Technological Innovations and Its Influence on the Growth of Auto Components

8/11/2019 Technological Innovations and Its Influence on the Growth of Auto Components

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Technological innovations and its inuence on the growth

of auto component SMEs of Bangalore: A case study approach

K.N. Krishnaswamy, M. Mathirajan, M.H. Bala Subrahmanya*

Department of Management Studies, Indian Institute of Science, Bangalore, India

a r t i c l e i n f o

Article history:

Received 30 October 2012

Received in revised form 11 January 2014

Accepted 22 January 2014

Keywords:

Technological innovation

Product innovations

Process innovations

Growth

Auto components industry

a b s t r a c t

This paper describes the nature and dimensions of technological innovations leading to the

development and introduction of new products and market expansion along with enter-

prise growth with reference to three auto component SMEs of Bangalore in India. The

study brings out that the entrepreneurs played an instrumental role in recognizing market

opportunities, building up crucial in-house technological capability, supplement it with

appropriate external assistance to carry out technological innovations including its mod-

ications to suit customer requirements and nally deliver it to the market. An important

feature of these innovations is that constant interaction with its customers is in-built into

the system. As a result, all the three SMEs could achieve successful product innovations

which led to their gradual growth over time in terms of employment, investment and

more importantly in terms of sales turnover. Further, by stringing the inferences of the

three cases a theoretical construct of the growth of innovations in SMEs in three stages of

their development start-up and stabilizing, building technological credibility and

opening up of new markets

is proposed. These stages are (i) attaining design standards,(ii) incremental innovations, and (iii) ushering radical innovation.

2014 Elsevier Ltd. All rights reserved.

1. Introduction

Small & Medium Enterprises (SMEs) have exhibited

their inherent capability to undertake technological in-

novations in different economic environments [3,27]. Their

unique features such as a simple organizational structure,

better internal communication, better focus, quick decisionmaking, greater exibility, etc. (across economies of vary-

ing sizes and which are at varied development stages) are

considered to be their inherent advantages for carrying out

technological innovations. But it is pertinent to state that a

large number of start-ups fail in the initial years after their

origin and it is only a smaller proportion which survives

and succeeds and grows subsequently. It is the dynamic

and innovative SMEs which succeed in terms of prot-

ability and grow. Therefore SMEs play a unique and

complicated economic role as far as technological innova-

tion is concerned. However their innovative capacity and

ability to develop new and innovative products, processesand services varies signicantly depending on the sector,

size, focus, resources, and the business environment in

which they operate[5]. Several researchers have tested the

effect of a large number of innovation related variables.

However, even though they tested similar variables, they

ascertained differing degrees of association with the rate of

innovation [3]. This could be the reason why the innovation

process is still poorly understood[7].

Bala Subrahmanya[2]covering manufacturing SMEs of

Bangalore in the auto component, electronics and machine

tool sectors, attempted to understand issues such as what

* Corresponding author.

E-mail addresses: [email protected] (K.N. Krishnaswamy),

[email protected] (M. Mathirajan), [email protected],

[email protected](M.H. Bala Subrahmanya).

Contents lists available atScienceDirect

Technology in Society

j o u r n a l h o m e p a g e : w w w . e l s e v i e r . c o m / l o c a t e / t e c h s o c

http://dx.doi.org/10.1016/j.techsoc.2014.01.0010160-791X/ 2014 Elsevier Ltd. All rights reserved.

Technology in Society 38 (2014) 1831
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factors drive SMEs to innovate, what is the nature of SME

innovation and what are the achievements of SME inno-

vation efforts? The study revealed that a considerable

number of SMEs in all the three sectors innovated infor-

mally, which was attributed to a combination of the level of

technological capability owing to self motivation, technical

qualication and knowledge of the entrepreneur, his

innovative ideas, presence of an exclusive design ofce,

pressure on the SME due to customer demands, and

competition. Most of the SMEs were aiming at quality

improvement, cost reduction and market share expansion.

The majority of these SMEs carried out incremental in-

novations. There was a signicant correlation between

innovation sales (innovated products as a percentage of

total sales) and sales growth. The study brought out sub-

stantial evidence to prove that innovation contributed to

SME growth[2].

Of the internal factors that inuencerm technological

capability, the background and role of the entrepreneur is

crucial for SME innovation [28] and innovative activities

might be directly connected with the educational levels of

entrepreneurs[1]. Though these studies have thrown light

on SME technological innovation in a broad way, they have

failed to give an in-depth picture of the internal processes

of innovation in SMEs. In view of this, it would be appro-

priate to undertake case studies to illuminate the process

and outcomes of technological innovations in SMEs. The

case study approach is qualitative in nature and has the

advantage of being an in-depth study[15].

In the present study, technological innovations are

dened to cover both product and process innovations,

whether new or improved. This is a generally accepted

denition of technological innovations in the context of

manufacturing sector [3]. SMEs are dened to as

manufacturing enterprises with an investment in plant &

machinery not exceeding US$ 2 million, in accordance with

the current denition of SMEs in India[18]. The three case

studies were carried out by the authors by conducting two

eld visits for each of the three SMEs during June

December 2007.

