DIAGNOSTIC STUDY ON ENGINEERING

CLUSTER, CHENNAI

Prepared by

MSME – DEVELOPMENT INSTITUTE

(Formerly Small Industries Service Institute)
Government of India
Ministry of Micro, Small and Medium Enterprises
65/1 GST Road, Guindy, Chennai - 600 032.
 DIAGNOSTIC STUDY ON ENGINEERING
CLUSTER, CHENNAI

EXECUTIVE SUMMARY 3
1. INTRODUCTION 12
2. HISTORY OF THE CLUSTER – A RETROSPECT 17

3. CLUSTER PERFORMANCE 18
4. SWOT ANALYSIS 21

5. BROAD CLASSIFICATION OF ENGINEERING 23

INDUSTRY

6. STRUCTURE AND COMPOSITION OF THE UNITS 26

7. DISTRIBUTION OF FIRMS IN THE CLUSTER 28
8. STATUS OF THE ENGINEERING SECTORS IN CHENNAI 35
REGION
9. EXPORT SCENARIO 36
10. AUTOMOBILE INDUSTRY – A MAJOR SUB SECTOR OF 40
ENGINEERING INDUSTRY
11. AUTO COMPONENTS AND 45
ACCESSORIESMANUFACTURING INDUSTRIES VS
OTHER ENGINEERING INDUSTRIES
12. RAW MATERIAL FLOW 48
13. DISTRIBUTION CHANNEL 49

14. GROWING GLOBAL FOCUS ON SUPPLY CHAIN 53

15. CLUSTER FRAMEWORK: CHENNAI 54

16. STATUS OF MICRO AND SMALL UNORGANISED 56
ENTERPRISES
17. VALUE CHAIN ANALYSIS 67

18. SKILL GAPS 71

19. MAJOR AND MINOR INTERVENTIONS 72

1
ANNEXURE
LIST OF ACTIONS PROPOSED FOR ELIMINATION OF
WEAKNESS IN THE CLUSTER

CRITICAL GAP AND BENCHMARK OPTION

CRITICAL GAP AND BENCHMARK OPTION
ACTION PLAN ENGINEERING CLUSTER
CLASSIFICATION OF MACHINING PROCESS
CLASSIFICATION OF ENGINEERING INDUSTRY

2
 EXECUTIVE SUMMARY
FACT AND PERFORMANCE SHEET
SL. PARAMETERS DETAILS
NO
1. Name of the cluster Engineering cluster -Chennai

2. • Location of cluster -
Exact place of Ambattur,Guindy-Ekatuthangal,
Concentration Tirumudivakkam, Perungudi,
Tirumazhisai, Irungattukottai, Tiruvotriyur,
• Extend of concentration Maraimalainagar,
(KM Radiation)

• Urban/Semi-urban/Rural

3. Number of firms
o Large 100
o Medium 335
o Small 2030
o Micro 8300

4. Major Items manufactured Overall Small & Tiny

within the cluster
(List of 4 major Items) Capital goods Structural
Auto Components and Fabrication,
accessories Metal
Industrial Machineries Fabrication
Power Equipment Dies and
Steel Wire, Nails, Nuts & moulds
Bolts & Screws Auto
Hand Tools components,
Electrical items & Electrical items,
Components, Machine parts,
Valves etc Control panels
Tools and press Tools and
components, etc. press
components

5. Estimated turnover of the

cluster Rs. 31909 Crores Rs. 904 Crores

3
6. Employment Position
Direct & Indirect 1.04 lakhs 0.72 lakhs

Male 0.936 lakhs 0.648 lakhs

Female 0.104 lakhs 0.072 lakhs

7. Export potential
Engineering products $ 320 million $192 million
Auto components $150 million $120 million
8. % of contribution

at State Level 65 45
at National Level 40 20
Special features of the cluster
in terms of seasonal/main
stay activities/ dependence, if
any Perennial Perennial
Mostly depend
on 2nd and 3rd
tires units

9. Social Environmental
consideration
i. Environmental problems Negligible Not alarming
ii. Safety standard Good Not up to the
mark
iii. Women employment Negligible Negligible

4
10. List of major supporting
institutions/ Service providers

a. Technical Intuitions
Yes

b. R&D
No
c. Testing institutions
Yes

d. Government
organization Yes

e. Promotion councils
Yes

f. Others
Bankers, Product based association

11. Major issues

• Poor Infrastructure And Marketing Supports Faced By Tiny And Small Scale
Unorganized Sectors
• Dependant In Nature And
• Mostly Job Work Type Enterprises
• Poor Capital Base
• Weak Supplier Power
• High Mobility Of Labour Force
• Poor Credit Accessibility
• Low Profit Margin
• Low Technology Level
• Low Product Orientation due To Poor Capability Creation
• Inability To Compete With Medium And Big Players
• Poor Economies Of Scale
• Frequent fluctuation of Raw Material prices, especially Steel
• Poor Research And Development Facilities
• Under-Invoicing And Dumping Of Engineering Products
12. Priorities Major Minor
(Rank it as per (Rank it as per
priorities) priorities)

5
 Formation of Internal corrective
consortia Mechanism

Undertaking Bench
mark study Skill up gradation

Formation of Raw Soft intervention

material bank
Unit level
correction
Technology
Mapping Energy auditing

Common Production
Centre
Working capital
Utilizing the CFC support (MGFC
facilities of SISI & financing )
NSIC & other
institutions
Common
1. Tool room - Marketing &
Ekatturthangal Branding
2. CADCAM
center -
Common production
center –VMC lathe –
Perungudi Marketing
Linkages
Formation of new
estates exclusively
for micro and small BDS support
in orakkadam phase
–ii Preparation of
Common
Strengthening Micro Catalogue and
industrial estates at Leaflet
Ambattur under IID
schemes
Appointment of
Creation of NDA
Collaboration and tie
up

B 2 B meet with big

auto gains in
Chennai

Network, creating a
market information
and resource center

6
13. Cluster Observation:
i. Promotatbility
ii. Aspiration Level
iii. Attitude
iv. Linkages with other cluster:
v. Out reach - other clusters of similar nature
(Reliability)
14. Suggestion and recommendation
Immediate attention
creation of strong consortia
Visiting to dynamic clusters
Capacity Building
Formation of RM
Firm level correction
Awareness programme for
cluster actors and
stakeholders
Option for MGFC financing –
soft financing
Utilizing the CFC facilities of
SISI and direct marketing with
Big players
High
Very High
High
Very much possible
Medium Term attention Long Term attention
Accommodating auto
ancillary industries in
the phase II of
Orakkadam industrial
area
Establishing Modernization and
collaboration and tie –up technology injection
With Italian support
Linkages with technical, educational Establishing sub
Institutions contract exchange
Identification of technological gap Formation of new
and injection of new technology industrial estates and
industrial complex
Creation of common production Integration of Heavy
and processing centre engineering & light
engineering sectors
Common marketing Outsourcing with
MNSC & Global
Players
Injection of modern machineries Network, creating a
market information
and resource centre
Improving/ strengthening the
infrastructure facilities in micro
industrial estates
Under IID scheme
7
Utilizing the facilities already
existing within the cluster
Conducting Training for the
members
Training programme on
production planning, line
balancing
Identifying of the Business
service providers and
identification/ sourcing of
experts - suitable retired
scientists, professors and
management , etc
Conducting business meet
with selective embassies
Conducting benchmark
study
Emerging as product
oriented enterprises
B 2 B meet with big auto gains in
Chennai
Tool room - Ekatturthangal
CADCAM center -
Common production center –
VMC lathe –Perungudi
Launching common brand
Trade mark and patent registration
Linkages with technical, educational
Institutions for technology
improvement
Preparation of Common Catalogue
and Leaflet
Business opportunities with Italy
Linking the Italian Auto cluster
Study on establishing new
industrial estates and Complex
Elimination of multiple tiers
8
 CLUSTER EXECUTIVE SUMMARY - II
Pre intervention and post Intervention Tools
INTERVENTION
CRITICAL SUGGESTED
TOOLS EXPECTED
GAPS REMEDIES TIME FRAME
RESULT
Low and Modernization Setting up of CFC Increase the 3 Years
inconsistency Technology up productivity
production gradation – by 40%
Setting up of Increase the
production cum production
processing Common level 50%
Facility centre in the Increasing
identified 6 growth the
centers. employment
opportunity

Low Penetration Collaboration / tie – • Marketing tie up Increase the

capacity up / capacity • Utilizing the CFC production level
building facilities already 50%
existing in the Diversify the
cluster production
• Working capital
support
• Big brothers
arrangements

Poor market Formation of Launching of Common Improving the 2 years

penetration and Marketing Consortia Branding and Marketing business by manifold
product image and create a niche
market
Poor skill Skill up-gradation Conducting intensive skill Improving & honing 1 year
workers up-gradation training the skill of workers
programmes

9
Low level of Emerging as • Creation of brand Improving the 2 year
operation product oriented image and business by manifold
enterprises • Technology up-
gradation

Poor finance Easy access to Option for MGFC Solving working 1 ½ years
support finance financing – soft financing capital problem of
the micro enterprises
Poor Infra Improving & Option under Creating sound 3 years
structure facilities strengthening the IID Scheme & ASIDE infrastructure base
infrastructure Scheme for smooth operation
facilities of the firms
Improving Value Improving the core Horizontal and Manufacturing of 3 years
chain business vertical composite & value
integration added products

10
 CONCENTRATION OF ENGINEERING INDUSTRIES- GROWTH
CENTRE

Thirumudivakkam

Maramalainagar

Concentration of engineering industries

Growth centres

11
 1.0 INTRODUCTION

1.1.0 BACKGROUND

Engineering industry is the largest manufacturing industry comprising different

sub sectors and manufacturing diversified products. Any industrial product has its
root in the engineering industry. It is known as mother of all industries. Further, India
has a strong engineering and capital goods base. The entire gamut of engineering
industry can be brought under two major categories. One is heavy engineering
category and the other one is light engineering category. The engineering sector
employs over 4 million skilled and semi-skilled workers both direct and indirect in
India. The total production from the engineering sector was in the order of US$ 22
billion in the year 2003-04.

Similarly, the engineering industry is an age-old industry having a strong

footing in Tamilnadu. The industry is witnessing the presence of Large, medium,
small and micro industries. The last one is a dependent sector, which has a lion’s
share in numbers. Everything from automobiles, railway coaches, battle-tanks,
tractors and motorbikes to heavy vehicles are manufactured in Tamilnadu.

Global vehicle manufacturing giants like Ford, Renault, Nissan, Caterpillar,

Hyundai, BMW and Mitsubishi as well as domestic heavyweights like MRF, TI cycles
of India, Ashok Leyland, Royal Enfield, Mahindra & Mahindra, TAFE Tractors and
TVS are in the first tire. They are controlling the entire industrial movements in
Tamilnadu. Apart from Auto component sector, there are other engineering sectors
like machine tool components, dies and mould making, Nuts and bolts, Valves,
cutting tools, pumps & pump spares, Pistons, Electrical and equipment

Manufacturing, structural fabrication and casting & forging industrial sectors in

Tamilnadu. Due to the presence of such industrial base Chennai is known as “The
Detroit of Asia”.

12
 In order to strengthen the engineering industries in Chennai, SISI, Chennai
has adopted the sector under Small Industries Cluster Development Programme to
promote under Cluster mode. Subsequently, diagnostic study has been conducted.

1.1.1. Strong presence of engineering units is witnessed in Chennai.

1.1.2. A cluster diagnosis study on pilot basis was conducted in Ambattur,

Ekkattuthangal, Perungudi, Guindy, Thirumudivakkam regions wherein 60% of
the engineering units are concentrated.

1.1.3. A diagnostic study of a cluster helps in laying down the broad path for initiation
of cluster intervention. Special focus was given to Auto component
manufacturing sector. One of the main objectives of such a study is to
suggest a vision for the future and draw a strategic plan for undertaking
various developmental activities within the cluster.

