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GLOBAL WATCH MISSION REPORT

Automotive design engineering – a scoping mission to India

SEPTEMBER 2005

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DTI Global Watch Missions enable small groups ofUK experts to visit leading overseas technologyorganisations to learn vital lessons about innovationand its implementation of benefit to entire industriesand individual organisations.

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Disclaimer

This report represents the findings of a missionorganised by the Society of Motor Manufacturers andTraders (SMMT) with the support of DTI. Viewsexpressed reflect a consensus reached by themembers of the mission team and do not necessarilyreflect those of the organisations to which themission members belong, SMMT or DTI.

Although every effort has been made to ensure theaccuracy and objective viewpoint of this report, andinformation is provided in good faith, no liability canbe accepted for its accuracy or for any use to which itmight be put. Comments attributed to organisationsvisited during this mission were those expressed bypersonnel interviewed and should not be taken asthose of the organisation as a whole.

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Automotive designengineering

– a scoping mission to India

REPORT OF A DTI GLOBAL WATCH MISSION SEPTEMBER 2005

CONTENTS

EXECUTIVE SUMMARY 3

1 BACKGROUND AND 5 OBJECTIVES OF THE MISSION

1.1 Introduction 51.2 Why India and why now? 5

2 THE PERSPECTIVE OF THE 8INDIGENOUS INDIANAUTOMOTIVE INDUSTRY

3 THE POLICY CONTEXT OF 10FOREIGN DIRECT INVESTMENT

4 SUPPLY SIDE HUMAN 11RESOURCE ISSUES

4.1 The good news – costs are 11currently extremely competitive

4.2 But the problem of staff ‘attrition’ 11at lower levels is endemic

4.3 And figures for graduate supply 12can be deceptive

4.4 So how long will the situation of 12‘labour rate arbitrage’ endure?

5 GEOGRAPHICAL AND 14INFRASTRUCTURAL CONSIDERATIONS

6 ENGINEERING SERVICES IN 15INDIA – STRUCTURE ANDSEGMENTATION

7 OBSERVATIONS BY 18INDUSTRY SEGMENT

7.1 Subsidiaries of the indigenous 18Indian automotive industry(OEMs and Tier 1s)

7.1.1 Structure and strategy 187.1.2 Technology level 197.2 IT sector affiliates 207.2.1 Structure and strategy 207.2.2 Technology level 207.3 Independent engineering 20

service providers7.3.1 Structure and strategy 207.3.2 Technology level 22

8 CONCLUSIONS 23

8.1 Templates for possible 23collaboration

8.2 Possible offshore outsourcing 23business models

8.2.1 Project-based consulting model 238.2.2 Dedicated resource provision 248.2.3 Provision of managed facilities 248.2.4 Establish, operate and transfer 24

facilities8.2.5 In-house offshore facilities 258.3 Summing up 25

APPENDICES 27

A Mission delegate details 27B Host company visit reports 31C Best practice guidelines 49D List of exhibits 52E Glossary 53F Acknowledgments 55

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AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA

EXECUTIVE SUMMARY

What and why

This report describes a DTI Global WatchScoping Mission to India under the auspicesof the Society of Motor Manufacturers andTraders (SMMT). The aim of the mission wasto characterise and assess the potential ofthe developing automotive research anddevelopment (R&D) capability and technologybase of India. Specifically, the mission aimedto characterise and assess both the currentand likely future capability and technologylevel of this sector of the Indian automotiveeconomy. With this information it wasintended to establish a range of potentialmodels of collaboration, cooperation andcompetition between UK and Indianengineering service providers.

Where and when

Fifteen visits were made to host companiesactively engaged in the automotiveengineering services market, in five Indiancities (Delhi, Pune, Hyderabad, Chennai andBangalore), in five days (5-9 September2005). In order to provide a complementaryfocus on issues relating to foreign directinvestment (FDI) and the indigenous Indianautomotive industry, additional visits weremade while in New Delhi to the Governmentof India Ministry of Commerce and Industry(MCI) Department of Industrial Policy andPromotion (DIPP) and to the head office ofthe Society of Indian AutomobileManufacturers (SIAM).

How reported

The report sets out some of the key issueswhich influence all parts of the market foroffshore automotive engineering services.

Four distinct market segments are identifiedbased on the host company visits, and ananalysis provided of the observations of themission on the typical structure, strategy andtechnology level representative of serviceproviders within each segment. A series oftemplates for possible collaboration ofWestern customers in this sector is thendescribed. Finally, a number of best practiceguidelines are set out both for potentialservice users and for service providers.

Who for

The information contained in this report islikely to be of most direct relevance to UKcompanies engaged in independentautomotive R&D. It will be of particularinterest to those considering engaging withthe Indian offshoring sector, whether throughthe use of local engineering service providersor through the establishment of an in-houseoffshore engineering facility. However, manyof the observations presented are also likelyto be of interest to those from other –non-automotive – industrial sectors who arenonetheless interested in the opportunitiesand threats posed by the offshoring of workof a technical nature.

Some caveats

Notwithstanding the above comments, it isimportant that readers of this report fullyappreciate that the information andobservations contained are of a generalnature. The mission was necessarily focusedon a small sample of host companies whichwere representative of each market segment;while the team considers that these give areasonable characterisation of the market,they are far from representing its totality.

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The report should therefore be consideredneither a detailed directory of the market nora detailed statement of capabilities, strengthsand weaknesses of any of the individual hostcompanies visited. Similarly, the best practiceguidelines set out in this report are intended

as additional, non-obvious considerations forthose engaged in the market for offshoreengineering services; they should in no waybe viewed as a substitute for the commercialand engineering best practices which shouldform part of any outsourcing process.

Exhibit S.1 ProSIM R&D centre, Bangalore

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1.1 Introduction1.2 Why India and why now?

1.1 Introduction

The UK automotive design engineeringsector provides high added-valueconsultancy and engineering services to theworld’s leading automakers and Tier 1suppliers. This is a truly global industry inwhich the UK has enjoyed a substantialmarket share. The automotive industrycontinues to evolve globally, and changespotentially affecting the UK’s strong positionin design engineering are appearing.Emerging economies present opportunitiesfor new business and collaboration as wellas potential competitive threats from newmarket entrants.

This DTI Global Watch Scoping Mission wascarried out under the auspices of the DesignEngineering Group (DEG), an industrialcommittee of the Society of MotorManufacturers and Traders (SMMT) whichaddresses the precompetitive needs andinterests of the independent automotiveresearch and development (R&D) sectorwithin the UK. The aim of the mission wasto characterise and assess the potential ofthe developing automotive R&D capabilityand technology base of India, with a view toestablishing potential models ofcollaboration, cooperation and competitionbetween UK and Indian engineering serviceproviders. Hence from the outset themission was viewed as providing potentiallybeneficial results for both UK industry andpotential partners in India.

1.2 Why India and why now?

The increasing outsourcing of businessprocesses to low-cost economies has been awell-documented trend in recent years. With the focus upon labour-intensive‘back-office’ operations, many types ofservice-based business activity from callcentres to information technology (IT) supporthave been successfully outsourced.

While many countries offer the potential forlow-cost outsourcing, few come close tothe attractive mix represented by India,which offers the advantage of a largetechnically educated and English-speakingworkforce. Despite the fact that India fallswell behind China in terms of the volumeof foreign direct investment (FDI)($4.3 billion versus $53.5 billion), the Indianeconomy is viewed by internationalinvestors as being particularly attractive foroutsourcing IT, business processes andR&D1. In contrast, when asked what kindsof activity will be offshored to China,investors indicated a preference formanufacturing and assembly. A particularsuccess for India has been the outsourcedIT and software industries where clusterssuch as that in the region of Bangaloreplace the country in a highly competitiveinternational position.

In addition to its successful recent trackrecord in business process outsourcing, India also has a significantly sized domesticautomotive industry. The country producesannually in excess of six and a half milliontwo and three wheelers, one millionpassenger cars and multipurpose vehicles,

1 BACKGROUND AND OBJECTIVES OF THE MISSION

1 FDI Confidence Index, Global Business Policy Council, A T Kearney, Volume 7, October 2004: www.atkearney.com/shared_res/pdf/FDICIOct_2004_S.pdf

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0

1000

2000

3000

4000

5000

6000

7000

-20

-10

0

10

20

30

40

Exhibit 1.1 Vehicle production in India, 1999/2000 to 2004/2005 (source: SIAM)

Exhibit 1.2 Vehicle production in India: percentage year-on-year growth (source: SIAM)

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and 0.3 million commercial vehicles(Exhibit 1.1). As such it ranks second in theworld in production of two wheelers2, fifth incommercial vehicles and thirteenth inpassenger cars.

Traditionally the Indian automotive industryhas been a customer for the UK designengineering sector and this relationshipcontinues. However, the Indian government isactively encouraging the development of theindigenous automotive R&D base, includingfor example provisions for the weighteddeduction of 150% of R&D expenses3.

Signs of emergent low-cost competition fromIndia in automotive design engineering havebeen evident for some time now, primarilyrestricted to lower added-valuecomputer-based functions such as the legacyconversion of computer-aided design (CAD)data and the creation of meshes for finiteelement analysis (FEA). In many cases theseniche competitors have grown from existingoutsourcing providers in the IT sector ratherthan from the domestic automotive industry.Increasingly, however, the stated strategicaspiration of both of these service

organisations as well as the indigenousautomakers is to compete on an internationalscale for design engineering business4. While the current technology base within theIndian automotive and IT industries may notenable such new entrants to competeinternationally for highest added-value R&D, it is clearly an open question as to the possiblerate and extent of technological developmentwhich may allow this in the future.

The situation described represents both anopportunity as well as a challenge for UKindustry. Clearly there is the potential for UKengineering organisations to achieveadvantage over international competitorsthrough cooperation and collaboration withlow-cost partners in an English-speakingenvironment, or through the establishment oftheir own low-cost operations in-territory.Conversely it also presents a potentialcompetitive challenge for the future as newservice providers emerge and competedirectly for business. Whether or notindividual Western R&D organisations wish toengage in India therefore, knowledge of thisrapidly developing part of the Indian economyis an essential input to future strategy.

Exhibit 1.3

Despite the introduction of newpassenger car models, two andthree wheelers continue todominate with India rankingsecond globally in this marketsector

2 Society of Indian Automobile Manufacturers (SIAM) annual convention, September 2004

3 Government of India, Budget 2004-05

4 Design engineering, IT’s the next big thing, Times News Network, May 2004

Exhibit 2.1 Automotive clusters in India (courtesy ACMA)

5 Annual Report 2004-2005, Society of Indian Automobile Manufacturers (SIAM)

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The Society of Indian AutomobileManufacturers (SIAM) is the nationalrepresentative body of the automotivemanufacturing industry in India. SIAMrepresents the indigenous original equipmentmanufacturer (OEM) base as well as jointventures (JVs) and wholly owned subsidiariesof international automakers. The task ofrepresenting the supply chain – in particularthe larger Tier 1 component manufacturers –falls to a separate body known as theAutomotive Component ManufacturersAssociation of India (ACMA). The missionvisited the offices of SIAM in New Delhi andthe meeting was hosted by a team led bythe organisation’s Director General, DilipChenoy and Assistant Director, Pamela Tikku.

SIAM set out its view of the current stateof the Indian automotive industry, includinga range of general statistics which werepublished recently in the organisation’s2004/05 annual report5. It viewsautomotive R&D as a rapidly developingarea in which Indian companies arebeginning to strengthen their skills basethrough both organic growth andacquisition. Particular areas cited asrequiring further technology and skillsdevelopment were concept design,prototype validation and specialistpowertrain technology, the latter an area inwhich many Indian OEMs haveconsiderable well-established experienceof using European specialists.