1.1. Research setting

The focal point of interest in an SME is the entrepre-

neur as he is the key decision maker of the rm. There-

fore, we have concentrated on the entrepreneur, his

perceptions of the need, processes and opportunities of

technological innovations and how the organization has

adapted and implemented his ideas regarding innovation

and of the route to growth. The authors had detailed

interviews and discussions with both the CEOs and heads

of the technology group but the bulk of information was

obtained in the interviews with the entrepreneurs and

supplemented by in-house publications, brochures and

technical documents, among others. The case study pro-

tocol consisted of questions on the history of rm

growth, characteristics of the industry, management

problems, views on what causes growth, whether inno-

vation helps growth, whether technological innovation

was spurred through organizational and marketing in-

novations/changes, the role of government rm growth,

problems of innovation management, incremental and

radical innovations, and interaction with other organi-

zations for innovation. Each of these issues was discussed

and elaborated during the interviews. The interviews

were transcribed by the authors themselves and the

transcription was used for case development and

analysis.

In a SME, the entrepreneurs perceptions about the

strengths and weaknesses of the enterprise and his

cognition of threats and opportunities in the environ-

ments have a dominant inuence on the success of the

enterprise. These were captured through interview data,

case analysis and information with the entrepreneur in

the form of a cognitive map. The cognitive map is a pic-

ture of the perceptions of a decision maker about a de-

cision problem or situation. The cognitive map offers a

holistic picture of the perception of the decision maker

[15]. In the cognitive map, the links are represented as

lines and the perceptions as nodes. The value of the

nodes increases as we go up the diagram and the top

node has the highest value to the decision maker. The

nodes with a large number of links are the critical ones.

Furthermore, cognitive maps help in understanding how

the SME is guided by the entrepreneur towards success

and growth. This insiders view supplements the facts of

the case collectively. We developed cognitive maps for

each of the three cases after the case analysis to bring out

the relationship between innovation and growth of sales

revenue.

The three case studies were conducted by the three

authors themselves. In every case two visits were made to

corroborate certain details. The questionnaire used in the

survey was also completed. The interviews were two

hours each in duration. We did not choose SME units

randomly. The investigators wanted to study the units

which were innovative and grew rapidly in comparison

with others. Accordingly, our case studies consisted of

three SMEs in the auto components industry of Bangalore

with the objective of understanding the processes of

innovation in a SME, and the role of the entrepreneur in

this process. These units are chosen for in-depth study

from 65 auto component units surveyed for the study of

SMEs in 2006.Table 1gives a picture of the relative status

of case study SMEs in Bangalore with respect to innova-

tion and growth in sales revenue. The growth of sales

revenue is calculated in constant prices. Innovation sales

represent the value of innovated products as a percentage

share in total sales revenue.

Table 1

Innovation sales and sales growth of auto components SMEs.

Sample of 65

units (excluding

the three cases)

Case I

(BSC)

Case II

(PE)

Case III

(KLNEP)

Average innovation

sales (%) during

2001/022005/06

16.48 26 30 38

CARG (%) of sales

growth during

2001/022005/06

28.67 29 32 37

K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 1831 19


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2. A brief literature review

Technological innovation is a key factor in a rms

competitiveness and therefore essential for rms which

want to develop and maintain a competitive advantage

and/or gain entry into new markets [3]. In fact, among rms

of different sizes, there is substantial evidence to show that

SMEs in a wide variety of sectors carry out technological

innovations [13]. Given this, there are two important issues

that need to be understood: (i) Why and how SMEs un-

dertake innovations? (ii) What do they achieve due to their

innovations or what impact does it have on rm perfor-

mance? While the scholarly literature explains some of

these issues, the ndings are not uniform.

Some empirical studies have indicated that it is the

rms internal competence and entrepreneurial motivation

which drive SMEs towards innovation[9,25]. But Danneels

and Kleinschmidt[8], Tie-Jun and Jin [22], Xia and Roper

[26]and Marques and Ferreira[17]have found that SMEs

do not just depend on internal sources but are also strongly

inuenced by external environment. These studies indicate

that neither internal competence of the rm alone nor

customer requirements alone will drive a SME to undertake

innovations. Furthermore, according to Bala Subrahmanya

[1]; innovation will emerge only when a technically

competentrm is able to identify and respond to customer

requirements by developing or improving products/

processes.

If SMEs succeed in their innovations, does it contribute

to SME performance directly? Roper [19] comparing the

innovation strategies of German, UK and Irish SMEs,

concluded that there is a strong association between

innovation and sales growth. Lumiste et al.[16]found that

innovation helped Estonian SMEs to improve their perfor-

mance in terms of market share and diversied range of

goods and services. Engel et al. [11] brought out the positive

impact of innovation output on sales revenue change of

SMEs with reference to craft dominated industries of Ger-

many. Coad and Rao [6] examined the relationship between

innovation and sales growth for incumbent rms in the

high-tech sectors of the USA. They claimed that a rm may

grow for a number of reasons that may or may not be

related to innovations. But based on quantile regression

approach, they observed that innovation is of crucial

importance for a handful of superstarfast-growing SMEs.

