automotive design engineering a scoping mission to india

GLOBAL WATCH MISSION REPORT
Automotive design
engineering – a scoping
mission to India
SEPTEMBER 2005
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This report represents the findings of a mission
organised by the Society of Motor Manufacturers and
Traders (SMMT) with the support of DTI. Views
expressed reflect a consensus reached by the
members of the mission team and do not necessarily
reflect those of the organisations to which the
mission members belong, SMMT or DTI.
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Cover picture: robotic welding at a car factory © Getty Images
1
Automotive design
engineering
– a scoping mission to India
REPORT OF A DTI GLOBAL WATCH MISSION
SEPTEMBER 2005
CONTENTS
EXECUTIVE SUMMARY 3
1 BACKGROUND AND 5
OBJECTIVES OF THE MISSION
1.1 Introduction 5
1.2 Why India and why now? 5
2 THE PERSPECTIVE OF THE 8
INDIGENOUS INDIAN
AUTOMOTIVE INDUSTRY
3 THE POLICY CONTEXT OF 10
FOREIGN DIRECT INVESTMENT
4 SUPPLY SIDE HUMAN 11
RESOURCE ISSUES
4.1 The good news – costs are 11
currently extremely competitive
4.2 But the problem of staff ‘attrition’ 11
at lower levels is endemic
4.3 And figures for graduate supply 12
can be deceptive
4.4 So how long will the situation of 12
‘labour rate arbitrage’ endure?
5 GEOGRAPHICAL AND 14
INFRASTRUCTURAL

CONSIDERATIONS
6 ENGINEERING SERVICES IN 15
INDIA – STRUCTURE AND
SEGMENTATION
7 OBSERVATIONS BY 18
INDUSTRY SEGMENT
7.1 Subsidiaries of the indigenous 18
Indian automotive industry
(OEMs and Tier 1s)
7.1.1 Structure and strategy 18
7.1.2 Technology level 19
7.2 IT sector affiliates 20
7.2.1 Structure and strategy 20
7.2.2 Technology level 20
7.3 Independent engineering 20
service providers
7.3.1 Structure and strategy 20
7.3.2 Technology level 22
8 CONCLUSIONS 23
8.1 Templates for possible 23
collaboration
8.2 Possible offshore outsourcing 23
business models
8.2.1 Project-based consulting model 23
8.2.2 Dedicated resource provision 24
8.2.3 Provision of managed facilities 24
8.2.4 Establish, operate and transfer 24
facilities
8.2.5 In-house offshore facilities 25
8.3 Summing up 25

APPENDICES 27
A Mission delegate details 27
B Host company visit reports 31
C Best practice guidelines 49
D List of exhibits 52
E Glossary 53
F Acknowledgments 55
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AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
EXECUTIVE SUMMARY
What and why
This report describes a DTI Global Watch
Scoping Mission to India under the auspices
of the Society of Motor Manufacturers and
Traders (SMMT). The aim of the mission was
to characterise and assess the potential of
the developing automotive research and
development (R&D) capability and technology
base of India. Specifically, the mission aimed
to characterise and assess both the current
and likely future capability and technology
level of this sector of the Indian automotive
economy. With this information it was
intended to establish a range of potential
models of collaboration, cooperation and
competition between UK and Indian
engineering service providers.
Where and when
Fifteen visits were made to host companies
actively engaged in the automotive

engineering services market, in five Indian
cities (Delhi, Pune, Hyderabad, Chennai and
Bangalore), in five days (5-9 September
2005). In order to provide a complementary
focus on issues relating to foreign direct
investment (FDI) and the indigenous Indian
automotive industry, additional visits were
made while in New Delhi to the Government
of India Ministry of Commerce and Industry
(MCI) Department of Industrial Policy and
Promotion (DIPP) and to the head office of
the Society of Indian Automobile
Manufacturers (SIAM).
How reported
The report sets out some of the key issues
which influence all parts of the market for
offshore automotive engineering services.
Four distinct market segments are identified
based on the host company visits, and an
analysis provided of the observations of the
mission on the typical structure, strategy and
technology level representative of service
providers within each segment. A series of
templates for possible collaboration of
Western customers in this sector is then
described. Finally, a number of best practice
guidelines are set out both for potential
service users and for service providers.
Who for
The information contained in this report is

likely to be of most direct relevance to UK
companies engaged in independent
automotive R&D. It will be of particular
interest to those considering engaging with
the Indian offshoring sector, whether through
the use of local engineering service providers
or through the establishment of an in-house
offshore engineering facility. However, many
of the observations presented are also likely
to be of interest to those from other –
non-automotive – industrial sectors who are
nonetheless interested in the opportunities
and threats posed by the offshoring of work
of a technical nature.
Some caveats
Notwithstanding the above comments, it is
important that readers of this report fully
appreciate that the information and
observations contained are of a general
nature. The mission was necessarily focused
on a small sample of host companies which
were representative of each market segment;
while the team considers that these give a
reasonable characterisation of the market,
they are far from representing its totality.
3
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
4
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
The report should therefore be considered