2 THE PERSPECTIVE OF THE INDIGENOUS INDIAN AUTOMOTIVE INDUSTRY

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SIAM identified regulated emissions, airquality and fuel consumption as amongstthe primary technology drivers for the IndianOEM sector. There have been a number ofextremely high profile government initiativessuch as the mandatory conversion tocompressed natural gas (CNG) of the entirepublic transport road vehicle fleet in theNew Delhi area. SIAM expects that similarlocal initiatives will follow throughout India.The country is essentially adopting Europeanlegislation and is currently working towardharmonisation; currently Euro III emissionlevels apply in 11 major cities. There is alsoconsiderable interest in the development ofbiofuels and – in the longer term – hydrogenfuelled vehicles (principally internalcombustion based as opposed to fuel cellpowered). In terms of current marketdrivers, fuel efficiency remains a keymarketing point for Indian products, muchmore so than luxury options.

SIAM considers that there is huge potentialfor European automotive design engineeringcompanies to work with Indian OEMs andfeels that this is an important means throughwhich its members’ R&D skills can beaugmented through technology transfer. Inaddition to promoting direct commercialrelationships, SIAM also encourages andsupports the involvement of Indian companiesand academia in precompetitive Europeanresearch frameworks.

While ACMA was not visited by the mission,the delegates noted from independentobservations that there is a recent apparenttrend on the part of indigenous OEMs totransfer component and system-level designresponsibility onto the supply chain. This wasconsidered a further area in which servicesmay be required, both on the part of theindependent automotive R&D sector withinthe UK and its developing counterpart in India.

Exhibit 2.2 India – land of automotive contrasts

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In order to evaluate the legal obstacles andincentives to the direct involvement ofUK-based companies in the Indian market,either through JVs or the establishment ofwholly-owned subsidiaries, views on thissubject were sought from an appropriaterepresentative of the Government of India.The mission was granted a meeting with Mr Umesh Kumar, Joint Secretary to theGovernment of India Ministry of Commerceand Industry (MCI) Department of IndustrialPolicy and Promotion (DIPP). The followingparagraphs summarise the notes of thedelegation regarding the views expressed byMr Kumar.

At the outset, Mr Kumar wished to reassurethe delegation that the Indian economy isvery much a market economy and that theGovernment of India encourages this.Foreign companies wishing to set up in Indiaenjoy equal footing with indigenous Indiancompanies, and there are many localincentives which may be available from stateor city governments to support newinvestment. The extent of foreign ownershipis free from government control; both JVsand wholly owned subsidiaries have eachproved successful and the balance of equityis entirely at the discretion of thepartnership. Companies can usually beincorporated in around 7-10 days, with morecomplex cases taking no more than fourweeks. There are numerous consultancieswhich specialise in supporting overseascompanies setting up in India.

R&D is viewed as being amongst theeasiest category of business to establish asthere are few demands likely to be placedon physical infrastructure in any location.Indian law in the area of patent protection

has recently been strengthened and ongoingprocess improvements are aimed atreducing application backlogs. The legalprocess in terms of disputes procedures isalso well established. A law is expected tobe passed in the coming year, the existingrecommendations of which will streamlinethe whole life cycle of a company includingthe process of closing a business. Taxationrules are clear and the rates applicable for anew business can be agreed in the form ofan advance ruling that must be granted bythe tax authority within 90 days.

The labour market is tilted more in favour ofthe employee than the employer incomparison with the situation prevailingwithin the UK. This has implications in termsof rules relating to the termination ofemployment and closure of businesses.

Overall the delegation was impressed at theopenness of the government in encouragingFDI and in highlighting the strengths andweaknesses of India as a location for newbusiness. During the course of subsequentmeetings with design engineeringcompanies the delegation became aware ofthe nature of some of the mechanisms thatmay be used to maximise advantage whileestablishing a new company. The clearrecommendation has to be for thosewishing to establish their own facility toseek informed and expert advice beforeproceeding with the formation of a newcompany and recruitment of employees. In this way full advantage can be taken ofavailable tax and duty incentives as well asensuring the maximum structural andoperational flexibility of the business unit.

3 THE POLICY CONTEXT OF FOREIGN DIRECT INVESTMENT

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4 SUPPLY SIDE HUMAN RESOURCE ISSUES

4.1 The good news – costs are currentlyextremely competitive

4.2 But the problem of staff ‘attrition’ at lower levels is endemic

4.3 And figures for graduate supply canbe deceptive

4.4 So how long will the situation of‘labour rate arbitrage’ endure?

4.1 The good news – costs are

currently extremely competitive

Without exception the cost basedemonstrated by the host companies visitedwas extremely competitive compared to thattypical of similar industrial activity in the UKand other Western nations. With labour thedominant cost in most engineering designactivities, this clearly translates to acompetitive advantage for offshored activityeven when overheads of remote working(ignoring set-up costs and learning curveeffects) are taken into account.

Despite the fact that they were allsignificantly lower than Western labourrates, the figures provided by hostcompanies indicated that prevailing ratesvary considerably between what might betermed the offshoring hot spots such asBangalore, and less favoured locations.Together with availability of key staff, thismay be a key consideration for thosecompanies considering establishing theirown Indian subsidiaries.

Most of the host companies visited operatehighly flexible shift working patterns in orderto reduce effective overhead levels throughthe maximisation of asset utilisation(principally computer workstations, softwarelicences, office accommodation and IT

infrastructure). All of this translates intocurrent fee structures that are highlycompetitive on an engineer-hours basis, with the host companies typically claiming adirect charge-out rate advantage of 30-40%compared with similar activity carried out inWestern Europe or North America.

4.2 But the problem of staff ‘attrition’

at lower levels is endemic

The delegation was surprised by thechallenge posed to local providers ofengineering services by the high turnover ofyoung engineers in the early years of theircareers. While figures vary according to thehuman resource management practices ofeach company and are clearly anecdotalgiven the small sample size, typical staffturnover or ‘attrition’ rates for junior gradeengineers were found to be in the region of15-25%.

This problem is compounded by the steepsalary progression expectations of youngengineers. Whereas in Europe the salarydifferential between an experiencedengineer of around 30 years old and a rawengineering graduate recruit might be in theorder of 60%, the equivalent differentialfound with the host companies was closerto 400%. The delegation was told that ayoung engineer transferring betweenemployers might expect to receive a typicalincrease in pay of 30-35%. The motivatingforce behind the problem of attrition is thuseasily understood.

Staff attrition clearly represents amanagement challenge for the providers ofoffshore engineering services as much as itdoes for wholly-owned subsidiary operations.

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From a customer perspective, widespreadattrition is clearly a concern in respect of theinitial learning-curve overhead of establishinga business relationship. It is also potentiallya concern with regard to confidentiality andthe dilution of know-how.

Many host companies visited demonstratedsome highly innovative approaches inmeeting this challenge. Some for exampleuse fiscal incentives such as employeeshare ownership schemes while othersfocus upon intrinsic career developmentrewards such as the opportunity forinternational travel. In some cases supplierswill use previous employee loyalty as asignificant filter in the recruitment process.One executive explained: ‘I deliberately lookfor prior loyalty and give this similar weightto technical skills – candidates with aprevious track record of ‘job-hopping’ areusually screened out’. Comments by serviceusers too indicate some of the methods bywhich the effects of attrition can bemitigated, such as the contractualrequirement that named individuals will beengaged on follow-on projects.

These together with other guidelines are acrucial element of the best practiceguidelines presented later in this report(Appendix C).

4.3 And figures for graduate supply

can be deceptive

While the available pool of young universitygraduates in India has been estimated at14 million, the proportion of suchengineering graduates considered suitablefor employment by a multinational companyis as low as 25%.6 This finding was broadlyin agreement with the observations of manyof the host companies visited, particularly

those providing more advanced, technologyfocused services. Questioned on this aspectof human resource management, one seniorexecutive said: ‘I do not think that there aremany good engineers available – there arejust a few who are capable of being trainedfor the type of work that we do.’

With the growth in offshore engineeringactivity which is clearly apparent in the rapiddevelopment of many of the hostcompanies, a gradual tightening of themarket for graduate recruits must beexpected. As with the problem of attrition,the most innovative host companies haddeveloped training and recruitment policiesaimed at ensuring a ready supply of talentwithin their organisations. These too informthe best practice guidelines (Appendix C).

4.4 So how long will the situation of

‘labour rate arbitrage’ endure?

While the cost advantage of engineeringactivity in India is considerable at present,observations of the host companies visitedindicated that general wage inflation in thissector is in the region of 20%. Given thatcomparable wage inflation in the UK iscurrently closer to 2-3% it is clear that whilethe cost advantage of carrying outengineering activity in India is currentlysignificant, this advantage is being erodedover time.

This raises the obvious question of just howlong the cost advantage of carrying outengineering activity in India will endure. A number of the host companies visitedstated that the twin effects of inflation andthe looming shortage of graduate supply willerode the cost advantage within the nextfive to ten years. However, recent studies7

have indicated that the position is likely to

6 The Emerging Global Labor Market: Part II – The Supply of Offshore Talent in Services, McKinsey Global Institute, June 2005:

www.mckinsey.com/mgi/publications/emerginggloballabormarket/index.asp

7 Ensuring India’s offshoring future, McKinsey Quarterly, 2005 Special Edition: Fulfilling India’s Promise:

www.mckinsey.com/mgi/publications/India_offshoring.asp

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stabilise closer to 30%, the differentialcurrently prevailing between the wages ofyoung professionals in Mexico and the USA.

While a 30% long-term staff cost advantagemight seem at first sight extremelyattractive, it is important to recognise thatthe current differential is potentiallysignificantly greater than this. Based onsalary expectations provided by the hostcompanies, the delegation estimate that rawwage costs for offshore engineering workare up to 70% less than those of a typicalUK company, based on an engineering teamof mixed age and experience. With currentfee rates for Indian suppliers typically only30-40% lower than those in the West, itwould appear that overheads and retainedprofits are proportionally significantly higher.

To remain competitive therefore, Indiansuppliers will need to markedly improve theirefficiency or reduce retained profitscompared with prevailing levels. For thoseable to do this and at the same time provideinternationally competitive technology andservice, the residual cost advantage ofoffshoring engineering work to India is likelyto remain significant, even if perhaps slightlyless so than today.

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As the phenomenal success of theoutsourced business process and customerrelationship management (CRM) sectors inIndia have amply demonstrated, the countryis well equipped to provide a base forremote business activities utilising IT andtelecom links. However, for those seeking toestablish their own subsidiary offshoreoperations, geographical influences uponaspects such as staff cost and availabilityand the general quality of infrastructureshould be critical considerations.

There is evidence that some inwardinvestors have been drawn to the majoroffshoring clusters without dueconsideration for alternative geographicalcentres which may offer a more attractivecost base. It was suggested to thedelegation for example that salaryexpectations in Bangalore are typicallyaround 25% higher on a like-for-like basiscompared with less favoured offshoringlocations such as Pune.

Equally however it was clearly apparent tothe delegation that the quality ofinfrastructure – from the reliability of powersupplies and availability of backup generatorsto the standard of the local road network –can vary widely both within and betweenregions and cities.

For potential inward investors there can beno substitute for direct, thorough andinformed research into prospective locations.

5 GEOGRAPHICAL AND INFRASTRUCTURAL CONSIDERATIONS

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In advance of the scoping mission, thedelegation identified a clear, four-waysegmentation of the independentautomotive engineering services sector inIndia based on the host companies to bevisited. The primary segments wererepresented by:

• Subsidiaries of the indigenous automotiveOEMs

• Subsidiaries of indigenous automotive Tier 1 suppliers

• Affiliates of the large IT offshoringorganisations

• Independent engineering serviceproviders

This framework avoids consideration of afurther rapidly developing segment ofactivity: the in-house operations of overseasOEMs and Tier 1s. The rationale for this isthat these organisations within India appearto be solely focused upon the fulfilment ofin-house needs and are not active in theindependent engineering services sector.Exhibit 6.1 overleaf shows thesegmentation of each of the hostcompanies visited by the delegation.

In assessing the characteristics andtechnology level of the independentautomotive engineering service sectorwithin India, the delegation has been carefulto analyse the observations made at anindustry segment level rather than anindividual company level. There are tworeasons for this:

1 The selection of the host companies wasintended to provide a representativesample of this sector of the Indianautomotive economy based on a smallnumber of companies drawn from eachindustry segment. There are numerousadditional organisations of all sizes whichwould have been appropriate for inclusionin the study but which were omitted fromthe list of prospective host companies inorder to create a manageable sample sizefor the scoping mission. It would beinappropriate and also unfair to thoseorganisations not visited to imply througha company-by-company presentation thatthis sample is in any respect exhaustive.

