First local company to partner a world-renowned auto major
4 years ago
By Uwin Lugoda Recently, Ideal Motors Ltd. announced the establishment of Sri Lanka’s first joint venture vehicle assembly plant with Mahindra and Mahindra Ltd., a well-renowned auto major in India. The plant, which is located in Walipanna, is currently well on its way to completion with a total investment of Rs. 3 billion. Ideal Group Founder and Executive Chairman Nalin Welgama sat down with The Sunday Morning Business for an interview to discuss the new assembly plant. Below are the excerpts of the interview: Let’s start off by telling us about the progress of the new assembly plant. The factory is completed and we are currently in the process of installing machinery. The Indian principals, Mahindra and Mahindra, sent their team – the first kits have arrived. We will kick off with the trial run from 29 July with the hope of completing it by 15 August. Mahindra and Mahindra CEO Dr. Pawan Goenka will visit us and inaugurate it on 17 August – it’s a Saturday. So that’s when it (the plant) will really operate in its full capacity. How big would the plant be? This new plant in Walipanna can produce about 5,000 units per month on a single shift. But as you know, Sri Lanka today is going through a very slack period; people don’t have a high purchasing power and as a result, vehicle sales have plummeted quite badly. So at the initial stage, I’ll be happy if I can market about 100 units per month, and from there, we’ll gradually accelerate to where we want to go. This is not the first car assembly operation in Sri Lanka. How is it different from the others? Our main goal is to produce a proper Sri Lankan car, because if you take the Sri Lankan car manufacturer before the present era, it all started with Upali Wijewardene. In the late 60s and early 70s, he imported kits from Fiat as well as Mazda and assembled it himself using his workforce here in Sri Lanka. Then he successfully marketed it in Sri Lanka. But that was a time when imports were completely restricted and this was the only car available. However, he didn’t tie up with an internationally renowned manufacturer; he was on his own in a place where today he could put out a Mazda and tomorrow a Fiat. In the sphere of cars, this is very difficult because automobiles have grown much from the 19th Century to what it is today. This takes a lot of research and development, and there is a lot of responsibility that falls onto the process of making of these cars – you have to build these cars around drivers. So simply doing it by yourself isn’t going to work and that’s why it didn’t sustain. This is the same with other car assembly plants, as they too don’t have a tie up with an international auto major. It has no proper direction – it’s like a multi-franchise operation. As there’s no one to bring down the technology from overseas or train the staff, it lacks sustainability where the country doesn’t benefit either, ultimately becoming just another commercial operation. But we are different. I partnered with Mahindra and Mahindra, the world-renowned auto major, so that they bring capital into Sri Lanka. It’s something of national importance because it’s the first time in the history of Sri Lanka that an internationally acclaimed auto major is partnering a local company. They own 35% of this undertaking, whereas we earn 65%. We actually physically brought in money through the BOI (Board of Investment), and they (Mahindra) are giving us the technology. And what’s more, in this project, we initially identified one car – KUV 100. It is an India-manufactured car by Mahindra and Mahindra. Why did you pick the KUV 100 for this operation? It sold over 100,000 cars in India already, so this is a tried and tested and already established car. We are starting with the facelifted version KUV 100, which is a 1,200cc petrol car. This is a start; Mahindra is adding new products to their portfolio and these products will come to Sri Lanka. In April 2020, India will conform to Euro-VI or Bharat Stage (BS) VI, and thereafter, electric vehicles (EV) will have to have certain safety standards. So for this, they have earmarked KUV 100, having completed the trials already. This will enter the Sri Lankan market as well. We primarily want to assemble this car in Sri Lanka because we need to understand the technical aspects of EV such as its batteries, cells, and motors. This will embed a vast level of trust in our country. What value-additions would you provide customers by assembling the vehicle in Sri Lanka? We have identified four key areas where we can add value by assembling in Sri Lanka. Number one is seating. All the seats are manufactured by a company called Accolade. Now, this company was a small timer owned by a person called Dimantha Jayawardena. Quality assurance (of the production) was not on par with international standards. Then, Mahindra introduced his company to the biggest manufacturer of auto seating in the world, Magna, which has a plant in India. They got Magna to team up with Dimantha for the seating and they improved his business by bringing him up to the world standard. Today, Dimantha’s company – now called Ideal Auto Seating – only imports the metal frame from India, and they are doing everything else from the forming and finishing to upholstery. That’s a major value addition. Then, in terms of the second value addition, if you take CEAT tyres, they are manufactured here, but for this particular car we are making, the tyres were not manufactured in Sri Lanka. Since CEAT is one of Mahindra’s suppliers in their domestic market, CEAT agreed to manufacture this specific tyre for this car – a tyre that is at present imported to Sri Lanka. As CEAT was able to manufacture this tyre for our car, through this, they are able to extend the service to other models that use this same tire. This is, once again, an import substitution. Number three is the exhaust of the vehicle; there is a person who manufactures in a small scale. Just like the previous scenario, Mahindra introduced him to the biggest muffler exhaust manufacturer in India. They teamed up with him and he manufactures the exhaust. Finally, there is the Exide battery; they also supported the cause by producing a battery which is in compliance with the technical specifications of this car. Can you explain the job creation resulting from this assembly plant? This is not a robot-utilised plant – it’s a very basic one, but it’s a start. At the beginning, we will have over a 100 jobs created, but as we improve and accelerate to our determined direction and get on to the second and third stages, there will be a lot of job opportunities created. More importantly, it is skills development that is going to take place. We have teamed up with the Ministry of Skills Development and Vocational Training to specifically empower the youth in skills development within the automobile field, and with its completion, they will be awarded a NVQ4 qualification. The first batch was taken one and a half years ago, and they just completed their training. They will work for the Ideal Group, will want to go overseas, and some will find jobs in other companies, but they will apprentice under us. We are also currently taking in the second batch. Also, what we don’t see right away is the ecosystem we create around the assembly, with the inputs that go into the making of the car. Those inputs, once they get on to the world stage, can then use the FTA (Free Trade Agreement) we have with India. Chennai has most of India’s plants and it’s only a one hour flight from Sri Lanka. For instance, my seat manufacturer is now qualified to cater to any of the Indian cars assembled there – be it a Mercedes or a BMW. All he has to do now is go a step further, obtain some orders, and take advantage of the FTA. Therefore, I believe there is a creation of ample opportunities along with this establishment. Will these assembled vehicles be exported? We have to first establish the plant here, and once it’s up and running, it becomes a plant of Mahindra, not Ideal. So Mahindra will take appropriate steps to market this in countries like Africa and Papua New Guinea. But these are all in the future, so I’m doing the first things first. How much of an investment was made to set up the plant? The total investment will amount to about Rs. 3 billion, but as we add more and more products, we have to bring in more kits, which means more investment. Do you think Sri Lanka has the potential to become a car assembly hub? Absolutely, why wouldn’t we? We are geographically very well positioned in the world as a shipping and logistic hub. So we can be what Hong Kong is to China, with India as our big brother neighbour. We just need to tap into that.