neither a detailed directory of the market nor
a detailed statement of capabilities, strengths
and weaknesses of any of the individual host
companies visited. Similarly, the best practice
guidelines set out in this report are intended
as additional, non-obvious considerations for
those engaged in the market for offshore
engineering services; they should in no way
be viewed as a substitute for the commercial
and engineering best practices which should
form part of any outsourcing process.
Exhibit S.1 ProSIM R&D centre, Bangalore
5
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
1.1 Introduction
1.2 Why India and why now?
1.1 Introduction
The UK automotive design engineering
sector provides high added-value
consultancy and engineering services to the
world’s leading automakers and Tier 1
suppliers. This is a truly global industry in
which the UK has enjoyed a substantial
market share. The automotive industry
continues to evolve globally, and changes
potentially affecting the UK’s strong position
in design engineering are appearing.
Emerging economies present opportunities
for new business and collaboration as well
as potential competitive threats from new

market entrants.
This DTI Global Watch Scoping Mission was
carried out under the auspices of the Design
Engineering Group (DEG), an industrial
committee of the Society of Motor
Manufacturers and Traders (SMMT) which
addresses the precompetitive needs and
interests of the independent automotive
research and development (R&D) sector
within the UK. The aim of the mission was
to characterise and assess the potential of
the developing automotive R&D capability
and technology base of India, with a view to
establishing potential models of
collaboration, cooperation and competition
between UK and Indian engineering service
providers. Hence from the outset the
mission was viewed as providing potentially
beneficial results for both UK industry and
potential partners in India.
1.2 Why India and why now?
The increasing outsourcing of business
processes to low-cost economies has been a
well-documented trend in recent years.
With the focus upon labour-intensive
‘back-office’ operations, many types of
service-based business activity from call
centres to information technology (IT) support
have been successfully outsourced.
While many countries offer the potential for

low-cost outsourcing, few come close to
the attractive mix represented by India,
which offers the advantage of a large
technically educated and English-speaking
workforce. Despite the fact that India falls
well behind China in terms of the volume
of foreign direct investment (FDI)
($4.3 billion versus $53.5 billion), the Indian
economy is viewed by international
investors as being particularly attractive for
outsourcing IT, business processes and
R&D
1
. In contrast, when asked what kinds
of activity will be offshored to China,
investors indicated a preference for
manufacturing and assembly. A particular
success for India has been the outsourced
IT and software industries where clusters
such as that in the region of Bangalore
place the country in a highly competitive
international position.
In addition to its successful recent track
record in business process outsourcing,
India also has a significantly sized domestic
automotive industry. The country produces
annually in excess of six and a half million
two and three wheelers, one million
passenger cars and multipurpose vehicles,
1 BACKGROUND AND OBJECTIVES OF THE MISSION

1
FDI Confidence Index
, Global Business Policy Council, A T Kearney, Volume 7, October 2004: www.atkearney.com/shared_res/pdf/FDICIOct_2004_S.pdf
6
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
0
1000
2000
3000
4000
5000
6000
7000
-20
-10
0
10
20
30
40
Exhibit 1.1 Vehicle production in India, 1999/2000 to 2004/2005 (source: SIAM)
Exhibit 1.2 Vehicle production in India: percentage year-on-year growth (source: SIAM)
7
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
and 0.3 million commercial vehicles
(Exhibit 1.1). As such it ranks second in the
world in production of two wheelers
2
, fifth in
commercial vehicles and thirteenth in

passenger cars.
Traditionally the Indian automotive industry
has been a customer for the UK design
engineering sector and this relationship
continues. However, the Indian government is
actively encouraging the development of the
indigenous automotive R&D base, including
for example provisions for the weighted
deduction of 150% of R&D expenses
3
.
Signs of emergent low-cost competition from
India in automotive design engineering have
been evident for some time now, primarily
restricted to lower added-value
computer-based functions such as the legacy
conversion of computer-aided design (CAD)
data and the creation of meshes for finite
element analysis (FEA). In many cases these
niche competitors have grown from existing
outsourcing providers in the IT sector rather
than from the domestic automotive industry.
Increasingly, however, the stated strategic
aspiration of both of these service
organisations as well as the indigenous
automakers is to compete on an international
scale for design engineering business
4
.
While the current technology base within the

