March 2008 Edition

straight talk

U.S. tool builders now target India

Growth in manufacturing sector predicted

By Stan Modic

After years as the United States' preferred corporate dumping ground for outsourcing financial, engineering, and customer service operations, India is on a fast track to build its manufacturing sector. And the machine tool industry appears poised to cash in on the emerging foreign market goldmine as never before.

Justin Quan, Haas Automation business manager for Southeastern Asia, says: "India is really coming of age on a global scale as a manufacturing economy; I would expect to see very rapid growth in the machine tool markets." With its success in the information and technology sectors, India is now getting serious about improving its infrastructure — a necessity if it wants to launch a serious industrial revolution.

Ford is investing $500 million to build a small car there. India's largest automaker is launching a new car it'll sell for $2,500. Ford says it'll have a new engine plant there by 2010. A population of more than a billion people and an increasingly well-off middle class will be demanding more and better goods. As the manufacturing sector grows, so will the need for more and more sophisticated machine tools.

"There is a lot of optimism in India now," says Knox Johnstone, business development director of the AMT-Association for Manufacturing Technology, who recently led a trade mission to India. The Indian economy grew 8 percent last year and that is expected to continue. The key for the U.S. machine tool industry is the explosive growth in the manufacturing sector with increased investment in automotive, defense, space, atomic energy, railways, and other areas of the infrastructure.

India needs help

All these efforts will require machine tools, tooling, and tools; and the Indian machine tool industry won't be able to keep up. As a U.S. Commerce Department advisory points out, the Indian machine tool makers have had a heavy dependence on imports over the years. According to the U.S. Commercial Service, the total Indian machine tool market in 2007 was about $1.5 billion, with about $1 billion being filled by imports and $575 million by domestic makers. Imports from U.S. builders totaled $237 million, or some 22 percent. That's up from $204 million in 2005.

AMT member's numbers are smaller but also trend up. They show $10 million U.S. machine tool exports going to India in 2000. That ballooned to $60 million by 2006.

Observers believe imports will continue to grow as there will be increased demand — spurred by manufacturing's expansion — for improved and innovative technologies that won't be able to be met by the domestic builders that, for the most part, are serving the lower end of the market.

Johnstone, who specializes in India and China, heads up the AMT's effort to help members penetrate foreign markets. He sees 10 percent growth in the Indian machine tool market for the foreseeable future.

The AMT has centers in China and is in the process of opening one in India. The center provides machine display space and office/training/technical space, plus storage for spare parts. It'll also proxy hire Indian employees for members; as a free zone, it will provide duty-free machine storage and help with customs clearance. A center director knowledgeable in the Indian machine tool market is already on board.

"All the trade mission members had very positive impressions," Johnstone says, adding that "friendliness toward American companies, prevalence of English being spoken, and the opportunity to get into a market where the competition is not so entrenched are all good reasons why AMT members would do well to consider India right now. The talent and desire is there. India is doing well these days."

As I pointed out in my January column, the U.S. machine tool industry has been slow in spreading its wings toward foreign markets. When it did, it found the Japanese, Germans, Italians, Koreans, and other foreign competitors were already entrenched in the market. Further, the strict visa and export licensing restrictions U.S. builders had to fight continue to work against them.

Johnstone, however, contends "we are starting earlier in the market development cycle in India than we did in China." Plus, he says, the reception given to the recent trade mission members was very friendly and the Indians are really glad that the Americans are there. With more American manufacturers setting up shop in India, there may be more.

Won't be easy

Not that cracking the Indian market will be a piece of cake. There are still duties, tariffs, taxes, and regulations that imports have to fight their way through. Even so, with the promise of a lucrative market and with the help of the association, many U.S. builders are deciding to test the globalization waters of the Indian market.

Another stimulus: U.S. manufacturers are demanding their suppliers be within easy reach no matter what part of the globe they set up shop.

Many builders are already there; some are considering building their machines in India for sale in the Indian market. Among the American builders leading the charge to capture the Indian market is Haas Automation.

"Haas is in India in a big way," Haas' Quan tells me. The Oxnard, CA, machine tool producer sold some 600 units in India last year. That's about 10 percent of the Indian market of the types of machines it sells there. "India is quite a growing market for us and we plan to expand sales there tremendously in the next two or three years," Quan says.

Haas is adding three Haas Factory Outlets (HFO) in India, bringing its total to five. Quan suggests their network of HFOs is a big part of its success..

"We don't go in as just a distributor. In addition to sales we provide application engineering, training and a spare parts inventory on site. We also actually warehouse machines in India. We train local people to attend to their local customers. Customers receive the same kind of service in the international markets as they do in the U.S.," Quan says.

Haas currently is producing 1,200 machines a month and in 2007 exported 52 percent of its production; for the first time exporting more machines than it sold domestically. Quan claims Haas's goal is to export 70 percent of its machines.

Observers believe imports will continue to grow as there will be increased demand — spurred by manufacturing's expansion — for improved and innovative technologies that won't be able to be met by the domestic builders that, for the most part, are serving the lower end of the market.

"Overseas markets are growing faster than the U.S. Eastern Europe, Brazil, China and India are all hot targets for us," Quan says. It sells only through its HFOs which carry only Haas machines.

It has established more than 100 HFO locations worldwide, including 14 in China, where it is in the process of establishing a manufacturing facility. Quan says it is considering establishing a machine tool manufacturing plant in India. The China operation is its first foreign manufacturing facility. That plant will build machines for the local market only.

"We originally had the philosophy to build all the machines in the U.S. and export. But as we grew we learned. When we saw the growing demand worldwide and the difficulty we face getting the machines to foreign markets, we decided to try building closer to the market. China is our first effort in that direction," Quan tells me.

Haas has been selling in India for 14 years, but has been really pushing sales since late 2004. "We are starting to see more competition from the Taiwanese and Koreans but they are having a hard time because we are already there. 'Made in the USA' carries a lot of clout especially in China and India," Quan claims.

Nevertheless, Quan warns that "you have to be ready to adapt on a global basis if you want to be a global company." For instance, he points out Haas developed machine controls for Russian, French, Korean, and Chinese markets, and are creating one for the Japanese language.

Meeting various demands for the Indian market helped Haas make their machines, overall, better. Quan explains that in India power cuts out several times a day, voltage can vary up to plus/minus 10 percent and the power supply itself carries a lot of noise. All these variables play havoc with the machines' electronic components so the electrical system had to be made more robust.

Another U.S. builder targeting India is Hardinge Inc., Elmira, NY. CEO J. Patrick Ervin, tells me the firm has been selling in India for some time and has targeted that country to consider manufacturing there in the foreseeable future. It already has installed a manufacturing facility in China to build machines for that market.

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