2 Given the degree of openness andcooperation with the mission exhibitedwithout exception by the individual hostcompanies, the delegation feels that acompany-level presentation of resultswould be unfair in the portrayal ofchallenges that are faced by industry at large.

Notwithstanding the above comments, visitreports containing more general observationsfor each of the companies visited arecontained in Appendix B to this report.

6 ENGINEERING SERVICES IN INDIA – STRUCTURE AND SEGMENTATION

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Direct subsidiaries of indigenous Subsidiary name Parent organisation

Indian automotive OEMs Ashley Design & Engineering Services Div Ashok Leyland

Remote Services Division Hindustan Motors

Tata AutoComp* Tata Motors

Tata Technologies Tata Motors

Subsidiaries and affiliates Subsidiary name Parent organisation

of automotive Tier 1s Harita Infoserve TVS Group

MIND** Motherson/Sumitomo JV

Tata AutoComp* Tata Motors

Subsidiaries and affiliates Subsidiary name Parent organisation

of IT service organisations Infotech Enterprises Operates as part of parent

Satyam-Venture Satyam Computer Services/

Venture Global (USA)

Wipro Operates as part of parent

Independent automotive engineering Caepro

service providers MIND**

(Most of these companies operate Neilsoft

in multiple industries and Onward Technologies

application domains) ProSIM

Quantech Global Services

QuEST

Certain organisations cross the boundaries of the segmentation identified by the mission:

* Tata AutoComp, while under the ultimate ownership of Tata Motors, operates predominantly within the Tier 1 sector

** MIND is a JV with Tier 1 ownership but appears to operate with a high degree of autonomy similar to that of the independent segment

Exhibit 6.1 Segmentation of independent automotive engineering service providers

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Exhibit 6.2 Map of India showing the companies visited in each city

MIND

Caepro

Onward Technologies

Tata AutoComp

Tata Technologies

Neilsoft

Infotech Enterprises

Quantech Global

Satyam-Venture

ProSIM

Harita Infoserve

Wipro

QuEST

ProSIM

Harita Infoserve

Wipro

QuEST

Remote Services

Ashley Design

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7.1 Subsidiaries of the indigenousIndian automotive industry (OEMs and Tier 1s)

7.1.1 Structure and strategy 7.1.2 Technology level7.2 IT sector affiliates7.2.1 Structure and strategy7.2.2 Technology level7.3 Independent engineering service

providers7.3.1 Structure and strategy7.3.2 Technology level

7.1 Subsidiaries of the indigenous

Indian automotive industry

(OEMs and Tier 1s)

These two segments share many commoncharacteristics, not least due to their verysimilar industrial background and businessculture. For this reason the delegation chose toanalyse them together while highlighting thoseareas in which differentiation is apparent.

7.1.1 Structure and strategy

The OEM and Tier 1 sector organisationsappear to be closely integrated with theirparent organisations at an operational leveland view this as a significant competitiveadvantage in terms of the automotivedomain experience that it brings. It was alsocited on many occasions as offering theability to add and remove resource from theexternal engineering service businessdepending on the immediate demands ofthe market. Despite this level of operationalintegration, some are going to considerablelengths to reinforce at least the perceptionof autonomy through the establishment ofdistinct brand identities and geographicallyseparate technical centres.

The OEM and Tier 1 service providersshowed a clear distinction from the ITaffiliates and independent engineeringcompanies in their strategic direction. They exhibit a clear and self-confident senseof a long-term mission that appears to beshared throughout the management team. A willingness to grow through strategicinternational acquisitions and JVs in supportof strategic goals was often stated and isalso borne out by examination of the recenthistory of many of the organisations visited.Some were also extremely frank about their marketing strategy, seeing the large,global automakers and multinational Tier 1sas their primary future customer base rather than the small to medium sizedenterprises (SMEs) further down theautomotive value chain.

While some of the operational advantagesof industrial ownership will currently favourthe OEM more than the Tier 1 subsidiaries,recent anecdotal evidence with regard toOEM ownership of major Europeanengineering service providers is notparticularly promising. In addition the verystrength of the larger Indian OEMs maylead to a higher strategic priority being

7 OBSERVATIONS BY INDUSTRY SEGMENT

Exhibit 7.1 The recently opened technical centre ofTata Technologies, Pune (courtesy Tata)

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given to high-level collaborations withglobal automakers8.

7.1.2 Technology level

The OEM and Tier 1 segments were typifiedby companies with a very strong automotivefocus and culture. They demonstrated a deeplevel of production engineering andmanufacturing process knowledge drawnfrom their parent organisations and theypresented themselves as extremely wellmanaged and process-oriented organisations.A considerable exposure to large-scaleprogrammes was demonstrated, althoughoverall skill levels in powertrain engineeringappeared to be less than those demonstratedin the areas of vehicle and chassis.

CAD skills in the OEM and Tier 1 segmentswere generally the best seen during themission, demonstrating in many cases athorough appreciation of the requirementsof collaborative working using the latestCAD systems on large-scale programmes.Testing and validation skills varied widelybetween individual organisations.

Computer-aided engineering (CAE) skillsappeared to be generally more process thanexpertise oriented, with excellent skillsexhibited for general work but more limitedexamples of more advanced applications andthe use of true optimisation based methods.

One significant exception to this observationhowever was in the deployment of

Exhibit 7.2 CAD skills being demonstrated to Mike Reeve during the visit to Hindustan Motors RemoteServices Division, Chennai

8 For example: Fiat, Tata to join forces in India, Automotive News Europe, 3 October 2005: http://europe.autonews.com/toc.cms?date=2005-10-03

knowledge-based engineering (KBE)applications in which certain of the OEMsector appeared to have investedsignificantly. This was in keeping with theapparent focus on the acquisition andretention of process knowledge as theprimary driver for future development ofskills and service competence (engagementin advanced R&D appeared limited byinternational comparison). The use of KBEsystems might also be seen as a highlyinnovative means of limiting the negativeimpacts of staff attrition.

7.2 IT sector affiliates


The IT services sector has been a majorsuccess story for India in recent years andboasts the rapid development of a number oflarge and internationally leading organisations.These are some of India’s most respectedbusiness brands and are amongst the mostsought after for prospective new employees.While some are extremely large, they tend tobe highly decentralised, innovative andflexible in their approach to the developmentof new business streams and the acquisitionof new skills.

Drawing on experience of growth in the ITservices sector, these engineering serviceproviders have a business model whichrelies on a close knowledge of the individualparts divisions and departments of theircustomers. This model lends itself to theprovision of services to larger customerssuch as the leading automakers and Tier 1organisations rather than to SMEs.

While acquisitions are far from unknowngiven the resource available to the largerorganisations, much growth tends to beextremely organic and is based on theidentification of needs and the developmentof existing internal skills frequently derivedfrom unrelated market sectors.


The technology capability of this sectorappears in general to be based on theclustered development of similarcompetencies across a range of industries,rather than focusing strictly at a domainlevel. Skills were thus fragmented andclustered on selected application areas, andthe segment as a whole appeared to havethe lowest level of overall automotive focusof those investigated.

The development of each new area ofcompetence appeared both highlyopportunistic and efficient, with an activewillingness to invest in learning theircustomers’ product development processes.CAD and CAE skills were consistent with thisapproach, with highly specific and discreteareas of application expertise. Once activewithin an application area, a path of verticaldevelopment appeared common; for example,starting with CAD legacy conversion workbefore moving into added-value engineering ofsimilar components and systems.

7.3 Independent engineering service

providers


This segment is comprised of a large numberof predominantly smaller and highlyentrepreneurial companies. Most have beenformed in recent years or have developedfrom related sectors such as engineeringsoftware development and distribution. Overallthey exhibit an extremely high level of domainand technical focus on the targeted industriesand subsectors that they serve. They aremostly privately owned and independent ofany parent or large customer influence.

The business models followed by thissegment are extremely flexible, ranging froma conventional project-based consultancyapproach to the provision of dedicated

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facilities for individual customers. Somehighly innovative approaches were found. Inone case the supplier’s business model isbased upon the provision of local on-sitesupport by a liaison engineer of the samenationality as the customer, in order toprovide a truly local interface to the offshoreservice. In another case a supplier hasdeveloped a hybrid business model as anoption for clients wishing to graduate to theirown in-house facility, whereby the supplierestablishes the new facility as a service andtransfers ownership after a fixed period andsubject to agreed performance criteria.

While some large customers are served, thissegment had a clear focus on providingservices to medium sized companies.Operating at a highly focused and technicallevel, human resource strategies are extremelyimportant. A number of innovative approacheswere demonstrated aimed at limiting andmitigating the negative impacts of attrition,ranging from the identification of core staffwhose career needs are to be proactively metin order to maintain critical domaincompetences, through to the use of fiscal staffretention incentives such as stock options.

Despite the fact that it includes some of themost innovative and entrepreneurial of thecompanies visited, this segment is likely tobe at greater exposure to fluctuating marketdemands. Threats in particular to lower-endwork are likely to arise from improvementsin mesh generation software which reducethe labour content and hence theattractiveness of outsourcing (this view wasprovided by a long-standing Westerncustomer of this sector). Similarly for largercustomers there is a tendency to graduatefrom the use of an outsourcing model to thedevelopment of local in-house facilities.

However, the highly entrepreneurial natureof the companies in this segment mayenable them to respond to such marketchanges. Some in particular are extremelyclear in their intention to move towardshigher added-value analysis and designservices which are globally competitive ontechnology as well as price. This wasreflected in a few examples of methods-based R&D work aimed at improving thelevel of technology and services delivered;the more usual approach was typified bylearning directly from customers.

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Exhibit 7.3 Part of the technical centre of Onward Technologies, Pune


The companies visited in this segmentexhibited a high degree of domainknowledge and concentrated upon providinga selected range of services andtechnologies. While showing similarities inbusiness culture and technical strategy, notwo organisations exhibited an identicalprofile of competences and service. Theyappeared to focus on recruiting and retainingstaff with specific skills as a means ofdeveloping and maintaining competence ineach application domain.

In general terms the focus of companieswithin this segment was more upon CAEapplications than on CAD and product design.This is in part reflected by a lesser exposureto programme-level activity than that typicallyfound in the OEM and Tier 1 segments.

While most organisations were fairly broadbased in the analysis applications coveredand the industry sectors served, a smallnumber were extremely focused, providing anarrow range of specialist analyticalapplications that could be consideredglobally competitive.

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8.1 Templates for possible collaboration8.2 Possible offshore outsourcing

business models8.2.1 Project-based consulting model8.2.2 Dedicated resource provision8.2.3 Provision of managed facilities8.2.4 Establish, operate and transfer

facilities8.2.5 In-house offshore facilities8.3 Summing up

8.1 Templates for possible

collaboration

The automotive design engineering servicessector in India is characterised by a numberof extremely well-run companies, most if notall of which have well-defined processesaccredited to international standards. Withinthe four industry subsegments identifiedthere is a wide range of providers offeringmany competing as well as complementarymixes of services, as well as businessmodels through which they are delivered.From the outset of this research thedelegation was firmly of the opinion thatthere could be no ‘one size fits all’ solution forall customers and for all project types; thisview has been confirmed by the mission.

In order to approach the process ofoffshoring an element of design engineeringactivity however, it is appropriate thatcustomers equip themselves withknowledge of the full range of potentialbusiness models that are available to them.The following sections therefore describethe models identified during the scopingmission. In addition, some best practiceguidelines for customers and serviceproviders are set out in Appendix C. None ofthese should be viewed as an exhaustive list,

and for brevity the more obvious criteriasuch as quality thresholds and technicalcompetency for the work at hand have beendeliberately omitted, as these areappropriate to any outsourcing activityregardless of its location.

In the list of engagement models presentedthere were clear anecdotal indications thatthere is a tendency for those offshoringengineering work to progress from some ofthe more transactional models to higher levelsof engagement up to and including their owntechnical centres, once sufficient marketexperience and confidence has been gained ateach level. There are however strengths andweaknesses of each model for eachcustomer, and there are many for examplewho may conclude that project-basedconsulting support is the best long-termsolution to their particular business needs.