Indian automotive and IT industries may not
enable such new entrants to compete
internationally for highest added-value R&D,
it is clearly an open question as to the possible
rate and extent of technological development
which may allow this in the future.
The situation described represents both an
opportunity as well as a challenge for UK
industry. Clearly there is the potential for UK
engineering organisations to achieve
advantage over international competitors
through cooperation and collaboration with
low-cost partners in an English-speaking
environment, or through the establishment of
their own low-cost operations in-territory.
Conversely it also presents a potential
competitive challenge for the future as new
service providers emerge and compete
directly for business. Whether or not
individual Western R&D organisations wish to
engage in India therefore, knowledge of this
rapidly developing part of the Indian economy
is an essential input to future strategy.
Exhibit 1.3
Despite the introduction of new
passenger car models, two and
three wheelers continue to
dominate with India ranking
second globally in this market
sector

2 Society of Indian Automobile Manufacturers (SIAM) annual convention, September 2004
3 Government of India, Budget 2004-05
4
Design engineering, IT’s the next big thing,
Times News Network, May 2004
Exhibit 2.1 Automotive clusters in India (courtesy ACMA)
5
Annual Report 2004-2005
, Society of Indian Automobile Manufacturers (SIAM)
8
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
The Society of Indian Automobile
Manufacturers (SIAM) is the national
representative body of the automotive
manufacturing industry in India. SIAM
represents the indigenous original equipment
manufacturer (OEM) base as well as joint
ventures (JVs) and wholly owned subsidiaries
of international automakers. The task of
representing the supply chain – in particular
the larger Tier 1 component manufacturers –
falls to a separate body known as the
Automotive Component Manufacturers
Association of India (ACMA). The mission
visited the offices of SIAM in New Delhi and
the meeting was hosted by a team led by
the organisation’s Director General, Dilip
Chenoy and Assistant Director, Pamela Tikku.
SIAM set out its view of the current state
of the Indian automotive industry, including

a range of general statistics which were
published recently in the organisation’s
2004/05 annual report
5
. It views
automotive R&D as a rapidly developing
area in which Indian companies are
beginning to strengthen their skills base
through both organic growth and
acquisition. Particular areas cited as
requiring further technology and skills
development were concept design,
prototype validation and specialist
powertrain technology, the latter an area in
which many Indian OEMs have
considerable well-established experience
of using European specialists.
2 THE PERSPECTIVE OF THE INDIGENOUS INDIAN AUTOMOTIVE INDUSTRY
9
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
SIAM identified regulated emissions, air
quality and fuel consumption as amongst
the primary technology drivers for the Indian
OEM sector. There have been a number of
extremely high profile government initiatives
such as the mandatory conversion to
compressed natural gas (CNG) of the entire
public transport road vehicle fleet in the
New Delhi area. SIAM expects that similar
local initiatives will follow throughout India.

The country is essentially adopting European
legislation and is currently working toward
harmonisation; currently Euro III emission
levels apply in 11 major cities. There is also
considerable interest in the development of
biofuels and – in the longer term – hydrogen
fuelled vehicles (principally internal
combustion based as opposed to fuel cell
powered). In terms of current market
drivers, fuel efficiency remains a key
marketing point for Indian products, much
more so than luxury options.
SIAM considers that there is huge potential
for European automotive design engineering
companies to work with Indian OEMs and
feels that this is an important means through
which its members’ R&D skills can be
augmented through technology transfer. In
addition to promoting direct commercial
relationships, SIAM also encourages and
supports the involvement of Indian companies
and academia in precompetitive European
research frameworks.
While ACMA was not visited by the mission,
the delegates noted from independent
observations that there is a recent apparent
trend on the part of indigenous OEMs to
transfer component and system-level design
responsibility onto the supply chain. This was
considered a further area in which services

may be required, both on the part of the
independent automotive R&D sector within
the UK and its developing counterpart in India.
Exhibit 2.2 India – land of automotive contrasts
10
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
In order to evaluate the legal obstacles and
incentives to the direct involvement of
UK-based companies in the Indian market,
either through JVs or the establishment of
wholly-owned subsidiaries, views on this
subject were sought from an appropriate
representative of the Government of India.
The mission was granted a meeting with
Mr Umesh Kumar, Joint Secretary to the
Government of India Ministry of Commerce
and Industry (MCI) Department of Industrial
Policy and Promotion (DIPP). The following
paragraphs summarise the notes of the
delegation regarding the views expressed by
Mr Kumar.
At the outset, Mr Kumar wished to reassure
the delegation that the Indian economy is
very much a market economy and that the
Government of India encourages this.
Foreign companies wishing to set up in India
enjoy equal footing with indigenous Indian
companies, and there are many local
incentives which may be available from state
or city governments to support new

