Marketing: Will Akai turn Videocon into the New Baron?

STRATEGY
Will TACO Prove to be Bigger Than Telco?

If it hits its Rs 17,000 crore sales target by 2006, TACO will be one of India's 10 biggest corporates.

By R Sridharan

R N Tata, CEO, Tata Group: " Think of it as a global company set up in India" The brief was staggering for its simplicity. In early 1994, D.S. Gupta, who had just quit his job as the general manager (marketing) of Maruti Udyog, called on Ratan Tata, the CEO of the Tata Group, at Bombay House to kickstart its debut in the automotive components business. A man of few words and much imagination, the group supremo told Gupta what he expected from the new venture: "Think of it as a global auto-components company that started in India." Thus was Tata Autocomp Systems (a.k.a. TACO) born.

In the next 5 years, Gupta, now TACO's CEO, translated that one-sentence directive into 6 operational joint ventures with a turnover of Rs 150 crore in 1997-98; 4 more in the offing by end-1999--and 40 more partnerships planned by 2002. "Not bad for starters," quips the dapper 49-year-old Gupta. Especially since TACO--a closely-held holding company for the Tata Group's investments in the automotive ancillary business--already supplies 25 per cent of the components outsourced by TELCO for the Indica.

Make no mistake, though. TACO will never ever be a mere captive supplier to TELCO. If anything, it will, one day soon, outsize TELCO itself. With an investment of Rs 4,250 crore ($1 billion)--of which nearly Rs 640 crore will be in the form of equity contributions by its partners--TACO projects sales of Rs 17,000 crore by 2005-06, which will, undoubtedly, push it into the ranks of the 10 largest corporates in the country. Moreover, TACO is thinking global, hoping to generate 20 per cent of its revenues every year by exporting components and designs to the world's automobile majors. BT test-drives the would-be giant's strategy:

THE VISION. TACO aims, obviously, to become an integrated systems supplier and a one-stop shop for tomorrow's assemblers. This stems from the fact that, worldwide, auto-makers are moving away from the system of tiered vendor-bases to integrated single suppliers. Moreover, the wave of global mergers is likely to shrink the number of manufacturers from the present 40 to less than 10 in the medium-term. So, if TACO can become a supplier to any one of the Big Ten, it will have secured its future.

To ensure that, TACO plans to formulate strategies for each of its joint ventures, and control their critical functions like human resources, finance, and engineering. While the marketing will be handled by the joint ventures themselves, TACO will act like a super-structure that harnesses the synergies of its subsidiaries, with its ambitions extending beyond component supplies. In fact, by 2005-06, that may contribute only half of TACO's turnover. For, apart from being a one-stop-components shop, TACO will, eventually, have 4 business groups:

Component Manufacturing.
Component Design & Development.
Systems Integration.
Supply Chain Management.

In this future, not only will TACO have partnerships to design and manufacture every critical component in a car, it will also be the O(riginal) E(quipment) window to Tier II and Tier III suppliers. While most of the non-manufacturing income will accrue directly to TACO, points out Gupta: "As I see it, in the near future, the auto-makers will just design cars while the actual car-making will be managed by their vendors (like us)." Bang on.

To be a part of this new paradigm, TACO went looking for partners. Like Johnson Controls of the US for seating systems; Toyo Radiators of Japan for state-of-the-art heat-transfer technology; Sommer Allibert of France for interiors and plastics; Ficosa of Spain for rear-view systems and control cables; and Yazaki of Japan for wiring-harnesses. And many more clusters of alliances are in the offing. Avers Nitin Anturkar, 39, Vice-President (Engineering), TACO: "We are bringing in companies with the best technologies, and we'll improve not just quality, but also cost and delivery."

THE MISSION. Globally, the sector is witnessing far-reaching changes. Increasingly, since Tier I suppliers are providing complete modules to manufacturers, it is their business to co-ordinate with, and manage the Tier-II and Tier-III vendors in the value chain. Volkswagen's truck-making plant in Brazil is showing the way: its 7 main vendors--who jointly invested $50 million (Rs 210 crore) in the plant--have their sub-assembly-lines within the main factory, which directly feed the main assembly-line on a just-in-time basis.

As of now, there are 12 car-manufacturers in the country. And the likely capacity by 2003-04 is 1.66 million vehicles per annum, with an investment of Rs 18,700 crore. But the components industry is far removed from either TACO's tack or the global trend. At last count, there were 5,000 suppliers, with an average turnover of less than Rs 2 crore. This, however, is likely to change--dramatically.

Predicts a 1996 study by McKinsey & Co.: "Those (Indian) suppliers who succeed (in the future) will almost certainly be larger than they now are, and they will, probably, have several strong alliances in place: an overseas partner that can share the investment needed to raise quality and secure access to technology; close co-operation with several sub-suppliers to ensure the quality of their own supplies; and, perhaps, alliances with logistics companies to provide more reliable export passages." Not surprisingly, TACO fits this bill on every count.

Without a doubt, its entry will change the business. Warns K. Mahesh, 54, CEO, Sundaram Brake Linings: "A number of vendors will close down if they don't improve their processes." However, a rationalised base will be better-placed to improve its process-management skills, paving the way for integrated suppliers to flourish--a la TACO. Clearly, the TACO model is one with the future of the business.

Over time, TACO's joint ventures intend to manufacture and design most components--and modules--ranging from rear-view mirrors to seating systems to suspension systems. And they will supply these to all the domestic manufacturers, including TELCO's competitors like Maruti Udyog. The idea being that the car-makers can then concentrate less on the shopfloor, and more on areas like design, marketing, and service.

THE STRATEGY. Already, TACO has tasted global success by becoming a supplier to Fiat, which is buying indigenously-designed seating systems and dashboards for its Palio from Tata Johnson Controls and Tata Autoplastic Systems, respectively. Moreover, the company is a supplier to most of the local manufacturers like General Motors India, Maruti Udyog, Honda-Siel, and Mercedes-Benz, among others. And higher volumes will help TACO leverage economies of scale to lower its production costs, a fact that will certainly benefit its major OEM, TELCO. But, in the long term, TACO's future will depend on its sales to other OEMs in the domestic market.

For one, the competition in the $200-billion international market is intense. To compete with auto-components giants such as Delphi--which supplies both components and modules through 169 wholly-owned subsidiaries and 40 joint ventures in 36 countries--and Visteon--which has 81 manufacturing units in over 20 countries, including 3 in India--will, to put it mildly, not be easy. So, capturing a chunk of the Indian market which, by 2005-06, may be large enough--Rs 25,000 crore, according to TACO--to support it will be critical.

Another hitch: despite the entry-barriers TACO will erect--huge investments, world-class suppliers, and local management skills--there is always the threat of competition over the next 5 years. Despite these potential roadblocks, TACO's chances of its success in the Indian market are high.

However, TACO will realise its full potential only when all its joint ventures are functional, which will allow it to add value to its customers by designing, manufacturing, and delivering all the key components. Ultimately, the edge in the global arena will come from the integrated strengths of the components makers. In fact, Delphi and Visteon offer solutions--rather than just components or modules--to their clients. When TACO is able to do that, Ratan Tata's vision will have translated itself into reality.

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