Mr Kiran Kakatkar
is the Chief Executive Officer of PPMAI (Process Plant And
Machinery Association Of India), a 40-Year-old organisation.
It is the apex body representing companies that provide
Systems, Equipment or Services to establish Process Plants.
Here below is the text of his presentation in early 2005. The
contents and statements seem to be more valid today.
To begin with, The Mission statement of PPMAI states:
To work towards realising the vision of Indian process
plant & machinery industry of becoming preferred supplier of
systems, equipment and services to global process industry.
Let us look at what are the environmental factors, which have
given rise to many opportunities
MARKET ENVIRONMENT
• Major projects in Oil & Gas, Refining, Petrochemicals and
Chemicals in countries like Iran, Oman, UAE, Qatar, Saudi
Arabia, Kuwait & Sudan. Upgrade & revamp schemes for existing
complexes under implementation. Libya opening up.
All these countries are within geographical reach of India.
The money is now available with the oil price rise. Many of
those countries already have Indian presence at various levels
from labour to technical to managerial levels. The Indian
businessmen are already familiar with the terrain.
Indian Oil with Oil India have already secured a block for
exploration in Libya in a transparent tendering process. ONGC
has taken bold steps in Sudan.
Similar developments taking place in Central Asian
countries like Kazakhstan etc.
India has already started exporting equipment to those
countries.
• China on expansion spree. Chinese Process Plant Industry
preoccupied in meeting local requirements.
In fact EPC contractors in China, reportedly, are not able to
get products and services locally due to overbooking. They are
considering Indian option and in some instances, they have
already opted for Indian equipment
• African development efforts opening up avenues for export
of appropriate technology from India in Chemical & allied
process plant. Petroleum related developments in Nigeria
Potential demand exists in African Countries for Small &
Medium Scale Chemical Plants.
• International EPC contractors actively seeking alternate
source of supply of equipment & services
This has happened due to keen competition in the International
market. A couple of EPC contractors have already established
sourcing hub in India
With these favourable environmental factors this is the
opportune moment for the Indian Process Plant Industry to make
its strategic pitch to take its rightful place in the Global
process industry.
OBSERVATIONS
It is really in the last five to six years that the PPM
industry commenced serious export efforts. Some of the
observations of the experts based on their experiences are as
under:
• Blend of Export & Domestic portfolio essential for
survival
I do not think that anybody will argue with this observation.
The domestic market fluctuates. Unfortunately in India the
field is tilted against the local industry as far as taxation
is concerned. The competition from imports is serious matter
now.
• The industry is highly interdependent and all the links
in the supply chain need to be export oriented
There are a few companies, which have exceptional achievements
in exports. They have also now realised that consistent
success is possible only if their sub-vendors as well
component suppliers have export orientation in terms of
quality, delivery and attitudes.
• Inquiries are for cluster of equipment. All major
components need to meet pre-qualification of purchaser
Export inquiry typically may be for twenty equipment. Failure
to quote for even one equipment can result into
disqualification of the offer. This indicates that there is a
need for consortium approach Further each major component of
system needs pre-qualification. For example, if export inquiry
is for pumping- heating systems and the buyer does not
pre-qualify locally made pump and insists on foreign make, the
system supplier is unlikely to be competitive in his bid. This
and the previous observation clearly shows that Indian
industry can succeed only when sizable section of industry
decides to become export oriented.
• Consortium of Process Plant Industry and user industry
like Chemical industry has great potential in exports of small
& medium scale plants on turnkey basis.
The Chemical manufacturer can provide technology and the PPM
industry can provide the plant & machinery. The revenue stream
of Chemical Manufacturer can come out of Technology sale,
Royalties & O & M contracts. A chemical manufacturer in India
has successfully supplied medium scale Formaldehyde plants on
this basis to even Saudi Arabia and China in association with
an EPC contractor.
