CHANGES, CHALLENGES & SOLUTIONS FOR FOUNDRY INDUSTRY

Dr.Nithyanandan Devaraaj
Foundry Business Unit
Larsen & Toubro

The Beginnings:
Post-Independence till late 80s, Challenge for
Indian foundries was to find & fund technology,
train people & identify suitable businesses.
This reflected in the attitudes of both promoters
& job seekers too merely wanting a means of
earning.

Over the years, this has led to deep fragmentation of Foundry Industry. While Asian
Counterparts continued to expand and took advantage of scales, Corporatisation of Indian
foundries still remains a dream.

Since early 2000, quest for cost based decisions lead to proliferation of orders and foundries
of newer order emerged. As a result, product specialised foundries emerged as niche players,
eliminating the burden of carrying varieties on their shoulders. For business metrics, this
proposition offered the best value in terms of costs, rejections and lead times. Foundry
processes evolved into a science from being an art.

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The Path:

Post liberalised era threw new challenges. Global players forced competition on customer
industry and in turn foundry industry in India. Parallel changes in Indian social system
brought in its own characteristics. Unique nature of Indian foundry Industry has been
technopreneurs who owned & operated foundries, successfully. This continues to pave way
for newer foundry entrepreneurs.
Contributing factors to such trends were low entry barrier, dis-incentive to continue in
employment, Management styles of entrepreneurs, limited earnings growth for foundry
employees. In an open financial & social set-up, few professionals joining together to start a
foundry is quite common in India. Alternately, it is also easier to start a foundry joining hands
with an existing entrepreneur who was front ending as a machine shop, as a backwardintegration strategy. Lower salaries & limited growth potential for foundry professionals
while in employment has augured well for aiding going on own decisions. Entrepreneurial
management styles too heavily favour family sided professionals and not professionals who
grew the company and aspire to grow along with. In short, Indian Foundry Men in
employment, irrespective of cultural, social & financial upbringing, aspire to be on their own
at the earliest best opportunity.

Such diluted entrepreneurship though perceived a major strength of the country, has
brought in its own challenges. This is more so in the present circumstances.

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Present Scenario:
Even Onions fetch more price than castings..

In the end-product market, volumes are either stabilising or in the decreasing trend. Every
casting user industry is expected to consolidate and quite naturally there is a possible
reduction in the number of players. Existing customers try taking advantage of the situation
and push new entrepreneurs to take volumes at lower prices. In a situation wherein close to
half of installed capacity being idle, many foundries are desperate for orders and hence fall
prey to such overtures.

Given the buyers skewed rationalism, such behaviour shall continue to prevail as long as
foundries are willing to get exploited. As a result, prices & thus margins for Indian Foundries
have come down drastically when compared to foundries in other notable Economies. For
example, prices of automotive components have remained more or less stable despite
increase in commodity prices and end product prices between 2007 and now. On the extreme
end, You have prices of castings for applications like motor bodies, housings & wind turbine
applications coming down by almost 30% despite steep increase in in-put costs.

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On the back-end, supply chain for foundry materials in India is still evolving and continues to
depend a lot on imports, at least for basic in-puts. Given the disbursement of ownership &
capacities in Indian Foundries, advantage of volume based purchase is lost. Added to the lack
of transparency amidst foundry community, foundry suppliers get a significant advantage.
There are at least two large foundries in South, which have a great volume advantage and
costs are significantly lower by an average of 22% when compared to many smaller
foundries.

Examples in Other Countries:

This is in contrary to evolution of Foundries in rest of the world wherein consolidation is
order of the day and scales play a major role in pricing of castings.

In Europe for example, there have been foundries getting consolidated under single umbrella
(like Silbitz). Given the lack lustre growth in the market and the European culture, it is quite
natural industry specialisation helps foundries to consolidate. Even OEM owned foundries
(Vestas, Siemens, etc..) are being divested from.

In China, clusters are very significant. Blessed with all natural resources that highly suit
foundry industry, Chinese rule the casting Industry. Many even make materials to their
specifications given the volume of requirements and hence are competitive by at least 30%
over their Indian counter parts.

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Both in Europe & China, average size of foundries are in the range of 75000Mtpa and
upwards. Governmental intervention in China prevents unfair price competition and favours
large size investments. Moving into the next decade, only very large, completely integrated
foundries which may have the capability to make their own in-put materials starting from
Pig Iron to Ferro Alloys (in the range of 200000Mtpa+ capacity) will exist in China.

Indian Experience - Problems Galore:

We are now in uncharted territory. Orders may come and go, but there is no certainty that
they will last longer. Foundries may be born as quickly as they may die, and some may
expand as quickly as they may contract. Industry is now more vulnerable to the vagaries of
global bumps and local troughs. Sometimes both may come together-as being witnessed now.