investment. The extent of foreign ownership
is free from government control; both JVs
and wholly owned subsidiaries have each
proved successful and the balance of equity
is entirely at the discretion of the
partnership. Companies can usually be
incorporated in around 7-10 days, with more
complex cases taking no more than four
weeks. There are numerous consultancies
which specialise in supporting overseas
companies setting up in India.
R&D is viewed as being amongst the
easiest category of business to establish as
there are few demands likely to be placed
on physical infrastructure in any location.
Indian law in the area of patent protection
has recently been strengthened and ongoing
process improvements are aimed at
reducing application backlogs. The legal
process in terms of disputes procedures is
also well established. A law is expected to
be passed in the coming year, the existing
recommendations of which will streamline
the whole life cycle of a company including
the process of closing a business. Taxation
rules are clear and the rates applicable for a
new business can be agreed in the form of
an advance ruling that must be granted by
the tax authority within 90 days.
The labour market is tilted more in favour of

the employee than the employer in
comparison with the situation prevailing
within the UK. This has implications in terms
of rules relating to the termination of
employment and closure of businesses.
Overall the delegation was impressed at the
openness of the government in encouraging
FDI and in highlighting the strengths and
weaknesses of India as a location for new
business. During the course of subsequent
meetings with design engineering
companies the delegation became aware of
the nature of some of the mechanisms that
may be used to maximise advantage while
establishing a new company. The clear
recommendation has to be for those
wishing to establish their own facility to
seek informed and expert advice before
proceeding with the formation of a new
company and recruitment of employees.
In this way full advantage can be taken of
available tax and duty incentives as well as
ensuring the maximum structural and
operational flexibility of the business unit.
3 THE POLICY CONTEXT OF FOREIGN DIRECT INVESTMENT
11
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
4 SUPPLY SIDE HUMAN RESOURCE ISSUES
4.1 The good news – costs are currently
extremely competitive

4.2 But the problem of staff ‘attrition’
at lower levels is endemic
4.3 And figures for graduate supply can
be deceptive
4.4 So how long will the situation of
‘labour rate arbitrage’ endure?
4.1 The good news – costs are
currently extremely competitive
Without exception the cost base
demonstrated by the host companies visited
was extremely competitive compared to that
typical of similar industrial activity in the UK
and other Western nations. With labour the
dominant cost in most engineering design
activities, this clearly translates to a
competitive advantage for offshored activity
even when overheads of remote working
(ignoring set-up costs and learning curve
effects) are taken into account.
Despite the fact that they were all
significantly lower than Western labour
rates, the figures provided by host
companies indicated that prevailing rates
vary considerably between what might be
termed the offshoring hot spots such as
Bangalore, and less favoured locations.
Together with availability of key staff, this
may be a key consideration for those
companies considering establishing their
own Indian subsidiaries.

Most of the host companies visited operate
highly flexible shift working patterns in order
to reduce effective overhead levels through
the maximisation of asset utilisation
(principally computer workstations, software
licences, office accommodation and IT
infrastructure). All of this translates into
current fee structures that are highly
competitive on an engineer-hours basis,
with the host companies typically claiming a
direct charge-out rate advantage of 30-40%
compared with similar activity carried out in
Western Europe or North America.
4.2 But the problem of staff ‘attrition’
at lower levels is endemic
The delegation was surprised by the
challenge posed to local providers of
engineering services by the high turnover of
young engineers in the early years of their
careers. While figures vary according to the
human resource management practices of
each company and are clearly anecdotal
given the small sample size, typical staff
turnover or ‘attrition’ rates for junior grade
engineers were found to be in the region of
15-25%.
This problem is compounded by the steep
salary progression expectations of young
engineers. Whereas in Europe the salary
differential between an experienced

engineer of around 30 years old and a raw
engineering graduate recruit might be in the
order of 60%, the equivalent differential
found with the host companies was closer
to 400%. The delegation was told that a
young engineer transferring between
employers might expect to receive a typical
increase in pay of 30-35%. The motivating
force behind the problem of attrition is thus
easily understood.
Staff attrition clearly represents a
management challenge for the providers of
offshore engineering services as much as it
does for wholly-owned subsidiary operations.
12
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
From a customer perspective, widespread
attrition is clearly a concern in respect of the
initial learning-curve overhead of establishing
a business relationship. It is also potentially
a concern with regard to confidentiality and
the dilution of know-how.
Many host companies visited demonstrated
some highly innovative approaches in
meeting this challenge. Some for example
use fiscal incentives such as employee
share ownership schemes while others
focus upon intrinsic career development
rewards such as the opportunity for
international travel. In some cases suppliers