The above discussion enables us to formulate the

following research questions to examine whether they are

supported by the case studies conducted for three auto

component SMEs in Bangalore:

How did internal and/or external factors inuence and

enable SMEs to carry out technological innovations?

Do technological innovations have a positive impact on

SME sales growth performance?

3. Auto components industry in Bangalore: a

backdrop

Karnataka state has a history of pioneering industrial

development initiatives since the time of the Princely State

of Mysore and subsequently in the post independence era.

Over the last 100 years the State has had the distinction of

building a strong and vibrant industrial base, which com-

bines the intrinsic strengths of large industrial public sector

undertakings, large and medium privately owned in-

dustries and a wide and dispersed small-scale sector. Today

it is among the top ve industrialized states in India. It has

achieved substantially in promoting hi-tech industries inkey sectors like automobiles, electronics, telecommunica-

tion, information technology, precision engineering,

readymade garments, biotechnology and food processing

[12].

The automobile industry is undergoing rapid trans-

formation in the global market in terms of number ofrms

and their growth. A signicant feature of this development

is the rapid expansion of major players such as Honda,

Toyota, Suzuki, Hyundai, GM, Ford, Daimler Chrysler and

Fiat into industrializing economies in South East Asia, China

and India, among others[21]. In India, the presence of the

automobile industry is steadily growing in Karnataka,

thanks to the favorable industrial policy of the State. InKarnataka, Bangalore is industrially more developed and it

occupies a unique place in the industrial map of India. The

city has the presence of multinational companies such as

Bosch, Toyota and Volvo, among others. This has given

scope for developing formal and informal subcontracting

relationships with widely dispersed SMEs across the city.

What is more signicant is that Bangalore is the home

for a variety of R&D institutions in both Public and Private

sectors [29]. Bangalore has the distinction of being the

destination for a large number of MNCs in engineering

based industries and technology driven sectors and it is

today recognized as one of the top 10 techno polis in the

world [12]. To cap it all, it is the only

global hub of

Table 2

Three auto components SMEs in Bangalore: basic features.

Name of enterprise Burgi speed on clutches (BSC) Prabhu Engineers (PH) KLN engineering products

Year of establishment 1980 1996 Late 1950s

Qualication of owner/s B.Sc. and PG Dip. in Business

Administration

SSLC BE (Ind. Engg. & Mgmt)

Age of owner/partners

Location Peenya Industrial Area Prakashnagar Rajajinagar Industrial Estate

Products CNC machine centre, Turning

centre products, pressed

components and sheet metal

fabrications, automobile clutches,

and automobile engine housing blocks,

clutch plates

Press tools for cold press working,

drill bits, and components of various

kinds for the hydraulic systems.

Traditional lters, paper lters,

depth lter, surface lter,

pre-cleaner, dry air cleaner,

disposable vaginal speculum,

K.N. Krishnaswamy et al. / Technology in Society 38 (2014) 183120


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technological innovationin India and south Asia[23]. The

innovation process and outcomes of three auto compo-

nents SMEs are explored in this backdrop.

4. Basic features of three auto components SMEs

We have covered three auto component SMEs in Banga-

lore for case analysis andtheirproles are presented in Table

2. The rst two are rst generation entrepreneurs whereas

the third enterprise was started by the father of todays

Managing Partner who did his B.E. in Industrial Engineering

and Management. While the last enterprise was more than

vedecadesold and was setup in thelate 1950s, therstone

was more than three decades old whereas the second one

was one and half decades old. The entrepreneurs of all the

three SMEs are in the 4555 age group. Thus both the en-

terprises and the entrepreneurs are fairly experienced and

therefore appropriate to ascertain and understand the pro-

cess and outcomes of technological innovations.

The three SMEs manufacture different auto compo-

nents: the rst one is initially heavily engaged in the pro-

ducing KSRTCs requirement of clutches and later they are

diversied into producing engine housing blocks for Tre-

lawny, UK, International Tool Company and involved in

producing spares for Tractors & Tillers. The second rm

manufactures Press Tools for Cold Press Working, Drill Bits,

and components of various kinds for the hydraulic systems

to sell to the Public Sector including Bharat Electronics

Limited (BEL), Bharat Earth Movers Limited (BEML), Na-

tional Aeronautical Laboratory (NAL), Gas Turbine Research

Establishment (GTRE), and public transport bus corpora-

tions. The third company produces various types oflters

for customers such as TELCO, TAFE, Simpson, Ashok Ley-

land, LG, HM, Cater Pillar India, Rane Group, Forbes, etc.

