SPECIAL FEATURE: INDUSTRY IN CHENNAI

Tradition and modernity

V. SRIDHAR
in Chennai

Chennai's position as the pioneering industrial centre of South India and its ability to meet the demands of the New Economy have helped it emerge as one of the fast-developing cities in the country.

R. RAGU

Chennai Petroleum Corporation Limited's refinery in Manali, near Chennai.

CHENNAI, the traditional industrial capital of south India, is keeping with the times. Known for its industrial excellence, particularly in the realm of manufacturing, the city is now home to the new, the glitzy, the modern and the trendy. As a result, old style industries, run from small households in the sprawling metropolis, coexist with new elements of the Information Technology (IT) sector, housed in glass-and-granite buildings. Chennai's advantages are many. The city's industrial culture rests firmly on an abundant pool of entrepreneurial and professional talent. Moreover, the work culture, fostered on the varied talents of its industrial work force, has stood the city in good stead. The traditional advantages, it would appear, have enabled the city to offer a diversity that has become its hallmark.

During the last few years, new shopping malls, amusement parks, bowling alleys and large department stores have come up in the city, drawing on the boom in the New Economy sector. Incidentally, Chennai's broad-based manufacturing excellence and abundant professional talent enabled it to ride through the most traumatic downturn in the IT industry about two years ago. Although Chennai may not be as glitzy as Hyderabad and Bangalore, a quality that can be attributed to their being late starters in the field of industry, it remains attractive to New Economy companies. The usual explanation that a city needs the glitz of shopping malls and amusement parks and other such elements in order to attract talent appears inadequate in the case of Chennai. It does not explain why the city, despite the supposed disadvantages relative to cities like Bangalore, has been so successful in attracting talent to meet the needs of the I.T. industry. Rather, it would appear that the city's advantages rest on a more solid ground. For instance, a more enlightened view among software professionals contends that Chennai's importance as a centre for higher education, particularly in the fields of engineering, medicine and IT, has ensured that companies can reap abundant talent at a reasonable price.

But IT is not all there is to Chennai. The automobile industry, for instance, has enjoyed a long and substantial presence in the city. Traditionally known as a centre for the manufacture of automobile components, Chennai now has two large automobile manufacturing units of the Korean car auto major, Hyundai, and the American pioneer of the motorcar, Ford. Both also undertake substantial exports of cars from their plants in the city. But there is more to Chennai's strength as an automobile manufacturing centre. Ashok Leyland, a leading manufacturer of trucks, and Hindustan Motors Ltd., a heavy vehicle-manufacturer, are based in the city. MRF, a leading tyre manufacturer, is also based in the city. The TVS Group, a part of the city's commercial existence, has in its fold several companies that produce components for automobile manufacturers. An important facet of the automobile industry in the city is the presence of a vibrant small-scale industry, which works closely with the larger manufacturers of components. Small-scale units and ancillary industries remain a vibrant part of the city's industrial culture, though many of them have gone under since the economic liberalisation process began a decade ago.

Hyundai Motor India Ltd (HMIL), a subsidiary of the $47-billion Hyundai Motor Company, is planning to make its Indian manufacturing plant a global export hub. This project is expected to cost an investment of $200 million. The plant at Irrungattukottai near Chennai is its only production facility outside South Korea. The production capacity of the Indian subsidiary will be ramped up to 400,000 units a year in order to cater to the domestic market and overseas markets, especially in the United States, Europe and South America. Moreover, the parent company has also decided to make the Rs.4,000-crore Indian subsidiary's plant into a global production base for the compact car segment. In the first phase, it plans to increase the capacity to 250,000 units a year by 2004 from the current 150,000 units.

The Korean company has already made a cumulative investment of $750 million in its Indian operations and has upgraded its Irrungattukottai facility to global standards, benchmarking it to its Korean production base. With a share of about 20 per cent in the domestic market, the company aims to double export revenues to $280 million in 2004, from about $120 million in the current year. Maruti and Ford India are the biggest exporters of cars from India, followed by Hyundai India.

The company's global strategy is to gradually shift the export base from South Korea to India so as to reduce shipping costs associated with transportation to European and Latin American markets. Moreover, reduced delivery cycle times is also a factor that has influenced Hyundai's decision to designate its Chennai facility a global hub. Hyundai is aiming to emerge as world's top five car-makers by the end of the current decade. To achieve this it has to sell 5 million cars a year globally, a sharp increase from the 3 million units that it sells now. Hyundai plans to convert its Indian production base as the second largest mid-size car facility and set up a manufacturing facility in the U.S. for large-size cars in the near future.

