Published in: EM India Jun/Jul 2010, p. 38
aerospace manufacturing  |  

Indian aerospace: vision 2019

A Delphi Expert Panel study has analysed the environment of the Indian aerospace industry and identified key enablers.

Riding on the back of low cost of labour and pool of engineers, India has recently emerged as a player in the aerospace industry. The growth in India’s manufacturing sector and the rising stock of its R&D capabilities are bound to have repercussions not only in the Indian but also in the international aerospace markets. For example, it is anticipated that India’s MRO (maintenance, repair and overhaul) segment will grow at 10 per cent annually, reaching $1.17 billion by 2010 and $2.6 billion by 2020. However, what is really required beyond actual market size extrapolations is a better understanding of where the Indian aerospace is heading to in a highly dynamic political, economic, social and technological environment. Through the presentation of various projections on the future of the aerospace industry in India based on a Delphi Expert Panel, this article wants to provide a short overview on potential developments (a detailed study report is available from the author upon request). We selected a two-stage approach for our analysis. In the first stage of the Delphi survey, aerospace experts from the worlds of business, politics, and science were given 18 projections from the following subject areas to provide their opinions on: ? political environment of the aerospace industry in India ? value-chain configuration of the aerospace industry in India ? technological environment of the aerospace industry in India The survey was conducted online with the help of a web-based application of the Centre for Future Studies at European Business School allowing real-time evaluations and feedbacks. The participants were asked to assess the projections in terms of the probability of occurrence, their impact on the Indian economy, and desirability using the ratings scale provided. They were also given the opportunity to justify their responses by providing comments. On the basis of these different responses provided by the participants three clusters of projections are very prominent: Cluster 1: Black swans High-impact surprises or black swans are characterised by a low expectation probability, average to high impact and moderate desirability. Two projections from this study were assigned to this cluster. Projection 1 (no FDI limit in the defence sector) is considered to be highly unlikely, although if it happens it will have a high impact on the industry – there is a consensus among the experts. Similarly, projection 13 (full range of aircrafts) is considered to be unlikely but with a high potential impact. Cluster 2: Aces The second cluster, high-impact eventualities or aces, refers to projections that are characterised by a moderate expectation probability, high impact and moderate to high desirability. Four of the projections considered in this study fall into this category. Projection 14 (Integrated Solutions) is the one with the highest impact. It’s considered highly desirable as it has a big potential impact. Projections 3 (Offset Policy), 4 (IP Protection) and 9 (Material Technologies), too have a potentially high impact and desirability. Cluster 3: Industry drivers The third cluster refers to high-impact expectations or industry drivers. Projections that fall into this category are characterised by a high expectation probability, high impact and high desirability. In this study, three projections fall into this cluster. Of these, projection 5 (High-skilled Manpower) and projection 6 (R&D Investments) are considered highly desirable. Significantly, most experts seem to be expecting India to be a leading MRO hub in Asia (Projection 16). Indian aerospace industry in 2019 In the second stage part of the study, we developed possible future scenarios for the Indian aerospace industry based on the insights that we have collected from the experts questioned. Analysing these scenarios broadens companies’ horizons for what may happen in the future in terms of products and services, strategies, processes, and solutions. We have rather compiled a summary of the key insights that might be useful for most aerospace managers as a summary. Political environment Projection 1 - FDI limit: based on the expert opinions it is clear that the FDI barriers on foreign participation in aerospace & defence production will probably remain. However, the FDI limit may be relaxed from the existing 26 per cent to about 49 per cent in the defence sector while for the commercial sector even higher limits might evolve. Projection 2 - Tax benefits: the Indian government is trying to encourage investments into the aerospace sector. Projection 3 - Offset policy & its implications: the offset policy is expected to ramp up the domestic aerospace industry both in terms of scale & technological capabilities. Projection 4 - IP protection: it is a very high impact enabler which will encourage global players to start their cutting edge R&D activities in the country. Improved IP protection policies are expected from the government. Projection 5 - Shortage of skilled workforce: based on the expert opinions it seems likely that the current shortage of skilled manpower for the aerospace industry will be resolved in 2020 and will act as one of the most important enablers for the progress of the industry. Technological environment Projections 6 to 10 – Summary: from the technological projections, advanced research in Unmanned Aerial Vehicle (P7), composites (P9) and alternate fuels (P8) seem very unlikely to happen in India. However, based on the expert the increase in R&D investment, P6 emerges as an important projection. It is expected to drive the Indian industry to move up in the value chain and provide necessary impetus for the much needed progress. Value chain configuration Projection 11 - Dominance of foreign players: not unexpectedly, foreign players will (still) dominate the aerospace industry in India. Domestic companies will find it difficult to challenge this situation especially given the technological gap between them and the foreign companies. Only at the bottom of the value chain where cost advantages overpower technological prowess, will Indian companies be able to dominate. Organisations like HAL or ISRO are, however, expected to create and sustain their niche positions and evolve into the larger aerospace value chain configuration. Projection 12 - Role of R&D and engineering: these areas are not expected to have a major role in the Indian aerospace sector over the next decade. While these functions will support growth in the aerospace sector, the major competitive advantage of the Indian aerospace sector is expected to be its labour cost competitiveness in the manufacturing area. Projection 13 - Competitive across aircraft models: this is rather unlikely to happen given that the Indian aerospace sector has virtually no experience of aircraft design or manufacture outside of the government owned companies. However, the Indian aerospace sector is expected to develop basic competencies in aircraft manufacture - at best we may see Indian companies becoming competitive in development of small and medium aircrafts. Projection 14 - Integrated solutions: it is also unlikely that the Indian aerospace sector will be able to deliver fully integrated solutions. The experts, however, maintain that significant progress shall be made towards attaining such capabilities until 2019. Projection 15 - Indian companies dominate MRO segment: this projection is also very unlikely given that India is not only a late entrant into this sector but there already exist fairly well developed MRO hubs in Asia. The civilian MRO sector is therefore expected to have significant foreign exposure but on the military MRO side India may be able to be a leading player in Asia. Projection 16 - India as MRO hub of Asia: this is more likely although India will find it difficult to catch up with the existing MRO hubs in China, Japan, Singapore, & Korea. Domestic demand and India’s central geographical location should boost MRO significantly and turn India into a major MRO hub in Asia. Projection 17 - Cost advantage as only growth driver of Indian aerospace sector: the Indian aerospace companies will have to shift from competing on lowest prices only to competing on superior technology and delivery of more integrated solutions. Projection 18 - Access to skilled manpower is the only advantage: this is unlikely to happen although some experts put a very high desirability to it. The Indian aerospace companies will draw their advantage from a combination of factors primarily low costs and expertise in certain parts of the value chain like basic design & engineering services as well as low end component manufacture. Conclusion In sum, the outlook for the value chain is that Indian companies will gain significant exposure across the value chain but it will take them a fair amount of time before they can master all the necessary steps in the value chain. Nevertheless, Indian aerospace firms are expected to develop strong competencies especially across the lower end of the value chain by offering good quality products are substantially lower costs.

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