Thus, the end products of the three SMEs are used in the

day-to-day activities of the rms/organizations/institutions

which are their customers. Therefore, there is considerable

scope for interaction with customers for product feedback

and development.

5. Process and outcomes of technological

innovations: observations and analysis

While studying the three SMEs and their technological

innovations, we have obtained their product proles, fac-

tors which led to their new product development, mana-

gerial motivation for innovation and their subsequent

achievements. This has been done enterprise-wide.

5.1. Case 1

The entrepreneur who is a graduate in Science and Post

Graduate Diploma in Business Administration started the

Burji Speed on Clutches (hereafter it is called as BSC) pri-

vate limited in 1980 at Peenya Industrial Estate. Prior to

starting this enterprise, he worked for about a year in

Rajamane Electronics, which was an ancillary to Indian

Telephone Industries (ITI). It was the prospect of becoming

ancillary to Karnataka State Road Transport Corporation

(KSRTC) that made him set up BSC with modest investment

in engineering and production work facilities. He incurred

an initial investment of about US$ 0.04 million (with a loan

of US$ 3000/- from Karnataka State Financial Corporation

(KSFC) and US$ 1000/- of his own) and hired six employees

to achieve a sales revenue of about US$ 0.08 million.

Initially BSC worked in general engineering and sheet

metal manufacturing with occasional orders from KSRTC.

Owing to Government of Karnatakas drive for promoting

rural bore well drilling (during 198387), there was a great

demand for hand pumps and their spare parts. The entre-

preneur of the BSC seized the opportunity and started the

manufacture of hand pumps which were suited to the sheet

metal working and general engineering facilities available

with BSC and to the availability of components locally.

Special pressed components were manufactured based on

samples provided and using reverse engineering principles.

This in combination with odd auto components for

KSRTC formed the products of manufacture of BSC during

198086. The manufacture of clutches against drawing

from KSRTC started in the early 1990s when KSRTC placed

orders on BSC (managed through personal contacts of the

entrepreneur of the BSC) during an industrial boom in

Peenya Industrial Estate. Nearly 75% KSRTCs requirement

of clutches and other components were met by BSC using

locally available components and fabricating pressed

components. Subsequently BSC planned to cater to cus-

tomers owning Computer Numerically Controlled (CNC)

machines to be in a position to completely manufacture the

clutches which were of higher technological complexity

than hand pumps. The demand from KSRTC for auto com-

ponents dwindled drastically in 2001/02 and in that year

BSC discontinued their relationship with KSRTC.

The continued recession during 19982001 (during

which Small Scale Enterprises in Karnataka in general,

Peenya Industrial Estate in particular suffered consider-

ably) prompted the entrepreneur of the BSC to technolog-

ically upgrade in order to diversify and survive. In 2002/03

he attempted a major technological up-grade through the

acquisition of CNC machines. This greatly helped the en-

terprise in its export efforts. The enterprise entered the

export market in 2004. This export orientation resulted

from various enquiries that resulted from their listing in

Karnataka Small Scale Industries Association (KASSIA) and

Peenya Industrial Association (PIA) directories. The entry of

BSC into foreign markets was accidental. Trelawny of UK

was looking for a supplier of auto parts and components for

them and they came to know that BSC had a Mekino CNC

machine. They approached the entrepreneur of the BSC

seeking the development of engine housing blocks. They

were happy with the initial supply of these products. In the

initial years, Trelawny accounted for not more than 10% of

the sales revenue of BSC. Since then the entrepreneur of the

BSC never looked back. He claims that, so far, he has

developed about 120 components based on the drawings

provided by Trelawny. Today Trelawny buys more than 50%

of the sales revenue of BSC. At present BSCs major cus-

tomers are Trelawny, UK, International Tool Company, UK;

(spares for) Tractors & Tillers, Bangalore, (clutch plates for)

Ghatge Patil, Kolhapur and (machine items for) Pragati

Tools, Bangalore.

Developing product and design to the requirements of

foreign customersproduct has taught BSC the importance



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of alertness in all dealings with the customer, time con-

sciousness particularly in keeping delivery promises, ner

nuances of quality not only in functional aspect of the

products but in their get up, appearance and aesthetics and

even in the design of packing. This has transformed his

manufacturing system, the men and the machines working

to new levels of efciency and effectiveness and has

inuenced even their products supplied to the indigenous

customers and has drawn the appreciation of major cus-

tomers like Ghatge Patil.

In January 2005, the entrepreneur of the BSC obtained

ISO 9000 certication. Recently he has procured a Vertical

Machine Centre from the US costing about US$ 80000/.

Today BSCs current value of investment is about US$ 0.3

million (including the recent imported machine), with 28

employees and sales revenue is likely to be about US$ 0.4

million. About 60% of the sales revenue is realized from

exports approximately US$ 0.24 million. Thus, the enter-

prise has steadily grown in size over time. The entrepre-

neur of the BSC attributes the success of the enterprise to

his timely technology upgrade in 2001/02. For this, he

thanks profusely the former Commissioner for Industrial

Development.