1.1.4. Yet another reason for conducting the study is to measure and suggest the
type of intervention necessary for improving the overall status of the
Engineering industry in Chennai.

13
1.2.0. SCOPE OF THE STUDY

1.2.1. The scope of the study is to ascertain the present condition of engineering
industry in Chennai. Special emphasis has been given to the auto component
and accessory-manufacturing sector.

1.2.2 In essence, the study aims at obtaining a comparative analysis of engineering

cluster with regard to the working, effectiveness and dynamics of the cluster. It
is also meant to identify the factors impeding the smooth functioning and
growth of the cluster.

1.2.3 The core of this approach is to identify the right tools and techniques and to
apply these inputs to achieve quicker development in the sub sectors of the
engineering industry.

1.3.0. METHODOLOGY

1.3.1. The methodology involved for the study includes the following activities: -

1) Review of Secondary Data Sources relating to engineering industry; the

major sources accessed include publications of associations and related
sites.

2) Primary Research through limited but focused in nature

In all, about 50 informal interviews were carried out among a cross-section of

stakeholders, apart from the formal interaction that has taken place during the visit to
the cluster. The idea was to identify the existing critical gaps and draw concrete plan
for filling the gaps. The questionnaire was prepared in both Tamil and English. The
study was undertaken by involving enumerators and engineering college students.

14
1.4. OBJECTIVE

It is a fact-finding study, which aims to bring out the present status of

engineering industry in Chennai and to contemplate strategies and modalities to
promote the MSM engineering enterprises in Chennai under cluster mode. There is a
strong postulation to promote this sector under cluster mode. This document aims to
present the status of the industry in Chennai.

Engineering Industry comprises predominantly Micro and small-sized

enterprises (MSEs) serving largely as contract manufacturers and component
suppliers for product manufacturers.

THE MAIN OBJECTIVES OF THIS STUDY ARE:

To highlight the present status

To access the relative exploitative nature of the sub-sectors– micro
engineering enterprises
To identify the critical gaps
To undertake a benchmark study to seal the weak linkages
To take effective corrective measures to strengthen the under performing
micro enterprises
To select appropriate tools for effective soft and hard Interventions for
alround growth
To examine the present manufacturing practices and technologies relevant
and vital to enhance capabilities and competitiveness of the core units
To suggest measures for improving the working conditions of the micro
enterprises

15
 VISION STATEMENT

Transforming the Chennai-based engineering cluster

into a fast emerging outsourcing destination for design
and manufacture of engineering products, machinery,
equipment and auto components by 2010 by infusing
technology, quality standards and cultural changes
among the micro enterprises
to impel them from the tier 5 to tier 3

MISSION STATEMENT

Enhancing the production level by 25% within 3 years

Increasing the productivity by 20%
Embarking upon composite Engineering products
Upgrading 15% of the job work based micro enterprises to
full-fledged enterprises in the next 3 years
Exploring new export markets within 3 years
Exporting 25 % of the production within 3 years
Attempting to attract employment for 6 lakh people by
2015
Providing a platform to the MSMEs to facilitate their
interface with potential global partners and buyers

16
2. HISTORY OF THE CLUSTER – A RETROSPECT

The origin of engineering industry in Chennai was started even before

independent. The invasion of TVS group, Simpson, Ashok Leyland, Addison,
Integral Coach Factory, the then Standard Motor, Heavy Vehicles Factory - Battle
Tanks, Caterpillar - Earthmoving equipment plant, ICF - Rail coaches and Enfield
Motors besides formation of Industrial Estates in Ambattur, Guindy and adjoining
places in and around Chennai have created a big push to this sector. Further, the
birth of electrical goods, machine tools, dies and moulds, capital goods
manufacturing industries in Chennai is also strengthened this industry. The ever-
increasing demand for fabricated engineering products due to population explosion
has created an opportunity to the fabrication industry to thrive.

The engineering industries faced serious set back in the 80’s. However, the
auto components sector picked up growth after mid 80s due to the incursion of Car
manufactures in adjoining districts of Chennai.

17
 3. CLUSTER PERFORMANCE

The performance of the engineering sector is linked to the performance of the

end user industries for this sector. The share of Tamilnadu in selected engineering-
based sectors in India is given in the following table:

Table-1

Share of Tamilnadu in Select Sectors

Heavy Commercial Vehicles 27 %

Auto components 30 %

Railway coaches 49 %

Motor cycles & mopeds 26 %

Heavy Engineering Industry is one of the largest segments of Engineering

Industry. It occupies a whole range of industries such as Heavy Electrical Machinery,
Turbines, Generators, Transformers, Switchgears, Textile Machinery etc. As per the
Index of Industrial Production figures eight out of the 16 major industry groups show
substantial growth ranging from 6% to 28%.

Heavy engineering industry is well integrated with various core sectors to meet
their demand. The demand is derived primarily from capacity creations in sectors like
infrastructure and general manufacturing including process industries. The Indian
engineering industry, including the transport equipment segment, is estimated at
around Rs. 1.2 trillion. The share of heavy engineering sector is about 70% while rest
was contributed by light engineering sector.

18
 The enterprise mix of the Indian engineering industry comprises primarily large
Indian companies with and without foreign collaborations, subsidiaries of
multinational companies, joint ventures of domestic and foreign companies and
medium sized companies maintaining regional dominance. Majority of the players in
the heavy engineering industry have well defined markets catering to specific
sector(s) and are technology driven.

Indian market is one of the largest in the world. Indian companies are
producing quality products and services at competitive prices. Indian advantage in
designing and engineering capabilities with low labour cost make it one of the
preferred offshore destinations.

3.1 Light Engineering Industry

Light Engineering Industry is a diverse group with a number of distinctive

sectors including low-tech items like castings, forgings and fasteners to highly
sophisticated microprocessor-based process control equipment and
diagnostic/medical instruments. This group also includes industries like bearings,
steel pipes and tubes, etc. The products covered under the engineering industry are
largely used as input to the capital goods industry.

3.2 Auto components Sector

Automobile and auto component/accessories manufacturing industry is known

as sunrise industry. This industry has a new surge in recent years. It is mainly due
to the entry of international players in this sector.

The growth of this industry is spiraling around few players like Ashok Leyland,
Simson, Sundaram Clayton, Lucas-TVS, Brakes India, Hyundai, Fort, Mahindra and
Mahindra etc. After a decade full of uncertainties in the eighties, the engineering

Industry has a new life. There are more than 10,000 engineering units operating in
and around Chennai. Out of this, the total number of micro industries is reported at
about 8,000. The small-scale industries and micro industries really need support.

19
The micro industries deserve special treatment as it has created more than 41,000
plus employment opportunity directly and it is the sector facing all kinds of problems.

3.3 Machine Tools

Machine Tool Industry is the backbone of the entire industrial engineering

sector. Today this sector is in a position to export general purpose and standard
machine tools to even industrially advanced countries. During the last four decades,
the machine tool industry in India has established a sound base and there are around
125 machine tool manufactures in the organized sector and around 300 units in the
small ancillary sector. The same trend is witnessed in the state of Tamilnadu also.

20
 4. SWOT ANALYSIS
STRENGTH
Largest industrial segment with
number of sub-segments
Presence of world class
automotive Manufacturers
Technocrats & highly Educated
Entrepreneurs, with Legacy
expertise and new young
entrepreneurs
High export performance
Availability of low cost
human resource
Capability to produce high
volumes competitively and
capture niche markets
Strong presence of OEMs (original
equipment manufacturer)
Presence of vast number of
engineering colleges,
Polytechnics/ ITI etc
Strategic location of the cluster
Wide gap in population to vehicle
ratio coupled with increasing
purchasing power offers high
potential for automobile
industry
Major contributor to the State's
Gross State Domestic Product (7-
8 per cent)
21
WEAKNESS
Presence of huge number of micro
enterprises with Obsolete
technology
Dependent Market behavior
Absence of economies of scale in
case of micro enterprises
Poor infrastructure and marketing
supports
shortage of skilled manpower
Absence of Product Engineering &
system development facility
(CAD/CAM/CAE)
More of low-value added services
(job shops)
Poor delivery schedule
Poor infrastructure and marketing
supports
Dominance of few big players
Poor financial background of the tiny
units
 OPPORTUNITIES THREAT
Growing domestic market having Conventional machines unable to
demands from both low-end and meet the precision
high-end segments manufacturing
Ever growing demand for auto High fluctuation in the cost of RM
components High cost of utilities
Growing user industries frequent fluctuation of rupee –
Emerging Engineering export dollar value
markets Fast development of IT units
Robust Engineering exports (could replacing Engineering industries
touch US$ 30 billion by 2008-09).
Ever growing demand for auto
components
Presence of large number of Engg
colleges in around Chennai
India Emerging as a key global
manufacturing hub (India)
shift from ‘job shops’ to ‘system
solution providers’ and ‘technology
integration’ than just ‘component
supplies’

22
 5. BROAD CLASSIFICATION OF ENGINEERING
INDUSTRY

Engineering Industry can be classified as Capital goods and heavy and light
engineering products. The main classification of engineering industry is illustrated
below.
The sector can be categorized into
– Heavy engineering
– Light engineering segments.

• Heavy engineering segment contributes over 80% of the total engineering

production.

• The heavy electrical industry meets the entire domestic demand.

• Indian engineering industry is dominated by organized players.

Sector 1: Mechanical components

Type of Products

• Precision components
• Connectors, pistons, special screws
• Special equipment

Machines and Mechanical Devices

Sector 2: Machines and Mechanical Devices

Type of Products
Machines & mechanical devices for thermo-plumping
Air-conditioning
Concrete articles production
Home Appliances
Industrial use engines.

23
 Sector 3: Industrial Moulds

Type of Products
1. Plastic injection moulds.
2. Compression moulds
3. Investment die casting moulds
4. Blow moulds
5. Pressure die casting moulds.

Sector 4: Mechanical Designing

Type of Products/Services

• Mechanical designing
• Engineering designing
• Developing prototypes and final products (This also comprises computer-aided
designing and computer-aided manufacturing)

Tamilnadu is emerging as a preferred outsourcing destination for design and

manufacture of machinery and equipment. It has a large pool of skilled labour force
and the labour costs are amongst the lowest. The heavy engineering industry is an
intermediate industry and its demand depends on a variety of end-user industries
such as power, mining, oil and gas, consumer goods, automotive and the general
manufacturing sector. A diverse mix of industries in the end-user segment results in
low volatility in revenues in a normal business cycle. But, beginning of a widespread
economic slowdown leads to cancellation of investments on capital goods across the
industries. Thus, a slowdown adversely impacts the heavy engineering industry much
before it affects other sectors. On the other hand, the heavy engineering industry is
among the last to benefit from an upturn since capacity creation occurs after end-
user industries fully utilize their own capacities and feel positive about the long-term
demand scenario.

24
 Table -2

Range of Engineering Products

manufactured in the cluster
Air Compressors Fabrication of Boilers

Electrical & Electrical M/c Dies and moulds, pulleys

Parts
Industrial values, Iron casting, Tools and pressed components

Power Equipment Computer hardware accessories

Structural fabrication Tractor & Agricultural Equipments

Steel Wire, Nails & Nettings Steel Furniture

Etc.
Bolts, Nuts & Screws Auto Parts
& Accessories, Aluminum castings
Machineries for capital goods Hand Tools
industries
Light & Heavy Vehicles Bicycle & Parts

Though the Chennai engineering cluster is witnessing the presence of

divergent enterprises manufacturing engineering products, the automotive
component and accessories manufacturing units are more vibrant in the recent
years, witnessing the presence of foreign players in the tier I and II. These two
segments have created a niche markets with the support of new – state of art of
technology and modernization ensuring quality standards.

