Tag Archives: Indian SMEs

Challenges in Indigenisation

Part 5 -Contd from part 4:

It is a well known fact that the military applications are the primary focus of most technological research. With every new generation of new technology, the previous generation is released for industrial and consumer applications. In this context, it is most natural that no foreign OEM would provide Indian Armed Services with TOT of current technology. Whatever is sold is at least one or two generations old. In the case of old platforms like the Jaguar aircraft of the IAF, this would be three generations old. Hence, it is not such a daunting task for Indian companies to indigenise products of that generation, provided one is sensitized to the specialized performance requirements of this sector. This includes design, manufacture, qualification testing and certification to very stringent military standards that most non-defense organisations are not exposed to. This is all the more the reason for the Armed Forces to spot, recognize, nurture and grow private organisations that possess such talent and capabilities for meeting their own long term goals of self-reliance. Is this asking for too much?

The real challenge lies not among the MSMEs, but within the Armed Forces themselves. Even among the technically qualified and trained officers, how many of them are acquainted with the fundamental tenets of aircraft systems, leave alone their design, qualification and certification? Of course, they are only expected to use the products and platforms and not design them. But, if they are the nodal officers involved in indigenisation, should they not be empowered for it? And if they do get trained in whatever manner, would it not be a waste if they get transferred every 2 or 3 years to posts that has nothing to do with indigenisation? How many of them have had an intimate involvement in indigenisation of a complete LRU and appreciate the variety of problems faced by a vendor during the whole process? Has even one officer spent one complete day in an MSME engaged in defense indigenis pied-piper ation to get a first hand account of operations of an MSME? The very fact that RFQs quote a delivery period of 3 months for projects that normally take 3 years shows the disconnect with realities. With poor MSMEs that are attracted to the pied piper singing songs of ‘billions of dollars’, should we say any more?!

Military business is all about robustness, ruggedness, high reliability, high efficiency, high technology, miniaturization, sophistication, etc. that are far beyond the perception of most non-defense industries. They therefore need to be sensitized, trained, nurtured and then sustained and this is at least a 6 to 8 year timeline as per current status. So, if the DPM and DPP continue to stick to the L1 philosophy, it is a matter of time before everyone exits irrespective of whether they are successful or otherwise. Technological competence and track record are more important than just lowest cost and therefore the current L1 policy would by itself ensure that the competent get filtered out and the incompetent just fail. Who wins this game?

D&D, Profits and Sustenance

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Part 4 – contd from Part 3:

There is a misplaced belief that Indian companies do not invest in R&D. The terms ‘Research & Development’ or ‘Design & Development’ are often misunderstood and used inappropriately. In the context of indigenisation efforts of the private sector, especially MSMEs, ‘Design & Engineering’ should be the more appropriate term. It is a well accepted fact that Indian MSMEs are highly innovative, enterprising and come up with unique solutions to various problems. Innovative ideas could range from a simple tweaking of a design or reverse engineering of a foreign OEM product. All these activities involve considerable D&E focused on the specific product. The only problem is that private industries do not have the habit of monitoring and accounting such expenditure under a separate head called ‘R&D’. This is due to the fear of the tax-man not allowing these costs as expenditures and treating them as capital investment (which it certainly is) and should result in repetitive long term returns over a period of at least 5 years. In the case of MSMEs indigenising complete LRUs or sub-systems, there is certainly a high indigenous D&D content whose risk is justified only if there is a likelihood of repetitive bulk production orders. The expected Return on Investment (ROI) has to be linked to the risks of D&D. ROI is also linked to the quantum of sales of the product over its lifecycle. Hence, the economic viability of indigenisation has to be based on future bulk production orders from the Armed Services. This is where a serious flaw exists in the indigenisation programmes of all Armed Services and DPSUs. They either do not know what their future requirements are or do not wish to reveal it. In either case, it is almost impossible for a private industry to assess whether there is any worthwhile business potential.