Currently the range of products manufactured by BSC

are CNC machine centre, turning centre products, pressed

components and sheet metal fabrications, automobile

clutches and automobile engine housing blocks. Though

the entrepreneur of the BSC was not explicit about his in-

novations, he made it clear that generally his customers

never helped him in his product development efforts.

Usually they gave only drawings and subsequently prod-

ucts were developed by the BSC using reverse engineering.

However, he has not developed any exclusive design team

within his enterprise. He has a CNC programmer and a

production supervisor, who jointly with the entrepreneur

of the BSC develop products based on the drawings pro-

vided by their customers. Of course, informally they have

got help from Central Manufacturing Technology Institute

(CMTI) of Bangalore.

The consistent and steady market growth has been

signicantly responsible for the growth of BSC enterprise in

the current decade. This has prompted the entrepreneur to

come out with new ideas for enterprise expansion. One

major problem faced by the entrepreneur of the BSC is that

of labor attrition. According to him, SMEs have become

labour training centre for big MNCs. Recently three of his

key employees left for Singapore for better employment.

Overall, the observation is that BSC enterprise is

customer focused and accordingly, it has developed prod-

ucts required by its customers from time to time based on

the drawings provided by them. Thus implicitly, this en-

terprise has been doing incremental product innovations.

Technology up-gradation has also contributed to its incre-

mental innovation efforts and customer satisfaction.

5.1.1. Case analysis

The entrepreneur of BSC, being qualied in business

management was an opportunity seeker, rst he exploited

opportunity of KSRTCs patronage obtained on personal

contact and supplemented it with other general jobbing

work and incidentally took up manufacture of clutches and

also made use of the opportunity of fabricating of water

pumps and spares. With signs of KSRTC distancing from

him, he prepared for other markets by updating his tech-

nology, this was innovative. While the Indian market was

gradually growing, with the help of KASSIA, he took the

opportunity of entering foreign markets through the

updated (CNC) technology. To make him competitive in

foreign markets he took help of R&D organizations around

Bangalore and concentrated on the true values of business

ne tuning quality and keeping promised delivery

schedules and instilling aesthetics into his products. He

diversied to engine block manufacture among other

automobile components and has planned further updating

of technology to foster his exports and indigenous supplies.

The entrepreneur of the BSC is an astute business man

keeping the customer focus and prot as the primary

objective and technology improvement to compete or to

gain new markets as necessary and has always been on the

look out for opportunities to enhance his business.

The innovation chain has taken the path of learning by

reverse engineering, shop oor experiments and trials,

customer interaction and technology updating to enhance

operational capability to meet technology demand and as a

nal result, the interactions with R&D institutions for new

product development. The typical process of product

innovation that takes place in BSC is schematically shown

inFig. 1as an innovation chain.

5.1.2. Cognitive map of the entrepreneur of the BSC

From the cognitive map of the entrepreneur of the BSC

shown inFig. 2, it is demonstrated that product design and

innovation are critical to technological excellence. Accord-

ingly, the entrepreneur of the BSCs perceptions can be

appreciated as follows:

When an opportunity presents develop a facility to

tackle it.

Concentrate on process innovations to delivery goods

for which the design is available (using some times

reverse engineering as an innovative effort).

Use present contacts in central SME organizations for

satisfying market needs.

Prepare for a new product technology by updating the

desired process technology (as he did for clutches/en-

gine block manufacture for foreign market).

Focus on the customer and satisfy him by achieving the

appropriate quality of product, meeting delivery

schedules and packaging requirement. When own efforts of process improvements do not give

the adequate product quality, go for interaction with

R&D organizations to meet customer product re-

quirements and diversify.

5.2. Case 2

The entrepreneur, who set up Prabhu Engineers (PE)

Private Limited for manufacturing press tools in 1996, had

only higher secondary education. He later started produc-

ing borewell bits and hydraulic systems for borewell dril-

ling. The entrepreneur of PE was born in 1956 and he

studied up to SSLC in Vellore, Tamil Nadu. He migrated to



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Bangalore in 1976 at the age of 20 years. Up to 1981, he

worked as a tool maker in a small scale enterprise in Ban-

galore. In June 1981, he started Santosh Engineering Works,

with just one more employee apart from himself. He

invested about US$ 40/- for a lathe machine, one y press,

one drilling machine and one bench grinder.

The entrepreneur of PE is a rst generation entrepre-

neur as his father was a farmer. For one year, he worked on

press tools. In the initial years, he got job work from M/s

Vishnu Forge (located in HMT Industrial Estate, Bangalore,

India), which originated from Bharath Heavy Electrical

Limited (BHEL), Bangalore, India. From 1985 onwards he

focused on bore well bits and hydraulic system based

hammers on jobbing basis. He worked virtually round the

clock throughout the year in the very rst year. The sales

revenue in the rst year was US$ 1920/-.