8.2 Possible offshore outsourcing

business models

8.2.1 Project-based consulting model

The conventional project-based consultingmodel is possibly the most common form ofinitial engagement for customers of offshoreengineering services. However, this model isclearly best suited to discrete one-offassignments and it is important to note thatthere is always a learning-curve overhead toany work with a new service providerwherever it is located. Such learning-curveeffects are clearly likely to be proportionatelygreater for a provider from a differentnational and business cultural background.

A consequent concern frequently expressedby first-time customers of offshore services

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8 CONCLUSIONS

is that the cost and time savings actuallyachieved did not match expectations.Certain service providers actively managecustomer expectations in this regard andothers have advanced liaison approachesincluding the use of staff on-site at thecustomer’s premises in order to improvecommunication of customer requirementsand processes.

For maximum effectiveness this modelshould be used only where the requirementis either a one-off task or specialist exercisethat is inappropriate to a longer-termengagement model.

8.2.2 Dedicated resource provision

Where a customer has an ongoing need forresource of a particular type (eg CAD, FEA,CFD, etc), many service providers offer amodel whereby a guaranteed level ofresource is ring-fenced exclusively for use bythis customer. There are many variations ofthis basic model, for example includingpre-agreed levels of flexibility on either side,or notice periods for termination.

Despite the best efforts of serviceproviders to record and documentcustomer processes, it is clearly anadvantage for customers engaging in thisbusiness model to negotiate guaranteesregarding the continuity of key namedindividuals to ensure that the learning-curveoverheads of the ‘project’-based model donot recur.

Managed effectively, however, this modelcan be particularly advantageous for thosewishing to offshore a controlled proportionof activity but lacking the critical mass tojustify moving to a dedicated facility.

8.2.3 Provision of managed facilities

Many service providers offer anengagement model whereby they provide a

dedicated facility and team workingexclusively on a single customer’s projects.In this model, while management andadministration remain the responsibility ofthe service provider, the facility effectivelybecomes an operational part of thecustomer’s business for the duration of theengagement. In many instances this maybe a physically separate building with itsown secure access-control procedures. In more advanced cases the facility mayalso be open to the customer’s ownemployees who co-work projects with theservice provider.

This model appears to be usedsuccessfully by a number of medium tolarge sized engineering companies. Inmany cases a highly effective partnershipbetween customer and service providerappears to operate in which risk andreward are shared as the extent ofoffshore activity is increased.

8.2.4 Establish, operate and transferfacilities

This is a hybrid model that wasdemonstrated to the delegation by one ofthe host companies. A managed facility isinitially established by the service providersubject to the specification of the customer.The service provider is responsible for initialrecruitment of staff and operation of thefacility for a pre-agreed period. Once thisperiod is completed the customer has theoption to assume full ownership of thefacility and associated management control,subject to the achievement of strictperformance criteria agreed at the outset ofthe engagement.

The advantage of this approach is that thecustomer achieves the ultimate goal ofestablishing its own in-house offshorecentre while avoiding the need for directinvolvement with much of the associatedinitial administrative and organisational work.

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8.2.5 In-house offshore facilities

Direct investment in in-house offshorefacilities offers the advantage of completemanagerial control and clearly the highestlevel of intellectual property right (IPR)protection. This model has been favoured bythe very largest international OEMs and Tier 1organisations but there are also numerousexamples of the successful operation ofin-house facilities by much smaller companies.

Clearly this is not a short-term option andshould only be considered by those whosestrategy is such as to guarantee therequirement for offshore resource for aconsiderable period. It should also besufficiently robust as to be future-proofedagainst the potential of a reduced labour-rateadvantage as the Indian economy develops(see Section 4.4).

For those establishing their own in-houseoperations from scratch, as well ascustomers of the hybrid model described inSection 8.2.4, it will also be important toensure that the administrative framework ofthe new facility meets with their long-termneeds and objectives, for example in theappropriate establishment of terms andconditions of employment and thenegotiation of taxation arrangements.

8.3 Summing up

The results of this study have served todemonstrate the vibrant nature of theemerging automotive engineering servicessector in India. The segment-by-segmentanalysis of the sector has provided a rangeof useful insights into the strengths andweaknesses typical of service providers ineach segment, and has also highlighted

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Exhibit 8.1 The QuEST technical centre in Bangalore like many in the independent engineering servicessegment is divided into a number of access-controlled offices dedicated to individual customers,as well as more general in-house work areas

many of the challenges facing serviceproviders both now and in the years ahead.While these challenges may well lead tosome degree of shake-out, the uniqueenvironment of India offers the potential for the most innovative and technologically advanced service providersto survive and prosper in an internationallycompetitive environment.

At the outset of this study the mission hadidentified that it was unlikely that therewould be a ‘one size fits all’ solution to theoutsourcing of engineering activity to India,and that a range of models would beappropriate for different customers rangingfrom the use of project-based consultancyservices to the establishment of in-houseoffshore engineering facilities. For thisreason a range of possible engagementmodels have been described for possibleconsideration by those wishing to enter theoffshore market.

Finally, the mission has attempted toestablish a range of best practice guidelinesfor both service users and providers(Appendix C). While these should in no waybe considered a substitute for the rigorousprocesses of supplier qualification andselection, and project specification andmonitoring, which should be the subject ofany engineering services outsourcingdecision, it is hoped that they may enablefuture service users and providers to gainmaximum advantage from engagement inthis sector of the Indian economy.

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27


Appendix AMISSION DELEGATE DETAILS

Exhibit A.1 The delegation during a brief sightseeing break in New Delhi; L to R: Anthony Baxendale, Mike Reeve,Tony Braddon, V R K Eshwaran (Senior Trade Advisor, British High Commission), Anthony Smith

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Anthony Smith

Mission leader and coordinatorConsultant to SMMT

MediaTechnical Ltd4 Hampden RoadBrighton East SussexBN2 9TNUK

T +44 (0)1273 382 710 [email protected]

Anthony Smith is the proprietor ofMediaTechnical Ltd. A mechanical engineer byinitial training he is a Chartered Engineer andmember of both the Institution of MechanicalEngineers and the Chartered Institute ofMarketing. He has spent most of his careerto date in the automotive design engineeringconsulting sector and founded technologymarketing and media relations consultancyMediaTechnical Ltd in 2003.

Anthony Braddon

General Manager

Prodrive Test Technology (Europe) Ltd8 Tanners DriveBlakelandsMilton KeynesBuckinghamshireMK14 5BNUK

T +44 (0)1908 513 [email protected] www.prodrive.com

Tony Braddon is General Manager of ProdriveTest Technology (Europe) Ltd. He is a memberof the Institution of Incorporated Engineerswith over 20 years’ experience in theAutomotive Engineering Consultancy sectorand has specific powertrain knowledge. He has spent the last 10 years in a businessdevelopment role, focusing his activities onvehicle manufacturers and Tier 1 automotivesuppliers worldwide.

Michael Reeve

Chief Engineer of Vehicle Design

Group Lotus plcPotash LaneHethelNorfolkNR14 8EZUK

T +44 (0)1953 608 [email protected] www.lotuseng.com

Michael Reeve is Chief Engineer of VehicleDesign at Lotus Engineering in the UK. He has over 25 years’ experience in theautomotive design and engineering consultingenvironment. The last 15 years have beenheavily concentrated in the CAD environmentand he is currently supervising the transitionof Lotus Engineering to a new CATIAV5/Delmia/Smarteam CAD installation.

Anthony Baxendale

Head of Advanced Engineering and Innovation

MIRA LtdWatling StreetNuneatonWarwickshireCV10 0TUUK

T +44 (0)24 7635 [email protected] www.mira.co.uk

Anthony Baxendale is Head of AdvancedEngineering and Innovation at MIRA Ltd, a leading UK automotive design engineeringconsultancy. He is a chartered engineer witha background in aeronautical, offshore andautomotive engineering. He has a particularinterest in the strategic development oftechnology-based companies.

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In addition to the official delegates, the mission was also accompanied by:

Les Parfitt

Manager – International

Society of Motor Manufacturers andTraders (SMMT) LtdForbes HouseHalkin StreetLondonSW1X 7DSUK

T +44 (0)20 7344 [email protected] www.smmt.co.uk

Les Parfitt has worked in the automotiveindustry for over 30 years in a wide range ofsenior roles both in design engineering andoverseas sales development. His currentresponsibility within the UK automotive tradeassociation, SMMT, is to provide a key link forbusiness development with Indian companiesfor UK companies.

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31


Fifteen host companies were visited,providing a representative sample of theprimary market segments identified in thereport. Each host company is included herein chronological order of visits.

5 September 2005

New Delhi

1 MothersonSumi INfotech &

Designs (MIND) Ltd

MIND is a JV between Sumitomo WiringSystems of Japan and the Motherson Groupof India. It was formed in 2000 and isheadquartered at Noida, India, and employsa staff of ~400 engineers. Internationally ithas offices in Australia, Austria, Germany,Japan and the UAE as well as a liaisonpresence in the USA. The company ispredicting a 2005 turnover of $5.25 million(~£3 million) across its two businessdivisions – Engineering & Design Servicesand Software Services.

The mission delegation was visited at the TajPalace Hotel, Delhi, by a senior managementteam from MIND led by Ratna Chatterjee,Vice President – Engineering & Design.

Markets and business model

The business focus of MIND appears to beupon both white goods and automotivesectors. Approximately 65% of its turnoverrelates to external (to the parent group)clients. Its client list is extremely impressivein both domains and includes many leadingautomakers and international Tier 1

suppliers. Most of this work appears to beconducted on a project basis.

Technology level

MIND’s principal focus appears to be uponstyling and design, with particularexpertise in the automotive sector in thearea of body and trim components. In theopinion of the delegation, MIND displayeda good understanding of projectmanagement and associated keymilestones that go towards deliveringprojects successfully.

In terms of CAD capability the companycovers all the major software platforms butfocuses on CATIA V4/V5 and Unigraphics inresponse to the current market drivers (an approximate saving design resource wasclaimed in moving from CATIA V4 to V5).

In terms of product data management(PDM), MIND releases CAD data directlyinto the preferred system operated byindividual clients. For internal work, however,the company is considering a Teamcentreinstallation for its own PDM requirements.

In terms of simulation capabilities, MINDis developing its services in the area ofFEA and CFD as a means of designvalidation. Standards appeared to becustomer driven in terms of mesh qualityand boundary conditions.

Reflecting the focus on body and trimcomponents, the company appears to havewell-developed skills in plastic mould tooldesign and associated CAE systems suchas Moldflow.

Appendix BHOST COMPANY VISIT REPORTS

Aspirations

From the delegation’s discussion with MINDsenior management it appeared that thecompany has ambitious plans for furthergrowth. Specifically on technology reach, the company appeared to be targeting thefurther development of its CAE capability.

Mission view of segmentation

Independent engineering services providerbut also Tier 1 subsidiary/JV.

Further information

www.mind-infotech.com

6-7 September 2005

Pune

2 Caepro Technologies Pvt Ltd

Caepro was established in 2004 both inIndia and the UK. The company is extremelyfocused upon providing high-quality, low-costCAE capabilities. It is privately held by itsdirectors, each of whom has a background inthe UK independent automotive R&D sector.Caepro employs a team of eight engineersat its offices in Pune. In addition it has onepermanent UK-based employee focusingupon customer communication andcoordination activities.

The delegation visited Caepro at its Puneoffices and the visit was hosted byManaging Director, John Roebuck.


Caepro was formed specifically to addressweaknesses that the company identifies inthe market for offshore automotive CAEservices. In particular, it views the sector asa whole as being poor at understandingcustomer requirements and interpretingthese in effective analysis; as a result, itargues, low rates do not necessarily translateinto cost or time savings for customers. To address these issues, Caepro’s businessmodel focuses upon providing excellentcommunications with customers –addressing the need for local language andnational/business cultural empathy.

Its primary identified market is representedby medium sized companies in theindependent automotive R&D sector, forwhich it aims to provide a knowledgeableback-office CAE operation for general vehicleand subsystems analysis.

