For Dr Surinder Kapur, Chairmanand Managing Director of Sona Koyo Steering Systems, quality is just a way of life. After winning the coveted Deming Quality Award in November 2003, he is now preparing for the Japan Quality Medal.

Dr Kapur talks about issues concerning the Indian auto industry and shares his vision of taking his organisation forward in the years to come.

Sona Koyo won the Deming Prize in 2003 and last year, made its first overseas stakeacquisition in Fuji Auto Tech. What kind of changes have these developments had on your company?

The Deming Award looks into not just into the quality of products but the quality of management of the company concerned. In the process of applying for this 'challenging examination', you actually transform the organisation quite substantially. When you start working with these tools on a day-to-day basis, the whole organisations starts working in the same direction.

So if you have 500 people working in the same direction, you are able to get excellent results. This transformation gives a company a lot of pride and self-confidence that it may have not had earlier. This is the biggest benefit of a Deming Award. It gives you a mindset which tells you that nothing seems impossible.

It also gives you the confidence that if you can operate in India you can also operate anywhere in the world. That is why we took a minority stake in Fuji Autotech. We have put people out there and are benefiting from learning how an international organisation and an international business operate.

In our quality journey, we never looked upon Deming at anything more than another milestone. We wish to apply for the Japan Quality Medal (JQM) this year. This award has only been won by Sundaram Clayton. Therefore, after we learned to transform the organisation into a Kaizen type of organisation, we are carving out separate smaller organisations within the organisation to create, what we call an ambidextrous organisation, so that we can begin to look at some breakthroughs.

We have actually had some stunning results in the last one year. On the shopfloor, we had 30 percent productivity improvement within one month. We have also created products for which we intend applying for patents.

I think I am very satisfied with the performance of the company. I would not be fully satisfied till we actually reach zero PPM levels, reduce downtime and also reach higher employee satisfaction levels.

Today every company needs to do Kaizen or continuous improvement as part of TQM. Every company must recognise that every business, every product has a life cycle. If that business or product is not re-invented before it dies, you are not going to exist for a long period. Therefore breakthroughs in organisations are very critical. In fact, last year we had Professor Shiba from Japan to help us understand how we could do breakthroughs. He has taught us how to work with new concepts.

So Deming and JQM are good benchmarks for you to make inroads into global markets?

These are wonderful benchmarks. I wish more and more companies Indian would follow them as they help them improve. I have been in manufacturing management for a long time and I can tell you thatwhat I have learnt in the last three years, I had not in 30 years. The practices are so robust, the processes so clear and it is great enjoyment in managing an organisation with these procedures.

You have also bought stakes in a Brazilian and Czech companies. How much does these help in getting a foothold in your global plans?

We had some surplus cash in Fuji Autotech France and with that we bought 100 percent of a Brazilian company, and 66 percent of a Czech one. We acquired thesestakes through Fuji Autotech France. We wanted to consolidate our passenger car steering column businesses in Europe, and set up a holdng entity called Fuji Autotech Europe, where Sona Koyo has 17 percent and Fuji Keiko Japan owns 83 percent.

Fuji Autotech France was a Euro 80 million company when I bought a stake and the plan was to go up to Euro120 million in five years. Fuji Brazil is a small company worth Euro 5 million. We want to make the Czech company an Euro 80-100 million company in the next five years.

Are you looking at more acquisitions?

One of our objectives is that we need to have organic growth. However, we need to first realise the whole objective of going in for more acquisitions. We are also making investments in India. We have just bought land in Dharuhera in Haryana to build ourelectronic power steering plant in which we will invest Rs 35 crore. We are also going to localise out pinion valve assembly and that will involve another Rs 30-40 crore ofinvestment.

Among the many learnings we had from doing international learning is the need to make the necessary investments before actual business. Last year, we made a commitment of 10,000 units of a product every month to a customer and we actually went to 20,000 units in the whole year. Within six months, the client wanted to go to 20,000 and we had to scamper for capacity. So, we need to accept the fact that we need to create capacity ahead of actual business.

Larger business opportunities also mean bigger challenges of integrating systems and processes. What do you think are these challenges and how do you plan to cope with them?

We are using information technology as a major integrator amongst all our facilities. Besides that, we have just restructured our organisation. Today, we have two major operations in Gurgaon and Chennai. We have created an organisation for these operations - a matrix type of an organisation with aspects like information technology, human resource development,accounts, corporate affairs, quality, quality systems, marketing, designs, development and testing, coming under a more integrated framework.

In addition, we are creating different structures where within each plant, we will have a plant management committee or group. There is also a company-wide management group which will actually monitor all the operations. We may have to look at other locations as we go along.

Are you looking at diversifying your product range?

We are looking at different products. As a group, we are starting a new business which is the car rental space. We have got a franchise with a European company called 'Sixt' and are starting off with a soft launch at the Auto Expo in January. We are looking at a major launch in two to three months. It is a foray into the services sector and we as a family felt we should not be investing only in the manufacturing sector. The new business will operate as a separate entity andbe called Sixt India. We are starting this as a B2B business and want to target corporates.

Secondly, we are merging two of our companies - Sona Somic Lemforder Components and Sona Cold Forgings. The reasons for this is because both these companies have the same shareholders and it gives us opportunities to find synergies between the two companies. Sona Okegawa has put up a plant in Pune and we are expanding that. We are going to put up another plant there and are right now negotiating for about 30 acres.

