly off to a great start. The new design capability from Maruti is yet another vital step forward in this chain. Vrrroooom!

Powered by