will use previous employee loyalty as a
significant filter in the recruitment process.
One executive explained: ‘I deliberately look
for prior loyalty and give this similar weight
to technical skills – candidates with a
previous track record of ‘job-hopping’ are
usually screened out’. Comments by service
users too indicate some of the methods by
which the effects of attrition can be
mitigated, such as the contractual
requirement that named individuals will be
engaged on follow-on projects.
These together with other guidelines are a
crucial element of the best practice
guidelines presented later in this report
(Appendix C).
4.3 And figures for graduate supply
can be deceptive
While the available pool of young university
graduates in India has been estimated at
14 million, the proportion of such
engineering graduates considered suitable
for employment by a multinational company
is as low as 25%.
6
This finding was broadly
in agreement with the observations of many
of the host companies visited, particularly
those providing more advanced, technology
focused services. Questioned on this aspect

of human resource management, one senior
executive said: ‘I do not think that there are
many good engineers available – there are
just a few who are capable of being trained
for the type of work that we do.’
With the growth in offshore engineering
activity which is clearly apparent in the rapid
development of many of the host
companies, a gradual tightening of the
market for graduate recruits must be
expected. As with the problem of attrition,
the most innovative host companies had
developed training and recruitment policies
aimed at ensuring a ready supply of talent
within their organisations. These too inform
the best practice guidelines (Appendix C).
4.4 So how long will the situation of
‘labour rate arbitrage’ endure?
While the cost advantage of engineering
activity in India is considerable at present,
observations of the host companies visited
indicated that general wage inflation in this
sector is in the region of 20%. Given that
comparable wage inflation in the UK is
currently closer to 2-3% it is clear that while
the cost advantage of carrying out
engineering activity in India is currently
significant, this advantage is being eroded
over time.
This raises the obvious question of just how

long the cost advantage of carrying out
engineering activity in India will endure.
A number of the host companies visited
stated that the twin effects of inflation and
the looming shortage of graduate supply will
erode the cost advantage within the next
five to ten years. However, recent studies
7
have indicated that the position is likely to
6
The Emerging Global Labor Market: Part II – The Supply of Offshore Talent in Services,
McKinsey Global Institute, June 2005:
www.mckinsey.com/mgi/publications/emerginggloballabormarket/index.asp
7
Ensuring India’s offshoring future,
McKinsey Quarterly, 2005 Special Edition: Fulfilling India’s Promise:
www.mckinsey.com/mgi/publications/India_offshoring.asp
13
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
stabilise closer to 30%, the differential
currently prevailing between the wages of
young professionals in Mexico and the USA.
While a 30% long-term staff cost advantage
might seem at first sight extremely
attractive, it is important to recognise that
the current differential is potentially
significantly greater than this. Based on
salary expectations provided by the host
companies, the delegation estimate that raw
wage costs for offshore engineering work

are up to 70% less than those of a typical
UK company, based on an engineering team
of mixed age and experience. With current
fee rates for Indian suppliers typically only
30-40% lower than those in the West, it
would appear that overheads and retained
profits are proportionally significantly higher.
To remain competitive therefore, Indian
suppliers will need to markedly improve their
efficiency or reduce retained profits
compared with prevailing levels. For those
able to do this and at the same time provide
internationally competitive technology and
service, the residual cost advantage of
offshoring engineering work to India is likely
to remain significant, even if perhaps slightly
less so than today.
14
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
As the phenomenal success of the
outsourced business process and customer
relationship management (CRM) sectors in
India have amply demonstrated, the country
is well equipped to provide a base for
remote business activities utilising IT and
telecom links. However, for those seeking to
establish their own subsidiary offshore
operations, geographical influences upon
aspects such as staff cost and availability
and the general quality of infrastructure

should be critical considerations.
There is evidence that some inward
investors have been drawn to the major
offshoring clusters without due
consideration for alternative geographical
centres which may offer a more attractive
cost base. It was suggested to the
delegation for example that salary
expectations in Bangalore are typically
around 25% higher on a like-for-like basis
compared with less favoured offshoring
locations such as Pune.
Equally however it was clearly apparent to
the delegation that the quality of
infrastructure – from the reliability of power
supplies and availability of backup generators
to the standard of the local road network –
can vary widely both within and between
regions and cities.
For potential inward investors there can be
no substitute for direct, thorough and
informed research into prospective locations.
5 GEOGRAPHICAL AND INFRASTRUCTURAL CONSIDERATIONS
15
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
In advance of the scoping mission, the
delegation identified a clear, four-way
segmentation of the independent
automotive engineering services sector in
India based on the host companies to be