Yet another misconception among the Armed Services is that they have reimbursed the D&D costs to the Vendor at the end of successful completion and hence the vendor is fully compensated. They do not seem to appreciate that D&D cost is very different from the lifecycle value of the product realized. Total value realized from consumer and industrial products over their lifecycle would be more than 100 times their D&D cost. In the case of the specialized A&D sector, lose-lose it should be even higher due to the high value addition of the products. Hence, choking a vendor by not providing him serial bulk orders at least for a few years would amount to killing him without sustainability. This leads to a ‘lose-lose’ situation with both the successful vendor gradually dropping out of business and the Services losing a successful vendor, who could have multiplied his initial success into many more successful projects and graduating to higher levels of technology.

Profit was considered a dirty word in our country till recently. While it has turned decent, it still retains a gray shade among the Armed Services and DPSUs. How much or profit is ‘decent’ and how much is to be considered ‘profiteering’? Any B-school would teach that profit is all about maximization at every opportunity. Even in the background of a patriotic national sense connected with indigenisation of weapons and systems, profits allow the industries to grow and diversify multi-dimensionally. Ultimately, this becomes a national asset since the industry in involved in achieving self-reliance of defense equipment. In the absence of profits realized through repetitive sales, the industry would turn unsustainable. This appears to be the present state of MSMEs engaged in defense indigenisation. Only those who have an alternative revenue stream in a different domain are able to sustain their business even though the A&D sector is a drain on the other stream.

Attitudes and Habits

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Part 2 (Contd from Part 1): Old habits die hard. When a child gets used to spoon feeding, it will resist eating by itself. This applies equally to the Armed Services. Having got used to being fed by foreign OEMs with machines, equipment and their spare parts for over six decades, the easiest and simplest method to re-arming is to go back to them. These are buying habits that even we as individuals acquire, don’t we? So, it needs a monumental effort to change those habits. Moreover, how many of us are aware of ‘Life Cycle Costs’ and how many of us take that into consideration when buying durables? ‘Baadme dekha jayega’ (‘We’ll see later’) would be the common refrain. So is the case with the Armed Services. To be fair to them, they are always so desperate for new procurements to replace old and ageing ones that they just have to go ahead and buy whatever is offered to them. In such a scenario, indigenisation is the last thing on their mind. Add to this our obsession with anything ‘phoren’ over a ‘desi’ stuff, you get almost the entire picture.

Management theory states that resistance to any change is a natural human trait. So, if one has been buying weapons and arms from abroad for the last 50 years, he or she is part of a system that allows it to continue since it has the least resistance. People in charge of planning, budgeting, procuring, inspecting and using the items are all used to it and wont ask ‘why?’. On the other hand, if somebody says he wants to get it from an Indian vendor, all hell breaks loose. Questions like – “Why change?”, “How do you know the Indian stuff works?”, “Who will guarantee its performance?”, “How do you know it would last at least a year?”, “Who will take responsibility for this decision?”, “Who will certify the technical specifications when we dont know what the foreign OEM is supplying?”, etc. Just a few of these are enough to kill any enthusiasm about indigenisation within the Armed Service.

On the other side of the fence are the thousands of private industries who have been attracted to the ‘billion dollar’ annual procurements highlighted by the pied pipers of the bureaucracy and Armed Services. Nobody tells them about, leave alone train them on the highly stringent quality and certification standards that need to be met. This is somewhat like a kid that has been persuaded to get into the shallow end of the swimming pool by the coach who then invites the student to swim towards him while he himself surreptitiously keeps moving towards the deep end! Once the student has gone out of the shallow end, he has no option other than to thrash around and hope to somehow reach the nearest handrail. The only difference between the two scenarios here is that in the Defense arena, the ‘coach’ just disappears after leading you in. Certainly not an enjoyable situation. But, why does this happen? One, nobody cares. Two, nobody takes ownership for either indigenisation or nurturing of ‘vendors’ with the larger objective of achieving self-reliance. Three, officers in charge of indigenisation get transferred to other posts across the country leading to loss of continuity. Four, a DRDO or DPSU, which does not have to participate in tenders and attain L1, offers to take up the job and so the Armed Services are obliged to give them the order even if they are 20 times costlier. Five, the need for the item just disappears due to bureaucratic delays. The list can go on and on.