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Technology level

The focus of Caepro is very much uponspecific aspects of automotive technologythat it recognises as being labour intensiveand attractive for outsourcing. In powertrainCAE, the company focuses on enginecylinder block, head, crank and connectingrod and transmission casing analysis. On vehicle CAE it has capabilities in chassis,suspension and full vehicle crash modelling(front, side and rear) for FMVSS andEuroNCAP. The company produces crediblemodels and has clear knowledge of meshquality and analysis process issues, not leastderived from the experience of its directorsin the USA and Europe. It views this as akey differentiator. At a working level, someof the detailed processes set out for FEAwere shared with the delegation. It wasclear that Caepro places a considerableemphasis upon detailed processdocumentation and upon staff training. Shift working is used in order to maximisesoftware and hardware asset utilisation andto improve the potential window of directinteraction with overseas clients.

Overall, Caepro appeared to be one of veryfew of the companies visited which hadstrengths in powertrain technology matchingthose in vehicle engineering.

Aspirations

Caepro intends to add additional servicesand extend its geographical reach withinEurope and North America, but states that itwill only do so in parallel with the provisionof local liaison staff in each new territory.


Independent engineering services provider.

Further information

www.caepro.com

3 Onward Technologies Ltd

Onward Technologies is an independentlyowned engineering services organisationbased in Pune. It was originally established in1991 and was floated on the Bombay StockExchange (BSE) in 1994. From 1995 until2001 it was the distributor for I-DEASsoftware in India, and when this arrangementended the business turned to outsourcedengineering services. The company employsa staff of 241 at its head office in Pune inaddition to a further 64 engineers based atcustomer locations overseas. The companyposted sales of $7.7 million (~£4.4 million) in2004-2005 and claims to be India’s largestindependent engineering services provider.

The mission delegation visited the Punehead office of Onward and the meeting washosted by a team led by Executive VicePresident, Mr B S Kaustubhan.


Onward states that 66% of its revenue lastyear was attributable to automotiveactivities, while industrial equipment andaerospace respectively represented a further16% and 15% (other industries made up thebalancing 3%). The source of this revenue isdominated by the USA (78%) followed bysmaller contributions of 12% and 10%respectively from the EU and Asia-Pacific.Onward has a very well equipped base atPune that is subdivided into a number ofsmaller, confidential facilities dedicated to itslarger clients such as DCX and John Deere.

Technology level

Onward demonstrated a strong automotivefocus as well as a good understanding ofproject management and associated keymilestones that go towards deliveringprojects successfully. Its CAD capabilityappeared to cover all of the major softwareplatforms, with the jig and fixture design

33


carried out in CATIA V4 and V5, and withcomponent design being mainly executed inUnigraphics. CAD data management isreliant on loading data into the client PDMsystem. Good linkages were apparentbetween the CAD and CAE groups, andmanufacturing feasibility support wasprovided by a small number of key engineerswith detailed experience in this field.In CAE, Onward is classed as a Tier 1supplier for offshore meshing services by DCand also supplies Ford through collaborationwith MSX. Engineers demonstrated goodautomotive knowledge and a good technicalawareness of CAE quality and analysis issuesas well as underlying physics of thesimulation scenarios demonstrated. Meshing competence was strong and isviewed as a core competence. Analysis workis lower volume, for example restricted to‘run zero’ (check run) to ensure modelintegrity before passing to client for in-houseanalysis and interpretation. Onward appeared to have well-developed qualitysystems and processes, including bothindividual work checking against anestablished quality matrix prior togatekeeping by supervisory staff.

Aspirations

In terms of geographical coverage, Onwardaims to extend its penetration in NorthAmerica and Europe. On technology, whilethe company appears to be extending boththe range and depth of its services(particularly in FEA and CFD), the primarystrategy was stated as increasing thevolume of lower added-value services suchas CAE mesh generation.



Further information

www.onwardgroup.com

4 Tata AutoComp Systems Ltd

(TACO) – Tata Motors

Tata AutoComp Systems Ltd (TACO) wasformed in 1995 by the Tata Group with theaim of participating in and catalysing themodernisation of the Indian automotivecomponents industry. The TACO groupcurrently has 13 manufacturing JV partnersincluding major international Tier 1 namessuch as Johnson Controls and Yazaki Corp.The group has 14 manufacturing plants andthree engineering centres. It includes anengineering services strategic business unitwhich employs a team of ~380 engineersand leverages the automotive componentskills of the group. The company estimatesthat a further 500 engineers will be trainedover the next two years.

The mission delegation visited the Puneoffices of TACO and the meeting was hostedby a team led by Mr Vikrant Deshmukh,General Manager, Projects.


The primary business model of the TACOgroup appears to be the development – bothorganically and through JVs and acquisitions– of its already impressive automotivecomponent manufacturing base throughoutthe world. In this context the provision ofindependent engineering services might beviewed as an opportunistic niche activity.

Technology level

The engineering focus of TACO is on body-in-white (BIW), electrical subsystems andinterior trim. Engineers are spread betweenseveral dedicated design offices usingUnigraphics and CATIA V4/V5. TACO workson the basis of concept layouts from theclient and delivers completed CAD modelsat a component level of design. Areasonable amount of engineering feasibilitywork is undertaken to support ‘A-class’

34


surface development on a number ofinterior trim items.

TACO uses the latest levels of CATIA V4/V5and Unigraphics and is taking advantage ofclient PDM systems to organise its CADdata. Confidentiality is considered important,with a number of project offices havingswipe-card access. CAE work is mainly onan offshore (rather than consulting) model,targeting component manufacturers andTier 1s. Examples of CAE work seen werebroad ranging at the component and small-system level with thorough (althoughrelatively low level) analysis. Considerableuse is made of KBE methods in order tocapture engineering know-how.

Aspirations

While the primary focus of TACO is clearlyupon the development of its internationalnetwork of automotive componentmanufacturing companies, the group clearlyalso appears to have intentions to grow itsindependent engineering services activity.


OEM subsidiary/Tier 1 subsidiary.

Further information

www.tacogroup.com

5 Tata Technologies Ltd –

Tata Motors

Tata Technologies Ltd was formed in 1996 asthe independent engineering servicessubsidiary of the $14 billion (~£8 billion) TataGroup. The company currently employs a staffof 1,900 of whom approximately one third arebased at its new, purpose-built Centre forAutomotive Technology and Design at Pune.

The mission delegation visited this newcentre and the meeting was hosted by ateam led by Mr T Rajasekaran, PracticeHead, Engineering Automation.


Tata Technologies appeared to be anextremely well resourced and well managedengineering services business. While figureswere not directly provided, it appears thatthere is a close linkage between Tata Motorsand Tata Technologies which enables thelatter to draw upon resources and expertiseas required for its external engineeringservices business. Equally, this linkageappears to provide the company with asignificant base load of work. Customersinclude major automakers such as GM, Ford,DC, Honda and Nissan, and also aerospacemanufacturers including Boeing and Airbus.

The automotive strategy of TataTechnologies, based upon the company’sassessment of future potential, is to focuson the major system integrator ‘Tier 0.5’organisations as a first priority, followed bythe OEM and tooling manufacturing sectors.Interestingly for the delegation, the companyviewed the independent ‘technologicalexpert’ sector (which would presumablyinclude most of the companies representedby the delegation) as the least attractivemarket for its services, suggesting perhapsa more competitive stance.

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Technology level

Tata Technologies has a full suite ofCAD/PDM/PLM software products and isusing full PDM solutions for CAD datamanagement. The recent purchase of theUK-based company INCAT will furtherdevelop the company’s skill set in CADapplications as the complexity of CADmodels and their relationship to each otherincreases. It recognises that this is a majorlever in reducing vehicle introduction leadtimes. In partnership with its fellow TataGroup member, Tata Motors, the companyhas already developed a number ofcomplete vehicles for the Indian market andthere is clear evidence that its designprocess engages both CAD and CAE indelivering projects.

In CAE, Tata Technologies is moving awayfrom a predominance of low-level meshingand is already more advanced than many ofthe other host companies in terms of levelof CAE analysis. In particular, CAE wasdemonstrated as being integrated with anin-house formal product developmentprocess. The company also appeared to havea good understanding of CAE correlationissues. However, there was some evidenceof customers setting the standards andsystems to be followed for analysis workand it was therefore difficult to assess thetrue level of capability.

Application examples included use of crashand occupant modelling to modify structurehard points to bring head injury criteria(HIC) within target levels, as well as fullvehicle noise, vibration and harshness(NVH). CFD competency was aboveaverage, with five engineers working fulltime in this area. As with almost all hostcompanies, vehicle-based engineering skillswere considerably more advanced thanthose in the area of powertrain. CAEanalysis hardware was quite modest butplans are in place to enhance this.

Innovation is based on bringing outsideCAE expertise in-house and capturingknow-how rather than internal research.

Overall, Tata Technologies is considered tobe an advanced CAD and CAE player in Indiabut possibly below European and NorthAmerican sophistication on some advancedtechnology areas. However, the company islearning very quickly and is active in KBEactivities to capture know-how in databaseswhich feature ‘soft reasoning’.

Aspirations

Tata Technologies has clear ambitions to be amajor international player in the market forindependent automotive engineeringservices. It has made significantinvestments in facilities and resources aswell as targeted acquisitions, and has a clearstrategy to develop both the range andtechnical depth of its service offering.


OEM subsidiary.

Further information

www.tatatechnologies.com

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6 Neilsoft Ltd

Formed in 1993, Neilsoft is an independentengineering services organisation withexpertise in the software and constructionas well as the manufacturing sector.Automotive customers appear to dominatein the latter sector and the company has animpressive client list including for exampleDC, Isuzu and Honda.

The delegation was visited at its hotel inPune by a senior management team fromNeilsoft led by Mr Surendra N Agarwal,President & Chief Operating Officer.


Like the other independent companiesvisited, Neilsoft follows a typical engineeringconsultancy model of quoting against aspecified programme of work for projects.However, the company also has two furtherbusiness models that it is keen to promote.

The first is the provision of a dedicated low-cost resource base whereby the customer isallocated a fixed number of engineeringstaff, which can be varied at short noticewithin pre-agreed limits defined in thecontract. This is intended to appeal tocustomers who wish to benefit from theoffshoring of a large volume of general (asopposed to major project) based engineeringactivity to a low-cost environment.

The second model is one of establishing,equipping, staffing and eventually – subjectto strict performance criteria and pricing –transferring ownership of a local engineeringcentre to the customer.

Technology level

Neilsoft has progressed from being anAutodesk developer and local supplier to anengineering service provider. The companycovers both the automotive and construction

industries for engineering consultancy aswell as development of CAD processmethodologies for CATIA V4/V5 and forUnigraphics. Neilsoft has considerableexperience in working with Westernengineering companies and has a goodunderstanding of engineering processes.CAE and manufacturing feasibility studiesappear to be fully integrated in thecompany’s design process.

The company’s basic CAD modelling skillsare good and it carries out a wide range ofwork for companies in the USA and Europe,including recently increased business fromScandinavia. Neilsoft runs a number of CADsystems and has recognised the need for arobust tool to manage the increasinglycomplex CAD model infrastructure. Thecompany is using products like Teamcentrefor this purpose. It is also developing anumber CAD process methodologydocuments to further aid in the developmentof its skill set. An internal audit groupactively spreads this knowledge throughoutthe company.

CAE expertise is focused primarily onvehicle rather than powertrain applications,including full vehicle crash and NVH analysis.

Aspirations

Neilsoft is a small company but has provencapabilities in its core service areas. Itsinnovative range of business models isintended to enable growth through manytypes and sizes of customer organisation.



Further information

www.neilsoft.com

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On 8 September the delegation split, withReeve and Smith visiting host companies inChennai while Baxendale, Braddon andParfitt made parallel visits to those locatedin Hyderabad.

8 September 2005

Chennai (Part delegation only)

7 Remote Services Division (RSD) –

Hindustan Motors Ltd

The Remote Services Division (RSD) is theindependent engineering services businessof Hindustan Motors Ltd. Formed in 2003,RSD employs 30 engineers at its Chennaioffices but claims to be able to draw uponan engineering team of ~1,000 through itsparent organisation.