visited. The primary segments were
represented by:
• Subsidiaries of the indigenous automotive
OEMs
• Subsidiaries of indigenous automotive
Tier 1 suppliers
• Affiliates of the large IT offshoring
organisations
• Independent engineering service
providers
This framework avoids consideration of a
further rapidly developing segment of
activity: the in-house operations of overseas
OEMs and Tier 1s. The rationale for this is
that these organisations within India appear
to be solely focused upon the fulfilment of
in-house needs and are not active in the
independent engineering services sector.
Exhibit 6.1 overleaf shows the
segmentation of each of the host
companies visited by the delegation.
In assessing the characteristics and
technology level of the independent
automotive engineering service sector
within India, the delegation has been careful
to analyse the observations made at an
industry segment level rather than an
individual company level. There are two
reasons for this:
1 The selection of the host companies was

intended to provide a representative
sample of this sector of the Indian
automotive economy based on a small
number of companies drawn from each
industry segment. There are numerous
additional organisations of all sizes which
would have been appropriate for inclusion
in the study but which were omitted from
the list of prospective host companies in
order to create a manageable sample size
for the scoping mission. It would be
inappropriate and also unfair to those
organisations not visited to imply through
a company-by-company presentation that
this sample is in any respect exhaustive.
2 Given the degree of openness and
cooperation with the mission exhibited
without exception by the individual host
companies, the delegation feels that a
company-level presentation of results
would be unfair in the portrayal of
challenges that are faced by industry
at large.
Notwithstanding the above comments, visit
reports containing more general observations
for each of the companies visited are
contained in Appendix B to this report.
6 ENGINEERING SERVICES IN INDIA – STRUCTURE AND SEGMENTATION
16
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA

Direct subsidiaries of indigenous Subsidiary name Parent organisation
Indian automotive OEMs Ashley Design & Engineering Services Div Ashok Leyland
Remote Services Division Hindustan Motors
Tata AutoComp* Tata Motors
Tata Technologies Tata Motors
Subsidiaries and affiliates Subsidiary name Parent organisation
of automotive Tier 1s Harita Infoserve TVS Group
MIND** Motherson/Sumitomo JV
Tata AutoComp* Tata Motors
Subsidiaries and affiliates Subsidiary name Parent organisation
of IT service organisations Infotech Enterprises Operates as part of parent
Satyam-Venture Satyam Computer Services/
Venture Global (USA)
Wipro Operates as part of parent
Independent automotive engineering Caepro
service providers MIND**
(Most of these companies operate Neilsoft
in multiple industries and Onward Technologies
application domains) ProSIM
Quantech Global Services
QuEST
Certain organisations cross the boundaries of the segmentation identified by the mission:
* Tata AutoComp, while under the ultimate ownership of Tata Motors, operates predominantly within the Tier 1 sector
** MIND is a JV with Tier 1 ownership but appears to operate with a high degree of autonomy similar to that of the independent segment
Exhibit 6.1 Segmentation of independent automotive engineering service providers
17
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
Exhibit 6.2 Map of India showing the companies visited in each city
MIND
Caepro

Onward Technologies
Tata AutoComp
Tata Technologies
Neilsoft
Infotech Enterprises
Quantech Global
Satyam-Venture
ProSIM
Harita Infoserve
Wipro
QuEST
ProSIM
Harita Infoserve
Wipro
QuEST
Remote Services
Ashley Design
18
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
7.1 Subsidiaries of the indigenous
Indian automotive industry
(OEMs and Tier 1s)
7.1.1 Structure and strategy
7.1.2 Technology level
7.2 IT sector affiliates
7.2.1 Structure and strategy
7.2.2 Technology level
7.3 Independent engineering service
providers
7.3.1 Structure and strategy

7.3.2 Technology level
7.1 Subsidiaries of the indigenous
Indian automotive industry
(OEMs and Tier 1s)
These two segments share many common
characteristics, not least due to their very
similar industrial background and business
culture. For this reason the delegation chose to
analyse them together while highlighting those
areas in which differentiation is apparent.
7.1.1 Structure and strategy
The OEM and Tier 1 sector organisations
appear to be closely integrated with their
parent organisations at an operational level
and view this as a significant competitive
advantage in terms of the automotive
domain experience that it brings. It was also
cited on many occasions as offering the
ability to add and remove resource from the
external engineering service business
depending on the immediate demands of
the market. Despite this level of operational
integration, some are going to considerable
lengths to reinforce at least the perception
of autonomy through the establishment of
distinct brand identities and geographically
separate technical centres.
The OEM and Tier 1 service providers
showed a clear distinction from the IT
affiliates and independent engineering