Does the poor vendor survive or drown?

Watch this space to know more.

Another Chairman of HAL talks

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HAL seems to have finally realized that it needs to be a final integrator after all! Or has it?

(http://m.thehindu.com/news/national/hal-seeks-to-lighten-light-combat-aircraft-burden/article7617119.ece) It now wants to offload major parts of the airframe to the large private players. We can now see the ‘biggies’ trooping to HAL to have a bite of the various platforms that HAL has been struggling to deliver to its reluctant customers.

How sincere is HAL when it makes such statements? I say this because this same intent has been repeated over the years ad nauseum without any action on the ground:

2002: www.thehindu.com/thehindu/2002/06/13/…/2002061301830400.htm

2003: www.thehindubusinessline.com/2003/02/12/…/2003021201020200.htm

2005 August: www.thehindubusinessline.com/todays-paper/tp-logistics/outsourcing-bonanza-in-aviation-hal-alone-sets-rs-600crore-business-for-private-sector/article2185343.ece

2005 October: www.thehindubusinessline.com/…/hal…outsourcing/article2193883.ece

If anybody thinks that this would make an impact on the Indian military aerospace sector, they are going to be sadly disappointed once again. All that this would achieve is to allow the large private players to put in place a certified system of producing airworthy structures, besides churning out riveted airframes and that too out of jigs and fixtures to be transferred to them by HAL. What nobody seems to notice is that a large part of a flying platform comprises its accessories and systems, including the most important power plant (engine), that really determines the flying as well as fighting capability of that aircraft. Onboard systems constitute about 25% of the acquisition cost of a military aircraft and along with the power plant, they account for 50% of the total cost. These also need maintenance and upgrades over the long operating lifecycle of at least 35 years. Considering that such systems can be tailored and modified to suit multiple aircraft, this constitutes the core of the aerospace industry. So, isn’t it silly that we are still talking only of manufacturing the shell and nothing about indigenous development and manufacture of all airborne systems such as avionics, electrical, hydraulics, pneumatics, air-conditioning and pressurization, cockpit instruments, weapons control, etc?

The Lucknow division of HAL was established out of the need for self-reliance in the development of accessories and systems. It has miserably failed to meet its mandate and hence this is where a multi-billion dollar opportunity exists for a large number of MSMEs alone. They can do wonders if pool their knowledge base, collaborate and synergize with each other and HAL can benefit by this too. This could lead to the creation of multiple consortia across the country each of which could be a potential exporter over time.

It is interesting that the CMD, HAL has talked of hand-holding. Let us look at their past track record. Five years ago, two divisions of HAL (Nasik and Lucknow) cancelled their outsourced manufacturing orders to a small private company stating that the labour unions had objected to outsourcing of work to the private sector. This was after going through a whole process of tendering, L1, price negotiation, and release of formal Purchase Orders. Is the CMD of HAL now sure that this will not happen again? Or, would the divisions now go to the unions to plead with them?

Talking of the 2600 SMEs that are supposed to be supplying parts to HAL, has anybody wondered what quantum of business each of these SMEs derive from HAL? If they are only manufacturing bolts and nuts, they could certainly graduate to aggregators by putting them together into a bracket or sub-assembly. That’s not what the SMEs would like to aim at. This precisely has been the problem with HAL. They never seem to be able to recognize the huge potential that lies untapped among the many competent and highly capable MSMEs of this country. Had HAL encouraged and facilitated the formation of clusters of MSMEs two decades ago, these would by now have graduated to system integrators, with each cluster delivering a communication or navigation or hydraulic system.