• System Integrators & EPC contractors need to develop
partnership relationship with supply chain
Many EPC contractors complain that they do not get serious
bids from their sub-vendors for export inquiries. The
sub-vendors complain that they are made to work hard for
giving offers by EPC contractors but without back-to-back
assurance of getting order. This can be solved only when main
vendor and sub vendors decide to work as partners with
complete transparency on costs
The strategy will have to take into account the Strengths &
Weakness of the Industry. Although each sector described
earlier has its own peculiarities, in general, the strengths
of the industry can be said to be:
STRENGTHS
• Most comprehensive in Asia in terms of variety of
systems, equipment and services it can offer
India manufactures both High end & Low-end technology
products, which can meet requirements of different customers
depending upon the customer’s technology needs or spending
capacity.
• Complete familiarity with all the major international
manufacturing codes and practices like ASME, API, AD-Merkblatter,
Pd5500, JIS, UBC, TEMA, Australian code (AS)
With technologies being brought in from various countries in
India, the local Process Plant Industry was exposed to almost
all the International Codes.
• Workshops possessing U, U2 & S stamps, ISO 9001, ISO
14001 quality assurance systems
Today for exports the bear minimum requirement is ISO 9001
certification. Most companies now possess it.
• Well-developed ancillary industry to provide components like
flanges, fittings, dish ends, tower packing, tower trays,
valves, fasteners etc. to international codes.
This is an important aspect, which strengthens the industry.
The industry does have some problems for some raw materials
though, for example, high tensile steel.
• Proven capabilities of delivering complicated design,
engineering and technologically challenging equipment and
systems.
• Is globally competent in terms of conversion costs and
engineering manpower costs.
Here we are talking about conversion costs i.e. the basic
manufacturing costs and not always necessarily the final
price.
• Is able to offer customisation in products and systems to
suit requirements.
This is also a big plus point, which is often not appreciated.
• Proficiency in IT and English language
• Very large pool of technically qualified young persons
• Ability to cope with and work in challenging environments
In today’s volatile world, this is a major asset.
WEAKNESSES
• Indifferent brand image in the international market
Although the Indian industry has achieved remarkable progress,
its brand image is still not good. The image is better than in
the past. But a lot more needs to be done.
• Barring few exceptions, limited financial and financing
capabilities
Very few Indian Companies have financial capability of
attempting large EPC contracts abroad. Even subsidiaries of
foreign companies in India do not have strong balance sheets
and they invariably have to depend on their foreign
counterparts for support for such ventures.
• Inconsistent performance on delivery and time schedules
This is said particularly about the manufacturing sector in
India and especially for deliveries to local projects, most of
which are in public sector. While the industry can certainly
improve its performance by better micro planning, one must not
forget other factors, which lead to delay. Those factors may
not be applicable to exports. Those factors are unrealistic
delivery periods demanded by the customer, frequent design
changes, delays in approving drawings, and delays in
stage-wise inspection and the most important, non-release of
contractual payments in time.
• Inadequate performance on finishing, aesthetics and
documentation
This is definitely an area where the industry needs to work
feverishly. We meet the codes and the equipment is suitable
for application. Yet finishing leaves a lot to be desired.
• Needs to upgrade safety, health and environmental
performance to meet international standards
The feeling in India is what we do in our factory is our
business. Why should the customer be concerned about it? This
attitude has to change. Safety policy and its implementation
is a must for international pre-qualification.
• Inability to work together in partnership principles and
in consortium
The industry must take cue from the automobile component
sector, which has done wonders by working in partnerships and
consortia.
• Operates in an environment having inadequate
infrastructure, high transaction and time costs in every
interface with Government and Statutory Authorities.
This pain is suffered by entire Indian industry in more or
less proportions. The PPM industry has to learn to perform
despite these problems.
ELEMENTS OF STRATEGY
The Strengths of the Indian Industry as outlined earlier
have to be leveraged for securing inaccessible position in the
market. The weaknesses have to be overcome. The strategy
proposed is:
• India Brand image to be established through efforts at
Industry Level. Invite pre-qualifiers to India to assess
capabilities
The market is not aware of progress made by the Indian
Industry. Many carry the same old impression about Indian
performance. The route to major projects in the target markets
passes through EPC and EPCM contractors. Unfortunately, at the
moment, there are very few financially strong EPC & EPCM
contractors of Indian origin. Obviously it is necessary to get
International EPC and EPCM contractors interested in India
industry. Some of the Indian arms of International EPC
contractors are trying their best to promote Indian equipment.
