Getting the right pieces together

Though it is diffuclt to say how long these arrangements will last. Some MNCs like LG Electronics feel that if they get the desired quality through the local suppliers they they will continue out-sourcing, while others like Samsung Electronics feels that the low-end range products like direct cool refrigerators which do not have frost-free facility or semi-automaticwashing machines can be sourced to complement the higher range like frost-free refrigerators and fully automatic washing machines which they will manufacture next year.

Daewoo Electronics is planning to manufacture frost-free refrigerators ranging between 150 lt to 300 lt as they cannot import them. But these multinations are already importing frost-free refrigerators above 300 lt from their parent companies.

Not only the multinationals are utilising the excess capacity of the domestic companies but also the domestic players like BPL is negotiating with Voltas to source direct-cool refrigerators. The domestic players renting out their facilities are mainly Godrej and Voltas. Godrej, having a capacity of manufacturing 12 lakh refrigerators annually and five lakh washing machines at Mohali and Mumbai, manufactured just 8.3 lakh refrigerators and 70,000 washing machines as their Mohali plant was not fully operational.

Godrej has been making refrigerators for Daewoo, and has also made 200 lt refrigeratorsfor Akai, which will have Godrej brandname and will be given free with 21-inch Akai colour television. The concept of strategic alliance for manufacturing is beneficial as both the companies are in a win-win situation. However, the companies which are manufacturing feel that the margins for them are not very high in the business. quot;We tend to benefit as our existing facilities which were under utilised are being utilised now and on top of that we earn some margins,quot; say Voltas executives.

Voltas has three refrigerator plants with an annual capacity of five lakh refrigerators which has been fully utilised in 1997-98. By balancing the equipment, the company aims to manufacture seven lakh refrigerators next year.

Voltas has entered into an agreement with LG Electronics for manufacturing refrigerators. The supply is likely to start from April this year. The company has already started supplies of direct cool refrigerators to Elecrolux from September last year.

This concept has also proved beneficial to thegovernment as any company which is getting the products manufactured on contract basis has to pay extra four per cent central sales tax.

Says Rajeev Karwal, vice-president, marketing, LG Electronics, quot;This is an excellent concept for us. If in future we feel that the contract manufacturers are giving us excellent quality them we may reconsider our manufacturing plans in India. We may divert our earmarked investment in other areas like marketing, Ramp;D etcquot;. LG Electronics entered India in end of 1995. The company has invested 60 million so far in their factory at Greater Noida for colour televisions, airconditioners, semi-automatic washing machines. While, the microwave plant will commence production by September this year.

quot;The concept has been a success in the countries abroad. LG Korea has been supplying walkman to Sony, washing machines and microwaves to Whirlpool, colour television to Toshiba etcquot;, said Karwal.

In India, Onida pioneered the concept of contract manufacturing in 1990 by gettingwashing machines manufactured by TVS Whirlpool. LG Electronics plans to source 50,000 direct cool refrigerators from Voltas. Earlier, the company was getting around 20,000 per month colour television manufactured from Dickson. Recently, the company has started manufacturing colour television on its own.

Says B M Park, managing director, Samsung Electronics India Ltd quot;We want to mainly get these products manufactured through the OEM route to complement our range of frost-free refrigerators and semi-automatic washing machines which will be manufactured next year.quot;

Samsung has invested US 30 million so far in the country, and is planning to invest 1 million in microwaves, and around 20 million in refigerators and washing machines in 1999. Akai also got 30,000 Allwyn branded refrigerators from Allwyn, which the company gave free with its 21-inch colour television. Godrej is manufacturing two models of 165 lt direct cool refrigerators for Daewoo Electronics, while there are plans to get another three modelsof the same manufactured through Godrej or some other manufacturer. Daewoo is holding talks with some companies for getting washing machines manufactured.

Girish S Bapat, sr general manager, marketing amp; sales, Daewoo Electronics, feels that if someone has already invested in manufacturing facility then it makes sense it utilise it if given a chance. The company having invested Rs 180 crore in the first phase, plans to invest another Rs 180 crore in the second phase in two factories at Noida and Ranjangoan near Pune. quot;We have not made any special investment in the dyes and tools in the Godrej factory rather whatever that has been invested will be loaded on to the price,quot; says Bapat.

The contract manufacturing also requires investment on behalf of the company for getting the product made as per the company8217;s specifications of the product to be made. For instance, LG Electronics has made an investment of around Rs 4 crore in Voltas factory in dyes and moulds and has employed four engineers to oversee themanufacturing process. LG also took Voltas employees on a factory visit to Korea to make them familiar with the standards and the quality they expect.

Similarly, Samsung is planning to invest Rs 1 crore for direct cool refrigerators and Rs 50 lakh in washing machines in a Voltas plant.

Going by the the Refrigerators and Airconditioners Manufacturers Association RAMA sales figures from April 1997 to February 1998, Godrej sold the highest number of refrigerators 7.3 lakh, followed by Voltas Allwyn 4.08 lakh, Whirlpool 3.74 lakh, Electrolux 1.63 lakh and BPL 85,000