Why has HAL done nothing to support and encourage the existing MSMEs, many of whom are CEMILAC certified, who have already demonstrated their capabilities by manufacturing complete airborne equipment? Why does HAL not realise that creating such an ecosystem would be a force multiplier?

How do you integrate SMEs into the Indian Aerospace and Defence ecosystem?

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Let me ask a question myself, what is an ecosystem? The ecosystem is one that encourages the growth of a particular sector of industry or product. So the ecosystem includes either the creation or existence of the infrastructure which includes again for design and manufacture, the manpower trained to handle the technologies involved, facility for training the manpower, test facilities, certification, processes, a supply chain, availability of specialised raw materials if there are any, and so on – it can be expanded without much of a limit. So the ecosystem as applied to the aerospace and defence includes the inclusion of all these parameters. And with particular reference to the aerospace sector which uses very specialised aluminium alloys, titanium alloys, rivets, nuts and screws that needs to be of special grade or tested grade and certified as airworthy. Now if we don’t have any of these present within the country, then the ecosystem is missing. Even in the case of availability of trained engineering manpower, we don’t have the ecosystem where you have either aerospace engineers or mechanical engineers trained for working or operating in the aerospace sector. So we don’t have the availability of these various kinds of resources in the country and therefore the aerospace and defence sector in the country is unable to grow to the extent that it needs to grow. This is where the creation of ecosystem is extremely important and therefore the Government is the one that needs to address these by setting up of laboratories, test facilities, training institutes or may be even incentivising SMEs or large organisations to conduct training programmes, seminars, workshops etc etc. And this is where the Government has to play a very major role in incentivising and facilitating the growth of the aerospace and defence sector in this country.

Is ‘Technology Transfer’ required for Indian Industries to succeed in MakeInIndia?

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I am one of those who believe that we do not need any transfer of technology at all. In the past we had transfer of technology as part of projects that we got from British, Russian the French and many other countries. These were for the licensed manufacture of aircraft, transport aircraft, fighter aircraft, battle tanks and trucks, for example Tatra. But then we have not taken the additional steps of extracting information and knowledge that we have got, that we have paid for, and then taking the next few steps to develop them and create our own technologies. There is no rocket technology or rocket science involved in routine equipment, be it a communication equipment, navigation equipment or power plant.

The only area where there is high tech science involved is in the design and manufacture of advanced jet engines that are required for a jet aircraft. If you leave that aside, all the other equipment and systems that go on board on aircraft or battle tank are available with us. If we have been able to put satellite around Mars or If we have been able to land a satellite on to the surface of the moon then what is it we lack?

It is only the question of applying the science that we learned, and designing our own products, trying them out, if there have been deficiencies, use the knowledge gained and improve upon it, and then reach the ultimate goal of having our own equipment, systems as well as the platforms. This is what we need to do and there is absolutely no need for us to go out of this country seeking transfer of technology. After all, what is the technology we receive from abroad? They are only manufacturing technology for manufacture of an aircraft or its shell and stuffing it with equipment then that are imported from abroad. So we need to develop the equipment and systems that go on to the shell, and thereby increase the indigenous content of our platforms rather than go out again and get the technology for manufacturing of the shell, be it a 4th generation or 5th generation aircraft or battle tank. We need to look inwards and get the technology that is available within ourselves whether it is in our educational institutions or in R&D labs, for the manufacturing establishment. All we need to do is put our heads and hands together to solve our own problems.

Digital veena inventor who beefed up IAF’s firepower

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An entrepreneur who has won a patent for a digital veena, and also designed a mechanism that fires rockets at a command from a computer aboard the Indian Air Force’s Jaguar aircraft? Incongruous but true. The entrepreneurial career of G Raj Narayan, 66, founder and managing director of Bengaluru’s Radel Group, has been guided by his twin passions – aerospace and music.

He spent 10 years as a design engineer at the state-owned Hindustan Aeronautics Ltd (HAL) before disillusionment turned the thoughts of this post-graduate from IIT Madras towards entrepreneurship. He finally left HAL in mid-1979.