The mission delegation visited the Chennaioffice and the meeting was hosted by ateam led by Mr S Venkataraman, VicePresident of RSD.


RSD is a comparatively recently formedorganisation and hence difficult tocharacterise in terms of its future businessmodel. From the presentations given, thecompany appears to be committed tofollowing a classic consulting approach ofproject-based assignments, but the additionof further models in the future could not beruled out.

Technology level

In terms of design, the RSD team iscomprised of ~30 young CAD and FEAengineers complemented by a small numberof older managers who have had extensiveexperience in the Indian motor industry. The team currently focuses mainly upon

BIW components and a large volumeappeared to relate to legacy data generation.It appeared that the strategy behind thisfocus was to increase the credibility of thisnew company before moving into moreadvanced work. Current design workloadcalls for client PDM system usage only.

CAE capabilities were at a fairly nascent level,but this perhaps reflected the early stage ofdevelopment of the organisation and itsapparent core focus on design and productionengineering. Office organisation and structureencourages use of both in-house and clientprocess and quality systems. As with manyother service providers, shift working allowsfor maximum asset utilisation of CAD andCAE workstations.

The company demonstrated significant humanresources support, which enables targetedengineer recruiting. Training, particularly in theearly months of employment, is given astrong emphasis in order to bring recruits upto the required standard.

The organisation appeared to have particularstrengths in its linkage to the productionengineering capability of Hindustan Motors.A liaison office in Detroit provides for directface-to-face contact with American clients.

Aspirations

RSD has ambitions to develop as a player inthe automotive engineering services market,both within India and at an international level.


OEM subsidiary.

Further information

www.hindmotor.com/rsd.asp

38


8 Ashley Design & Engineering

Services Division –

Ashok Leyland Ltd

Ashley Design & Engineering ServicesDivision (AD&ESD) is the recently formedindependent engineering services businessof Ashok Leyland Ltd. The company hasrecently invested in a new technical centreand test track close to Chennai at whichmuch of the technical activity for the newdivision is carried out.

Unfortunately there was insufficient timewithin the mission schedule to visit this newfacility; instead, the delegation visited AshokLeyland offices in Chennai where themeeting was hosted by a team led byAD&ESD Executive Director, Mr M Natraj.


Of the OEM automotive engineering servicesubsidiaries visited by the delegation,AD&ESD was the most recently formed andhence extremely difficult to characterise interms of its future business model. From thepresentations given, the company appearsto be committed to following a classicconsulting approach of project-basedassignments, but the addition of furthermodels in the future could not be ruled out.

The company spends 2.2% of turnover onR&D and expects this to grow to 3% in thenear future.

A particular emphasis was placed by thecompany on the leveraging of itstechnology in an ‘appropriate’ manner fordeveloping markets where similarrobustness and basic serviceabilityrequirements apply to those found in India.In this respect it feels that it has the edgeover the more technology-rich focus ofWestern manufacturers and serviceproviders.

Technology level

Ashok Leyland is a large commercial vehiclemanufacturer with full design andengineering capability which has created itsAD&ESD division to take advantage of therecent trends for outsourcing engineering toIndia. This is a highly influential organisationwhich is backed by 50 years of engineeringexperience in the design and manufacture ofa wide range of commercial vehicles.

In terms of CAD, its capabilities range fromsimple two-dimensional (2D) to three-dimensional (3D) conversion through to 3Dpackage work with a whole suite of designvalidation checks. The company uses CatiaV5, Pro-E and UG-NX with Matrix One,Ennovia and Wildfire as PDM solutions. It has a very good understanding of thecomplexities of modern CAD modellingtechniques and has PDM software thatallows it to take full advantage of the designresource savings possible. The company has180 CATIA V5 workstations with anincreasing amount of V5 designmethodologies being developed.

There is a good understanding ofsimultaneous engineering techniques to linkCAD, CAE and manufacturing feasibility toachieve aggressive project timing. Havingon-site test facilities also assists insuccessful project completion.

The CAE capabilities demonstrated werefairly extensive, but as much of this activityis carried out at the new technical centre, it was not possible to assess this in detail.

Aspirations

AD&ESD has ambitions to develop as aplayer in the automotive engineeringservices market, both within India and atan international level. It indicated aninterest in developing partnerships,collaborations or possibly acquisitions in

39


the West in order to leverage its potentialin the engineering services market. It alsofeels that it has a distinct competitiveadvantage in emerging markets.


OEM subsidiary.

Further information

www.ashokleyland.com

8 September 2005

Hyderabad (Part delegation only)

9 Infotech Enterprises Ltd

Formed in 1991, Infotech is an independentIT services organisation listed on the BSEand with a turnover of $58.6 million(~£33 million) in 2004/05 (targeted toincrease to $100 million (~£57 million) in thecurrent year). The company has engineeringoffices in Hyderabad, Bangalore and Noida inIndia as well as in the USA and Puerto Rico.Infotech claims a total of 600 engineersengaged in its engineering services businesswhich it intends to increase by a further120-200 in the year ahead. The automotiveengineering group currently has160 engineers with core competence invalue engineering, design and analysis,grown from original legacy transfer activities.

The delegation visited the Hyderabad officesof Infotech Enterprises Ltd and the meetingwas hosted by a team led by Sudhir Sethi,President & Executive Director.


Infotech lists three basic business modelsthat it defines as stages 1-3. Stage 1 isessentially a project-based consulting model.Stage 2 extends this model on the basis of adedicated core team supporting continuousproject-based work. Stage 3 is based on themirroring of customer processes andprovision of complementary expertise.

Business is split between the aerospaceand automotive (30%) industries andincludes customers such as Boeing, Pratt & Whitney, Airbus, Ford, Wartsilla, ZF,Gertrag and Mahindra.

40


Technology level

Infotech appears to provide mainlyaerospace and rail services but is expandinginto automotive CAE. This work is generallyat component and simple system level witha small amount of design input but not fulldesign responsibility.

CAD infrastructure and processes reflect thislevel of activity. Typical projects include crashanalysis of bumpers, static analysis of enginemounts, CFD analysis of air intake, etc. The company exhibits a strong focus on CAEanalysis based on tightly defined (usuallycustomer originated) processes. Individualanalysts showed a good understanding ofphysics of the work undertaken. The overallemphasis of the business unit appeared tobe on providing higher-level CAE analysissupport at smaller project level, rather thanmore routine low-end meshing or morecomplex product design.

Aspirations

Infotech is targeting significant furthergrowth of its activities and may seek furtheracquisitions in order to support this ambition.


IT services organisation.

Further information

www.infotechsw.com

10 Quantech Global Services

Quantech is a privately owned companyfounded some 14 years ago by two Indianprofessors at Michigan State University. The company’s initial operations wereestablished in the USA; the Indiansubsidiary was established five years agoto support the work of the North Americanoffice. Quantech continues to be managedby its founding directors in the USA, withlocal management support at its offices inHyderabad and Bangalore. The companyemploys 300 automotive engineers inHyderabad and Bangalore with a further150 based in the USA. Turnover of theIndian operation for the year 2004/05 was$18 million (~£10 million).

The mission delegation visited theHyderabad offices of Quantech and themeeting was hosted by Mr Bharat B Gupta,Technical Director.


Quantech provides design engineeringservices from concept to preproductionbased on a conventional project-basedconsulting model, as well as a more matureoffshoring model for more establishedcustomers. In the area of design, thecompany is primarily focused on CAE ratherthan CAD work. It also specialises in thearea of test validation work and hasproduced several studies of crash testing. A further area of focus for Quantech is onmaterial technology for manufacture.

The company has a range of blue chipcustomers including GM, Ford, Toyota,Nissan, DCX, Johnson Controls and Honda.

Technology level

Primary expertise is on automotive CAE withfocus on subsystem level, eg front end,powertrain (not design), seating and interiors.

41


For OEM customers of the offshoringservice, Quantech operates to customersimulation standards and PDM systems.

CAE meshing and analysis is currently themain skill area for Quantech, and CADcomplexity is currently limited to lower-leveldesign support linked to CAE and also DOEactivities. Subsystem product design andintegration is on the company’s roadmap forthe next 1 to 1.5 years.

Quantech has a high level of CAE computingresources commensurate with its emphasison validation and correlation with testing,particularly in the area of crash.

Aspirations

Quantech stated an intention to widen itsEuropean customer base and also todiversify into the aerospace market.


Independent engineering services organisation.

Further information

www.quantechglobal.com

11 Satyam-Venture Engineering

Services

Satyam-Venture Engineering Services is partof global IT organisation Satyam ComputerServices Ltd which was founded in 1987,operates in 48 countries around the world,has a workforce of over 20,000 people andachieved sales revenues of $789 million(~£450 million) in 2004/05. Satyam-Ventureis a 50/50 JV with US-based Venture Globaland Satyam, established in 2000 to provideengineering services to a range of industriesincluding automotive. Satyam-Venture has a2,000-strong team dedicated to theprovision of engineering services, of which400 are focused on the automotive sector.

The delegation visited the Hyderabadoffices of Satyam and the meeting washosted by a team led by Mr P V S Murali,Chief Financial Officer.


Satyam-Venture claims core competencies inproduct design, value engineering, reverseengineering, design validation and technicaldocumentation. The company appears tofollow both a conventional project-basedconsulting model and a dedicated offshoringmodel whereby resource is allocated directlyagainst nominated customers.

Technology level

Satyam-Venture has developed a serviceportfolio ranging from basic-level CAE andCAD capabilities through to analysis anddesign release. The company generallyworks to customer processes and PDMsystems at the subsystem level (eg seatsand instrument panels).

There was evidence of involvement in thewhole product development process ratherthan just discrete activities. One suchexample was a recently completed full

42


seat-design programme from conceptthrough to testing, sign-off and production ofmanufacturing drawings.

Satyam-Venture appears eager to improveproduct knowledge and has its own teardownfacility to support this as well as providebenchmarking and target-setting data.

The company demonstrated integratedCAD systems capable of design formanufacture at subsystem level (especiallyseats and instrument panels). It alsoappeared to be involved in more generalCAE work at a discrete project level butthis is of lower level (eg full vehiclemeshing with execution only of a checkanalysis before handing to customer).

Aspirations

Satyam-Venture intends to grow its currentautomotive headcount from 400 by afurther 100-150 subject to continuedbusiness growth. The company aims toincrease the added value of the work itcarries out for major OEMs, increasinglyworking in close cooperation withcustomers, a service it refers to as productlifecycle management (PLM).


JV between an independent engineeringservices provider and IT services organisation.

Further information

www.satyamautomotive.com

9 September 2005

Bangalore

12 ProSIM

ProSIM was established in 1996 by itscurrent owner-directors. The companyemploys 26 staff and had a turnover in itslast accounting year of $0.5 million(~£0.3 million), of which 75-80% wasattributable to the automotive sector. The company has particular skills in the areaof automotive component materials processmodelling such as sintering, and tends tocompete for high-end analysis workleveraging this background.

The delegation visited ProSIM at itsBangalore facility and the meeting washosted by the company’s founder andManaging Director, Dr S Shamasundar.


Although following the conventionalconsulting business model found in theother independent smaller companies, forexample including shift working to boostasset utilisation, ProSIM is a very technicallyfocused and academically orientedcompany. While viewed as a businessoverhead, the company engages in a smallproportion of collaborative research,motivated by networking opportunities andbusiness development.

It has extremely high standards in itsrecruitment – it views the supply ofengineers with true potential to beextremely small. As such, it strives toretain its staff through measures includingstock options.

ProSIM has a range of blue chip clientsincluding Bosch, GE and American Axle.

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Technology level

ProSIM competes on the high intellectualcontent of its CAE work, particularly in thearea of materials process modelling in theautomotive component industry. It hasparticular expertise in the modelling ofpowder compacting, sintering and forgingprocesses and is generally very strong in thearea of fatigue, reliability and performancemodelling. The company’s expertise issupported by collaborations with technicaluniversities and software vendors.

