Bharat Forge's rise to global status

Through the foresight and leadership of one man, the Indian auto-parts manufacturer Bharat Forge, based in Pune in western India, is today a role model for many manufacturing wannabes in India.

by The Boston Consulting Group/Knowledge@Wharton
Last Updated: 23 Jul 2013

It has shown that Indian companies can compete on a global scale in manufacturing as well as services. Bharat Forge makes its components based on the latest technology and a highly educated workforce. It competes in spite of a poor infrastructure at home. For instance, it has had to build its own power generation capability. Poor roads and a slow service in the ports, however, are still a serious handicap.

The company's chairman, Baba Kalyani, realised in the 1980s that the company could not compete globally on the basis of a low-skilled workforce and low-level technology. Therefore, in 1988 the company invested one billion rupees (at the time its turnover was 1.5 billion rupees) in a German-engineered plant.

It also instigated a complete change in its workforce from blue collar to white collar, the latter being better able to take advantage of the new technology. Today, the company employs around 4,000 people - 80 per cent of them are college graduates and a third engineers.

When there was a sharp downturn in the Indian domestic market in 1996, Bharat Forge was able to build its export market. It had a chance to do so because the market was fragmented globally and therefore it was not shut off by the domination of a few big players. Second, it was an industry where skilled manpower mattered; third, auto companies were spread across the globe and thus more open to sourcing from a wide number of suppliers; and finally, in a capital-intensive and highly competitive industry it was advantageous to outsource to reliable high-quality suppliers.

Between 1997 and 2005 Bharat Forge's exports grew more than seven-fold from $16 million to $117 million. Following a series of acquisitions, the company now owns eight plants - two in India, three in Germany and one each in Sweden, Scotland and the US.

Finally, a new joint venture with China's FAW (previously known as First Automotive Works) in March 2006 opened up the large Chinese market to Bharat Forge. Its acquisitions give the company the ability to supply its customers from two plants - one in India and one closer to market. This is known as their 'dual-shore supply model'. If Bharat Forge continues to grow at its current compounded annual rate of 66 per cent it might achieve a turnover of $1 billion in 2008, more than double the $460 million of 2005.

The lessons
1. A focused and well managed company can overcome constraints such as poor infrastructure and inflexible labour laws.
2. Highlights the challenge to maintain a highly skilled workforce in a country such as India where the education system does not produce such skills in large numbers.
3. Shows that India needs to broaden its industrial base to include competitive labour-intensive industries such as electronics, textiles and shoes to create a broad globally competitive manufacturing capability.

Source:
Bharat Forge Pulls Ahead of Indian Manufacturing, but Obstacles Lie Ahead, What's Next for India: Beyond the Back Office
The Boston Consulting Group/Knowledge@Wharton
Review by Morice Mendoza

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