AT PAR WITH THE BEST: Plants such as Bharat Forge's Pune unit have helped India join the global auto comp race

What makes a successful automotive company-one that boasts fatter margins, higher profitability and more rapid revenue growth than many of its industry counterparts? One way to answer that would be to take names-for instance, compare a Honda with, say, a Kinetic, or a Maruti to a Fiat-but then there would be too many names to take. Suffice it to say that a financially flourishing auto manufacturer would have a better product, or rather, a virtually endless stream of better products. Sure, advertising, promotions and distribution will matter too, but then, a car isn't exactly soap: Products aren't generic (at least they shouldn't be), and there's plenty of room for differentiation and innovation. Forget what Henry Ford said-the customer doesn't want only black. She wants choice-and not just of colour.

So put the customer at the heart of the matter, and you don't have to be a genius to figure what goes into a successful auto manufacturer-superior quality, a variety of products, which are either affordable and reliable, or the neighbour's envy. Turn that into manufacturer-speak and you're talking about: A superior product development strategy, a pronounced focus on new product introductions (NPIs), a significant investment in research & development (R&D), and an almost fanatical obsession with cost reduction, which will call for such diverse measures ranging from increased outsourcing to optimum use of in-house capacities.

That's exactly what some of India's best auto manufacturing companies are pursuing, when they're making either cars or commercial vehicles or two-wheelers or ancillaries or even forgings. Talk to any senior plant executive of any automotive firm, and chances are that there will be three recurrent themes in his conversation: Cost-reduction, quality improvement and NPIs. And there's ample scope for all of them. Keeping costs under control is imperative not just to increase margins, but to ride out the rough times, of which the cyclical automotive industry has seen plenty of.

One surefire way to reduce costs is to increase outsourcing from vendors, whilst at the same time rationalising the number of vendors to a more manageable number. This not only helps keep material costs down and realise better economies of scale, a fewer number of vendors will also help manufacturers standardise processes and pursue productivity improvements more easily. To be sure, the best manufacturers today outsource close to three-fourths of their materials, with only key elements like engines, axles and gear-boxes made in-house.

Quality improvement is a no-brainer, given the huge gap that exists in some segments, particularly heavy commercial vehicles, between domestic production and global standards. If Indian companies want to sell their products in developed nations-as a few of them have professed that is their global vision-they have to make products that are on a par with the world's best, products with stronger frames, lighter springs, and slicker painting, styling and aesthetics. Can you, for instance, imagine the Tata "Horn OK" truck of today on European or American roads! What's more, with many of the international players bringing in advanced products into the country, just as Volvo has done in the bus segment, the established domestic players have to respond accordingly. True, Volvo may be low on volumes today, but it's very high on visibility, has set new standards in customer expectations, and it's only a matter of time before the Volvo's superior roadholding features, suspensions and roll stabilisers become a norm rather than the exception.

Clearly, there's plenty of such work that's taking place, right from design to manufacturing, at outposts like the Tatas' Engineering Research Centre (ERC) on the outskirts of Pune. One such product out of the ERC, the one-tonne pick-up, will be sold by Rover of the UK in that region. Meantime, all-Indian two-wheeler makers like Bajaj Auto and TVS are making in-house R&D result in a steady stream of new products. At Bajaj Auto, increased R&D on new products-like the best-selling Pulsar and the soon-to-be launched Discover-is resulting in the new offerings accounting for revenue that's many times the R&D spend. Ditto with TVS, whose demise was proclaimed far and wide after its break-up. Post-split in the late nineties, TVS has launched close to 25 products, all developed in-house. Needless to say, TVS hasn't yet died.

TVS, of course, will still lack the engineering finesse of a Honda, and an Indica may still not be in the league of global small cars, but the good news is they're getting there-and all the ingredients needed to get there to exist in the country-a low-cost, quality-driven worker base and more importantly the wealth of engineering talent available. That could explain why Toyota has identified India as a sourcing base for manual transmissions-the only such hub outside of Japan. Even as India's best auto companies attempt to bridge the gap between international quality and domestic promise, the global auto giants are exploiting the local potential to match their overseas standards. Read on to find out how.