Within three months he was sub-contracting for Bharat Heavy Electricals Ltd, supplying electrical coils after investing his savings of Rs 10,000 in a coil winding machine. Together, the group’s two companies – Radel Electronics Pvt. Ltd. (which makes security systems and musical instruments and accounts for 90 per cent of group revenues) and Radel Advanced Technology Pvt. Ltd. (the aerospace business) – employ 80 people and have sales revenues of Rs 10 crore.

Radel is still a small enterprise. But Raj Narayan is working with the aviation wing of the Indian Navy, and hopes to get business from the Army too, since Radel is one of the few Indian players to be certified by the Centre for Military Airworthiness Certification – a Defence Research and Development Organisation lab. “I am looking at 100 per cent growth in the next two years, possibly even 150 per cent, if ‘Make in India’ takes off.” Raj Narayan concedes that for nearly 10 years after he started in business, he continued with his “garage mindset”, and it was only when he won an award for electronics in 1987 that he thought, “I must shift to an industrial estate in order to become a bigger player.”

He has taken care to ensure that R&D is Radel’s core strength. “The R&D team gradually grew, but took a quantum jump when the company set up its facility in Electronics City in 1995. The team now has about 16 engineers who design the electronic circuits, the software, the printed circuit boards, the mechanical housings and structures, the plastic cabinets and everything else that contributes to complete product design,” he says.

The disadvantages of being small are repeatedly felt. Though his aerospace company alone has orders in hand worth Rs 1 crore, working capital is hard to get from public sector banks. However, Raj Narayan turned one such disadvantage into a business opportunity. He found it hard to recruit engineering talent. Moreover, new recruits, once trained, would soon depart for greener pastures. So he set up the Drona Centre for Excellence as a division of Radel, “primarily to produce trained and productive engineers out of fresh graduates”.

Since Radel also possesses core aerospace domain expertise, “Drona also offers training courses in avionics systems, besides electronic product design. This allows the trainees and engineers a hands-on exposure to live projects that they can also see physically implemented for a real client,” says Raj Narayan.

This finishing school is the group’s third revenue stream, and so far it has taken in two batches of 30 students each and trained them, after which they were free to leave and join other companies. The centre also holds short-term courses for engineering students during their holidays.
Though in his mid-sixties, Raj Narayan intends to continue at the helm of Radel for six or seven years more. “I am in the process of grooming a second line of leadership, who can take over when I retire,” he explains.

The original article appeared on Business-Standard

Indian Aerospace SMEs ready to match Global Quality Standards

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This is the most appropriate time for our prime minister’s campaign of Make In India. We need to manufacture not only our own consumer durables and industrial products, but also the products required for the Aerospace & Defence sector. In fact it’s more appropriate for Make In India to be applied to the Aerospace and Defence since it involves the security of our nation and the self-reliance of our nation to defend and use our own equipment. We have been talking about self-reliance for more than five decades now.

But it’s unfortunate that we have not been able to extend the indigenous content of our arms and equipment including aircraft and battle tanks beyond 60%. It’s therefore high time that we all put our heads together. There is no dearth of talent, there is no dearth of knowledge, there is no dearth of man power, in fact India boasts of the largest engineering manpower talent and our engineering manpower is catering to the needs of global companies for application of their ideas and capabilities in products that are developed abroad. So why not we do it for ourselves? It’s therefore essential that the Indian SMEs are integrated into this whole plan of action.

“The Indian SMEs had proven themselves beyond any doubts by their contributions in the automotive sector and we have now reached a stage where Indian automobiles and their parts are exported globally”

So why can’t we do this for the Aerospace sector too? The Indian SMEs have their own core competence in their domains such as hydraulics, pneumatics, mechanical machining, fabrication, electronics, etc.

So it’s only a small quantum jump that they need to take to integrate themselves into the Aerospace & Defense sector and provide the most reliable, most cost effective and made in India products for not only the Indian market, but also export them abroad.