India machine tool market seen as emerging force
Experienced manufacturers see a pathway to success in newly industrialized market
India is on the way to becoming a manufacturing location of global status, and meanwhile ranks 6th among the world’s biggest markets for machine tools. At the EMO Hannover 2011, India accounted for more visitors than any other nation except Germany, with a share of over 10 percent and more than 5,000 visitors. This year, the EMO Hannover, the world’s premier trade fair for the metalworking sector, is taking this trend responsively on board with the “EMO Focus on India”.
Today, many users and manufacturers of machine tools are progressing their strategic positioning in India. This is due not least to the soaring growth of the subcontinent’s market potential. As a location for capital investment, India is of interest not only to global players, but definitely for mid-tier machine tool manufacturers as well. The stumbling blocks on the way to achieving this can be avoided if you take note of the experience that other companies have already gained.
What does a mid-tier machine tool manufacturer have to bear in mind if it wants to gain a foothold in newly industrializing countries (NICs) like India?
“Basically, there are two conditions you have to meet: first, you have to tackle your expansion abroad from a position of strength, and by 'strength' in this context I mean both the technological and the financial side of things. You have to be able to finance this expansion without any outside funding. Second, your organization has to be prepared for a lot of intercultural openness, and this on all levels. If, for example, this is the case only at the top management level, then it’s better to forget the whole idea,” said Dr. Frank Brinken, CEO of Starrag Group Holding AG, Rorschacherberg/Switzerland,
As sales markets or locations for investment, at the moment “India and China are definitely the major focus.” Brazil has high import duties and exorbitant hurdles to overcome for approval. Importing, and also the establishment of your own production operations, says Brinken unequivocally, “Are controlled through a body in which the biggest Brazilian manufacturer and other local producers call the shots. Brazil is manifestly not complying with the WTO’s rules.”
Starrag’s CEO doesn’t think all that much of joint ventures as a means for bypassing import restrictions. “I don’t believe that joint ventures are in the longer term the right way to establish your own presence in China, India or Russia. Because of the divergent interests involved, the decision-making paths are simply too long, and incapable of matching the dynamism of the markets involved. What’s more a separation after a few years will usually be very cost-intensive.”
Up to now, expanding markets like India have still been demanding, “Appropriately matched technology,” such as standard machines or standardized production lines in the low price segment. Does this still apply today for what will soon enough be high-tech regions?
“You have to adapt the machines to suit the climatic conditions concerned and reduce the complexity of operator control,” Brinken said. “To achieve this, you have to invest in training and skill programs suited to the particular nation involved. You’re practically never going to find ready-to-employ machinists who have CNC skills equivalent to one of our freshly qualified apprentices. Together with several other Swiss companies, we have set up an apprentice training scheme in India based on the Swiss curriculum.”
Market entry demands staying power
Differentiated market entry chances for disparate NICs are spotlighted by Dr. Albert Neumann, Managing Partner of Strategy Engineers GmbH & Co. KG, Munich, “Although the situational backgrounds in newly industrializing countries are highly disparate in terms of political constraints, bureaucracy and cultural mindsets, there are a series of basic parallels that need to be borne in mind when going into a new market.” Building up a customer network, for instance, necessitates using local staff; local/regional trade fairs frequently offer good opportunities for increasing awareness levels and brand recognition.
Furthermore, he says, market entry should be tackled with a view to the long haul. “In most newly industrializing countries, purchasing decisions by local companies are driven principally by the initial price quoted and less by the holistic business case of a machinery investment. Overcoming this mindset will sometimes require protracted and persuasive argumentation.” It may make sense to form a sales alliance by joining forces with other machine tool manufacturers with whom you are not competing directly in terms of the product portfolio.
And finally, machine tool producers, when selecting the new markets they wish to target, should take into account not only the potential of local customers, but also and above all the investment activities of foreign companies in the nation concerned. The most attractive markets at present among the newly industrializing countries, says Neumann, besides China, meanwhile the biggest sales market for machine tools, are “Without a doubt India, Russia and Brazil.”
He is quite relaxed regarding the risk of uncontrollable outflows of corporate expertise in joint ventures: “In our experience, it’s less the local, quantitative value creation proportion that constitutes the paramount risk, but the establishment of specific development and above all application know-how on the spot.” The basic principle involved, he continues, is this: the less high-end expertise is put in place locally, the lower is the risk of losing control. Nevertheless, statutory stipulations for joint ventures in the relevant nations have to be complied with, which (particularly in China) in many cases require that development activities be established and thus necessitate careful assessment of the specific arrangements involved.
In India, like in China, demand is primarily for machines in the lower price segments. Experience has shown, says Neumann, “That for German machine tool manufacturers it is difficult or even impossible to operate successfully at the bottom end of the product spectrum, even if machines are specifically 'slimmed down' or old machine types are sold. What machine tool manufacturers should rather be concentrating on is their corporate expertise in the field of high-quality production, since there’s a growing demand for this, driven by the increasing focus on exports and quality among product manufacturers in newly industrializing countries.”