Typical projects seen were modelling ofcylinder head castings and crankshaftforging. A typical scenario would be for thecompany to be called in as experts toinvestigate component failures (egcrankshaft) and propose solutions. PRoSIMengineers have published a number oftechnical papers and are active in organisingtechnical seminars.

The company is beginning to diversify intoother areas of CAE such as crash analysis aswell as some lower-level offshoring activity.It is also considering implementing CFD as afuture capability. The company hasdeveloped its own CAE quality standards,with strict project control and high technicalstandards a key focus.

Aspirations

ProSIM has ambitious growth aspirationsand indicated that part of this may comefrom competing in the market for loweradded-value CAE work.



Further information

www.pro-sim.com

13 Harita Infoserve Ltd

Harita Infoserve is the independentengineering services business of the TVSGroup, the $2.6 billion (~£1.5 billion)conglomerate with significant interests inautomotive component and systemmanufacture. Formed in 2002, HaritaInfoserve employs a staff of 289 engineersand achieved sales of $4.3 million(~£2.5 million) in 2004, of which 40% wasattributable to domestic and 60% overseasbusiness. It presents itself as a companyserious in its aim to provide independentengineering services, and appears to have avery strong engineering ethos. In addition toits office in Bangalore, the company has asmall project liaison and sales office inFarmington Hills, Detroit.

The delegation visited the ‘Ozone’ (foroffshore) head office of Harita Infoserve inBangalore and the meeting was hosted by asenior management team led by GeneralManager, Mr K Umesh.


From the presentations given, HaritaInfoserve appears to be committed tofollowing a classic consulting approach ofproject-based assignments, but the additionof further models in the future could not beruled out.

From the presentations it was clear that thecompany views UK design engineeringcompanies as role models for its own futuredevelopment – on a number of occasionsthe vision was mentioned of Haritabecoming a ‘Ricardo’.

Technology level

CAD skills appear to be centred aroundinterior and exterior trim with a corecompetency in electronic subsystemdevelopment. The company is primarily a

44


component producer that has developed asignificant and highly credible CAD capabilityto support its manufacturing process.

The company’s CAD engineers displayed agood understanding of project managementand associated key milestones that gotowards delivering programmes successfully.Their CAD capability covered all the majorsoftware platforms such as Alias, CATIA V4and V5, and Unigraphics. CAD datamanagement is reliant on loading data intothe client PDM. Harita has been using V5DMU for assembly validation and has a goodlink with its CAE department for detailedmathematical analysis.

Manufacturing feasibility support is providedby a small number of key engineers withdetailed experience in this field. The coreteam of supervisory designers andengineers appear to be older and moreestablished employees of the TVS Group.Such experienced engineers are seen as keyto the training of new graduate recruits.

The CAE work is currently undertaken in theAnalysis, Test and Validation group of 15 andis focused on automotive applications. Thisis a fairly new group and the level of CAEcomplexity seen reflected this. FEA workwas at the component and small systemlevel (eg exhaust vibration analysis, gear boxhousing). CFD and crash analysis wereclaimed as competencies but will no doubtrequire further development.

Despite the simplicity of some of the projectwork shown, there was a clear culture oftechnical focus and rigour. CAE engineersappeared to be responsible for wholeprojects (meshing, analysis, interpretation,recommendations) and demonstrated agood understanding of the link betweenCAE and real-world test and validation.

Overall, the delegation considered thatthere was a passion for engineering at

Harita that was tangible when you walkthrough the front door. Their conferencerooms are named after key icons of themotor industry and the company’s canteenpays homage to the vehicle that theirfounder first put on the road.

Aspirations

Harita Infoserve has some very ambitiousgrowth targets, aiming to grow its businessto an engineering staff of 1,000 and aturnover of $30 million (~£17 million) in thenext two years.


OEM (primarily Tier 1) subsidiary.

Further information

www.harita.com

45


14 Wipro Ltd

Initially founded in 1945, Wipro entered the ITproducts market in the early 1980s and the ITservices market a decade later. Since that timethe company has grown dramatically. In the past five years alone it has expandedfrom a staff of 8,000 to 42,000 today, based at40 development centres in 35 countries.Revenues in the same period have also grownfrom $234 million (~£134 million) to$1.35 billion (~£770 million) and the company’sservice portfolio has expanded to includeproduct design, consulting and businessprocess outsourcing (from call centres andCRM to complex back-office services).

The delegation visited the Bangaloreoffices of Wipro and the visit was hostedby Mr V R Venkatesh, Vice President andBusiness Unit Head, Embedded Product &Engineering Solutions.


The scale and complexity of Wipro preventsadequate description of the numerous andmultifaceted business models applied by thecompany within a report of this nature.Regarding product development servicesand technologies, however, the team wasimpressed with Wipro’s ability to move fromestablished to new domains via theopportunistic development of existing skillsin related domains.

The automotive practice has particular skills inembedded software for infotainment andtelematics, electric power steering,instrument clusters and body electronics. Thecompany offers electronic systemdevelopment from concept through to testingand support including in-territory validation.

Technology level

Wipro has a long history of electronicsystem development. As a multimillion-dollar

company it has easy access to all thecurrent CAD and PDM software packages. It has recently completed a small householdappliance engineering project for a FarEastern company that required Wipro to takea concept design from initial sketch phasethrough to complete validated productionrelease with a full set of drawings.

Within the automotive domain, thecompany’s ambition appears to be to workat a subsystem level. Direct experienceappears to be in the area of embeddedsystems but the company is diversifying intomechanical engineering applications at therequest of customers (eg mirrors, wipers,sunroofs, etc).

There was evidence of the opportunisticdevelopment of CAE work related to clientprojects. The company is large and sufficientlywell resourced to have all the CAE softwareand to carry out routine FEA work at thecomponent and small system levels. Aninteresting application was development ofmacros for CATIA V5 to look at simulatingwaxing distribution on a windscreen.

Wipro is confident in its ability to deliverany engineering work and has theresources to fund any expansion requiredto complete a project.

Wipro is a leading proponent of Six-Sigmamethods and claims to be the world’s firstIT services company to adopt the approach(in 1999).

Aspirations

Wipro is a highly successful and extremelywell resourced company. No specific goalsfor the automotive domain were mentionedbut the company is clearly able to developits service offering rapidly in response tocustomer demand.

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IT services organisation.

Further information

www.wipro.com

15 QuEST (Quality Engineering &

Software Technologies) Private Ltd

QuEST is a privately held (venture capitalfunded) US incorporated engineeringservices company with offices in Europeand North America in addition to itsprincipal base at Bangalore. The companyachieved sales in 2004 of $20 million(~£11 million) and expects this to grow to$30 million (~£17 million) in the current year.The current source of this revenue can beattributed to North America, Europe andAsia-Pacific in the ratio 60/30/10, althoughQuEST believes that this is likely to settleat around 40/40/20 in the longer term. Thecompany employs an engineering staff of~800 of which 75% is based in Bangalore.

The mission delegation visited the Bangaloreoffices of QuEST and the meeting washosted by a team led by Vice President, MrRaman Subramanian.


QuEST has a strategy of targetingmedium-sized customers as it feels thatlarger organisations are more likely to takework in-house to their own offshoreoperations in the longer term. However,while it adopts a conventional project-based consulting business model for muchof its work, the company also serves largerorganisations such as Rolls-Royce and GEwith the provision of dedicated engineeringoffices staffed jointly by QuEST andcustomer engineers.

While QuEST has clear aspirations togrow its automotive business, thecompany is well diversified in theindustries which it serves. Currentrevenues are split on the basis ofaerospace 30%, power generation 20%,oil and gas 20%, and automotive andother industries each respectively 15%.

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Technology level

QuEST has a particularly good understandingof the key milestones that go towardsdelivering projects, and recognises the needfor increased project management betweenclient and customer to get the most out ofan offshore engineering resourcepartnership. The company stated that thefirst year of a project is spent mainly onproject management synchronisation andthat real cost savings are seen in thefollowing years. It also has a division thatcan provide a manufacturing facility tofurther take advantage of the low-costresource available.

CAD capabilities covered all the majorsoftware platforms with emphasis onUnigraphics, CATIA V4 and V5. CAD datamanagement is reliant on loading datainto the client PDM. QuEST has beenusing V5 DMU for design and assemblyvalidation and has a good link with itsCAE department for detailedmathematical analysis.

QuEST has a large number of veryexperienced engineers and uses thisresource to lead a team of recent graduatesto extend the engineering skills base.Security and confidentiality is a priority witha number of large, secure and dedicatedproject offices evident. The company has astrong engineering ethos and views Six-Sigma methodology as part of its ‘DNA’.

It has a high level of expertise in FEA with anumber of PhDs in this area. The main areasof FEA work are related to body and trimand powertrain components. The companydoes a large amount of work in crashsimulation and the delegation wasimpressed with the sophisticated level ofthis work.

QuEST is very competent in CFD and isdeveloping quickly in this area. Unlike manyof the service providers visited, it also hasaccess to powertrain simulation software.CAE is seen as a core activity, and analysisresults and recommendations are theprimary output. In addition to ISOaccreditation it is a leading proponent of Six-Sigma methods.

Aspirations

QuEST appeared to have a well thought-outstrategy for continued development. Thecompany sees that it must develop itsservices to a level where it can competeinternationally on grounds other than cost.Specifically it views the era of what it terms‘labour rate arbitrage’ as being time limitedand that the cost advantage of offshorework carried out in India is likely to bealmost negligible by the end of the decade.



Further information

www.quest-global.com

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49


C.1 Best practice guidelines forservice users

C.2 Best practice guidelines forservice providers

The following guidelines are offered assuggestions both for those intending tooffshore engineering work as well as thoseproviding such services, based on theengagement models identified in Chapter 8.

The list is not intended to be exhaustive butrather a checklist of some of the less obviousconsiderations which can nonetheless have amajor impact upon the value and quality ofservice delivered. None of these are intendedas substitutional for the rigorous processes ofsupplier qualification and selection and projectspecification and monitoring which should bethe subject of any engineering servicesoutsourcing decision.

These guidelines have been developed by themission team based both on discussions andobservations during the mission and onsubsequent research and comments providedby service users.

C.1 Best practice guidelines for

service users

C.1.1 Manage IPR exposure

Service users should ensure that IPRexposure is managed effectively. Manyservice providers have excellent formalprocedures to protect client confidentialityand it is undeniably the case that outsourcingin any territory carries an element of risk ofIPR dilution. However, customers need to becognisant of the possible negative effects ofhigh staff turnover found with some serviceproviders. While openness is an importantenabler for the delivery of effective andefficient outsourced engineering services,customers should exercise carefuljudgement as to the selection of individualprojects to be outsourced.

C.1.2 Avoid purchasing on price alone

While the most obvious current driver for theincrease in outsourcing of engineeringservices to India is cost, customers should bewary of selecting service providers on pricealone. The team came across much anecdotalevidence of customers having reached anonoptimal solution by pushing suppliers intoa competition based on lowest cost alone. Ina situation where labour rate differentials arecurrently so large between Indian serviceproviders and the in-house costs of Westerncustomers, a comparatively minor increase inprice may enable the service provider toapply significantly greater resource to aproject. Customers need to look to othermore meaningful determinants of deliveredvalue than price alone.

Appendix CBEST PRACTICE GUIDELINES

C.1.3 Consider all potential engagement models

Customers should consider all potentialengagement models in order to identify thebest fit with current and predictedrequirements. Each engagement model aswell as each potential supplier has its ownstrengths and weaknesses. With the rapiddevelopment of this sector of the Indianeconomy, the emergence of newopportunities should be kept under review.There can be no ‘one size fits all’ solution tothe outsourcing of engineering services.

C.1.4 Select partners with care

Be prepared to invest time and energy inselecting the right partner. There will be aconsiderable overhead on the first project withany new partner and also with the first one of anew type with an existing partner. Be preparedto carry out trial projects, perhaps with morethan one supplier in parallel. Look for added-value liaison mechanisms such as the provisionof on-site liaison at customer premises. Most ofall, appreciate that the provision of engineeringservices requires skills and innovation both at anindividual and team level; and for best effect,services need to be carried out in a highlyinteractive manner with the customer.Customers should therefore be prepared to visitpotential suppliers in order to fully evaluateindividual qualities and characteristics.