25
6. STRUCTURE AND COMPOSITION OF THE UNITS

NUMBER, TYPE AND SIZE OF FIRMS:

In the context of tierised enterprises, the key/core enterprises are distributed
as under:
Table.3.
Table: Number, type and size of core enterprises
(indicative estimates)
Sl. No. Number of Type Size
firms
1. 100 Tier I Large (Investment in P&M of above
Rs. 10 crore)
2. 265 Tier II Medium (Investment in P&M of
between Rs. 5-10 crore)
3. 400 Tier III Small –I (Investment in P&M
between Rs. 50 lakhs - 5 crore)
4. 1630 Tier IV Small –II (Investment in P&M
between Rs. 25 - 50 lakhs)
5. 8000 * Tier V Micro/Tiny (Investment in P&M
below Rs. 25 lakh)*
(*most of the units are having an average investment of Rs. Less than 5 lakhs)

26
STRUCTURE OF THE ENGINEERING CLUSTER- CHENNAI

Large players

Medium players

Small scale
Units organized
(Mostly ancillary units)

Small scale
un organized units

(Partially job work)

Micro units (mostly job work)

27
 7. DISTRIBUTION OF FIRMS IN THE CLUSTER

The distribution of firms in the cluster has to be visualized in geographical as

well as scalar terms.

In geographical terms, there are many distinct pockets in the Chennai region
where engineering units are agglomerated. These include:

7.1. AMBATTUR POCKET: Enterprises in this (largest) pocket are located in

Ambattur, Padi, Korattur and Villivakkam in North Central Chennai. They are
located in the vicinity of 10 km. area. There are about 4300 tiny units, 1000
small units, 30 plus medium sized units (Eg. Autotech) concentrated in this
region. Some leading Tier I units include Lucas TVS, Greaves India, Brakes
India are also presence. The small and tiny units are mostly depending on
Railways for job orders apart from TVS, Ashok Leyland, Greaves India,
Brakes India, etc. The micro enterprises are either concentrated inside the
tiny estates or outside the tiny estates. They are engaged in undertaking
various job works like manufacturing of Auto spare parts and components,
pressed metal components, Structural fabrication, etc. AIEMA is the leading
industrial association representing SMEs in the pocket. TACT is representing
the tiny sector.
• Important Items Manufacturing In this region:
Auto Components
Ancillary works to Integral coach factory,
Accessories for Ashok Leyland
Pressed components
Precision tools
Foundries/
Forging industry
Machine Tools,
Machine Shops – light
Machine Shops – heavy
Heat Treatment and electrical equipments

28
 Big players
Aero Pistons Pvt. Ltd., Ashok Leyland Ltd, TVS Auto Tech Industries Ltd
Hi-Tech Components & Pressings, TI Cycle, TVS Groups
Addition & Co.Ltd., Auto Tech, Auto Tech, Madras Radiator, TT Miller
Indrad Auto Components, Jagathesan Industries,Mini Max,

7.2. GUINDY-EKKATUTHANGAL POCKET:

Enterprises in this pocket are concentrated in south Chennai. There are about
1600 tiny units, 300 small units and 15-20 medium sized units housed in this area.
There is no Tier I enterprise in this location. The apex industry association for smaller
Tamilnadu based enterprises TANSTIA is also located here. Most of the micro
units are engaged in manufacture of Moulds and dies. They are expert in
Manufacturing dies and moulds for plastic industry. Further, 40% of the micro units
are manufacturing auto components and accessories on job work basis. Some press
metal component manufacturing units are also concentrated in this area. The
Guindy Industrial Estate is a very old industrial estate, which was inaugurated by the
then prime minister, Pandit Jawaharlal Nehru. There are more than 200 units
concentrated in this estate. The glory of this industrial estate started to fade away
due to the sudden appearance of IT based units. The IT sector industry is started to
engulf the Engineering based industries. The Guindy Industrial Estate is well known
for the presence of electrical based engineering products, press tools and structural
fabrication.
Important Items manufacturing in this region:

Control Panel, Auto components, Electrical items, moulds and dies, industrial
vales, Gears, precession turned components, wind mill components
manufactures.

29
 Big Players:
ESSOR Industries , Kirloskar Electric Co Ltd, S C G EXD Tech Pvt Ltd, Empee
Engineers Pvt Ltd, New Delta Gear Mfrs Pvt Ltd, Pee Vee Precision Works Pvt
Ltd, Donvey Power Control Systems Private Limited, Twin Star Metal Products
Pvt Ltd, Pars Tekhnologies Private Limited, Paraflat Machines Manufacturers,
CRP (India) Pvt Ltd, Ignition Products (India) Private Limited, Holwart Engineering
Company

7.3. TIRUMUDIVAKKAM POCKET:

Enterprises in this pocket are largely located in the SIDCO industrial estate near
Pallavaram in South Chennai. They are concentrated with in a radius of 10 Kms.
There are about 400 tiny units, 300 small units and about 10 medium sized units
housed in this pocket. Bon Figlioli is also located in this pocket. It was informed that
the unit namely Bon Figlioli is controlling entire auto components and accessory
products of Hyundai. This foreign company used to give sub contract work to
organized small-scale units.

Important Items manufacturing in this region

Auto components, moulds and dies, industrial vales, Gears, precession turned
components

Big Players:
GEE GEE ENGINEERING, Star pack, CRP (India) Pvt Ltd, INDSOLDERS, United
Engineering Industries, Chennai, Bon Figlioli

7.4. PERUNGUDI POCKET:

Enterprises in this pocket are located near the Tidel Park – the IT hub in
Chennai city in South East Chennai. The enterprises are located in about a 5 km
radius. There are about 250 Micro units, 80 small units and about 10 medium sized
units concentrated in this area. Most of the units are engaged in manufacturing auto
components. There is a strong presence of micro industries in this area. The
Perugudi Engineering cluster Association which represents the tiny units in the area

30
is a well-organized association promoted by 20 like-minded micro entrepreneurs.
This consortium has established a CNC lathe for the common benefit of their
members.

Important Items manufacturing in this region:

Electrical machinery, Pressed Components, Auto components, Industrial gears

Big Players:
Mak Industrial Products, Fal Industries Ltd, Guindy Machine Tools Limited,
Powercap Systems (Madras) Private Limited, Technokrats
Inca Radiant Engineering (India) Pvt. Ltd. Keelakatal, G.A. Shock Absorbers Pvt.
Ltd., Rane Nastech Limited, Industrial Spares Mfg & Trg.Co, Index Auto
Components P Ltd., India Radiators Ltd Plant Iii, I.M. Gears Private Limited
(Plant-Ii
Igp Engineers Ltd.,(Unit Ii) Im Gears Private Ltd. Plant Ii, Himu Accessories Pvt
Ltd, , Geo Engineering Industries

7.5 TIRUMAZHISAI POCKET:

Enterprises in this pocket are concentrated West of Chennai on the Chennai –
Bangalore Highway. This pocket is located in about an hour’s drive from Guindy.
There are about 100 tiny units, 80 small units and about 20 medium sized units.

Important Items Manufacturing In this region:

Pressed Components, Auto components
Big Players:
Forge tools & Allied Services, Indotech Transformers Ltd, Hsi Automotives
Limited , Stanley Electric Engineering India Pvt. Ltd. Auto Components, India-
Japan Lighting Pvt. Ltd. , General Auto Engineering Industries (P), Koito
Industries,. Limited, Musashi Auto Parts, Visoka Engineering Private Limited

31
7.6 IRUNGATTUKOTTAI POCKET:
Enterprises in this pocket are concentrated in the SIPCOT industrial estate
Tirumazhisai, also West of Chennai on the Chennai – Bangalore Highway. About 100
tiny units, 70 small units and 30 medium sized units are situated in this pocket. The
Rane group and Hyundai have their operations in this pocket. Most of the SSI units
are having ancillary status to Rane and Hyundai. They are manufacturing auto
components and spare parts.

Important Items Manufacturing In this region:

Automotive components, Sheet Metal components, Hydraulic braking systems,
Exhaust system, Car door products, Slitting of steel coils into sheets, High quality
metallic tips for ballpoint pens, Hydraulic Actuators/Cylinders & Hard Chroma
plated rods.

Big Players
Dynamatic Technologies, JKM Daerim AutomotiveLtd. Iljin Automotive P Ltd.,
JBM Sungwoo Ltd., Mando Brake Systems Pvt. Ltd., Pos-Hyundai Steel
Mfg.India Pvt. Ltd., Schwing Stetter India P.Ltd., Hwashin Automotive India P.
Ltd., IHD Industries Ltd., Addison & Co. Ltd.

7.7 TIRUVOTRIYUR POCKET: Enterprises in this pocket are concentrated in North

East Chennai. There are about 1000 tiny units, 100 small units and 20 medium
sized units concentrated in this pocket. Ashok Leyland, India Pistons are some of
the large players in the location.

32
7.8 MARAIMALAINAGAR POCKET:
Enterprises in this pocket are concentrated just beyond South Chennai past
Vandalur. In this location there are about 500 tiny units, 100 small units and 30
medium sized units. The American giant Ford’s production facilities are located
herein.

Big Players
UCAL Fuel Systems Ltd. INDRAD AUTO COMPONENTS, INDRAD AUTO
COMPONENTS, INDIA FORGE & DROP STAMPINGS, INDIA PISTONS LIMITED,

In addition to concentration of engineering units in the above said pockets,

micro/tiny units particularly are located almost the length and breadth of the city.
Dispersal of units
Table.4.
Dispersal of engineering industries in the cluster
Location Large Medium SSI SSI Micro
Ambattur 37 125 200 800 4350
Guindy-Ikkatuthangal 6 20 50 250 1600
Perungudi 10 10 25 55 250
Tirumudivakkam 2 10 30 270 400
Tirumazhisai 15 20 20 60 100
Irungattukottai 5 30 25 45 100
Tiruvotriyur 15 20 30 70 1000
Maraimalainagar 10 30 20 80 500
Total 100 265 400 1630 8300

33
Table.5.
Sector wise distribution of industries

Sector No of 8300

units
Large scale 100

Medium 265

Small -1 400

Small -2 1630
1630
Micro 8300 400
100 265

Total 10765
Large scale Medium Smallscale I Smallscale II Micro

It is evident from the above table that there is a strong presence of micro
enterprises in Ambattur and Guindy - Ekkattuthangal regions. 46% of the micro
enterprises are concentrated in Ambattur region alone. Similarly, the small scale
units are widely concentrated in this region.

The average investment of micro enterprise is reported at Rs.3 lakhs. In case

of small scale industries, it is Rs.150 lakhs per unit. The total employment
generated in the engineering industry is estimated at 84,550 numbers. The micro
enterprises is the single most segment which has created direct employment to the
tune of 41,500 persons, cornering the share of 47% in the overall engineering
industries in Chennai region (comprising Chennai and surrounding areas).

An average size of medium scale units is reported at Rs.500 Crores. The

details regarding size of units, average investment per unit, the total production and
employment in each category are furnished below.

34
8. Status of the engineering sectors in Chennai
Region

Table.6.
Glimpse of Engineering industry, Chennai

The State targets to achieve an output of $18 billion in automotive and

employ 6 lakh people by 2015 in the sector. To achieve this growth Tamilnadu

Large Medium Small Small Micro Total

No. of units 100 265 400 1630 8300 10695
Average investment per
8000 500 150 27 3 8680
unit
Average production per
40000 650 250 30 8 4938
unit
Average Employment in
210 50 17 10 5 292
Numbers
Total Investment 250000 132500 60000 24450 24900 491850

Total Production (Rs. in 4000000 172250 100000 48900 66400 4387550

lakhs)
Total Employment
21000 13250 6800 16300 41500 98850
Numbers
needs investments of $5 billion in automotive sector in the coming 10 years to
expand the existing capacities; 60-70 per cent of which would have to be from
global multinational companies and the balance from Indian companies to make
the State a manufacturing hub for automotive sectors on the demand of the
capital goods industry.

35
 9. EXPORT SCENARIO

The Engineering sector is the largest industrial segment of the Indian

economy, characterized by the presence of a large number of sub-segments.
The engineering sector in India has been growing on the back of growth in the
user industries and several new projects being undertaken in various core
industries such as railways, power, infrastructure, etc. Capacity creation in
sectors such as infrastructure, oil & gas, power, mining, automobiles, auto
components, steel, refinery, consumer durables, etc, is driving the growth of the
engineering industry. This industry has come up over the years.

