This chapter is aimed at understanding how the small and medium enterprises (SME) operate in the auto components, electronic goods and IT & ITeS-BPO segments in the Pune cluster; likewise, it attempts to chart the operational structure, and the business practices of small and medium enterprises.
Section A: Auto Components Industry
Maharashtra has the highest number of clusters, and out of these clusters, the Pune SME cluster is a manufacturing hub for auto components besides being a preferred destination for the IT sector. The cluster has been able to attract investments due to its proximity to Mumbai, its availability of well-qualified, talented professionals and abundant, skilled IT manpower.
In fact, the Pune cluster is often referred to as the Detroit of the East, considering the concentration and growth of the automobile and auto ancillary industries in the cluster. Many important global majors like General Motors, Volkswagen, JCB and Ford (to name a few) are present within this cluster
The Government of Maharashtra has decided to construct a six-lane highway to connect Talegaon, Chakan and Ranjangaon with Pune to improve the city’s infrastructure.
Some major highlights from our study of auto components companies based in Pune are as follows:
Ownership pattern
The ownership pattern of Pune based auto component companies is largely dominated by private players forming 67% of the entire sample, followed by proprietary and partnership firms that accounted for 20% and 13%, respectively
Further, there is a high concentration of auto components manufacturing companies in the cluster that cater to both OEMs and replacement markets. While around 55% of private limited companies cater to OEMs, 66% of proprietary firms are vendors for both OEMs and the aftermarket segments.
Revenue classification
According to the survey results, around 41% companies registered a turnover in the Rs 10 mn - Rs 100 mn range, 20% had a turnover between Rs 100 mn – Rs 250 mn. It was further noticed that around 33% companies, in the turnover bracket of Rs 10 mn - Rs 100 mn are involved in exports.
Exports
Almost 27% of the companies in the sample are engaged in exports and earn average 18% revenue from the same. America is a major export destination, as about 37% of the companies’ surveyed export to this region.
According to the findings of the study, the domestic market is the largest revenue generator for Pune based auto components manufacturers. Around 73% companies earn revenues exclusively from the domestic market — which is a very high proportion of revenue.
Segment classification
More than half of the companies surveyed produce components like hydraulic power and pneumatic clamping parts, lighting system for automobiles, air induction system and many more. OEMs demand most of the body chassis and engine parts. Among the companies producing engine parts, almost 50% are vendors to OEMs while the remaining serve both OEMs and the replacement market.
User segments
Auto components companies in the Pune cluster have slowly transformed from being a supply destination for low-value auto components, to being a hub for a variety of critical and high-end auto parts that cater to multiple sub-segments of the auto industry. A look into the segments served, revealed that LCVs have a 19% share in the total target market served by the companies, followed by HCVs that have a 15% share. Both three-wheelers and two-wheelers have 14% share each.
Production details
Investments in plant & machinery
Around 40% of the companies in the survey, mostly private limited, made an investment to the extent of Rs 10 mn to 50 mn in plant and machinery; all of them use automatic and semi-automatic machines for production. Among the remaining sample companies, 27%, who are primarily proprietary firms, use automatic and semi-automatic machines for an investment of less than Rs 5 mn. The remaining 20% companies’ investments in plants and machinery are within the range of Rs 5 mn to Rs 10 mn.
Capacity utilisation
In terms of type of production machinery used, the survey highlighted that a majority of companies prefer semi-automatic and automatic machinery for production. Around 50% of the companies utilises more than 80% of their installed production capacity.
Issues & challenges
In terms of challenges confronting the industry, the auto components industry in Pune is found to be mostly affected by the taxes and octroi charges levied by the government, which hike up the players’ operational costs. Besides, the industry also has to combat power shortage, which debilitates the industry’s output.
In terms of the competitive landscape, China poses major competition, as it has an edge over the Indian industry with its good infrastructure and cheap raw materials..
Another difficulty that the players in the cluster is the time taken for arranging working capital funds, which leaves almost no room for strategic planning and for building growth avenues.
Section B: Electronic Goods Industry
The electronic goods industry can be considered a sub-segment of the engineering goods industry. Companies in this industry manufacture consumer electronic goods, industrial electronic goods, communication and broadcasting equipment, strategic electronics, computer peripherals and electronic components. Television sets, process control instruments, power devices, pumps, transmission equipment, personal computers, among others are the type of goods manufactured at these companies.
Ownership pattern
In terms of the ownership pattern prevailing in the segment, Pune’s electronic goods segment is primarily dominated by private limited companies that have 60% share in the total number of companies that participated in the survey. After private companies, proprietary and partnership firms constitute 33% and 7%, respectively, of the total sample companies.
The survey also revealed that around 93% of the companies operating in the segment in the Pune cluster are standalone manufacturers.