The plant currently is for heat treatment and we plan to put some presses there. Mahindra Sona is also at a very critical stage as we are trying to define what it would do in the next few years. Our engineering services company - Sona e-Design is getting some small, but very interesting business orders from overseas. They are trying to develop for the Sona Group a virtual design centre.

As an industry, how do you see technology evolving among component manufacturers in India?

I think individual companies would have to look at their own technologies. The good thing is that because of the threat of WTO orFTA, a lot of people in the automotive component industry have started doing R&D. Fortunately, there is an R&D incentive as well. But I think R&D is going to come about with some technological development that each one of us would have to do. There is lot of work that has been done in the area of process improvement but perhaps, not so much in the area of product improvement so far. In our company, we see ourselves applying for lot of patents as we go proceedbecause new products are being developed. Not all of them will get commercialised but at least you have a bank of products that you can tap for the future. R&D is an activity that has started off now in the automotive sector and I think in the next 5-7 years we are going to see a lot more Indian products developed here in India and not abroad.

Would you say Indian companies are not doing the real R&D required to take the industry to the next level?

No, I do not think that is true. At least we are. Mainly, expenditures are not as huge as they used to be because a lot of the work is done in the virtual space. We are doing that as well. Thanks to technology, one does not have to do everything in physical terms. but can begin to do some work in the virtual space. Many a time you may not even hear about R&D because most companies don't like to talk about their R&D activities because of the nature of products.

We have the right human resources. Capital will be required not for R&D activities, but for capacity expansions and all. We are also going to see a lot of private equity flowing into our auto component industry because there are great opportunities for making quantum jumps. The valuations are good so promoters of these companies do not mind letting others come in at a good valuation.

You did refer earlier to the threat of FTA. What kind of opportunities does this and other trade agreements give India?

I get the feeling we should not jump into free trade agreements or any other kind of agreements. We are going to be a part of the WTO anyway. I don't think an FTA between equals has any meaning. We should do an FTA with Japan. Where has an FTA really worked? It has worked in the US with NAFTA. That's because Mexico got advantage from the US and vice versa. They got real benefits from each other.

To me, Thailand and India doing FTA has no real significance.We should do FTAs with Japan and Europe. If two equals fight with each other, the FTA has no meaning. Those FTAs are because of political, not economic considerations. From the economic perspective, there should be FTAs with unequals so they can take advantages of each other. In doing that the market gets owned up by them.

If we have a zero duty base with Japan, all the machines tools that come from Europe would come from Japan. That benefits them. Similarly, we can make all the items they are importing from Thailand and other places. My cost should come down because I get the benefit of zero percent duty.

Is China as an opportunity or a threat to the Indian industry?

I see China as a big market and as a fierce competitor. They have a growing market, which is good. I think we should take China seriously. We should not talk in terms of they not having engineering excellence.The fact is that Lenovo acquired IBM's PC business. All of a sudden it has put them in a high level of manufacturing. They now have plants all over the world and will get experience in manufacturing from all over the world.

I think they are a country to be reckoned with and we should not belittle their skills. We should not look at them from a very myopic point of view.We have begun to buy some parts from China and are looking at how to sell some other parts to them. China does represent abig business opportunity.

Do you believe the government has given enough support to the component sector?

I don't think the government has been as supportive as it should have been.

It keeps talking about the Asean rates of duty. We agree with the ASEAN rates of duty but not on the average. If you look at element-by-element, say for example, import duty on auto components, whether its China or Thailand is around 30-35 percent. India is 15 percent already and there are talks of reducing it further. We don't mind going to Asean rates but they are talking of bringing the average down. Now, the average is on many items. But if you specifically look at auto components, I think it's wrong for them to say that the average excise duty is eight percent.

Having said that, the government has been very supportive in recognising that auto components can be a major manufacturing industry. India needs jobs and that can only come through manufacturing. We need to support manufacturing and auto component industry is one such industry that requires government support. In this context, why isn't the government recognising the fact that Asean rate of duty is not 8 percent, but 30 percent for auto components. I believe a lot of manufacturing can be done in India in auto components. We need to recognise that. We tried exporting some components to China and realised the import duty structures are too high. China is a protective industry and we have not been able to do much about that.

What has been your strategy for success?

We are very clear that till we do development of new products our strategy would basically be towards quality and cost. When we develop products for new customers, we will go into product development mode, where our design company would play a big role. We have already started a project with a US company where we are working on an off-highway activity. In the export arena, we have atwo-pronged strategy. One, grow as a large volume contract manufacturer and secondly, as a lower volume niche player.

Finally, what's your vision for the company?

We already have a stated vision of 2010 that we must be export 45 percent of our total sales and that we should continue to retain the number one position among steering manufacturers in India. To achieve all this, we have a detailed action plan. We are a learning organisation and the culture is one of continuously trying to improve. We are trying to create another culture where smaller organisations do entrepreneurial R&D work, create new products, create new markets so that we become an ambidextrous organisation.

I believe the learning we have had from our TQM guru Prof T'Suda and breakthrough guru ProfessorShiba is really that we continue to practice and pursue. These will benefit us enormously.

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