Engineering goods exports

Though the engineering industries are composite in nature, there is more

number of sub sectors functioning with in the categories. Over all
performance of the engineering industries highly depends upon the function
and contribution of each sub sector. The total exports of engineering goods
from Tamilnadu, as a whole, are reported at Rs. 10538 Crores in ther year 2005-
06. Out of this, the total engineering goods exported from Chennai region is
alone estimated at Rs. 5323 Crore. The total worth of auto components and
accessories exported from Tamilnadu is Rs.2590 Crores in the year 2005-06 as
against the country export of auto components and accessories of Rs.10000
Crore showing the share of 25%.

36
 Table.7.

Export of Engineering products India vis-à-vis Tamilnadu

India Tamilnadu Chennai

Engineering
90108 10538 5322.8
goods export

Auto component 10000 2590 1942

Further, total number of SSI units directly involved in exporting of engineering

products as per EEPC is reported at 860 numbers as against 1794 numbers for
the entire Southern region.

37
 Total Number of Export worthy units in Tamilnadu Vis-à-vis
Southern region i.e Andhra, Karnataka and Kerala states.

Table.8.
Total Number of Export worthy units in Tamilnadu Vis-à-vis Southern
Engineering goods exports
(fig. in)
Region SSI Non SSI TOTAL

Southern region 1794 887 2681

Tamilnadu 860 486 1346

MAJOR PRODUCTS-WISE EXPORT OF ENGINGING GOODS FROM

SOUTHERN REGION FOR THE PERIOD 2006-2007 (PROVISIONAL)
AS COMPARED TO 2005-96

Products 2005-2006 2006-07(P)

Rs. In Crores Rs. In Crores
Commercial vehicles & Passenger cars 3476.35 4150
Automobile components & accessories 2672.60 3700
Prime steel products 1520.53 1500
Industrial castings 833.98 900
Textile machinery and spares 694.41 690
Electric power Machinery and spares 615.32 625
Industrial Machineries (Inclg. Cement, sugar etc,) 480.81 880
Industrial vales 431.57 450
Industrial Fasteners 392.21 400
Machine Tools & Accessories 385.23 410
Earth Moving Equipments 380.00 450
Steel Pipes, Tubes & Fittings 338.09 350
Ferro Alloy Products 301.10 550
Electrical Home Appliances 298.87 350
Precision components 297.38 350

38
Other Steel Products 295.42 325
Two/three wheelers, complete 260.00 360
Air Compressors & Compressors 250.55 350
Pumps & Spares 234.65 400
Aerospace Equipments 185.58 300
Stainless Steel Utensils 181.55 250
Steel Forgings 181.49 250
Aluminum Products 168.22 250
Small & Cutting Tools 166.10 235
Electric Wires and Cables 136.10 215
Batteries 91.08 110
Heating and Cooling Equipments 62.12 250
Projects & Services 50.56 100
Pressure Cookers 25.80 50
Boilers & presser vessels 25.78 50
Fabricated Steel Structural 25.42 150
Welding Electrodes 16.72 75
Diesel Engines 10.48 50
Agricultural Machinery/ Equipments/ Implements, 317.98 400
including tractors
Miscellaneous items, such as Mica Products, Rigs, 190.00 500
LPG cylinders, S.S. Hose, Office, equipments,
Titanium products, Copper/ Brass products, building
hardware etc.
Total 15994.05 20425

39
 10. AUTOMOBILE INDUSTRY – A MAJOR SUB
SECTOR OF ENGINEERING INDUSTRY

The automotive components industry is more aptly described as an

"agglomeration of industries" rather than a single industry. An automobile
consists of more than 20,000 components, each performing a different function.
Components are broadly categorized as body parts, engine/engine assembly
parts, electrical parts, power train & chasse parts and interior trim parts. The
production processes of different parts are mixture of different processes.

The domestic vehicles industry continued to achieve a healthy growth

of 15%. For the 3rd year in a row, exports of vehicles shows a recording 28%
growth. India is on the road to being a preferred hub for the global vehicle
manufacturing industry.

The auto component sector in the State received about $800 million
Foreign Direct Investment in the recent years. Major players in the world's
automobile industry have come to Chennai.

Automobile sector is clearly emerging as a technologically component

sector capable of forging long term alliances with global OEM’s and Tier 1
companies. This sector is now witnessing many complexes and diverse forces
coming together to work in tandem and create new opportunities for the Indian
Auto Industry.

The auto component industry grew by 15% to breach the US $10 Billion
mark in within 2 years. Direct exports of auto components increased by 28%
and touched a new high of US 2.21 Billion. This robust growth is expected to
continue in 2007-08 and beyond.

40
 As far as the foundry segment is concerned, there are about 200 small,
medium and large foundries in the Chennai region. Out of these about 30 are
large enterprises with high/low pressure die casting facilities, aluminum casting
etc. Some of these large foundries include Ennore foundries, Brakes India, etc.
In this broad segment about 20 forging units are very active.

Ancillary/vendor type units: Most firms in the cluster are vendors to larger
units. The larger Tier I ancillary units such as Sundaram Clayton, Lucas-TVS,
Brakes India, Simsons etc., avoid high fixed cost of in-house manufacture by
outsourcing manufacture of non-critical and even several precision components
of assemblies to Tier II, III and even IV manufacturers. The larger units (buyers)
provide the component drawings for manufacture and often get products
manufactured on job work basis

The current major players are

> Hyundai - currently scaling up capacity to 400,000 cars and making Chennai
its export hub for small cars
> FORD - has an installed plant capacity of 100,000 cars
> Ashok Leyland - scaling up capacity from current 50,000 cars
> HM-Mitsubishi - Lancer assembly plant - capacity at 44,000 cars
> TAFE - tractors project - 60,000 tractors per annum
> Caterpillar - Earthmoving equipment plant
> Enfield and TVS Motors - Motorcycles
> ICF - Rail coaches - Perambur
> Heavy Vehicles Factory - Battle Tanks - at Avadi

Tamilnadu had long been established as a leader in the supply of auto

components to the existing auto manufacturers.

41
 Rapid pace of globalization and the tierisation of the global supply
chains has posed new challenges to the Auto Component Industry in the form
of higher efficiencies and competitiveness.

Auto components production split

Segment %
Electrical Parts 0
Equipment 0
Suspension & Braking Parts 1
Drive & Transmission 2
Steering Parts
Engine Parts 2
Others 3

Fact Sheet
Tamilnadu accounts for

21% of the passenger cars

33% of the commercial vehicles
35% of automobile components produced in India
Over 100 large companies in the Auto & Ancillary industry

42
 Large number of cars in North America, Europe and in other auto marts of the
world now carries Indian brands under their bonnets. Of the US$ 2.21 billion
worth of component exports by the Indian auto component industry, around 70
per cent are bought by global majors such as General Motors, Ford Motor and
DaimlerChrysler, among others.

Leading manufacturers of auto components in India include Motor

Industries Company of India, Bharat Forge, Sundaram Fasteners, Wheels India,
Amtek Auto, Motherson Sumi, Rico Auto and Subros. India's Top 500
Companies, published by Dun & Bradstreet in 2006, listed 22 auto component
manufacturers as top companies in India with a total turnover of US$ 3 billion.
These companies are in the process of making a mark on the global arena, and
some have already acquired assets abroad.

Table.10.
Major players and presence in value chain

Company Revenues
Value Chain Presence in India
($ million)

Design Manufacturing Exports

Domestic Private Players1

Bharat Forge Limited1 466

Tata Auto Component Systems 250

Sundaram Fasteners 234

Brakes India (FY 04) 178

International Private Players2

MICO (FY 04) 572

Visteon NA

Delphi NA

43
Table.11.

44
 11. AUTO COMPONENTS AND
ACCESSORIESMANUFACTURING INDUSTRIES VS
OTHER ENGINEERING INDUSTRIES

Though Chennai region has a strong Engineering base, the contribution

and the growth of engineering sub sectors are showing varied results. As in the
case of Auto components manufacturing sector, it is being dominated by the big
players in the tier I and tier II. The backward entry of multinational companies
in some regions, especially in Sriperumputhur region, posed serious problems to
other tiers. Most of the MNCs are controlling this sector in the name of tie-ups
and collaboration. The theme of outsourcing accrues benefits to very few.
The small players in the bottom are dependent in nature and they are prone to
exploitation and price war. The job work type micro enterprises are being
exploited by the big players in the name of low technology and investment size,
uneconomic size and more so, the unorganized nature. Micro enterprises are
capable of manufacturing quality products as per job specifications. The sector
is undertaking job works from the tier III and IV mostly and the prices offered
from the above tiers are different from unit to unit. Such a practice escalates the
cost of production to the tier I. Out sourcing from the bottom tiers will reduce the
cost of production to the extent of more than 5%, which will have the sizable
impact on the price of the end products. It is a well-established fact as in the
case of auto components.

The heavy engineering market contributed over 70 per cent with the light
engineering segment accounting for the remaining. Engineering industry is a
well-developed and diversified industrial machinery/ capital base capable of
manufacturing the entire range of industrial machineries and also producing
wide range of items. Capacity creation in the sectors like infrastructure, power,
mining, oil & gas, refinery, steel, automotive and consumer durables drives the
engineering industry.

45
 General Evaluation of Market Prospects

o Currently, the auto parts manufacturing industry is not able to cater the
increasing demand of automobiles in the country.

• Looking into the projection of high growth rate in the automotive industry, it is
reasonable to expect that the auto parts industry will grow in tandem.

• This may not only lead to greater utilization of existent capacity in the auto
parts industry, but possibly also to an expansion in the capacity.

• For the 11% of the companies in the auto parts industry (organized sector
only) who are currently engaged in exports because their products comply
with international standards, it is possible to see potential for a further increase
in their exports.

46
 The engineering sector is ever growing. Especially, the advent of liberalization,
globalization and urbanization has given a new life to the engineering sectors.
The sudden out bust of capital and infrastructure sectors has supported the
heavy engineering industry to thrive. However, the growth of automotive
industry has superseded the rate of growth of other engineering industries. The
growth of engineering industries is well confided to the concentration of big
industries in that location. Presence of Ashok Lyland in North Chennai has
supported the small and micro industries in and around the regions. They are
mostly like vendor and ancillary type units to such big players. Similarly, the
Sundaram Clayton, Lucas-TVS, Brakes India, Simsons have supported to the
small and micro industries in Ambattur, Padi and other regions. It is also the
case of the micro and small units situated nearer to the big players like Hyundai,
Ford etc.

A key driver for increased engineering exports is the trend towards

shifting of global manufacturing bases to low cost countries like India. This trend
is expected to boost exports of engineering goods from India over the next five
years. According to Engineering Exports Promotion Council (EEPC),
engineering exports could touch US$ 30 billion by 2008-09. In such a scenario,
India, driven by the engineering sector, would emerge as a key global
manufacturing hub.

47
 12 RAW MATERIAL FLOW

Key related enterprises include dealers and alloy casters, foundry units
(200 firms), machine tool and machinery manufacturers (170 firms) and support
activity related units such as heat treaters (240 firms). Smaller units procure raw
material related to steel, aluminum etcetera through dealers of large
manufacturers. Larger units source raw material like steel and ferro-alloys
directly from SAIL. In the case of non-ferrous alloys like Aluminium, local
smelting units and foundries manufacture alloys with different composition
depending on required specifications. Core inputs are normally sourced from
NALCO/HINDALCO and imports from Bahrain etc. Micro engineering
industries are job shop type nature. The big players from whom the orders
obtained are supplying the raw materials. The big players do not face RM
problems. The micro and small players used to get conversation charges on
piece rate basis. However, they are also used to procure small accessories and
tools from the traders.

