Made in India

Bharat Doshi, finance chief of India's US$6.2 billion Mahindra Group, is ever grateful he was only 42 years old in 1991. Back then, he was executive assistant to the managing director of Mahindra & Mahindra (M&M), the automotive arm of the Mahindra Group. As such, he spent much of his time in Delhi's labyrinthine "Licence Raj," trying to persuade bureaucrats to increase the number of tractors and off-road vehicles his company was allowed to make each year.

Then came India's liberalization in 1991. Reforms shifted the country from a planned economy to a market-based system; the legislature hacked away at stifling regulations; and India opened its borders to international trade. "My boss at the time was a brilliant man, but he spent all his life bogged down in getting approvals," says Doshi with a sigh. "At least for me it was only half my life. Since 1991, we have had the freedom to invest as we want, to embrace new technology, to set up collaborations and partnerships, to start making new types of products and to respond to the market. The change has been incredible."

It's also been tough, not just for M&M, but for all manufacturers in India. As Doshi recalls, "The scrapping of licensing and the introduction of competition — both with domestic players and foreign ones — was a complete shock." By 1993, for example, Japanese car-maker Suzuki was churning out 122,000 vehicles a year in India with a workforce of 4,000. Mahindra, by contrast, was producing 73,000 vehicles with a staff of 17,000.

Today, after years of restructuring and productivity improvements, Mahindra is not only growing rapidly — its revenue rose 37 percent last year — but is also expanding globally. Exports of tractors, light trucks, and sport utility vehicles grew 34 percent last year to nearly 21,000 units.

In many ways, M&M's recent transformation embodies the long journey of India's entire manufacturing sector. Decades of socialism, closed borders, and self-sufficiency starved firms of investment and opportunity. Now freed from these shackles and with the pain of restructuring behind them, India's manufacturers are emerging with a vengeance. Many are now world leaders in productivity — a remarkable change, considering how staggeringly uncompetitive they were in the early 1990s.

Take Tata Steel, part of India's Tata Group. During the decade between 1995 and 2005, Tata Steel halved its workforce, from 75,000 to 40,000, and doubled its output, from 2.5 million to 5 million metric tons of steel a year. In 1995, the company consumed 4.5 tons of raw material to produce 1 ton of steel; today it uses just 3 tons of raw material. In June 2005, World Steel Dynamics, a U.S.-based industry research group, gave Tata Steel ten out of ten for its operating costs in a survey and named it "the best steel company in the world."

Finance on the Frontline
Along the way, finance at these companies has been a driving force in key areas. Cost control is one. "For CFOs in Indian manufacturing, we don't call for price increases. We spend 70 percent of our time hunting down ways to cut costs," says K. Sridharan, CFO of Ashok Leyland, a US$1.7 billion maker of buses, trucks, and diesel engines. "Cost competitiveness is absolutely key. It's suicide to build new capacity on anything but a foundation of super-efficiency."

That super-efficiency includes a system Sridharan and his team developed to pare costs to the bone. Starting with the simple observation that cost divided by output yields a product's per unit cost, Sridharan and his team have used this equation for a very granular view of its costs. "Using this philosophy to blow up our cost drivers and understand them is the foundation of our competitiveness," he explains.

The philosophy is also a key way to help the company cope with the escalating material prices hitting manufacturers around the world, spurring it to find new ways to keep purchasing costs low. Along with joining forces with other local car makers to cut bulk deals with suppliers, it's also scouring the globe to source components in cheaper markets, including China. As Sridharan recently told The Times of India, Ashok Leyland has been steadily increasing its purchases of components in China over recent years, now totalling a few million dollars.

And Ashok Leyland's cost-consciousness stretches beyond its own factories. In 2006, when one of its suppliers began struggling to produce the fuel tanks used in its trucks, Ashok Leyland weighed up whether it should simply throw money at the problem by launching a capex program to help the supplier. Instead, the vehicle maker decided to send its supply chain team onto the vendor's shop floor, and subsequently identified a series of fast, incremental measures it could take to improve plant capacity. One measure involved tweaking processes that reduced machine downtime; another was to change remuneration so that it was linked to productivity. Machine downtime tumbled, as did maintenance costs. What's more, individual productivity improved 40 percent from the previous year and production doubled to 65 tanks a day, enabling Ashok Leyland to increase its vehicle roll-out by 45 percent.

Having achieved new levels of efficiency, Ashok Leyland is now confidently stepping onto the global stage. Exports are growing and the firm is making acquisitions overseas — including a 2006 deal in the Czech Republic. It has taken this a step further with an arguably bolder move — its planned acquisition of French car-parts company Valeo, announced earlier this year. "Our system for identifying and improving our cost drivers underpins our M&A strategy because we can see clearly how we might add value to the manufacturing processes at a target company," explains Sridharan.

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