C.1.5 Consider supplier’s HR strategy

The manner in which service providersaddress the unique human resource (HR)challenges of managing an engineeringorganisation in India is an importantconsideration in supplier selection, particularlywhen considering longer-term projects or themore integrated engagement models. Due consideration should be given to themechanisms used for staff recruitment andtraining, as well as retention.

C.1.6 Insist on staff continuity betweenprojects

Learning-curve effects can be a significantinfluence upon the efficiency and delivery ofservices provided. While the more intensiveengagement models are clearly likely to havegreater immunity to the effects of poor staffcontinuity between projects, somecustomers report that they have receivedimproved effectiveness on project-basedwork by making the allocation of named stafffrom previous successful projects a conditionof a subsequent order.

C.1.7 Agree standards, specificationsand deliverables in advance

Most host companies were in agreementthat the learning-curve effect of initial projectswith any customer can lead to a significant, if temporary, overhead cost. However, it islikely that this can be reduced if thespecification of work to be undertaken andstandards to be followed are explicitly statedand agreed in advance of order. As with anyoutsourcing activity, it is also advisable toexpressly link the payment mechanism toclear project milestones and deliverables.

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C.2 Best practice guidelines for

service providers

C.2.1 Develop and encourage a learningculture

Establish mechanisms above and beyondsimple project exposure to develop thetechnology base and service portfolio of thebusiness. Encourage and reward theacquisition of knowledge; this too is likely tomake recruitment easier and reduce theincidence of attrition. Establish rigorousinternal standards for CAD and CAEapplications that go beyond basic servicelevels and – where necessary – engage inactive technology development programmes.Service providers with their own internalknowledge base and processes will be betterable to provide immediate customer value.

C.2.2 Control attrition rates

Implement active mechanisms to controlattrition at lower levels using all availablelevers of HR management. Training, skillsdevelopment and appraisal schemes shouldbe considered in addition to more extrinsicfiscal incentives such as employee stockoptions and staggered performancebonuses. Reward staff loyalty and recogniseprevious loyalty as a key attribute in therecruitment process.

C.2.3 Advanced customer liaisonmodels

Proactive customer communication modelsshould be considered where appropriate,including the provision of on-site liaisonengineers in order to bring the client-serviceprovider interface in-house. These may becostly to establish but can add considerablebenefits, particularly in the critical early stagesof any collaboration.

C.2.4 Offer continuity of staff between projects

Even where service is delivered through aproject-based consulting model, attempt toprovide continuity of staff within andbetween projects in order that learning-curveoverheads are incurred only once. Consideralso providing customers with the names ofteam leaders in each competence area sothat they are able to address detailed issuesof service delivery as the work progresses.

C.2.5 Confidentiality

Service providers should be prepared to offerrobust and transparent confidentialityagreements that hold individuals as well asthe organisation responsible for protectingcustomer confidentiality and IPR.

C.2.6 Project management

The best organisations will have their ownrobust and adaptable project managementprocesses in addition to the ability to followthe standards defined by their largercustomers. Processes should be transparentand amenable to remote external monitoring.

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Exhibit Page Caption

S.1 4 ProSIM R&D centre, Bangalore

1.1 6 Vehicle production in India, 1999/2000 to 2004/20051.2 6 Vehicle production in India: percentage year-on-year growth1.3 7 Despite the introduction of new passenger car models, two and three

wheelers continue to dominate with India ranking second globally in thismarket sector

2.1 8 Automotive clusters in India2.2 9 India – land of automotive contrasts

6.1 16 Segmentation of independent automotive engineering service providers6.2 17 Map of India showing the companies visited in each city

7.1 18 The recently opened technical centre of Tata Technologies, Pune7.2 19 CAD skills being demonstrated to Mike Reeve during the visit to

Hindustan Motors Remote Services Division, Chennai7.3 21 Part of the technical centre of Onward Technologies, Pune

8.1 25 The QuEST technical centre in Bangalore like many in the independentengineering services segment is divided into a number ofaccess-controlled offices dedicated to individual customers, as well as more general in-house work areas

A.1 27 The delegation during a brief sightseeing break in New Delhi; L to R:Anthony Baxendale, Mike Reeve, Tony Braddon, V R K Eshwaran (Senior Trade Advisor, British High Commission), Anthony Smith

E.1 54 The mission visiting ProSIM, Bangalore; L to R: Mike Reeve, Tony Braddon, ProSIM MD Dr S Shamasundar, Mr V R K Eshwaran,Anthony Baxendale, Anthony Smith and Sunish Jauhari

F.1 55 Inside the technical centre of Tata Technologies, Pune F.2 55 Mike Reeve takes time out for sightseeing – and snake charming –

in New Delhi

Appendix DLIST OF EXHIBITS

~ approximately≈ approximately equal to$ US dollar (£1 ≈ US$1.75, Nov 05)2D two-dimensional3D three-dimensionalACMA Automotive Component Manufacturers Association of India AD&ESD Ashley Design & Engineering Services Division (Ashok Leyland Ltd, India)BIW body-in-white BSE Bombay Stock Exchange CAD computer-aided design CAE computer-aided engineeringCFD computational fluid dynamicsCNG compressed natural gas CRM customer relationship management DC DaimlerChryslerDEG Design Engineering Group (SMMT, UK)DIPP Department of Industrial Policy and Promotion (MCI, India)DMU digital mock-upDNA deoxyribonucleic acidDOE design of experimentsDTI Department of Trade and Industry (UK)EU European UnionEuroNCAP European New Car Assessment ProgrammeFDI foreign direct investment FEA finite element analysis FMVSS Federal Motor Vehicle Safety Standards (USA)GE General Electric CoGM General Motors Corp HIC head injury criteria HR human resource(s)IPR intellectual property right(s) ISO International Organization for Standardization (Switzerland)IT information technology JV joint venture KBE knowledge-based engineering L leftMCI Ministry of Commerce and Industry (India)NVH noise, vibration and harshness OEM original equipment manufacturer PDM product data management PhD Doctor of PhilosophyPLM product lifecycle management

Appendix EGLOSSARY

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54


R rightR&D research and development RSD Remote Services Division (Hindustan Motors Ltd, India)SIAM Society of Indian Automobile Manufacturers SME small to medium sized enterprise SMMT Society of Motor Manufacturers and Traders (UK)T telephoneUAE United Arab EmiratesUK United KingdomUS(A) United States (of America)V version

Exhibit E.1 The mission visiting ProSIM, Bangalore; L to R: Mike Reeve, Tony Braddon, ProSIM MD Dr S Shamasundar, Mr V R K Eshwaran, Anthony Baxendale, Anthony Smith and Sunish Jauhari

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The mission team wishes to express itsthanks to the following:

• The host organisations in India foraccepting the delegation visits and fortheir openness and candour in discussingissues relating to the outsourcing ofengineering services.

• The Society of Indian AutomobileManufacturers (SIAM) for providing insightinto the development of the automotiveengineering design sector in India.

• The Government of India Ministry ofCommerce and Industry (MCI) for providinga policy perspective on inward investmentin the design engineering sector.

• A number of international offshore servicescustomers who were willing to provideuseful confidential guidance regarding theirown experiences and best practicerecommendations.

• The Society of Motor Manufacturers andTraders (SMMT) Ltd for support of themission through the UK DesignEngineering Group (DEG) and the provisionof additional staff time, notably that of Les Parfitt who accompanied the mission.

• The staff of the British High Commission inNew Delhi – in particular Mr V R K Eshwaranand his team – for their energy andcommitment to the successful running ofthe mission.

• The Global Watch Service – notably Craig Wallbank of DTI in London andCharlotte Leiper of Pera in MeltonMowbray – for financial support of themission and for assistance with preparingthis report for publication, and organisingand publicising the dissemination event.

Appendix FACKNOWLEDGMENTS

Exhibit F.1 Inside the technical centre of Tata Technologies, Pune

Exhibit F.2 Mike Reeve takes time out for sightseeing– and snake charming – in New Delhi

56


Grant for Research and Development – is available through the nine English RegionalDevelopment Agencies. The Grant for Researchand Development provides funds for individualsand SMEs to research and develop technologicallyinnovative products and processes. The grant isonly available in England (the DevolvedAdministrations have their own initiatives).http://www.dti.gov.uk/r-d/

The Small Firms Loan Guarantee – is a UK-wide, Government-backed scheme that providesguarantees on loans for start-ups and youngbusinesses with viable business propositions.http://www.dti.gov.uk/sflg/pdfs/sflg_booklet.pdf

Grant for Investigating an Innovative Idea – is designed to help UK businesses developinnovative products, processes or services thatare in the very early stages of development. http://www.dti.gov.uk/innovative-idea/index.htm

Knowledge Transfer Partnerships – enableprivate and public sector research organisations to apply their research knowledge to importantbusiness problems. Specific technology transferprojects are managed, over a period of one tothree years, in partnership with a university,college or research organisation that has expertise relevant to your business.http://www.ktponline.org.uk/

Knowledge Transfer Networks – aim to improvethe UK’s innovation performance through a singlenational over-arching network in a specific field oftechnology or business application. A KTN aims to encourage active participation of all networkscurrently operating in the field and to establishconnections with networks in other fields thathave common interest. http://www.dti.gov.uk/ktn/

Collaborative Research and Development –helps industry and research communities worktogether on R&D projects in strategicallyimportant areas of science, engineering andtechnology, from which successful new products,processes and services can emerge.http://www.dti.gov.uk/crd/

Access to Best Business Practice – is availablethrough the Business Link network. This initiativeaims to ensure UK business has access to bestbusiness practice information for improvedperformance.http://www.dti.gov.uk/bestpractice/

Support to Implement Best Business Practice

– offers practical, tailored support for small andmedium-sized businesses to implement bestpractice business improvements.http://www.dti.gov.uk/implementbestpractice/

Finance to Encourage Investment in Selected

Areas of England – is designed to supportbusinesses looking at the possibility of investingin a designated Assisted Area but needingfinancial help to realise their plans, normally in the form of a grant or occasionally a loan.http://www.dti.gov.uk/regionalinvestment/

Other DTI products that help UK businesses acquire andexploit new technologies

Global Watch Information

Global Watch Online – a unique internet-enabled service delivering immediate andinnovative support to UK companies in theform of fast-breaking worldwide business andtechnology information. The website providesunique coverage of UK, European andinternational research plus businessinitiatives, collaborative programmes andfunding sources.Visit: www.globalwatchservice.com

Global Watch magazine – distributed freewith a circulation of over 50,000, this monthlymagazine features news of overseasgroundbreaking technology, innovation andmanagement best practice to UK companiesand business intermediaries.Contact: [email protected]

UKWatch magazine – a quarterly magazine,published jointly by science and technologygroups of the UK Government. HighlightingUK innovation and promoting inwardinvestment opportunities into the UK, thepublication is available free of charge to UKand overseas subscribers.Contact: [email protected]

Global Watch Missions – enabling teams ofUK experts to investigate innovation and itsimplementation at first hand. The technologyfocused missions allow UK sectors andindividual organisations to gain internationalinsights to guide their own strategies forsuccess.Contact:[email protected]

Global Watch Secondments – helping smalland medium sized companies to sendemployees abroad or receive key people fromanother country. Secondments are aneffective way of acquiring the knowledge,technology and connections essential todeveloping a business strategically.Contact:[email protected]

Global Watch Technology Partnering –providing free, flexible and direct assistancefrom international technology specialists toraise awareness of, and provide access to,technology and collaborative opportunitiesoverseas. Delivered to UK companies by anetwork of 22 International TechnologyPromoters, with some 8,000 currentcontacts, providing support ranging frominformation and referrals to more in-depthassistance with licensing arrangements andtechnology transfer.Contact: [email protected]

For further information on the Global WatchService please visitwww.globalwatchservice.com

The DTI Global Watch Service provides support dedicatedto helping UK businesses improve their competitivenessby identifying and accessing innovative technologies andpractices from overseas.

Printed in the UK on recycled paper with 75% de-inked post-consumer waste content

First published in December 2005 by Pera on behalf of the Department of Trade and Industry

© Crown copyright 2005

URN 05/1578

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