A consortium approach in procurement is worth emulating/replicating cluster

worldwide Some large Tier-I players and OEMs such as Ashok Leyland have
established direct linkages with raw material manufacturers such as SAIL. An
informal consortium approach is adopted by Ashok Leyland vendors for pooled
purchase of steel requirements. In bulk purchase discounts are reaped.

48
 13 DISTRIBUTION CHANNEL

As this market segment is a mix of Organized and Unorganized sector and is

involved in production of a very high-diversified range of products, so the channel
of distribution in this segment varies according to the dynamics of manufacturing
units.

The channel of distribution in market segment is very simple. The auto parts
manufacturers directly get the others from their registered Original Products
Manufactures (OPM) and then they directly dispatch the good to OEMs. The
OEM enterprises used to give partial orders to down to the tier 4 and 5 based on
volumes and capabilities of the small players. The tier 5 does not have direct
access to Tier II & Tier III.

In case of other engineering products, the channel of distribution is

complex and composite in nature. It has both single and multi channels. The
single channel is mostly direct, that is direct supply to the end users.

As of Auto component sector is concerned, most of the engineering units are

vendors and ancillary types. The main product manufactures are big players.
OEMs are very less in case of micro and small enterprises. It is prone to multi
channel system.

49
 Pre intervention Map

Tier - I

Tier -II Tier -II

Tier -III Tier -III Tier -III

Tier -IV Tier -IV Tier -IV Tier -IV

Tier -V Tier -V Tier -V

Tier -V

50
 Post intervention Map

Tier - I

Tier - II Tier - II Tier - II

Tier - III Tier - III Tier - III

Consortia
OEM/OPM

Tier - IV Tier - IV Tier - IV

Consortia

Tier - V Tier - V Tier - V

51
• The pre intervention map reveals the presence of multi channel. In
case of automotive industry, the channels between tier one and two are very
direct. The multi channel starts only thereafter. The tier V players are no-
way in the race in case of pre-intervention stage. Whereas, formation of
consortia would improve the capabilities and capacity of the core units in the
tier V segment and also help to attract direct business from all the tiers.

52
14 GROWING GLOBAL FOCUS ON SUPPLY CHAIN

There is also a growing global focus on supply chain especially with the
auto component industry expected to significantly increase its exports from 19
per cent in 2004-05 to 27 per cent in 2006-07 due to increase in demand of
casting in European and Japanese automotive markets.

The state’s automotive industry, which accounts for 25% share of the
Indian automotive industry at present, should target a 30-35% share by 2015,
which would translate into $18-20 billion in net output terms. Exports of
automotive components would be about $6-$7 billion and the domestic sales
components and completely built units (CBUs) at $ 5 billion. Exports of CBUs
and engineering design services could contribute around $ 1.5-2 billion to the
total output by 2015. Indian automotive industry has started mirroring the
global auto industry now.

Auto ancillary sector continue to grow on a fast track due to its low-cost
advantage and their newfound high quality & productivity with synchronized
production systems with tierised channels.

The two major segments—Commercial Vehicles and Passenger

Vehicles—are expected to report high production growth.

Chennai is emerging as a preferred destination as a low cost-

outsourcing base due to abundance of cheap skilled labour.

Over the medium term, there may be a few Tier-I vendors servicing the
OEMs, and Tier II & Tier-III suppliers in turn will service Tier-I vendors

With technology changing at a fast pace, access to technology through

collaborations or joint ventures with foreign players is likely to be a key
success factor for this industry.

Units below Tier-III would need to operate at different scales and invest
upfront in design, development and capacity, as well as require much higher
levels of working capital for catering to the export market.

53
 15 CLUSTER FRAMEWORK: CHENNAI

Engineering industry has got a strong institutional support. This sector is

very lucky to have several, active and renowned supporting agencies. The
presence of Research Institutes, government organizations, Banks/
Institutions/associations in the cluster have mulled the growth of this industry.
Though this sector is witnessing presence of multiple BDS service providers, the
interface and support and the linkages between various promotional agencies are
not so strong.

Some key Institutions/Associations that enjoy the trust of entrepreneurs are

listed below. Scope to enhance effective and appropriate linkages between
enterprises – institutions exists. The institutions/associations in this context are as
under:
1. Small Industries Service Institute (SISI), Chennai
2. Department of Industries and Commerce, GoTN.
3. RTC
4. SIDBI
5. EEPC
6. NSIC
7. ACMA
8. National Productivity council
9. Confederation of Indian Industry (CII)
10. Central Institute of Plastics Engineering & Technology (CIPET)
11. TANSTIA-FNF Service Centre
12. Indo Italian Chamber of Commerce
13. Export Import Bank of India
14. TN Small and Tiny industries Association (TANSTIA)
15. Ambattur Industrial Estate Manufacturers Association (AIEMA)
16. AIEMA Technology Centre (ATC)
17. TIIC
18. LESA (Lucas TVS Electrical Suppliers Association)
19. TNSIDCO/SIPCOT

54
20. TN Association of Tiny and cottage enterprises – TACT
21. TISIA-Perungudi association; Tiny and Small Scale Industrial
22. Owners Welfare Association- Ikkatuthangal Association.
23. SMERA
24. ITCOT
25. Engineering colleges, IIT, Technical and Vocational Training Institutes and
Anna University
26. IFMR

55
 16. STATUS OF MICRO AND SMALL UNORGANISED
ENTERPRISES

………..Constraints identified include low volume/lack of

economics of scale; technology gaps pertaining to quality and
reliability; poor local support in components and
subassemblies; weakness in technology innovations;
insufficient cooperation among companies in joint sourcing of
materials, capacity sharing, and product/process innovation;
poor horizontal integration; excessive tax burden; too little in-
house R&D; limited access to new technologies; bureaucratic
obstacles; insufficient access to common facilities; high cost
of capital and infrastructure; and inadequate applications of
e-business and supply chain management……..

It is imperative to bring out the present working conditions of the micro

industrial units functioning inside the industrial estates as well as outside the
industrial estates. Most of the tiny industrial units seem to appear as an industrial
slum situated in the very corner of the industrial estates. There are many reasons
for such ineffable situation. Poor Infrastructure facilities, inaccessible approach
road, denial of fundamental facilities like drainage, sewage, sanitation, waste
disposable system, public toilet facilities, first aid and primary care centre etc
make the estate more vulnerable. All the micro units are job work units. They
are in the Vth tier in the hierarchical structural hierarchy. The average investment
per unit is less than Rs. 3 lakhs. Most of the units are functioning in a build up
area 350 Sq feet to 500 Sq. feet. It is also interesting to note that some of them
are “absentee ownership type”. The access to direct market and finance are like
‘day dreaming’ and ‘daunting’ task for the tiny units. These units are dependent in
nature. The critical growth circle is given below.

56
 Threat of Substitutes
Substitutes is low not possible

No Inter-Firm integration Low capital base:

more than 5 tires functioning within majority of the MS engineering
the clusters. No integration both units being promoted by
vertically and horizontally causes individual mostly labour
for mass exploitation termed entrepreneurs

Low Bargaining
Large number of small
Low Barriers to entry:
players and a fragmented remains low in case of micro
market results in weak Critical Growth enter prices on account of
supplier power relatively low investment and
Circle Small/ adoptable technology

micro Enterprises

Low Inter-Firm Rivalry

not warrant as the small players
are having low capabilities not Shortage of labour force:
wholly depend on big players for remains high case of micro enters
survival prices on account of
High mobility of labour force

Low Technology Level and

technology option

relatively low of technology and

collaboration

Poor Infra structure

facilities

57
I. MICRO ENTERPRISES
a. POOR CAPITAL BASE:

Micro units have poor capital base. The investment in plant and
machinery is relatively very low. The worker turned entrepreneurs have promoted
most of the micro enterprises. These units are concentrated even in residential
areas like an octopus. The micro units have been left untouched for the years
and they appear like an “Industrial slum” in the industrial township of Ambattur,
Padi, Guindy, Ekkattuthangal and Perungudi. These units are dependent in
nature.

Though they have every capacity and capabilities to manufacture any

type of engineering products, the level of operation is very much limited due to the
dependent nature of this sector. A cursory glance of performance of the units
reveals the fact that the units are crippled due to the poor capital and
infrastructure facilities.

b. POOR PRODUCT RANGE:

Micro units have poor product diversification. 95% of the units are job
work type units concentrated mostly in one logistic location. The tiny engineering
units in Ekkattuthangal are well known for manufacturing dies and moulds
especially for plastic industry. The small welding units operating in the
roadside manufacturing items like auto components and fabrication work,
operating in the small premises fall under this category. They have a strong work
Force. They do not have the financial support to expand their manufacturing
base. Hence, cluster is the only solution to improve their capabilities.

58
c. POOR CREDIT ACCESSIBILITY:

Most of the micro units are suffering from severe working capital
problem. The availability of credit to this sector is very poor. It is revealed from
the diagnostic study that only 12% of the micro enterprises have availed financial
assistance from the banks.

d. LOW PROFIT MARGIN:

Yet another hindering factor is poor profit margin. The micro units are
prone to multiple exploitation. The units are being exploited in all stages. Most
of the units are not getting the orders directly from the big firms. There are
intermediate firms, which exploits the units. The price offered to them is
considerably low and volatile in nature. However, such intermediary firms used to
fetch sizeable payment from the big players.

e. LOW TECHNOLOGY LEVEL:

Yet another hindering factor is low technology level. Most of the micro
engineering units do their operation with old/obsolete machineries. They have
small lathe/Drilling/turning/grinding and shaping machines, etc. that too an old
machinery. As a result, these units are unable to manufacture integrated and
composite products. For each operation they will have to depend upon other
micro units, which are having piecemeal facilities and concentrated in one
location. Very limited units are having combination of machine. The productivity
level is very low.

It is felt that the technology intervention will be a factor, which would increase
the competitiveness of this sector. Even, small technology intervention will bring
notable changes in this sector.

59
f. POOR CLUSTER-TO-CLUSTER INTEGRATION:

The main reason for over dependency is depending on few channels for
souring the orders. There are ample opportunities existing within the cluster to
diversify the operation. For example, the mould and die-making cluster with user
industrial cluster like plastic manufacturing units. There is considerable demand
for manufacturing of moulds and dies for plastic products. These clusters may
be integrated. This will eliminate the decency on one source. Similarly, the other
engineering clusters should be integrated with respective clusters. The entire
micro and small-scale units are having either in-built capacity or out sourcing
capacity to manufacture composite products. Hence, this bottom most tire has to
be united and integrated.

g. LOW DEMAND DRIVEN:

The sector has relatively low product orientation due to poor capability
creation. The growth is one sided. Though there is strong presence of micro
enterprises in the engineering sector, the entire micro units are dependent in
nature. The replacement demand is an important component.

h. INABILITY TO COMPETE WITH SMALL AND MEDIUM PLAYERS:

As illustrated, the entire sector is being dominated by big players and it

is in the threshold of big and small organized players. As a result, the tiny sector
is not in a position to achieve break even. The normal earning of a unit is
reported to be around Rs.4 to 5 lakhs.

i. DELAYED PAYMENT:

Delayed payment is the curse to the micro enterprises. The micro

enterprises are not getting the payment even from the big groups. The big
players are withholding the payment some time for more than 90 days prompting
them to take recourse to the delayed payments Act. During the study still more
chronic cases were come across wherein the payment is pending for even more
than 6 months.