Soon the demand and varieties of borewell bits and

hydraulic systems continuously increased from 1980 on-

wards, The entrepreneur of PE decided to set up additional

and complementary small scale units to meet the

increasing demands. Furthermore, needs for different units

were felt because manufacture of different products

involved different special operations/machines. Accord-

ingly, in addition to the PE, he set up Micro make

enterprises in 1987, the Chamundi Engineering works in

2000 and the VST Rock drills in 2003. In 2005, the PE won

ISO 9000 certication. In the same year (2005) he set up

vertical milling machine centre with BFW charka models

worth US$ 0.96 million (CNC machines) in the premises of

PE.

The ow of production tended to be across the units.

The different units were registered as separate units. In

each of these units production engineers were recruited

and posted. Altogether they have 3 BE graduates and 8

diploma holders. Today the ve enterprises of the group

have grown in size and their size indicators are shown in

Table 3. There were not many logistic problems as these

units are located close by in the Rajajinagar Industrial area

of Bangalore.

His clients include major Public Sector Undertakings

(PSUs) located in the city such as Bharath Electronics

Limited (BEL), Bharat Earth Movers Limited (BEML), Na-

tional Aeronautical Laboratory (NAL), Gas Turbine Research

Establishment (GTRE), etc. PE has received recognition

from all these PSUs. PE manufacture against orders. Initially

they made press tools for cold press working (for various

makes). However, they manufacture drill bits in various

sizes (100 to 1400) and types in batches and inventory

Job

component

drawing

Customer

Others (R&D Organizations)

Clutches

drawing

Field

Trials HPExport

Enquiry

Enter

Export

market

Interaction

Trials

Expand

Foreign

Market

Expand

Indigenous

Market

BSCGeneral

Engg. Manufacture

components

Develop

Clutches

Develop

Products

Update Tech.

CNC M/c.

Develop

Engine Block

& other Auto

Components

Update

Tech.

VMC

Reverse

Engineering

GTTC

CMTI

NTTC

HP - Hand Pumps

BSC - Burji Speed on Clutches

Opportunity

Fig. 1. Burji speed on clutches (BSC) the innovation chain.



7/14

them in the lean periods for delivery in the peak season

(usually summer). The hydraulic systems are manufactured

purely on order basis, and are marketed by another agency.

The rm designs and develops complete hydraulic

hammer systems. The rm gained good developmental

experience in the 80s. The successful development of a

major hammer using reverse engineering done in 1984/85

was a major prompter of his innovation. To acquire addi-

tional protability, he was prompted to develop new de-

signs for new products. He has understood the value of

market acceptability in developing his innovation. He un-

derstood the value of quality for business success through

good designs. According to him practical knowledge is

more important than theoretical knowledge based on

technical degrees.

There are 14 component items in hydraulic hammer

assembly. Initially a sample was used to be given to him. His

innovation took on the major route as: Sample Copy

Modify Trial Tenor Design of Working Product Own

Design and Innovation. Copying was a fairly straight-for-

ward effort. But use of the bits and the hydraulic hammer

system encountered large combinations of the needed

Technology

update

Growth

Product

range

Enlargement2nd Tech.

update

Export

customer

satisfaction

Development

of Engine

Blcok

Export

enquiry Clutches &

Auto

componentsIndigenous

customer

increase

Customer

Orientation

Jobbing

ExperienceEducation in

BusinessR&D

Interaction

Set up

own Co.

(KSRTC)

(MAD)

Auto

Components

.

.

.

MAD - Manufacture against Drawing

Customer

satisfaction

.

.

Pumps

Fig. 2. Cognitive map of the entrepreneur of the BSC.

Table 3

Growth of Prabhu Engineers.

Name of Enterprise Labour Investment Turn over

Prabhu Engineers (PE) 18 US$ 0.3 million US$ 0.4

millionChamundi Engineering

Works

18 US$0.2 million

Micro make Enterprises 10 US$ 0.12 million

Santosh Engineering

Works

12 US$ 0.16 million

VST rock drills 6 US$ 0.012 million

Common ofce staff 8



8/14

changes in the components. The design of matching com-

ponents had to be altered and the required performance of

the hammer assembly had to be obtained rst in the trial

and error experiment in the shop oor and then in the eld.

The eld conditions are wrought with many kinds of

complexities such as number of layers of crust and then

crust thickness, size of grains etc.

When multiple bits are embedded in the hammer head,

in some cases it was necessary to keep the hardness of

different bits at different levels in order to get best results in

drilling. The trial and error process which was necessary to

achieve the optimum combination gave the entrepreneur

of PE a lot of insight into the redesign of hydraulics ham-

mers. This was, in his opinion the best innovation carried

out by PE. This innovation led to many hybrid type design

implementations in a wide range of soil and geological

conditions affecting the drilling operations. Another major

innovation achievement was the development of parts

made by them as required by BEML, Mysore engine divi-

sion. BEML provides them with drawings, components and

if necessary, discuss the process and provide gauges. BEL,

Jindal, Vishnu Forge are all their present customers and

they provide good technical support to them.