companies in their strategic direction.
They exhibit a clear and self-confident sense
of a long-term mission that appears to be
shared throughout the management team.
A willingness to grow through strategic
international acquisitions and JVs in support
of strategic goals was often stated and is
also borne out by examination of the recent
history of many of the organisations visited.
Some were also extremely frank about
their marketing strategy, seeing the large,
global automakers and multinational Tier 1s
as their primary future customer base
rather than the small to medium sized
enterprises (SMEs) further down the
automotive value chain.
While some of the operational advantages
of industrial ownership will currently favour
the OEM more than the Tier 1 subsidiaries,
recent anecdotal evidence with regard to
OEM ownership of major European
engineering service providers is not
particularly promising. In addition the very
strength of the larger Indian OEMs may
lead to a higher strategic priority being
7 OBSERVATIONS BY INDUSTRY SEGMENT
Exhibit 7.1 The recently opened technical centre of
Tata Technologies, Pune (courtesy Tata)
19
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA

given to high-level collaborations with
global automakers
8
.
7.1.2 Technology level
The OEM and Tier 1 segments were typified
by companies with a very strong automotive
focus and culture. They demonstrated a deep
level of production engineering and
manufacturing process knowledge drawn
from their parent organisations and they
presented themselves as extremely well
managed and process-oriented organisations.
A considerable exposure to large-scale
programmes was demonstrated, although
overall skill levels in powertrain engineering
appeared to be less than those demonstrated
in the areas of vehicle and chassis.
CAD skills in the OEM and Tier 1 segments
were generally the best seen during the
mission, demonstrating in many cases a
thorough appreciation of the requirements
of collaborative working using the latest
CAD systems on large-scale programmes.
Testing and validation skills varied widely
between individual organisations.
Computer-aided engineering (CAE) skills
appeared to be generally more process than
expertise oriented, with excellent skills
exhibited for general work but more limited

examples of more advanced applications and
the use of true optimisation based methods.
One significant exception to this observation
however was in the deployment of
Exhibit 7.2 CAD skills being demonstrated to Mike Reeve during the visit to Hindustan Motors Remote
Services Division, Chennai
8 For example:
Fiat, Tata to join forces in India,
Automotive News Europe, 3 October 2005: />knowledge-based engineering (KBE)
applications in which certain of the OEM
sector appeared to have invested
significantly. This was in keeping with the
apparent focus on the acquisition and
retention of process knowledge as the
primary driver for future development of
skills and service competence (engagement
in advanced R&D appeared limited by
international comparison). The use of KBE
systems might also be seen as a highly
innovative means of limiting the negative
impacts of staff attrition.
7.2 IT sector affiliates
7.2.1 Structure and strategy
The IT services sector has been a major
success story for India in recent years and
boasts the rapid development of a number of
large and internationally leading organisations.
These are some of India’s most respected
business brands and are amongst the most
sought after for prospective new employees.

While some are extremely large, they tend to
be highly decentralised, innovative and
flexible in their approach to the development
of new business streams and the acquisition
of new skills.
Drawing on experience of growth in the IT
services sector, these engineering service
providers have a business model which
relies on a close knowledge of the individual
parts divisions and departments of their
customers. This model lends itself to the
provision of services to larger customers
such as the leading automakers and Tier 1
organisations rather than to SMEs.
While acquisitions are far from unknown
given the resource available to the larger
organisations, much growth tends to be
extremely organic and is based on the
identification of needs and the development
of existing internal skills frequently derived
from unrelated market sectors.
7.2.2 Technology level
The technology capability of this sector
appears in general to be based on the
clustered development of similar
competencies across a range of industries,
rather than focusing strictly at a domain
level. Skills were thus fragmented and
clustered on selected application areas, and
the segment as a whole appeared to have

the lowest level of overall automotive focus
of those investigated.
The development of each new area of
competence appeared both highly
opportunistic and efficient, with an active
willingness to invest in learning their
customers’ product development processes.
CAD and CAE skills were consistent with this
approach, with highly specific and discrete
areas of application expertise. Once active
within an application area, a path of vertical
development appeared common; for example,
starting with CAD legacy conversion work
before moving into added-value engineering of
similar components and systems.
7.3 Independent engineering service
providers
7.3.1 Structure and strategy
This segment is comprised of a large number
of predominantly smaller and highly
entrepreneurial companies. Most have been
formed in recent years or have developed
from related sectors such as engineering
software development and distribution. Overall
they exhibit an extremely high level of domain
and technical focus on the targeted industries
and subsectors that they serve. They are
mostly privately owned and independent of
any parent or large customer influence.
The business models followed by this

