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This chapter focuses on understanding the way small and medium enterprises (SMEs) operate in the auto components and textile segments in the NCR cluster, and also highlights the operational structure and business practices of these SMEs.

Section A: Auto Component Industry

NCR is a manufacturing hub for auto components that has been able to attract investments due to the availability of wellqualified, talented professionals and abundant, skilled manpower in the region.

In fact, NCR has the concentration of automobile and auto ancillary industries in the cluster. Many major players like Honda, Maruti, Yamaha, International Tractors, and Escorts are present in the cluster.

Some highlights of the auto components companies that emerged during our study of the cluster are as follows:

Ownership pattern

The ownership pattern of NCR based auto component companies is largely dominated by private limited companies forming 60% of the entire sample, followed by proprietary and partnership firms that have an equal market share. Auto components manufacturers dominate the NCR cluster; 80% of the surveyed auto components companies manufacture components.

Sales to original equipment manufacturers (OEMs) constitute a major share in the NCR’s auto components market; around 53% of the players’ sales are to OEMs while the remaining sales are to both OEMs and to the replacement market.

Revenue classification

According to the survey results, around 55% of the surveyed companies registered a turnover in the range of Rs 10 mn - Rs 100 mn, and 40% companies had a turnover between Rs 100 mn - Rs 250 mn. The remaining 5% companies were in the turnover bracket of Rs 250 mn - Rs 500 mn; these companies were mostly private limited auto components manufacturing companies who were engaged totally in the exports of engine parts to global OEMs.

Exports

Around 49% of the surveyed companies’ revenue comes from exports and majority of their exports are to the European countries; America is the second major destination and has a 24% share in the total exports.

Segment classification

According to the survey results, engine parts had a major share (28%) in the auto components production of the surveyed companies, while others (that included rubber parts and rubber moulding parts, doors and windows, HVAC and air intake systems et al) constituted 21% of the total auto components production of the surveyed companies. Around 57% of the engine parts produced was sold to OEMs and the remaining was sold to both OEMs and to the replacement market.

Industries served

The auto components industry in the NCR serves multiple segments of the automobile industry, but its main target market is the commercial vehicles industry; auto parts sold to this segment mainly include engine parts, suspension and braking parts. The two-wheeler segment is the other major target market that constitutes 19% of the total target markets in the NCR. Other ancillary units like buildings and railways are also the target markets for these auto parts players and have a nominal share of 2% among the markets served.

Production Trend

Investments in plant & machinery

According to the survey results, around 65% of the total companies surveyed made an investment worth Rs 10 mn – Rs 50 mn in plant and machinery.

Capacity utilisation

Majority of the auto components companies in the NCR use automatic and semi-automatic machines for their production processes. More than 50% of the companies have just one plant each in the cluster and each plant has more than two working shifts. Around 20% of the companies have more than three plants in the cluster. The production capacity utilisation is 85-100% in around 47% companies and their plants operate in more than two shifts.

IT adoption

The survey attempted to know the magnitude of IT adoption among the SMEs in the auto components industry; according to the results, around 55% of the surveyed companies were found to be IT process in their businesses, which highlighted the fact that IT has not yet gained wide acceptance among the SMEs in the NCR’s auto components industry.

In the near future, only 22% companies are keen on increasing their expenses on IT.

Even though the surveyed companies had a wider acceptance for hardware (desktops, scanners, printers and modems), they were relatively less experimental with software applications such as ERP, customised software, softech and tally.

The auto components companies have been hesitant in adopting IT due to the high costs involved and the lack of skilled labour. Nonetheless, they need to focus on establishing a prompt delivery culture and leverage technology to achieve longterm sustained growth and combat tough competition from other clusters and global players. The need of the hour is to focus on competitiveness by aligning the IT expenditure with the business objectives.

Issues and challenges

According to the survey results, volatile raw material price is the major challenge that confronts the SMEs in the NCR auto components cluster. Besides, competition from other states and countries is another issue that hampers the sector’s growth; China is a strong competitor as it fares better than India in terms of infrastructure and IT adoption. Inadequate power supply and unavailability of good quality manpower does affect some players’ productivity, which in turn hampers their overall performance.

The unorganised segment in the cluster hires unskilled labour mostly but the organised sector prefers graduates and postgraduates.

Section B: Textile Industry

The Indian textile industry is one of the largest manufacturing sectors and contributes significantly to the economy in terms of industrial output, employment generation and export earnings.

Apart from being highly-fragmented, the industry is characterised to be vertically-integrated across the whole value chain and interconnected with various operations. The industry has both the organised and unorganised segments. The organised textile segment consists of spinning mills and composite mills and the unorganised segment consists of handlooms, power looms and handicraft. Cotton, blended, silk, wool and manmade textile are the major sub-segments of the textile industry. The textile players majorly deal in readymade garments, suiting and shirting, shirts and trousers, fabrics, bed linen and embroidery work.

Some of the highlights from our study of textile companies based in NCR are as follows:

Ownership pattern

The textile industry in the NCR cluster is largely dominated by proprietary firms, who constituted 50% of the surveyed textile companies, besides private limited and partnership firms that account for 40% and 10%, respectively.

Revenue classification

According to the survey results, approximately 80% of the textile companies in the NCR cluster have a turnover in the range of Rs 10 mn – Rs 100 mn.

Exports

Approximately 60% of the textile companies that were surveyed in the NCR cluster were involved in some kind of export activity. Europe is one of the most favoured export destinations for the textile companies in the NCR region, followed by Asia (excluding Middle East).

However, a major part of the companies’ revenues was earned from the domestic market, the survey revealed. Approximately 40% companies in the textile cluster earned their revenue exclusively from the domestic market.

Segments

The textile industry is a large industry with a number of sub-segments, but for the purpose of this study, we have divided the industry into the following sub-segments: cotton, man-made fibre, blended fibre, wool and silk. Among the surveyed textile companies in the NCR cluster, majority of the companies operate in the cotton segment.

Value chain

Among the value chain in the textile industry, garmenting was found to be the most common in the NCR cluster. Considering that a single player is involved in multiple value chain processes, but garmenting had a 22% share in the total value chain within the cluster, closely followed by dyeing and spinning at 15% each.

Production details

Investments in plant & machinery

According to the survey, 84% of the textile companies in the cluster invested up to Rs 5 mn in plant and machinery, and 11% companies invested between Rs 5 mn to Rs 10 mn in plant and machinery.

Capacity utilisation

Approximately 15% of the textile companies in the NCR cluster operated at 100% capacity utilisation. Besides, majority of the surveyed companies preferred automatic machines for their production activities.

IT adoption in business

In this survey Dun & Bradstreet India also made an attempt to understand the IT deployment and spending patterns across the textile industry; according to the results, only 45% the SMEs that were surveyed agreed to have implemented IT processes in business, which meant that IT adoption has not gained enough acceptance among the textile manufacturers operating across the NCR.

Hardware (desktops, printers and scanners) formed a major portion of the IT budget, while software applications like ERP, and accounts software, formed a relatively lesser portion of the budget.

Challenges faced by companies in adopting IT

The NCR cluster is technologically challenged as there is very little or no IT usage in the textile companies that operate in the cluster. There is a need to create awareness among the textile companies to make them realise the full potential of IT solutions. Most companies refrain from using IT products due to its high cost, revealed the survey.

Issues and challenges

Lack of availability of skilled manpower, which hampers production and business activities, was cited as the biggest challenge by the textile players in the survey. Competition from other states, clusters and countries appeared as the second major challenge as was cited by 18% of the respondents.