The entrepreneur of PE claims that his company also

specializes in process innovations. They do manufacturing

against customer orders (job work) only. Innovations con-

sisted mainly of replacing jig boring operations by simple

engine lathe operations using general engineering set up.

This saved considerable investments and reduced the cost

of operations. The entrepreneur of PE found that in most

orders while he was aiming at the modication of the

products, the PE really did a lot of process innovations.

Most of the designs new to PE required considerable

reverse engineering efforts and with limited specialized

equipments, considerable process innovations resulted in

enriching the worker skills and expanding their capability

to execute product modications in an innovative way.

Roughly one third of PEs sales revenue is accounted for by

innovated products. The entrepreneur of PE prides over the

fact that they have not failed in any assignment which

involved production oor experiments and changes in

processes.

Service quality and prompt delivery are important for

success according to the entrepreneur of PE. This is ensured

by PE through commitment to work and to schedules. They

ensure quality by in-house empirical testing (both of drill

bits/and hammer systems) in the presence of customers,

tests include testing life of borewell bits (bits can generally

be used for a drilling up to 1200 m whereas the hammer

system can be used up to 10,00012,000 ft).

Summer (just before monsoon season) is the peak sea-

son for the demand of boring operations. The peak season

varies from state to state depending upon the cropping

patterns. The PE keeps the boring bits in inventory to

facilitate quick and timely supplies during the peak season.

The manufacturing of bits is scheduled in the off-peak

season so that there is some equitable load on the facil-

ities during the entire year. In this connection it is relevant

to note that they meet all the requirements of BEML for

their earth drilling and moving equipments. The word of

mouth helpful communication from BEML led to other

PSUs approaching the company for their requirements.

BEML praised PE for their services and helped them in the

past in locating other customers for them.

The PE has a marketing department which is primarily

concerned with locating sources of demand for their

products i.e. from borewell companies. A constant assess-

ment of requirements is carried out and any small variation

in demand estimates are closely watched and monitored.

For all the expansions of manufacturing facilities and

adding units the company depended heavily on private

loans as the entrepreneur of PE found getting loans from

public sector banks extremely cumbersome and slow. He

took full advantage of BEMLs vendor development

approach and obtained help in the form of training his

workers, guidance in manufacturing and manpower assis-

tance and obtained material rebates from suppliers.


This is a case in which the entrepreneur having no

family business ties or advantage embarked on building his

own business. He was not technically qualied and hadlittle education. He migrated to Bangalore and worked

opportunistically on press tool making. With his diligence

he developed technical skills in the same eld. Recognized

demand opportunities for drill bits and hydraulic drilling

systems, he set up a small rm with the help of relatives

and with hardly any staff. After a couple of years he gath-

ered some staff and as demand increased set up additional

small units in the same locality. He provided them with

production engineering graduates and modern machines of

different types to cater to the variety of drill bits and hy-

draulic systems.

PE believes in learning by doing and looks skepti-

cally at the practical ability of technically qualied people.PE conducts a lot of shop oor experiments, as a true

innovator and has practiced reverse engineering by trial

and error and successfully innovated drill bits/drilling

systems to suit different soil conditions and use conditions.

PE accepts that its customers have taught the CEO all that

he knows about the products. He prides himself in the fact

that he never failed in meeting any of the customer de-

mands even when they involved innovative efforts, many

experiments and trials. He has stuck to his main product

lines. Customer interactions/successful eld trials/

production oor experiments have led to product in-

novations via process innovations(Fig. 3).

5.2.2. Cognitive map of the entrepreneur of PE

The entrepreneur of PE is expecting orders from Ger-

many and is developing his company with his son who is an

MBA. His aim is to ensure that his rm will face the future

challenges through recruiting engineers and his son to lead

the company later while he still remains as a guiding

champion of the rm.

Choosing a product purely according to his technical

experience initially was the technical motto of the entre-

preneur of PE. He focused all his design and innovation

efforts on reverse engineering (from samples) strength-

ened by shop oor trials and concentrated on process in-

novations. The entrepreneur of PE learned by copying and



9/14

went beyond it by shop oor experimentation. In this he

reinforced his efforts by customers views and interactions

and aimed at product innovations through them. Customer

satisfaction was all that mattered to him. He achieved it

througheld trials and open trials. He creatively expanded

the plants to meet additional demand (Fig. 4) which led to

the growth of PE.

5.3. Case 3

The entrepreneur who set up KLN Engineering Products

(KLNEP) in the late 1950s is an engineer. He had worked as

a tribologist (a tribologist is on who applies the principles

of friction, lubrication and wear in Engineering industries)

in Tata Engineering and Locomotive Company (TELCO)

which was producing auto components. Air and oil lters

used in automobiles were being imported by TELCO. The

entrepreneur of KLNEP decided to manufacture lters

indigenously and supply to TELCO. With the encourage-

ment of TELCO, the CEO set up KLNEP as an ancillary unit of

TELCO. Initially KLNEP manufactured depth lters but in

the early 1970s TELCO shifted over to paper lters.