60
j. LABOUR SHORTAGES AND SHIFTING OF OCCUPATION:

Shifting of occupation is witnessed in this sector. Labour is presently

not as easily available as once it was. The changed life style, high wage rate
offered by readymade garment units and other industrial sectors are the major
reasons for frequent mobility of working force.

k. LACK OF FAVOURABLE POLICY SUPPORT FOR MICRO ENTERPRISES:

It was felt by the tiny units that the policy measures are more favourable
to big players and multinational companies rather than the micro units. Hence,
they opined that the government should contemplate a progressive supporting
mechanism to protect this sector.

l. COMPETITIVE ENHANCING INITIATIVES:

According to the Small/tiny units the present competitiveness

enhancing exercise and initiatives are very weak. It may be given more teeth to
achieve the ultimate goal.

m. TYPICAL ENTERPRISE STRATEGY

(Continuous Improvement of products & processes)

The firms have adapted to the changing market demands of few major
customers, but have not in real terms done product or process changes that could
have a positive impact on growth. But the knowledge level and know-how for
transformation is very high with individual entrepreneurs. Market demand
generation and finance for capital investments have to take place simultaneously.

n. RAW MATERIALS & INTERMEDIATE GOODS

Raw Material availability is adequate for the current production levels. Since
very few suppliers are available locally, there is a great dependency. Cost of raw
materials is high as compared to the volume consumed by the clusters. Also,
generally, there is lack of knowledge about alternate sources for raw materials in

61
the cluster. There is potential scope for reducing the cost of raw materials,
consumables, machine maintenance / spares and packing materials. The cluster
firms were unable to quote competitive prices for higher volumes due to this
factor.

Technical know-how is the major field where it needs guidance and

assistance for achieving required growth rate and progress. Advancement in
technology has necessitated going for a proper development of human and
technological resources.

In this changing scenario following problems and the issues have been
identified in the industry:

• Information Dissemination (Technical know how, Information on

standards, Processing techniques, Design criteria)
• Product design & engineering capabilities constrained due to
absence of economies of scale
• No long term vision or policy
• Low volume of production by micro enterprises
• Systems are labor intensive
• Competent/skilled labor is very scarce.
• Conventional machines are not able to meet the precision
manufacturing.
• Available labor is not familiar with modern technology
• Scarcity of raw material especially steel
• High cost of utilities
• Poor research and development facilities
• High cost of financing and lease purchase
• Absence of membership in any Trade Bloc
• Under-invoicing and dumping of engineering products and auto parts
• Inconsistent policies and regularity procedures by Government
• Lack of coordination and linkages with Government/Semi Government
Supporting Bodies and Technical Training Institutes
• Lack of infrastructure facilities in respect of micro industries

62
 • Poor cluster-to-cluster integration.

II. STATUS OF SMALL (ORGANIZED), MEDIUM

ENTERPRISES:

The small and medium enterprises are enjoying lion’s share. As

illustrated, the automobile industry has made a big push. The entire industry is
being controlled by the large and medium players. There are 265 large and
medium enterprises engaged in manufacturing various engineering products, of
which only 30 plus units are having full control. Among 30 units some units are
engaged in manufacturing heavy engineering products and items for capital
goods industries.

High value /high technology components as well as low value/low technology

products manufactured in the cluster:

The small and organized SSI units are composite in nature. They have
high-end technology. Such industrial group is having all the capacity and
capability to undertake any kind of engineering works like fabrication,
machineries tools and components and engineering products for various
industrial sectors. The cluster at Chennai makes a mix of high value/technology
components targeting the OEM and export markets as well as high volume low
technology products targeting the domestic market. This group takes big orders
from the top and also outsourcers some of the operation to the unorganized SSI
and micro enterprises. It has direct linkages with the big players. They are
fetching higher rate for their job orders. However, they used to outsource the
same job for lesser price.

Access to a progressively diversified customer base: The group has been

successful in progressively attracting a diversified basket of OEMs and Tier I

63
firms. The customer base viz. end-user segment is diversified and domestic
enterprises are well networked with them. For eg:

Table.11.

Table: Successfully attracted a diverse basket of OEMs

2/3 wheelers Cars/utility LCVs/CVs Tractors Engines/Earth

vehicles movers
TVS Motor Hindustan Ashok TAFE Caterpillar
Co. (Hosuri) Motors Leyland India
Hero Honda Hyundai Eicher Motors Escorts Simsons &
(Hosur). Motor India Co.
Royal Enfield Ford India
motors

Status of Big Players:

Majority of big players in the engineering industry have well defined

markets catering to specific sector(s) and are technology driven. Turnkey
engineering capacity is also limited to a few Domestic entities and competition in
this segment is also expected to be limited. This sector is driven primarily by
technology. This, coupled with the fact that the initial investment required for
creation of manufacturing facilities is relatively high, creates a relatively high
entry barrier. The technology requirement however goes down as one moves
towards the light engineering industry. Small players (including some
unorganized players) are present in the light engineering industry, however, they
primarily act as vendors to medium and large players in the heavy engineering
industry.

64
 A progressively diversified export basket: The tabulation below
illustratively presents the progressively diversified export basket for cluster
enterprises.
Table: Sample exporting enterprises and basket of countries exporting to

Table.12.

Sl. No Firm Countries to Sl. Firm Countries

which exported No exported to :
1 Amalgamation USA, Italy, 9. Sundaram USA, Sri
Repco Ltd. Mexico, France, Clayton Lanka,
Turkey, Austr., Germany,
U.K UAE,
Bangladesh,
China, Korea,
Malaysia,
Thailand,
Kenya etc.
2. Guha Australia 10. Perfect Gears USA
industries
3. Springs India Denmark 11 K.G. Metal Australia,
precision Malaysia
4. Classic Malaysia 12. Globe USA
chemical components
seals
5. Southern auto U.K., Spain, 13. Super Auto USA, Japan,
castings USA, Italy, Forge Brazil, Poland,
Germany, USA, Germany, etc.
Syria, Japan

6. Vibromech USA 14. Vanjax Sales Australia

eng. and Pvt. Ltd.

65
 services Ltd.
7. India Pistons U.K., Russia, 15. Nav Indus USA
Austria, USA, auto parts
UAE, France,
Italy,
Bangladesh, Sri
Lanka etc.
8. Shard low Dubai, USA, Sri 16. Ucal Fuel Japan
India Lanka, systems Ltd.

STRONG CAPITAL BASE:

The units falling under this category is having good capital base and easy access to
working capital. They have direct business with big firms, and have strong
borrowing options.

CHENNAI - A LEADING INVESTMENT DESTINATION: In the last 3 years

outstanding investment in the auto-component sector increased by 93%. CMIEs
survey indicated investments on hand stood at Rs. 7646 crore compared to about
Rs. 3962 crores in 2003. The survey showed Tamil Nadu (largely Chennai) ranked
second with Rs. 1479 crore followed by Maharashtra with Rs. 1210 crore (Source:
Investments in auto-components sector up at Rs. 7646 crore’, V. Balasubramaniam,
Times News Network, Jan.03, 2007). Karnataka ranked first with Rs. 2617 crore.

Larger units often lead in technology initiatives: The auto component

cluster at Chennai is effectively an induced one, largely linked to the establishment of
larger industries like Ashok Leyland, TVS Group, Rane Group and Amalgamation
group of companies. It has gradually grown in line with the levels of sophistication
and product range of larger units who encourage/take the lead in technology
advancement in their own vendors. This serves as a confidence building measure for
vendors to invest in up-gradation.

66
 17.VALUE CHAIN ANALYSIS

Value chain position: The automotive value chain consists of several activities from
the concept stage till the vehicle is eventually scrapped.

The key activities in the chain include design, engineering, product

development and manufacturing and marketing. Other related activities
include financing and after sale services. Components and vehicle assembly
and its manufacture both together constitute about 40-45% of overall vehicle cost.

(a). Evidence of moving up the value chain - OEMs than the replacement market:
The auto-component segment at Chennai has made a shift towards the global Tier I
market for their products. A decade earlier hardly 65% of exports targeted the
replacement market. Today 75% targets Tier I players/OEMs.

(b). Value drivers: Chennai based firms have the advantage of

• Proficiency in understanding technical drawings with all global standards
(Japanese, American, European, Korean standards etc.)
• Flexibility in manufacturing due to high degree of vertical depth-small batch
production ability
• IT capabilities for design, development and simulation
• Largely, appropriate automation at the cluster level to reduce production
costs
( c). Presence of related enterprises-other actors lending value to the product:
Chennai also has the advantage of the presence of and proximity to relatively
competitive related enterprises. This may be in terms of tyres from the MRF at
Chennai, auto electrical from Lucas – TVS, gears and related parts, castings (grey
iron/ aluminium) etc. Proximity to different segments of the automotive value chain
lends several agglomeration economies to Chennai based enterprises.

67
(d). Diversified user industry base: The Chennai region, as indicated earlier, also has
a diversified user industry base in addition to automotives. Hence, even Tier IV
suppliers can service for other sectors in addition to the automotive sector and hence
operate at high capacity of at least 2 shifts a day indicating greater potential for even
micro/tiny enterprises. Further, greater resilience to risks and adverse demand
shocks in any one sector is facilitated.
(e). Domestic growth drivers strengthening forward linkages in the chain: The growth
in forward linkages of the chain has been a facilitating factor resulting in sustained
returns and hence encouraging investment for Co-Value chain illustration: Consider a
sample product - jaw end/fork in the brake chamber. It is basically a linking
mechanism between the brake cylinder and pneumatic cylinder.

Consider the sample value chain of a product manufactured by a sample Tier III
(small scale component manufacturer):

68
 Illustration: Sample value chain

Raw material - steel forgings (Rs. 30)

↓
Machining – turning, milling etc. (Rs. 45)
↓
Heat treatment, zinc plating (Rs. 51)
↓
Other overheads-transport, gauging (Rs. 55)
↓
Supply to Tier I firm (Rs. 60)
↓
Supply to OEM/Export (Rs. 140)

The small component manufactures procure inputs worth Rs. 30 to

make one piece/unit of the finished product. He machines the input in-house,
outsources heat treatment and related activities, gauges and packs and
delivers the product to a Tier I firm. He supplies it to the Tier I firm at Rs. 60
making a net profit margin of hardly about Rs. 5 or a profit margin on sale of
about 8-10%.

(g). For Indian car exports to grow, while infrastructure at home will have to
improve considerably, car companies will have to integrate their domestic and
overseas operations and provide the same support in terms of service,
warranty and spare parts in markets abroad as they do in India. (Source: The
Hindu survey of Indian Industry, 2006).

(h). Chennai’s potential to move up the value chain: The global OEMs are not
only attracted to Chennai’s relatively low-cost advantage for different value
chain activities

69
(casting, machining etc,) but are also progressively keen on design skills in
suppliers. Here Chennai has a decisive advantage with a strong design and
engineering base coupled with advanced IT skills. Also, with increasing
competition in the global automobile industry, the automobile manufacturers
are striving to involve Tier I component suppliers in vehicle design, where
again Chennai could evolve significant strength.

(i). In terms of manufacturing costs (raw material, power, labour), China may
generally have an advantage. Clusters like Chennai, in India, may have an
advantage more in terms of the whole package. This is in terms of value
addition and product development. The IT skill sets of Chennai and electronics
– more on the lines of assistance in braking, engine performance and the like
is going to lead to an increased application of IT in the automotive
industry(Source: The Hindu survey of Indian Industry, 2006).

(j). Value chain activities outsourced to Chennai auto-component units: In the

vehicle value chain, activities such as component sourcing, vehicle assembly
and manufacture targeting the replacement and spares market may be
outsourced to SMEs. It is in such activities that MSMEs from Tier 1-V are
involved in the auto-component cluster at Chennai. In fact auto-majors may,
as the next phase of outsourcing cover contract manufacturing and assembly
of vehicles, product engineering and development activities. Even business
processes such as accounting, finance and IT (also see: `A vision for the
Tamilnadu auto industry’: CII Continuous upgradation)

70
 18.SKILL GAPS

The entire engineering industries are under the stress of

shortage of manpower. The frequent mobility of manpower posed serious
problems to this sector. The shift in occupancy is created by many factors.
The change in life style, perception on job and sophisticated job
environment, attraction from other sectors, expansion of business
operation etc has created havoc in this sector. Machine handing, process
knowledge, CMC operations etc are some of the skill gaps identified. The
industry needs operators and technicians with the basic understanding of
environmental, safety practices and quality concepts. It is reported from
the Ekkattuthangal cluster that this growth centre alone is in dire need of
1000 plus manpower. The best option for filling the gaps is to conduct skill
oriented training programmes for the 8 pass and unsuccessfully / drop outs
of engineering, ITI candidates and diploma holders and attracting the ITI
student by offering integrated courses in collaboration with the locally
situated ITI institutions.

