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Columbus, Ind.-Based Engine Maker Outsources to India in Global Economy
By Michael Oneal, Chicago Tribune Knight Ridder/Tribune Business News
http://www.miami.com/mld/miamiherald/business/national/8359625.htm
Apr. 5–PUNE, India - When Cummins Inc., the diesel enginemaker based in Columbus, Ind., opened a product research center here recently, a Hindu priest set up a small shrine next to a new office cubicle and led employees in prayer.
He lit sticks of incense and dipped flowers in water. He ran a smudge of color along the foreheads of the assembled Cummins executives. As the chanting built to a climax, one American turned to a Cummins vice president, Bharat Vedak, and asked what this peaceful ceremony signified.
“He is saying ‘May you have all success in the new venture,’” Vedak said with a smile, “‘and may you conquer all your enemies.’”
Conquering enemies before they conquer you is what the rush to India is all about. As companies such as Cummins struggle with stiff global competition and chronic pressures to cut costs, access to India’s army of high-quality, low-cost engineers has become an essential weapon.
A close look at Cummins’ decision to locate its technical center in Pune (pronounced POON-uh) reveals outsourcing to India is not just about call centers and low-level jobs. It’s about the crucial interrelationship building between India and places like Indiana.
The pitched debate about outsourcing being heard in the U.S. presidential campaign may focus on the idea that India is somehow stealing jobs with the complicity of greedy CEOs. But that misses the point. In a global economy, India and companies like Cummins need each other to thrive. That gives the trend strong momentum.
A little over a year ago, Cummins Chairman and CEO Tim Solso recognized what countless other CEOs are discovering: India is blossoming into a vital resource of world-class technical talent that companies ignore at their peril. On an eye-opening trip to Bangalore in southern India, Solso saw engineers drawing complex 3-D models of jet engines and analyzing ways to make combustion systems more efficient.
“They were very productive, very well-educated people doing sophisticated work in a high-quality way,” Solso says. “It was a huge competitive epiphany.”
What he concluded is that India is disrupting the world’s economy much the way Japan did 30 years ago, when companies including Toyota dramatically improved the quality of car manufacturing.
Now, Cummins is counting on Indian engineers to help write the software that will make its engines perform more efficiently. It is hiring Indians to do computer analysis of those engines so the company can do away with costly prototypes. The stakes could not be higher. Cummins is in an all-out race with archrival Caterpillar Inc. to meet stringent new environmental standards.
For India, the stakes are high as well. The country’s tech boom is fueling a broader surge in its economy that began when India loosened its suffocating economic controls in 1991. But the backlash in the U.S. means the pressure is on to become all the more indispensable to American companies.
Indians fear that U.S. protectionism could slow a movement that is creating a new middle class with new expectations and buying habits. These consumers are giving the nation’s economic renaissance added momentum by encouraging the restructuring of other industries. A quarter of India’s population suffers abject poverty. But there’s evidence the free-market reforms are slowly changing that too.
“The way I look at it is that the country has not even scratched the surface in terms of economic growth,” says Ravi Pandit, a local businessman who runs a technology company in which Cummins has a small stake. “There is phenomenal growth that lies ahead.”
How far this city of 3.7 million has come in the past five years and how far it has to go can be glimpsed on Pune’s snarl of dusty, pocked streets.
About 100 miles south of Bombay, Pune looks like most urban areas in India. Rivers of bicycles, scooters and cars compete for the right of way with gaunt cows and goats. Women balancing bundles on their heads walk by in saris as teenage girls in T-shirts and jeans zip past on motorcycles. Traffic is constant and wild; at least one person is said to die on Pune’s roads every day.
Storefronts sell scooters that once took years of waiting to obtain. New cars–and low-interest loans–are plentiful. But poverty is never far away. Slums of corrugated steel shacks line the banks of the city’s murky river. Half-naked children play in dirt piles while their parents dig in trenches with hand tools. Smog hangs over the city in a brown, sooty haze.
