Saturday, July 3, 2004
Toyota shifts gears to India
The new gearbox plant is company's biggest venture here
Khozem Merchant / Mumbai July 3, 2004
At Toyota's gearbox factory near Bangalore, workers sing a corporate song written by Kiyomichi Ito, the plant's Japanese managing director, as part of efforts to foster a spirit of common endeavour.
The result is a curious blend of two very different cultures - the lyrics are sung by Toyota Kirloskar Auto Parts' (TKAP) employees in the staccato local language, Kannada, but the tune is traditional Japanese.
"Though TKAP is cost-conscious, as far as our team members are concerned, management has the heart to listen," the song gushes.
The words may be awkward but the song reflects the Rs 2.8 billion ($60.9 million) venture's ambitions - to become one of the largest attempts yet to marry India's low-cost engineering skills with Japanese standards of quality and service.
Launched this month, the Indian plant is Toyota's fourth gearbox manufacturing site globally and its biggest undertaking in India since it started its car manufacturing joint venture in 1999 with the Kirloskar family.
Most significantly for India, the gearbox plant is part of Toyota's plans to manufacture vehicles for the first time using components sourced entirely from outside Japan. "It took me years to persuade Toyota to open a component unit. But they've gone further; India is actually part of Toyota's biggest step forward in manufacturing and assembly, based totally on global sourcing," says Vikram Kirloskar, vice-chairman of the carmaking and component joint ventures.
Toyota's decision to commit to the new joint venture is an indication of the success of its carmaking alliance with the Kirloskars.
Owned 99 per cent by Toyota, the venture produces a sports utility vehicle and a luxury saloon, both top sellers in their segments with sales reaching Rs 28 bn in the year ending March.
With the opening of the components unit, Toyota is forecasting total sales from its India operations of Rs 200 bn in 10 years.
Toyota's moves are a boost for India's auto-components sector, whose exports are set to grow from $1bn today to $5bn by 2005, according to the industry's trade association. Fifteen global vehicle and tier-one suppliers have set up purchasing offices in India. Delphi, the world's largest components manufacturer, expects to source $250 m of parts from India within three years. Ford and Volvo are moving in the same direction.
That presents opportunities for local component makers, as well as joint ventures with foreign parties such as TKAP. Activities such as forging and gears that involve high-precision engineering and low automation play to Indian strengths.
Toyota's Indian gearbox plant, located in a dusty industrial park in Ramanagaram, a 90-minute drive from Bangalore, is one of five around the world that are manufacturing components for a family of vehicles that will undergo final assembly in several countries, including South Africa.
Under the plan, say sources, India and the Philippines will supply gearboxes; Thailand diesel engines; Indonesia petrol-engines; and Latin America other parts. The product range will include vans, SUVs and trucks based on a single new platform, replacing two existing ones. They will be exported to about 38 countries. Trials will start in September in Indonesia.
Analysts say Toyota's overall strategy is to try to get closer to demand centres such as China and India while using global sourcing to create economies of scale.
The Indian market, for example, is growing rapidly but remains too small on its own for a local manufacturing and assembly base to be very profitable for a multinational company such as Toyota. If that base is also used to provide components for the company's global operations, however, the costs begin to add up.
"Earlier, components were made in Japan and exported to assembly countries, or made locally [for assembly in the same country] because of high local content rules," says Mr Ito. "But the removal of trade barriers is creating opportunities for internal collaboration. Now there may not be any [parts] from Japan."
Mr Ito is able to cite plenty of factors that may inhibit the Indian venture's success. "India's supply chain is tough, so we'll be tested on timing and reliability." Toyota's tier-one sub-contractors also miss deadlines and their quality is often short of global standards. "We are also at the mercy of truckers' strikes while inventory is a long way from our target of less than one day. We are still at risk," he warns.
The challenge for the company in India, therefore, will be to get everyone - not just the employees but also suppliers and contractors - to sing from the same choir-sheet.