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Engineering startups in India and their survivability

, August 28, 2017, 0 Comments

engineering-startups-india-marketexpress-inAfter all the fanfare and international road shows promoting Make In India campaign, the fundamental questions are yet to be answered clearly.
What to make?

For which markets the product should be made?
Who will make?

Focusing on the first question -“What to make?” and the related pros and cons.

Defence sector
Though there has been a lot of focus on indigenization of defence technologies, the manufacturing base has not yet reached the levels of adequate demand. The biggest challenge with defence sector is that require heavy investment in terms of R&D and joint product development along with the government  labs and once the product specs are finalized, the order sizes are very finite, which does not allow scaling. Usually the R&D budgets adds to the product costs for this reason. Hence this is not a space for startups. Only established players with adequately deep pockets can be part of this game.

Public Sector Ancillaries
While there are existing government policy to support small scale manufacturing units by mandating the large public sector companies to buy a certain portion of their supplies from small scale units, the track record has been fraught with many problems. Only low end low cost items have been identified for this, which never allowed the small scale sector to really scale up and grow. The small scale sector also shielding itself under this protectionism and never aspired to grow. The biggest issue has been the delayed payments which crippled the cash positions of these small companies which became quickly sick, in spite of being profitable on paper. Hence this is also a no fly zone for startups.

Infrastructure segment
There is a huge opportunity in the infrastructure development sector and construction sector. The tools and technologies being used in construction industry offer a huge potential for innovation. There are great opportunities for component redesign, product substitution, material substitution and recycling. This needs a careful study of the problem and a deeper involvement. There are a few startups who are trying to create an e-commerce in this sector by becoming market places. But the challenge of local sourcing and physical delivery still remains. There are also many influences  in the buying decision who need to be made a part of these e-commerce deals.

Automotive segment
The challenges are similar to the public sector with delayed payments and lack of innovation. These are more about contract manufacturing relationships, subject to the fluctuations in market demand.
Tim Leverton, Head-Advanced and Product Engineering, Tata Motors, says much of the innovations in automobiles are originating from the startup community.

“There is so much opportunity in this space that auto companies cannot expect to cover it all internally or using their existing procedures. Therefore, working with startups can help achieve a much faster market entry for innovations.” [1]

The opportunities seem to be huge, particularly in driving technology adoption for various value additions. As this article focuses on engineering startups, it would be prudent to exclude health care and electronics sectors which hold huge promise and opportunity. Returning to the engineering sector, one more huge opportunity is the farming sector.

There is a huge need for cost effective farming equipment. Already many rural entrepreneurs have started buying the equipment and renting them out to other farmers. The manufacturing of this equipment is still not indigenized. There can be innovative business models which can combine these opportunities and make things affordable to all the stakeholders.

This sector holds a huge opportunity, but is fraught with problems of low margins, high input costs, availability of power etc. This can be a good place to start with low startup costs, which can subsidize the larger product manufacturing, by covering some of the infrastructure costs.

Power sector
With the emergence of solar and wind power installations across the country and the renewed focus of the government spends on solar power, there is a huge opportunity here. Another sector, which is still untapped is the micro power stations using hydro power from natural resources. This opportunity has not been exploited in full apart from the hilly regions of the north India. A few more related opportunities are bio-fuels and bio-fuel fired power plants.

As we can see, for a country like India, there are enough opportunities for local optimization through small to medium scale engineering products and services. However, these models are to be carefully thought through as they don’t fit into the conventional manufacturing models directly due to scale problems. There has to be a tightly integrated product-service combination, offering a solution to solve real time problems rather than mere products.

1 – Economic Times – Oct 2016