However their priorities are different and they have certain
limitations. The final customer has say in what he
pre-qualifies for the EPC contractor. He also should be made
aware of the Indian capabilities.
There has to be major effort to refurbish the image. One way
is to get the concerned officials from EPC contractors & Users
to visit India and evaluate the capabilities for themselves.
Seeing is believing. PPMAI is in the process of doing this. A
part of visitor’s expenses will be born by the industry with
part assistance from the Government.
• Leveraging the presence of persons of Indian Origin in
the target market
As stated earlier, there are many persons of Indian origin in
Middle Management positions in the target markets. They can
influence the decisions. Many of them are there for more than
10 years. Some of them carry the same poor image of Indian PPM
Industry, as they are not aware of the progress made in India
since then. The persons of Indian origin in key positions must
be identified and special effort should be made to keep them
informed of progress. May be something like Pravasi Bhartia
type of programme could be targeted at them. PPMAI is already
in the process of identifying relevant Indian Technical
Associations in these countries. PPMAI will try and keep them
informed about Indian developments with regular bulletins.
• Public Sectors investing abroad must be directed to
maximise procurement from India
ONGC & Indian Oil are now investing in a big way abroad. When
country’s money is invested abroad, the country’s industry
must benefit. We missed the bus in case of Oman Fertilizer
project, where despite Indian investments, the Indian
companies received minor portion of work. This must not happen
again.
• Shared training in various aspects such as surface
preparation & finishing, Technical Barriers to Trade and SHE
Training is an expensive process, particularly for SME,s. This
has to be done at the Industry level with a view of lowering
costs to individual company. PPMAI is already doing
educational efforts in CE marking & PED in partnership with
CBI Netherlands. Similar major efforts are required in other
areas.
• Industry to upgrade its technology by introducing
automation. Technology Development Fund to be established for
this purpose
The quality issues, the finishing & aesthetics, the
documentation, safety, health & environment issues have to be
addressed by the individual companies. The differentiation
between quality produced for exports and quality for local
delivery will have to go with industry delivering high quality
performance uniformly. However technology upgradion requires
financing. The Government must create Technology Development
Fund similar to what was done for the Textile Industry. It
must be remembered that Process Plant manufacturing generates
employment about 25 mandays per Tonne steel handled.
• Export project working capital funding on merits and not
on basis of collateral security alone
This is a major hurdle PPM industry is facing today.
• Encourage cluster formation, consortia between Chemical
manufacturers & PPM industry
This effort again has to be done at Association level and
perhaps Indian Chemical Manufacturer’s Association and PPMAi
could work together towards this objective
• Tax reforms to ensure that taxes do not get exported.
The EPC contractors & lead suppliers get termed as
Merchant exporters and they do not get any credit for some
local taxes and duties paid. The companies in urban areas pay
as much as 5.5% Octroi on raw materials that go in exports.
The Finance Minister has already promised to take steps in
this regard. Work needs to be done on this at local Government
Level. Further there is very valid argument to grant Design &
Engineering services a status similar to IT industry.
• Indian Standards should be brought in resonance with most
used International Standards
There seems to be some wrong notion, particularly at BIS
level, that it is patriotic to have separate Indian Standard
for each and everything. This does not make sense after
Globalisation. Even EU authorities have accepted that American
Standards are most popular in Petroleum Industry. These
standards are accepted for CE & PED markings. Now Indian Steel
Mills manufacture steel to Indian Standards while the
International buyer insists on Steel as per ASTM with
stamping. Indian Steel companies do give steel to ASTM
standards if quantity is very large. Otherwise, the Indian
equipment manufacturer has no alternative but to import his
requirement. This affects his cost and delivery. I am sure
that other industries must be facing similar problems. A
practical view on Standards is most essential to help make
Indian industry Globally competitive.
The Indian Process Plant & Machinery industry indeed has the
potential of becoming preferred suppliers to Global Process
Industry However there is a lot of hard and smart work ahead
of us. This is the opportune time to make effort to establish
a position in Global Market. The next three years are crucial
in that respect. I am confident that as IT industry has done
it, the Automobile component sector is doing it, it is now the
turn of PPM industry do it successfully. |
|