The game has changed, and Indian Foundries must, therefore, change their game too.

Size Matters:
As seen explicitly above, small will how long
remain to be beautiful is very uncertain. To be
Global, scale becomes an imperative which
gives both buying & selling power. This is by
far true, unless Foundries operate in certain
Market Matters:
unique & niche products. (There are a few
foundries in South, who are happy making only
100 tons per month on an average, realising
higher prices & margins, operating very lean
and with zero risks catering niche products to
niche customers at un-imaginable prices.
There is another segment of Foundries which cater to un-organised requirements and making
Indian Foundries are quite often compared with European counterparts for bench marking ingood money with segmented selling. These are foundries not affected by compulsions of
terms of productivity and quality. There are a few MNC customers operating out of India and
MNC customers in terms of QCDL and their vagaries, including lack of supplier loyalty.)

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Market Matters:
Indian Foundries are quite often compared with European counterparts for bench marking interms of productivity and quality. There are a few MNC customers operating out of India and
are kind enough to share & transfer their experience & learning. It is only a few Years since
Indian foundries have started producing castings of certain critical alloys and larger sizes.
Hence, there is already a reference. On the contrary, European Foundries have evolved along
with the user industries for such requirements. This is to be understood in right perspective
while making comparisons.

It was pretty surprising to note even established MNC suppliers do not recognise this. Indian
foundries are really exposed only when they cater consistently to Western requirements. It is
important to recognise the averageness of foundry inputs supplied in the Country. Wish to
highlight a specific experience in producing a 15Mt casting. While deliberating certain
quality issues with suppliers, it came as a surprise that they do not sell equivalent products to
Indian foundries as supplied to European foundries. This was revealed only because a one-toone comparison was done with a European foundry making the same part. It is anybodys
guess what happens if such comparisons were not possible.

A major outcome from the discussion is that suppliers do not have enough volumes in India
to repeat one-to-one their products in Europe. Option is given to the Foundry to import
directly. Imagine, we are to produce castings at Indian Prices!

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EHS Matters:
Eventually what matters to customers in rupees-anas-paise.However good the facility is, in
a bid to reduce costs final decisions by customers are made only based on price. Very rarely
softer requirements are recognised. Current situation has further aggravated such demands
and it is dog-eat-dog race for Indian foundries. Obviously, certain foundries do not realise
what the right price is and the entire Industry is forced to subsidise customer fraternity.

Evolving regulatory compulsions both from Environment & Employee Health & Safety
perspectives will render it no more possible to continuously subsidise castings. This is to be
recognised strongly and earlier the better.

Solutions:
Its time wisdom prevails upon Indian foundry men to make sure they dont kill each other.
While entrepreneurship need to be encouraged, it is pertinent to make a proper demand
supply gap assessment before venturing new. This is true even when making business
integration decisions.

Earnings of employed Foundry professionals should raise to levels wherein incentive to start
on their own are not significant. This is important to safe guard the interests of existing

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foundries. It is essential, especially in Foundry Industry, that budding entrepreneurs

differentiate entrepreneurship from a means of living.

While attempting to indigenise, it is important to understand the specific past experiences. It

is to be recognised that castings specifications can be consistently met only when all in-puts
match the requirements. Specific experiences will help to understand all such specific
requirements. Indian Foundry Men, both employees and employers should open themselves
to accept and adopt such learning, benefit out of these experiences irrespective of source.

Absolute cost does not always matter. Given the multifarious factorial nature of Foundry
processes, if an in-put is to be imported then better be it. Attempts should to be to control
what can be controlled right at the beginning and across processes.

A no-compromise approach while drawing specifications for both processes & in-puts are
essential for succeeding consistently in international markets. This is more so as human
intervention in foundry processes cannot be eliminated.

A participative cultural orientation for sustenance is imperative at this moment. This is

important across the value chain from customer to supplier. It is time stake holders
recognise the importance of distributed earnings amongst all players in the value chain.

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Leveraging resources for strategic advantages is a welcome scenario. For example, today
energy cost which is quite significant can be managed with good planning by alternating
sources of supply. Similarly, HR involvement can be enhanced through a concept called
distributed entrepreneurship for shared costs & benefits. Creating specialist technopreneurs through in-sourcing and/or pooling through cluster approach could be another
strategy.

Moving up the value chain is now not a choice for Indian Foundries. This will sooner emerge
as survival strategy. Within the framework of user Industries requirement, Indian foundries
should technologically position themselves to offer application based solutions. Hence,
people in Foundries should first move up the value chain in terms of knowledge & exposure.

Its time innovative capabilities of Indian Foundry Men are exploited for overall benefits of all
stake holders. In short, Indian foundries should be technical solution providers than mere
jobbers.
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