This collision of future and past is starkly visible on the outskirts of Pune, in a village called Hinjewadi.
In one direction, villagers in bright, traditional clothing go about their business at a row of squat, concrete buildings. Across a highway, the view is straight out of Silicon Valley.
Tall, modern buildings stand emblazoned with the names of India’s most prominent information technology companies. Quiet streets and landscaped lawns crisscross hundreds of acres that include a bank, a hotel and two new universities. High-speed Internet connections tie Hinjewadi’s engineers to points around the world.
If there is any doubt about what these professionals are capable of, numbers tell the story. Since 1996, the city’s software exports have gone from $25 million to about $1 billion.
“We’ve got [many thousands] of software engineers in the city and they are very highly paid,” says Sushil Gupta, director of Software Technology Parks of India Ltd. “It is transforming Pune. It underscores our country’s coming of age.”
Cummins has manufactured engines in Pune for 42 years. But last year when Solso visited several other U.S. companies’ Indian operations, including General Electric’s John F. Welch Technology Centre in Bangalore, he said he was blown away by the depth and sophistication of what he saw.
As soon as he got off the plane in Columbus, where his $6.3 billion company is headquartered, Solso called a meeting of his top staff.
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“I said, ‘I want every one of you to go to India and I want you to take your key people,’” Solso recalls. “‘And specifically, I want you to look at sourcing software development, IT operations, business services and a tech center. And I want to get going right now.’”
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For Solso, a 33-year Cummins veteran, the meeting was reminiscent of one he attended in 1983. Then, he was directing the company’s operations in Britain. His boss, James Henderson, who later became Cummins chairman, had just returned from Japan, where he had toured a series of diesel-engine plants operated by Yanmar, Hino and Komatsu.
Henderson had experienced a similar epiphany. He saw firsthand why the Japanese were taking the manufacturing world by storm. To produce an engine, they used less capital, one-third the number of employees and one-half the hours Cummins required. Organized in flexible teams, workers were boosting quality. They were also coming out with new products much faster than Cummins.
“We clearly have a more urgent problem than I previously thought,” Henderson told his staff, according to a company history titled “The Engine that Could: Seventy-Five Years of Values-Driven Change at Cummins Engine Company.”
“We must make major progress in three years, not five years. Five years is too long,” Henderson said.
Solso recognized on his trip to India that the situation today is similar. The difference is that technology, not steel, is the new coin of the manufacturing realm.
For companies such as Cummins, the ability to use computers to streamline operations, speed product design and improve internal communications may spell the difference between success and failure in the information age.
And after the bitter three years he had just been through, Solso recognized that India presented a better way to compete.
Solso, 57, took over as chairman of Cummins in 2000, just before the 2001 recession. Faced with a 70 percent one-year decline in U.S. heavy-duty engine sales, he cut 17 percent of his employees and closed or consolidated 14 plants, including the flagship engine factory in Columbus.
But he also used the opportunity to rethink how Cummins did business. He faced two unrelenting challenges. Global truck manufacturers such as Volvo and DaimlerChrysler had consolidated into huge companies that could squeeze Cummins for every last penny. And the U.S. Environmental Protection Agency had instituted standards requiring drastic reductions in diesel engine emissions over the next several years.
That set off an expensive technology and design race between Cummins and Peoria-based Caterpillar. With the clock ticking, Solso was looking for any advantage he could get.
“That made us look globally,” Solso says. “We wouldn’t have survived if we didn’t look globally.”
The truth is, Cummins was already a global company. It had manufacturing operations all over the world. But globalization today means using the Internet and other communication technologies to take advantage of assets–people, skills and supplies–around the world.
As a result of Solso’s meeting, executives scrambled to beef up existing buying offices in Pune, Shanghai and Prague, Czech Republic, to find new, cheaper sources of supplies. They also rushed to send much of the company’s enterprise computing work and other administrative functions to suppliers in India.