71
 19. MAJOR AND MINOR INTERVENTIONS

The option of intervention is the leverage to strengthen the cluster and

make it more viable and sustainable. Given the above understanding, the
following are the key interventions recommended for the cluster:

1. Formation of consortia: This cluster witness a strong presence of

micro and small enterprises, which are located in some specific areas
like Perungudi, Ambattur, Ekkattuthangal, Guindy, Tiruvotriyur
Tirumudivakkam, Tirumazhisai, Irungattukottai and Maraimalainagar
pockets. Efforts may be made to form series of consortia for various
purposes within the cluster and attempt may also be made to
strengthen the consortia through capacity building exercise. The
awareness on cluster in each growth centre should be further
improved.

2. Benchmark study: The benchmark study will facilitate to map the

critical gaps existing within the engineering industrial segments. This
study will give focus on core competency of the mirco and small-scale
enterprises, the present business operation, etc.

3. Internal Corrective Mechanism: It is an attempt to identify the reasons

and causes of under performance of the core units functioning in the
cluster and suggest for positive corrective mechanism at unit level.
Interventions for firm level changes are inevitable. The corrective
measures will be attempted with the core units of the consortium. The
findings will be replicated in all the members units.

4. Formation of Raw material. It is an important tool, which will give

focus on common procurement of critical raw material by the
consortium members from the main source and allow the core units of
the cluster (members of the consortia) to build a strong quality raw
material warehouse. This is a hassle free system, which will facilitate
the members and non-members of the consortium to utilize the raw
material as and when they want. This attempt will eliminate the
exploitation by middle men in the trade and also drastically reduce the
cost of production and cost of caring the raw material etc. The micro

72
 enterprises engaged in manufacturing engineering products on job
work basis normally don’t require raw material as they area all being
supplied to the OMEs. However, such units need small accessories
and tools. They can create a RM bank for purchasing of accessories
and tools. As in the case of small-scale units, they need to have a
RM bank for purchasing of Steels and other items. The units coming
under this category can come together and form a RM Bank. This will
facilitate to reduce the cost of procurement and cost of production by
20%.

5. Technology Mapping: It is an important task to identify the testing

and other technology supports existing within the cluster. There are
sizeable number of institutions, NGOs and associations having
facilities to undertake any kind of tests, R & D and jobs in the field of
engineering. SISI, Chennai is having well equipped state-of-art
technology to undertake any kind of jobs of sensitive nature especially
for the big players in the field of engineering. Regional Testing Centre
is having all facilities to undertake testing facilities for engineering
products. Further there are other organizations and private firms
having similar facilities, which have not been commercially exploited by
the small players. Hence, it is necessary to map the existing
technology and CFC facilities already available at firm level and at
cluster level in Chennai.

6. Common Production Centre; As illustrated, the micro and small scale

enterprises are not having capacity and capabilities to undertake big
and sensitive orders due to lake of production facilities at firm level. In
this juncture, it is necessary to identify a set up or institute having all
the manufacturing base and facilities within the cluster. Such a set up
can be integrated and the core units can use this established set up
under cluster mode. This will facilitate the core units to manufacture
value added products. Further, the CFC for the production of auto
components and sensitive engineering products may be established in
each growth centre, as the micro enterprises have the constraint on
capacity building and manufacturing of value added products.

7. Marketing Linkages (Domestic & International) :

Support for marketing resources and infrastructure facilities are the key
requirement for the cluster firms. Though there is adequate market for
engineering products, the BDS providers’ services have not properly
reached the small firms. Hence best BDSs may be identified and the
consortia may work with such BDS providers for establishing market
linkages with the big players.

73
8. Developing Market Strategies for various Business Segments -
Different strategies are to be adopted to prove the competitiveness of
the units in each stratum. The bottom level units – micro enterprises,
need collaboration and tie – up with the other groups operating in the
higher strata to keep the micro enterprise in the competitive race.

9. Scope to enhance quality and testing infrastructure in terms of

adequate testing facilities: This could be in terms of radiography,
spectro vac as CFCs for different tests for ferrous (steel and iron
based) and non-ferrous (aluminium based) foundry units and
conducting normal testing. This may be established within the
growth centre.

10. Scope to enhance productivity and quality design: by means of

establishing CFCs with investment castings facilities. There is scope
for twining of Italian cluster clusters and even with big players within
the cluster and in the country for support on this front.-Tool room and
CAD facilities may also be considered in a similar mode. Backward
linkages means, resource supplies, is the key, followed with
technology vendors’ partnerships for solutions and technology
assistances and other suppliers of hardware, networking and real
estate.

11. Brand Identity and creation of common brands and strengthening

(within the cluster, suppliers are yet another factor determining the
market acceptability.

12. Product & System Development Strategies - New product evaluation

and system development plays a significant role for exploring new
business opportunities especially in the aftermath of globalization of
trade and business.

13. Labour shortages and Shifting of occupation: Shifting of occupation is

witness in this sector. Labour is presently not as easily available as it
once was. The changed life style, high wage rate offered by
readymade garment units and other industrial sector, and contact
labours engaged by organized units by attracting some pecuniary
incentives are the major reasons for shifting of labour force. In order
to stop this movement, the skill training may be conducted in
collaboration with ITI, Polytechnic and SISI and other institutions. This
will help to get the sufficient skilled manpower for the cluster. Further,
it is felt that the skilled workers are not being properly treated and
provided sufficient salary and other basic minimum facilities by the
owners. Hence, it is the need of the hours to honour the workmanship
of the workers and to provide necessary bare minimum facilities to

74
 them. The workers and ownership relationship should be
strengthened.

14. Forward Linkages means, end consumers, are accessible mostly by

medium and large companies, otherwise for micro and small firms are
largely dependent on big players. Hence, forward linkages may be
created at cluster level. There is amble scope existing in this sector to
integrate directly with the big players both within the country and
abroad. A strong value chain should be created within the cluster.

15. Backward linkages means, resource supplies, is the key, followed with
technology vendors’ partnerships for solutions and technology
assistances and other suppliers of hardware.

16. Technology & Quality Upgradation at firm level & Cluster Level
High value / high technology components as well as low value/low
technology products are manufactured in the cluster. With regard to
the core, machining segment, machinery and equipment employed in
the cluster varies from basic/conventional general-purpose machine
tools like lathes, drilling machines and milling machines etc. to
advanced machine/tools like CNC lathes and machining centres etc.
The latter is incorporating high-end technology.

17. Human Resources development and retention: HRD plays an

important role in improving the efficiency and productivity of any firm.
HRD training may be imparted at various levels. The Skill
upgradation, orientation and tailor-made programmes may be
conducted for the benefit of the cluster members. Series of workshops,
seminars and debates may me conducted for the benefit of cluster
members.

18. Networking within the cluster firms and BDSPs - Free flow of
communication among the members and the stakeholders are vital tool
to achieve higher order of growth. Linkages within the members
is weak or not in existence, due to competitive fear, and also very
limited with the cluster actors, (a) as there is lack of strategic network
and (b) technology vendors don’t have focus to small and micro firms
(c) customers confidence level on the clusters are also low because of
financial strengths. Hence, strong network may be created and the
active service providers may be identified and involved in
developmental activities with a view to achieve a quantum jump.

75
19. Creation of Financial Services Environment: Finance is the major
hindering factor for under performance of the cluster. The small micro
and small scale firms are facing working capital problems. An attempt
may be made to prove the strength of the consortia among the bankers
so as to create confidence to extend all financial supports by the
bankers. In most cases, the finance is given for expansion with
colloratal supports. The small firms are facing inadequate working
capital supports. Hence, banker may adopt based on areas specific
under cluster mode and need based and they may be involved in the
cluster development exercise.

20. Use of the “big brother” arrangement to assist smaller companies

to access capital-intensive equipment and get regularly orders from
the big players. SISI can and product based industrial association
can play a big role to create such collaboration and tie-up
arrangements.

21 SME components manufacturing and foundry segment: Large firms

in the cluster have most/all necessary quality and productivity
enhancing infrastructure/equipment in-house. However, in the
context of MSMEs many initiatives may be explored. These may be
pursued either on an individual or consortium/SPV basis.

21. Why CFC?

The Cluster firms largely have old production technologies and no

in-house CAD/CAM/CAE facilities; for development of newer
products, systems, assemblies, production technologies, tools,
training of resources, Research, to compete with already
established clusters of auto components (such as Ambattur who
have Technology Centers); development of complete machine tools
(including CNC, VMC Machine developments); development of
process plant equipments; to have interoperability of data with
international markets and domestic vendors; to improve productivity,
to cut down delivery cycle; it is very essential to have common
facilities with advanced machineries, CAD/ CAM/ CAE software /
hardware, prototyping facilities, non-destructive simulation and
testing for development requirements, is an important initiative.
Creation of CFC depends upon the nature of operations. The
Ekkattuthangal based industrial clusters requires common Tooling
and designing centre. The other CFC set up is already available
with SISI and NSIC, which are all, located nearer to this cluster.
Hence, the facilities available within SISI and NSIC may be
effectively utilized by Perungudi and Ekkattuthankal clusters and
subsequently need based other facilities for manufacturing high
value added products may be created for them.

76
22. Support For Establishing New Industrial Estate Or Shifting To New
Logistic Centre. One of the challenging exercise is shifting of micro
units from the present working place of Perungudi and
Ekkattuthangal to new industrial location. The logistic support is
very much necessary to protect the micro units. More than 2500
units are in the threshold of closure at any point of time due to the
rapid development of IT sectors or the protest from the local
residents in these areas. As illustrated, most of the micro industries
functioning in these regions are now over congested and there is no
basic infrastructure support available in these localities. Most of
the units are functioning in the rented premises. The threat
emerged from the IT sector and the pecuniary real-estate benefits
enjoyed by the building owners may drive this sector to shift their
operations to some other areas very soon.

77
 List of actions proposed for elimination of weakness in the cluster
WEAKNESS ACTION CONTEMPLATED
1. Dependent nature & poor production base big brother” arrangement to assist smaller
and mircro enterprises
-collaboration and tie –up
Creation of common production and
processing centre
-
2. Inability to Compete with organized small and - do -
medium firms
3. Low Productivity level Slow mechanization
Utilizing the facilities already created in the
institutions like SISI, NSIC and advanced
training institute etc.
Involving engineering colleges and IIT in
R&D and especially attract simple
technology intervention in the stage of
production.