Revenue classification
According to the survey, around 73% of the sample companies in the electronic goods segment have a turnover in the range of Rs 10 mn - Rs 100 mn, approximately 14% have a turnover in the range of Rs 100 mn - Rs 250 mn, and 13% have a turnover of below Rs 10 mn.
Exports
Approximately 60% of the companies surveyed undertake some kind of export activity. Europe is the major export destination as 46% of the surveyed companies exports goods to the region. Asia is the other favourite destination with 18% exporting to this region. Approximately 9% of the companies in the study export their products to both America and the Middle Eastern regions.
A major part of revenues for the companies in the study, is generated from the domestic market the survey revealed. Approximately 40% companies in the electronic goods cluster earn revenue exclusively from the domestic market.
Segment classification
A look into the type of products manufactured by the sample companies revealed that approximately 60% of the companies surveyed in the Pune electronic goods cluster manufactures industrial electronics, 20% manufactures electronic components, 13% manufactures consumer electronic goods and 7% manufactures computer peripherals.
Within the electronic goods, companies producing power devices constitute 40% of the sample size. It is followed by process control instrumentation and industrial fans from the industrial electronics vertical, and both of these constitute 7% of the sample size.
Production details
Majority of the surveyed companies prefer semi-automatic and automatic machineries for their production activities.
Investments in plant & machinery
According to the survey, 57% of the electronic good companies in the cluster invest up to Rs 5 mn in plant and machinery, and 22% companies invest between Rs 5 mn - Rs 10 mn in plant & machinery.
Issues and challeneges
The companies operating in this segment face many challenges and issues while undertaking their day-to-day business activities. In this regard, many companies have cited incidence of high taxes and octroi charges by the central and state government as the number one challenge that hampers production and business activities. The second major challenge is competition from other states, clusters and countries and also increasing prices of raw materials.
Section C: IT & ITeS-BPO Industry
Pune is most widely known as an IT hub due to the presence of leading IT & ITeS-BPO companies like Syntel, Microsoft, IBM, Wipro, Infosys, Tech Mahindra, and Patni Computers. Due to the growing IT & ITeS-BPO industry in Pune, many IT parks have sprung up in the city to attract more such companies. The IT parks in Pune have set their own standard for comprehensive infrastructure and provide a host of facilities. Pune Infotech Parks has emerged as the leading IT centre in not just Pune but the entire country.
Ownership pattern
The study revealed that most of the IT & ITeS-BPO companies operating in Pune (almost 87%) are private limited companies and the remaining ones are proprietary firms.
While around 50% of the sample companies were found to be operating from just Pune, an equal number were found to operate from multiple locations like Mumbai, Bengaluru and Chennai.
Revenue classification
The survey conducted by Dun & Bradstreet revealed that 33% of the companies had a turnover between Rs 10 mn - Rs 50 mn. The survey also revealed that 27% of the companies had a turnover between Rs 50 mn - Rs 100 mn and an equal number of respondents had a turnover in the range of Rs 5 mn - Rs 10 mn.
Exports
The survey brought to light that while around 64% of the companies catered exclusively to the domestic market, 21% catered to both the domestic as well as the international markets. America, Europe, Africa and Asia (excluding Middle East) were the key markets served by the exporting companies.
Segment classification
In terms of classification of companies on the basis of services offered, most companies were found to be operating in IT services and software products segment. Almost 48% of the companies operates in IT services while 32% in the software products segment.
- Almost 16% of the companies operating in the software products segment offer custom application development and an equal number offer IT support / infrastructure management as a major product.
- Almost 17% companies operating in the IT services segment offer IT support / infrastructure management services while 15% companies offer custom application management, system integration and application management services.
- All the companies operating in the hardware segment offer desktop, printers, modems and servers. Besides these products the hardware companies also offer networking products and scanners.
Verticals served
According to the survey results, IT & ITeS – BPO companies primarily cater to manufacturing, BFSI and retail and distribution sectors. In fact, around 20% of the companies cater to the manufacturing sector, 15% cater to the BFSI segment and 13% to the retail and distribution sector.
Most companies in the study that operate in the software products and IT services segment cater to the manufacturing sector. Of the respondents that operate in software products segment, 18% cater to the manufacturing sector and 15% cater to the retail and distribution sector. Similarly, of the respondents that operate in the IT services segment, 21% cater to the manufacturing sector and 15% cater to the BFSI segment.
Services offered
The study has revealed that companies from this segment have increasingly begun offering higher end and value added services. The companies that form a part of this study also provide various higher end services like business research, content management, document management, market analysis, course designing and modeling, and retail analytics among others. The survey revealed that around 9% of the IT and ITeS-BPO companies provide business research and 6% provide strategy consultation.
The study also found that most companies operating in software products, IT services and hardware products segment provided business research as a major service; 11% of the companies operating in IT services segment and 7% companies operating in software products provide business research as a major service. Strategy consultation was another major service offered by both the type of companies.