segment are extremely flexible, ranging from
a conventional project-based consultancy
approach to the provision of dedicated
20
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
facilities for individual customers. Some
highly innovative approaches were found. In
one case the supplier’s business model is
based upon the provision of local on-site
support by a liaison engineer of the same
nationality as the customer, in order to
provide a truly local interface to the offshore
service. In another case a supplier has
developed a hybrid business model as an
option for clients wishing to graduate to their
own in-house facility, whereby the supplier
establishes the new facility as a service and
transfers ownership after a fixed period and
subject to agreed performance criteria.
While some large customers are served, this
segment had a clear focus on providing
services to medium sized companies.
Operating at a highly focused and technical
level, human resource strategies are extremely
important. A number of innovative approaches
were demonstrated aimed at limiting and
mitigating the negative impacts of attrition,
ranging from the identification of core staff
whose career needs are to be proactively met
in order to maintain critical domain

competences, through to the use of fiscal staff
retention incentives such as stock options.
Despite the fact that it includes some of the
most innovative and entrepreneurial of the
companies visited, this segment is likely to
be at greater exposure to fluctuating market
demands. Threats in particular to lower-end
work are likely to arise from improvements
in mesh generation software which reduce
the labour content and hence the
attractiveness of outsourcing (this view was
provided by a long-standing Western
customer of this sector). Similarly for larger
customers there is a tendency to graduate
from the use of an outsourcing model to the
development of local in-house facilities.
However, the highly entrepreneurial nature
of the companies in this segment may
enable them to respond to such market
changes. Some in particular are extremely
clear in their intention to move towards
higher added-value analysis and design
services which are globally competitive on
technology as well as price. This was
reflected in a few examples of methods-
based R&D work aimed at improving the
level of technology and services delivered;
the more usual approach was typified by
learning directly from customers.
21

AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
Exhibit 7.3 Part of the technical centre of Onward Technologies, Pune
7.3.2 Technology level
The companies visited in this segment
exhibited a high degree of domain
knowledge and concentrated upon providing
a selected range of services and
technologies. While showing similarities in
business culture and technical strategy, no
two organisations exhibited an identical
profile of competences and service. They
appeared to focus on recruiting and retaining
staff with specific skills as a means of
developing and maintaining competence in
each application domain.
In general terms the focus of companies
within this segment was more upon CAE
applications than on CAD and product design.
This is in part reflected by a lesser exposure
to programme-level activity than that typically
found in the OEM and Tier 1 segments.
While most organisations were fairly broad
based in the analysis applications covered
and the industry sectors served, a small
number were extremely focused, providing a
narrow range of specialist analytical
applications that could be considered
globally competitive.
22
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA

8.1 Templates for possible collaboration
8.2 Possible offshore outsourcing
business models
8.2.1 Project-based consulting model
8.2.2 Dedicated resource provision
8.2.3 Provision of managed facilities
8.2.4 Establish, operate and transfer
facilities
8.2.5 In-house offshore facilities
8.3 Summing up
8.1 Templates for possible
collaboration
The automotive design engineering services
sector in India is characterised by a number
of extremely well-run companies, most if not
all of which have well-defined processes
accredited to international standards. Within
the four industry subsegments identified
there is a wide range of providers offering
many competing as well as complementary
mixes of services, as well as business
models through which they are delivered.
From the outset of this research the
delegation was firmly of the opinion that
there could be no ‘one size fits all’ solution for
all customers and for all project types; this
view has been confirmed by the mission.
In order to approach the process of
offshoring an element of design engineering
activity however, it is appropriate that

customers equip themselves with
knowledge of the full range of potential
business models that are available to them.
The following sections therefore describe
the models identified during the scoping
mission. In addition, some best practice
guidelines for customers and service
providers are set out in Appendix C. None of
these should be viewed as an exhaustive list,
and for brevity the more obvious criteria
such as quality thresholds and technical
competency for the work at hand have been
deliberately omitted, as these are
appropriate to any outsourcing activity
regardless of its location.
In the list of engagement models presented
there were clear anecdotal indications that
there is a tendency for those offshoring
engineering work to progress from some of
the more transactional models to higher levels
of engagement up to and including their own
technical centres, once sufficient market
experience and confidence has been gained at
each level. There are however strengths and
weaknesses of each model for each
customer, and there are many for example
who may conclude that project-based
consulting support is the best long-term
solution to their particular business needs.
8.2 Possible offshore outsourcing

business models
8.2.1 Project-based consulting model
The conventional project-based consulting
model is possibly the most common form of
initial engagement for customers of offshore
engineering services. However, this model is
clearly best suited to discrete one-off
assignments and it is important to note that
there is always a learning-curve overhead to
any work with a new service provider
wherever it is located. Such learning-curve
effects are clearly likely to be proportionately
greater for a provider from a different
national and business cultural background.
A consequent concern frequently expressed
by first-time customers of offshore services
23
AUTOMOTIVE DESIGN ENGINEERING – A SCOPING MISSION TO INDIA
8 CONCLUSIONS