4. Obsolete Technology Attempting technology mapping

5. Inability to Keep delivery schedule Establishing common outsorucing
6. Undercutting among the members Establishing common outsorucing Common
cartel/ pricing mechanism.
7. High Price of raw material 1.Formation of Raw material Bank preferably
for accessories and tools

8. Quality Inconsistency Utising the facitities already existing within

the cluster.
Setting up of testing lab
Conducting Training for the members
9. Poor Marketing Strategy Engaging marketing experts and networking
10. Poor Pricing Strategy Achieving economies of scale of operation
and creating image among the clusters
11. Closed Marketing Behavior Common Marketing
12. Stagnated Product Pricing Common marketing
13. Low productivity Firm level training
14. Formation and creation of strong consortia
Poor recognition and low capacity at firm level and obtaining ISO certification.
Offering bench mark study

15. prototype making facility, CAD/CAM/CAE

centre, CNC matching centre, research and
development laboratory, inspection,
validation and certification centres. Testing
facilities and R&D laboratories within the
cluster

78
 CRITICAL GAP AND BENCHMARK OPTION

Sl. Cluster Benchmarked Options Possible partnership

No circumstance technology/productivity
enhancement
needs/gaps
1. Low Current level of Firms level Support of leading
productivity productivity seems to integration and enterprise, institutions
and limited be very low. Technology tie- and R & D centres.
capabilities up and
upgradation
may be carried
out.
R&D and CFC
support from
alraedy created
facilities within
the cluster.
2. In efficient Inadequate facilities Injection of Technology/equipment
production affecting relative quality modern may also be sourced
operation and low level of machineries and with the government
operation. plants may be assistance and
set up in each necessary service
growth center as facilities need be
common strengthened
facilities.
3 Availability of Poor quality of Setting up of o Encouraging
poor RM accessories and tools Common RM continuum members
affects the operation banks for may be encouraged
and efficiency level. to set up Rawmaerial
banks for accessories
and tools

4 Present Dominated by Elimination of o Establishing a

marketing organized small and big middle players tie – up and
channel and firm collaboration with the
forward and big players and
backward involving SISI and
integration NSIC and Industries
departments and
other stakeholders in
this exercise
High skill Demand for labour Absorption of o Conducting skill
mobility force labour force by development
Low production conducting skill programmes in
upgradation and association with SISI
skill and other organized
79 development firms.
programmes
 Critical gap and Cluster option
TIME
CRITICAL GAPS SUGGESTED REMEDIES INTERVENTION TOOLS EXPECTED RESULT
FRAME
Low and Modernization Setting up of CFC Increase the productivity 3
Inconsistency Technology up gradation – by 20%
production Setting up of production cum Increase the production
processing Common Facility level 25%
centre in the identified 5 growth Increasing the
centers. employment
opportunities
Low Collaboration / tie –up / capacity 3years
Penetration capacity building Marketing tie
up·Utilizing the CFC
facilities already
existing in the
cluster·Working capital Increase the production
support·Big brothers level 25%
arrangements Diversify the production
Engineering College,
ITI etc for simple
automation & R & D
supports
Poor market penetration Formation of Marketing Consortia Launching of Common Improving the business 2 years
and product image Branding and Marketing by manifold and create a
niche market

Poor market penetration Formation of Marketing Consortia Launching of Common Improving the business 2 years
and product image Branding and Marketing by manifold and create a
niche market

80
Poor skill workers Skill upgradation Conducting intensive skill Improving & honing the 1 year
up-gradation training skill of workers
programmes

Low level of operation Emerging as product oriented Improving the business 2 year
enterprises ·Creation of brand image by manifold
and Technology up-
gradation
Poor Easy access to finance Option for MGFC financing Solving working capital 1& ½
Finance – soft financing problem of the micro years
support enterprises
Poor Infra Improving & strengthening the Option under Creating sound 3 years
Structure infrastructure IID Scheme & ASIDE infrastructure base for
facilities Scheme smooth operation of the
facilities firms

Improving Value chain Improving the core business
Poor delivery schedule Simple automation
Firm level
Correction
Horizontal and vertical Manufacturing of 3 years
integration composite & value
added products
Establishing common Maintaining delivery 1 year
arrangements / marketing/ Schedule
Technology mapping

81
 ACTION PLAN ENGINEERING CLUSTER
Amount
Sl.No Nature of activity and purpose Period Action by Whom Benefit Rs. in
Crores

Conducting Training Programme

CDE and cluster 0.30
1. on Achievement Motivation and Oct, 2007 Trust building
members
Team Building

Formation of Cluster Co-ordination

Committee for implantation, co- CDE , MSME-DI,
Support from all the
2. ordination follow-up and for OCT, 2007 SDI, and cluster -
stakeholders
pursuing the cluster activities with members
stake holders
Creating cluster
CDE and cluster awareness
3. Visiting to dynamic clusters Nov, 2007 0.30
members Among the cluster
actors
Consortium
Members/ MSME-
DI /RTC/ Dept of
Technology mapping and Bench
science and Modernization and
mark study Nov – Dec,
4. technology/ ITI/ building up 0.40
(Identification of technological gap 2007
Engineering technology capacity
and injection of new technology)
colleges/ NSIC/
Productivity
councils
Conducting awareness Creating cluster
Consortium
programme for the bankers, TIIC, awareness
5. Dec 2007 Members/CDE, 0.20
promotion agencies cluster Among the cluster
MSME-DI/ SIDBI/
members etc actors

82
 Consortium Learning the art of
Training Programme on
6. Jan, 2008 Members/CDE, communication by 0.20
Communication
MSME-DI the cluster members
CDE , cluster 500
Option for MGFC financing – soft members, SIDBI Availing Easy and
7. Feb, 2008
financing and other financial timely credit (For 100
institutions members)
Undertaking cluster
MSME-DI and
8. Capacity Building March, 2008 development works 1.00
cluster members
effectively
9. Launching of web site March, 2008 Consortium Skill up gradation 1.00
Rationalization of
Consortium
Training Programme on cost cost pattern and
10. April, 2008 Members/CDE, 0.20
reduction reduction of
MSME-DI
overhead costs
Utilizing the CFC facilities of May, 2008 – Capacity
MSME-DI &
11. MSME-DIand direct marketing improvement and 0.75
Consortia,
with Big players Sep, 2008 business expansion
B 2 B meet with big auto gains in MSME-DI &
Establishing business
12. Chennai June, 2008 Consortium 1.25
linkages
members
MSME-DI Achieving higher
,Consortium order of growth and
Training programme on production
13. July, 2008 members & improving the 0.30
planning, line balancing
Productivity penetration and
councils efficiency level
CDE, Cluster
members, Dept of
Linkages with technical, science and
educational technology/ ITI/ Creaking inter
14. Aug, 2008 0.30
Institutions Engineering institutional linkages
colleges/ NSIC/
Productivity
councils

83
 Workshop on Identifying of the Consortium/MSME-
Business service providers and DI, Directorate of
identification/ sourcing of experts - industries/ Dept of Establishing strong
15. Sep, 2008 0.35
suitable retired scientists, science & BDS supports
professors and management, etc technology/Universi
with in the country ty/ D
CFC
3. Tool room - Ekattuthangal
Sept, 2008- 2000
4. CADCAM center - Consortia/ MSME-
16.
5. Common production center DI,
May-2009
–VMC lathe –Perumugai

Achieving best stock

inventory
management and
reduction of cost of
Consortium
production,
Members/CDE,
delimitation of
17. Formation of Raw material bank Oct, 2008 – MSME- 50.00
middleman
DI,/Financial
exploitation,
Jam,2009 institutions
procurement of
quality RM and
achieving quality
consistency
CDE/Consortium/
MSME-DI
/Directorate of
Monitoring, evolving, Co- Industries / Lead Effective
ordination committee for effective Bank/ Engineering performance and
18. Oct. 2008
implementation of cluster promotion council / implementation of the
development programmers SIDBI/NSIC/EDI/En projects
gineering
college/MIET/ /
Productivity council

84
 Cluster members/
Launching attract to
CDE, MSME-DI
19. Launching common brand Nov, 2008 brand to improve the 0.30
/Mudhra advertising
product image
agency
Consortium/ CDE,
Study on higher level of energy
MSME-DI /RTC/ Efficiency in Energy
20. loss Dec, 2008 0.35
NPC/Engineering utilization
colleges/
improve the product
Preparation of Common Consortium/ image/Publicity
21. Jan, 2009 1.00
Catalogue and Leaflet MSME-DI

Consortium/
Revitalizing and
Modernization and technology MSME-DI
22. Feb, 2009 modernization of 0.40
injection .Engineering
industry
colleges/
Consortium/
Training Programme on Skill
MSME-DI /
23. Development/Quality March, 2009 Skill up gradation 0.20
productivity
Management
council/BIS
Consortium/
April, - Cost reduction and
MSME-DI /
24. Formation of CFC availability quality 125.00
Directorate of
June 2009 Raw material
Industries
Consortium/
25. Trade mark and patent registration May, 2009 MSME-DI /patent Trade protection 0.25
office
Consortium/
MSME-DI / Dept of
Customized Training Programme science &
New Product
26. and measures for supporting R & June, 2009 technology/R & D 0.40
evolution
D Activities Department/
Madurai Kamaraj
University

85
 Consortium/
Network, creating a market
27. July, 2009 MSME-DI /core Mass communication 50.00
information and resource centre
units/ ISRO/
Consortium/
MSME-DI /core Creating Trade Link
28. Attending trade fairs August, 2009 units/ /New market 2.5
STC/Directorate of penetration
industries/
Consortium/
MSME-DI /
Directorate of
industries/ Core
units/
Department of New business
29. Intra cluster intervention Sep, 2009 0.30
science & opportunities
technology/ Depts.
Explosive

Consortium/
MSME-DI /
30. Conducting business meet with Directorate of New business
October, 2009 0.40
selective embassies industries/ opportunities
selected
embassies/ SIDBI
Consortium/
MSME-DI / core
units/ Directorate Exploring New
Business opportunities with Italy
31. Dec, 2009 of industries/ M/o Business 2.00
Linking the Italian Auto cluster
Indst. & Opportunities
Commerce/ DC,
SSI
Consortium/
32. Improving the infrastructure MSME-DI / core Creating world class
Jan, 2010 300
facilities in micro industrial estates units/ Directorate of working environment
industries/ SIDBI

86
 Intera cluster linkages Consortium/
Intergradations all
33. Feb, 2010 MSME-DI /core 0.40
units clusters
Establishing sub contract Consortium/
34.
exchange
March, 2010
MSME-DI
Soft intervention 5.00

Analysis the impart

Study on Quality improvement Consortium/
35.
after cluster intervention
April , 2010
MSME-DI
of cluster
intervention
May – June, Consortium/
36. ISO Certification 2010 MSME-DI
Quality assurance
Consortium/ International
37. Bar Coding July, 2010
MSME-DI Standards
Consortium/
38. Induction of new technology August, 2010
MSME-DI
Modernization

39. Exist Sept, 2010

87
 VALIDATION PROGRAMME FOR THE DIAGNOSTIC STUDY REPORTS OF
PLASTIC, PHARMACEUTICAL AND ENGINEERING CLUSTERS, CHENNAI
DATE: 11.07.2007
VENUE: DIRECTORATE OF INDUSTRIES AND COMMERCE, CHENNAI

The validation of the Diagnostic Study Report of Engineering Cluster, Chennai

was conducted on 11.07.2007 at Directorate of Industries and Commerce, Chennai in
the presence of cluster members, Officers from Dte. Of Industries and MSME-DI,
Chennai and Other Stakeholders. (List of participants enclosed). Shri M
Raman, Special Commissioner & Director of Industries and Commerce, Govt. of
Tamilnadu, presided over.

S Sivagnanam Director, MSME-DI, Chennai welcomed the gathering.

Shri A Muthuvezhappan, AD(EI) and Diagnostic Study Expert of Engineering

Cluster made a presentation of the Diagnostic Study Report of Engineering Cluster.

The cluster members and stakeholders gave the following suggestions and
recommendations.

Engineering Cluster, Chennai

Sl No Points highlighted in the report Suggestion /

Recommendation from the
cluster members and
Stakeholders
1 Volume of Exports emerged from Volume of exported reports is
Chennai for auto components. low. May be rechecked.

Rectification: Figures
reported in Billion -
The same will be converted
and given in uniform terms.

88
 LIST OF PATRICIANS IN THE VALIDATION PROGRAMME

Sl. No List of Participant Designation and organization/

1 SHRI M. RAMAN,
association name
Special Commissioner,
Directorate of Industries &
Commerce, Government of
Tamilnadu, Chennai

2 SHRI S. SIVAGNANAM Director,

MSME_DI, Chennai
3 Shri A. Shanmuga Velayutham President
TANSTIA

4 Shri V. Raman Executive Member

TACT, Chennai
5. Shri Athmanesan TACT, Chennai
6 Shri Jayaprakash President
Perungudi Engineering Cluster
(P), Ltd, Perungudi
Chennai
7 Shri Mathimurugan Secretary
Perungudi Engineering Cluster
(P), Ltd, Perungudi
Chennai

8 Shri Jagathish General Mangers ,

Kancheepuram

9 Officers from EI Division

89