It is a company that started its operations less than a decade ago and in the brief span has charted its course on the world map. Tata Autocomp Systems (TACO) has travelled the long road. In the competitive auto components industry, the company has strengthened its position in the domestic market and forged joint venture partnerships in order to become a major global player. There are a few processes that were brought into play to make this possible.
The auto comp industry is subject to a three-level global tierisation. On the first rung are those manufacturers who supply directly to the automaker. This is followed by the second rung that comprises of component manufacturers who supply to the first tier; this is followed by the third rung that supplies to the second tier. TACO is at the tier one level in India and tier two level globally.
The company now aspires to become a tier one supplier globally. A step towards that direction was taken recently with a $100 million order from Ford for supply of plastic parts. At the tier two level, TACO is supplying wiring harness to Yazaki, its Japanese partner. Yazaki, in turn, supplies its products to Toyota and Nissan. This is worth between seven and eight million dollars in the current year, but the company expects it to grow to $100 million per annum in future. Another example of its tier two business is a partnership with Ficosa. Tata Ficosa will become the sole supplier for the internal rear view mirror, for Ficosa customers worldwide.
"Having now paved the way into international businesses, the next challenge for TACO is to become a one-stop-shop supplier," says DS Gupta, managing director of TACO. "Traditionally, automakers are not keen to outsource from only one region, be it India, China or Thailand. They want suppliers who can give them inputs from multiple locations. Hence, one of the vital challenges for a company like TACO is to spread out of the home country and locate at multiple locations."
The major players of the auto industry are present in the US, Europe and Japan. It is, therefore, important for the company to set up shop in Asia and the West. In Asia, TACO is looking at setting up offices in Thailand, China, Taiwan, Vietnam, Malaysia and Korea.
"In order to become well entrenched in these markets, it is important to understand the value chain," says Mr Gupta. The value chain comprises of three operations: engineering, manufacturing and supply chain management (SCM). Engineering includes product development, complete engineering, prototyping, testing and validation. Manufacture comprises of producing and actual manufacture, while the SCM involves delivery and logistics.
The company uses this value chain to service its customers in the US and Europe. Like software, India is price competitive in engineering. India’s engineering cost is 50 per cent to that in the US. India enjoys the unique position of having cost and capability, as opposed to China (a major player in the industry), which is cost competitive, but lacks the capability and know-how. India’s capability is at par with that of the West.
On the other hand, when it comes to actual engineering and production, other Asian countries have certain advantages that India can use to its benefit. TACO has spotted some of the advantages in its partner countries. Malaysia produces cheap rubber, China has raw materials for plastic, while Taiwan is well known for actual assembly of electronic components. The challenge for the company is to manage the entire competitive advantage. It is not enough to be cost competitive only in India; it must bring the cost competitive advantage from other countries within its fold. This will affect its competitive advantage globally.
The West lacks the cost advantage, but has the advantage of superior technology and engineering. For TACO it is now imperative to interface with a few design houses and access their capability. The company should be able to use the core facility and learn to build capability at low cost. TACO has recently acquired an order from General Motors and Ford. It is in the process of setting up a corporate office in the US that will oversee operations both in the US and Europe. The company also proposes to set up manufacturing and engineering offices in Germany and France in the near future.
Mr Gupta says that one of the most valuable lessons learnt from joint venture businesses is to work with business processes. He upholds General Motors and Ford for their strong business processes. "People do not plan the nitty-gritty of operations in India. Along the way one has learnt that there is a huge penalty for not getting it right the first time, as you are not given a second chance," says he.
Mr Gupta points to one of TACO’s valuable joint ventures, Johnson Control International, which figures in the Fortune 200 list as the best managed company. The company has offered important lessons in managing processes, which Mr Gupta hopes will cascade down the company. "If we have to become a global company, we have to meet the requirement of 100 parts per million. One of the lessons we have learnt from our partners is quality consciousness," says Mr Gupta. "Yazaki has cut the cost of productivity and has managed to generate greater productivity. In the business of wiring harness, you account for the man-hours spent in manufacture and production. The total cost of production is divided by the number of employees, to arrive at the cost per hour. The global benchmark is $x per hour. If TACO can hit the target, we can achieve the target of $100 million by March 2007."
Despite the global recession in the auto industry, TACO has managed to survive and grow by focusing on quality, cost and delivery (QCD). The company has created values for its customer by pushing quality through the Six Sigma programme. "Customers such as Toyota and GM have shown confidence in our strong sequential delivery system. Sequential delivery system is a global norm, and by adhering to it, TACO illustrates its strength in QCD. As a result of this, the company has been growing at a CAGR of 30 per cent per annum," elucidates Gupta. The company’s turnover was Rs817 crore in 2002-03, and this year it is expected to gross between Rs1,100 and 1,200 crore.
"Difficult times test a company's instinct for survival. We have not only survived but have also done better than the previous year," adds Mr Gupta.
Clearly, TACO has come a long way in positioning itself as a unique company that provides end-to-end solutions. In its early days, the company was known for supplying components, but today an automaker can depend on the company to deliver the complete solution.
Finally, Mr Gupta insists that to affect globalisation a company should be able to manage profitability and become independent in technical output. Presently, TACO is dependent on its many joint ventures (JV) to gain tech know-how; but Mr Gupta envisions a time when the company will create its own R&D unit in areas where it does not have JV partners. "Today we are dependent on the JVs for technology. We should be able to chisel this down to depending on them only for the core technology, and eventually become completely independent," says he. "JVs have added value to TACO. They have helped us build an operating system to make us globally competitive."
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