In August, Ford India Ltd., the Indian subsidiary of Ford Motor Company, commenced exports of automotive components to the company's plant in China. It expects to export Rs.50 crores worth of components to China in calendar year 2003. The parent company is setting up a plant at Chongqing in China as a 50:50 joint venture with Chongqing Changan Automobile Co Ltd. The joint venture, Changan Ford Automobile Corporation, will manufacture the Ikon and production is expected to commence in the next few months. Currently, Ford India makes the Ikon at its plant at Maraimalai Nagar near Chennai.

N. BALAJI

At Tidel Park in Taramani, Chennai.

The Ikon to be made in China is to be similar to the car made in India except that it will be a left-hand drive. Over the last few months, several teams from Ford China have undergone training at Ford India's facilities on various aspects of stamping, body welding, assembly and quality engineering. The company is exporting completely knocked down kits of the Ikon to South Africa, Mexico and Brazil. The components that will be exported from India to China include regulators, steering columns, horns, some chassis components, hinges, brackets, hoses, gearshift knob and smaller metal parts. A total of 169 different parts will be exported, which in value terms works out to $400 to $500 worth of components a car. With the export of components to China, Ford India expects its total exports during 2003 to be worth about Rs.300 crores.

CHENNAI is also an important base for the chemical industry. It is home to Chennai Petroleum Corporation Ltd (CPCL), one of the largest integrated petrochemical refineries in south India. The publicly-owned CPCL's refinery at Manali has attracted several smaller units. The Manali complex acts as a "mother" unit, supplying basic petroleum feedstock to other units around it. Several smaller units, using CPCL's feedstock, manufacture a range of products such as fertilizers, polyolefins, nylon chips and polybutane. The company was incorporated in 1965 as a joint venture by the Union government in partnership with the American company Amoco and National Iranian Oil Company. CPCL produces fuel products, lubricants and additives. It manufactures fuels such as diesel, kerosene, liquefied petroleum gas (LPG), aviation turbine fuel (ATF) and bitumen. Its range of feedstock includes propylene, superior kerosene, butylenes, naphtha, paraffin wax and sulphur.

Also at Manali is SRF Ltd., formerly known as Shriram Fibres Ltd., a major manufacturer of nylon and nylon tyre cord. The plant at Manali, established in 1973, produces nylon tyre cord fabric for bicycle tyres, industrial and belting fabrics, synthetic fabrics for industrial applications, industrial yarn and fishnet twine made of nylon. In 2000, SRF took over Du Pont's plant in Gummidipoondi near Chennai. The Southern Petrochemical Industries Corporation (SPIC) is another important conglomerate in the city, with a strong presence in the chemicals manufacturing sector. MRF, which started as the Madras Rubber Factory in 1946, as a small unit making balloons, is now one of the biggest companies in Chennai in terms of turnover.

Chennai has a long tradition as a prime engineering centre. This has been fostered by the entrepreneurial ingenuity of the many small units that dot the city's industrial landscape. These small units provide ancillary support to the larger units engaged in the manufacture of automobiles, castings and forgings, foundries, electrical and non-electrical machinery and transportation equipment. The industrial estates in the city provide, apart from other amenities, factory space at relatively low rates. The largest industrial estate in the city, at Guindy in Chennai, was established in 1958. This estate is spread over 100 acres (about 40 hectares) and a range of small scale units operate from here.

Chennai is also an important financial centre. Trading and industrial activity, and the proliferation of financial services have led to the rapid growth of financial companies. The all-India financial institutions and the commercial banks are prominent participants in the city's industrial activity. Several multinational banks, among them Standard Chartered, ABN-Amro, Citibank and Hong Kong Bank and Bank of America, have their offices in Chennai. But the traditional financial entities such as nidhis, chits and indigenous financiers are also active in the city, despite the recent meltdown that affected non-banking financial companies (NBFCs).

Ironically, the widely held perception of Chennai as a conservative city is what has protected its residents from the wide gyrations in property prices, which has plagued other cities. Generally regarded as a more sober real estate market, property prices in Chennai have not moved as sharply as in other cities. During the 1980s, when property prices appreciated sharply in other cities, mainly because they came under the grip of speculators, prices in Chennai did not increase at a feverish pace. Subsequently, when property prices fell, they did not fall as sharply in Chennai as they did, for instance, in Mumbai.

The process of economic liberalisation has unleashed a consumerist culture in Chennai. This is exemplified by the way the simple act of shopping has changed dramatically in the last decade for those who can afford. For the elite, buying from the local store at the street corner is now passé. Instead, large department stores have emerged, which pander to the needs of the upper middle class and the elite. In effect, the new concept of retailing, selling a fast proliferating range of brands, has caught on. Among the biggest retailers of consumer durables in the city are Viveks and Vasanth and Co, which offer potential customers a range of brands in the same premises so that they can compare and choose what they want to buy. Viveks claims that it has the largest retail chain for consumer electronics and home appliances in the country.

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