“Machine tools are the base of all manufacturing. Typically, a machine tool generates demand for 10 times its worth of capital goods, which in turn generates 10 times its value in final goods. So, the boom in machine tools is an indicator of a boom in manufacturing.”
The above quote is from the other article ‘Manufacturing hits high gear’ on manufacturing sector in the series, which deals with the machine tools industry. It starts with the story of K S Prasanna, Ramchandra Hegde and Keshava Murthy who quit Ace Designers and founded a company called Pride Machine Tools. ‘In the first year itself, they have assembled and sold about 50 machines.’ Prasanna and party have certainly done something that is worth congratulations. But many like Prasanna and the group after some stints in HMT or CMTI did establish machine tools units in Bangalore. Unfortunately, only some survived but could not achieve any significant scale. Lokesh Machines and Ace Designers are some from the lot. It all started and ended because of the presence of HMT in Bangalore, that has played a pioneer as well as spoiler role for the development of machine tools in India at different times. Other big players on the Indian scale were Mysore Kirloskar, and Bharat Fritz Werner. But HMT was in all the product lines. These two also couldn’t grow significantly. But it was more because of lack of ambitions and perhaps a missionary zeal too of a real entrepreneur.
Unfortunately, with the support from the government HMT grew too big, manufacturing almost all types of machine tools with technical collaborations from all Western developed and even poorer communist countries. It expanded the range and monopolized the machine tools industry with the products ranging from the center lathes to jig boring machines. It didn’t create a brand name for a particular category of machine tools, the model that even the European and American machine tools companies followed later on. It was not flexible to cut down the margin. It didn’t innovate to cut the cost and build reliability. And one like me feels sorry about the present status of HMT. It could have become a global supplier with resources of manpower and equipment it had. I had last visited HMT in Bangalore in 1997, when the decline had started. But the total manufacturing capability equipment and machinery wise in its fold was more than any of the biggest machine tool manufacturers in the world. HMT is still living on the government dole. The government has decided to pump in Rs 723 crore to revive HMT Machine Tools Ltd. However, besides the dole it must have autonomy and a first class management to get out of the rut. It must fork out the divisions other than the machine tools as fully independent unit or sell them. It must concentrate on some products such as machining centers and turning centers of all sizes. It must go for innovative designs. It must cut down the costs to be competitive, as the auto sectors have done it. It must think of scale in specific category and try to aim and reserve some capacity for export business that in bad time in domestic market can sustain it.
Unfortunately, the machine tools industry didn’t follow the manufacturing model of Japanese machine tools industry- the design and innovation with assembly and critical big components machining only as in-house activities and other manufacturing outsourced.
Let the industry not exaggerate and plan its next move based on the statement such as, “So phenomenal has been the machine tool industry’s growth in India in the past three years that it is now spawning a number of startups, encouraging big new capacity creation by traditional players, and attracting the who’s who of the global industry.” Let the members of IMTMA not get too happy with the growth rate of last three years. It is mostly due to the boom in auto sector and other engineering industries. Unless the manufacturers have strategies to get global as the auto sector is doing and getting global recognition for its excellent performance, the sector can’t grow to a respectable level, and global hub of machine tools, though India has all the capability to be one. If IT software supremacy of India can be matched properly with the innovative and customized design of the hardware of machine tools, India can create a place in machine tools sector. There is no dearth of skill and knowledge.
However, the machine tools sector seems to be in boom. Bharat Fritz Werner (BFW) expects to see a 48% growth in revenues to about Rs 300 crore this fiscal. Ace Micromatic Group has seen a 30% compound annual growth rate in the past four years, with turnover expected to be over Rs 650 crore this year. The Tata Group’s TAL Manufacturing Solutions expects a 40% growth in 2006-07. Does the trend indicate the beginning of a China-like sustained boom in manufacturing?
Most Indian players are making fresh investments. BFW is trying to build for Rs 1,000 crore worth of machines per annum-three times its revenues for this year-and is looking at a new facility to produce its own sub-components (high precision parts).
As on today, domestic consumption at Rs 6,000 crore remains far above what Indian firms can produce (Rs 2,000 crore). Imports today cater to two-thirds of consumption. As reported, many new foreign players- Rosa Ermando of Italy with Bangalore-based Ucam, Spain’s Pinacho, Liebherr of Germany and Nagel of Switzerland are intending to enter the sector. This had happened earlier too. But the foreign companies couldn’t sustain.
Will foreign players use India as a sourcing base for machine tools, as the cost of manufacturing in India is 20-40% lower than in the US and Europe and sustain their current initiative? I shall agree and don’t doubt that India can deliver products that are much better than China’s at equivalent cost. But to get global in machine tools industry requires different mindsets and a real fire in the belly. The industry must aim beyond the alluring and attractive domestic market.
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