HMIL helped India emerge a large car exporter

automobiles
Hyundai Motors India Ltd
HMIL helped India emerge a large car exporter...
After several years I recently visited Hyundai Motor India at Irungattukottai
near Chennai. The change is spectacular. The sprawling 535 acre complex
that marked the second auto revolution after Maruti, helped India emerge as
a major auto export hub. The company is all set to expand in a new location.
A walk through the body shop and the assembly
line revealed state-of-the-art facilities that have made
the company among the most modern, efficient and
profitable car companies in the world. Look at some of
these figures:
The company produces over 600,000 cars a year.
Of these, a third, over 200,000, are exported with
large numbers going to the demanding European
countries.
There is a high degree of automation with hundreds of robots taking care of safe, accurate and speedy
welding, ensuring high productivity. The assembly
line is a maze of systems that convey parts for assembly to precision.
Productivity is extremely high with a worker turning out over 150 cars on an average every year!
Components and sub-assemblies are received from
around 140 vendors. These include around 42 Korean companies located around the plant ensuring
supplies by the hour. For such large volume of production deliveries are made just in time!
Advances in automation, high production techniques and management systems are passed on to
the vendors.
Hyundai Motors displayed the Santro small car at
the Auto Expo, New Delhi in January 1996. At that time
Ford India had not decided on its new model.
I remember a dozen Korean executives watching with
keen interest the launch of Ford India in January 1996.
They were keenly observing every move of Ford that had
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decided to set up a large scale production unit at Maraimalainagar near Chennai.
Even when Ford announced the release of its first car
by October 1998, Hyundai seemed to have made up its
mind to race ahead of Ford. How effectively it did this,
in just 18 months!
IE interacted with BVR Subbu who took charge of
marketing after his stint with Tata Motors. Quite articulate and was ever keen to pass derisive comments on
the other Korean manufacturer, Daewoo, that was making large investments at NCR, Delhi. Daewoo’s Matiz
was also displayed at the Auto Expo and looked a more
attractive design. Subbu predicted that Daewoo would
not flourish on promised lines. It proved true. Daewoo
crashed and was acquired by General Motors.
Tax benefits that drove the project and the state!
The Koreans rode on the excellent incentives extended
to large investments in Tamil Nadu - like allotment of
large area of land, assured power supply, liberal tax
incentives like the funding of sales tax for 14 years and
low sales tax rates (of 1 per cent for components procured from within the state).
The company brought along with it a large number
of ancillary units from Korea that took care of quality
and timely supplies.
The Santro provided stiff competition to Maruti and
emerged as an attractive buy. Over five million Hyundai cars have been sold so far. The range expanded with
more models introduced with increased sophistication.
Robots galore!
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industrial economist may 2015
automobiles
Driving a social agenda...
Why should corporates exist only to make
profits and enrich shareholders? Step by step,
we move the world together, claims a Hyundai
white paper on social contribution activities.
programme. Over 600 have so far been
trained comprehensively on safe driving
and vehicle maintenance. The company
also donated over 100 cars for police
patrol and developing over 2000 strong
traffic squad.
The Hyundai Motor India Foundation is involved
in a large number of social welfare activities.
These are focused on four programmes – • Hundreds of women in nearby villages
have been trained in nursing.
clean move, green move, safe move
and better move.
I was particularly impressed by the company
• The clean environment move focuses setting up a carpentry workshop to make tables
on hygiene in villages through the and chairs for teachers,desks and benches
construction of toilets, providing clean for students from the packing material
potable water in villages around and received by the company supplemented by
ensuring hygiene in schools focusing on virgin wood. Over 30,000 such sets have
girls with better toilets and sanitation.
been provided to over 130 government
• The green move initiative helps villages schools in Kancheepuram district.
turn green by planting thousands of teak The efforts to touch the lives of thousands
wood saplings
in the community around appears as a rich
• The safe move focuses on safe driving contribution to society as the production of
through a comprehensive driver training cars in millions.
The system that supports zero inventory
Hyundai Motors developed the Tamil Nadu plant as a hub
for several of its models for global sales. It emerged as the
largest exporter of cars in the country earning annually
over Rs 6000 crore in foreign exchange. Hyundai thus
established India for its capabilities in producing a highly
sophisticated and engineered product like the automobile. From the initial 100,000 cars, Hyundai’s capacity has
increased more than six’ fold. Hyundai today employs
8500, has a strong dealer network of over 415 which is
fast expanding.
Indirect employment through ancillaries and services
runs into several thousands. Chairman of TVS Motors,
Venu Srinivasan, described the arrival of Hyundai as a
watershed in the industrial development of India. The
large number of dedicated suppliers along with the
mother plant helped spread state-of-the-art production, management and technology development. n
A dream has come true!
The 1990s heralded liberalisation. After some initial hesitation,
global leaders seized the opportunity to enter India with 100 per
cent ownership. Except Tatas and the Mahindras, today the auto
industry is dominated by the leading manufacturers of the world. I
recall the reservations expressed by a foreign expert:
In 1995, I spent a few weeks looking at several manufacturing
units in the US, including the Boeing plant at Seattle and Ford headquarters at Dearborn. At the Bank of Baroda office in New York, I
had an interesting discussion with Dr Robert B Hegeman, a senior
economist advising the bank. He expressed surprise over the plans
of India to emerge as a significant producer of automobiles (that
was the time Ford Motor Company announced its interest to set
up a production facility in India and other global players too were
thinking on similar lines).
Dr. Hegeman pointed to the low level of production in India and
to the absence of a strong R&D. He was right: at that time, total
production of automobiles including cars and commercial vehicles
was less than 0.25 million; while US was consuming around 14
million cars annually.
I pointed to him the cost advantages which will make India
extremely competitive: “look at the factors of production: land and
industrial economist may 2015
building costs in India are far lower than those in developed countries,”
I said. And for good measure added: “capital equipment costs had
become comparable after India liberalised and permitted imports even
at zero duty on promise of exports.” Prior to 1991, import duties were
hefty. Finance costs became comparable with foreign companies
permitted to make 100 per cent FDI with repatriation benefits. Most
important was the low cost of labour. While in Europe these stood at
20-30 per cent of sales, and at USA 12 per cent of sales, it was a piddling 2 per cent in India!
Dr Hegeman wouldn’t believe. He said: “this looks like coffee expenses!” I re-affirmed that in the previous year Maruti spent around Rs
800 million on employee costs on a turnover of around Rs 42 billion.
After 2000, India witnessed a rapid growth of its automobile
industry riding on the prosperity enjoyed by the middle class and on
facile financing by banks and finance companies. Japanese, Korean,
American and European car manufacturers set up shop in quick
time and expanded volumes. Today, India produces around 3 million
vehicles (and 1.6 million two-wheelers) annually and is slated to
double this over the next five years. After Maruti Suzuki, Hyundai Motors helped realise this dream - producing over 600,000 cars a year
and exporting over 200,000!
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