Accordingly KLNEP switched over to paper lters but this

was not for long and in the late 70s the entrepreneur of

KLNEP passed away.

The wife of the entrepreneur of KLNEP, had a Masters

degree and took over the company in 1979 managing the

rm until 1982 when her son joined the company after his

graduation with a B.E. in Industrial & Production Engi-

neering from Dayanand Sagar College of Engineering,

Bangalore. At that time, KLNEP started as a supplier of

automobile components to TAFE (Tractors and Farm

Equipments) and Simpson, as major customers. The major

product, however, remained as lters. At present the

entreprenuers son is the Managing Director of KLNEP, he

will be referred to as Mr. NL.

In the 1980s, KLNEP did not bother about product

development or innovation due to the lucrative market it

enjoyed. In the 1980s they thought of innovation for the

rst time because of growing market competition and

technically varying customer demand. However, the in-

novations were conned to small and minor changes. There

were many reasons for this changed scenario. Since price

competition became strong, the need to reduce costs was

felt by the rm. The product variety (lters) increased due

to the growth of automobile industry and the need to suitthe different varieties of application arose. New users under

different eld conditions like new engines, new varieties of

fuel and engine oils needed changes almost continuously in

minor ways. The products had to be exible to t multiple

users.

In 2000, they developed a new design of a product it

was a dry air cleaner. But this product did not take off in the

market because its design was faulty. The development of a

new dry air cleaner was based on a design from a published

technical literature and was done somewhat in isolation of

customer interaction and knowledge of customer require-

ment. The design thus tended to be faulty not in basic en-

gineering but from the point of view of suitability incustomer use. When customer requirements were specif-

ically considered and the redesign was nalized, it became

a success with TAFE. TAFE started absorbing 100% of these

products produced by KLNEP to meet their needs. KLNEP

could redesign (innovate introducing minor changes) this

product for other customers too.

The advantages of both depth lter and surface lter are

carried to the second stage lter design. This is a hybrid

lter. Hybridlter was developed in 2002. This is very well

accepted in the industry. A Czech expert working with TAFE

had worked closely with MR. NL for the development of

this product. The hybrid lter was about 20% more

expensive but highly efcient. In 2002, they had obtained a

Customer

Job

orders

Increased

demand &

clienteleCustomer

interaction

Successful

trials

Customer

interaction

Successful

field trials

PE Expansion

of facilities

DB manu-

factureDev. of

composite

DB

Reverse

Engg.

New

design

Production

floor expts. Process

innovation

Experience

in Press Tool

making

Learningby

doing

..

.Prabhu

Engineers

Fig. 3. Innovation chain (incremental innovation).



10/14

patent for their products. One of the process improvements

achieved by them was the substitution of steel by

aluminum in lters and mufers.

At KLNEP all designs are usually validated using inter-

national design specications. Though, in some cases, the

product met international standards, as tested by the rm

they were unsuitable for use in Indian conditions. The

products passed laboratory tests but failed in eld trials.

Design changes had to be improved, in interaction with

customers to make them workable. A composite design had

to be developed as in the case of depth lter in which the

features of two disparate designs had to be integrated. For

example, the ratio of coarse particles to ne ones in air

varied from 10% to 90% in the use of air cleaners. This also

necessitated changing the lter paper so that the lters

could be reused efciently. Further, the shape of the lter

paper also had to be modied to suit different devices so

that the ow in ltering process was of suitable speed.

KLNEP got its rst patent in 1996/97 and a second in

2000 for medical devices. Both of these products were not

commercially successful. They were developed with

interaction with medical experts but without much

customer interaction. Moreover, it was a eld totally new to

them. It was more a technological challenge than a strict

commercial production innovation. Reverse Hydrocon was

patented in 2002. The entire technological capability of the

company is centered around Mr. NL, who acquired tech-

nical expertise over a period of time by working in the

company. He did not have any formal training. Mr. NL felt

there was no dearth of technological information obtain-

able for innovation purposes or for that matter to help in

the form of ideas and services. Many times, he bought

testing meters from competitors. Exchange of information

among competitors is common. Mr. NL talks to his former

employees who have joined large companies.

According to Mr. NL, innovation is developing an

entirely new product design. Demand from the customer is

the prime motivation for this innovation. Thus, innovation

is primarily need based. For every innovation, they worked

very closely with their customers. In fact both of quality

improvement and innovative change are competition

driven. His enterprise has environmental concerns as well.

PEPRABHU ENGINEERS

Firm Growth

Profit

Customer

Satisfaction

Market

Growth

Field Trials

CustomerInteraction

Plant

Expansion

Product

Innovation

Demand

Assessment

(Marketing

Partner) PersonalExperienceChoice ofProduct

EST of PE

Process

Innovation

Shop floor

ExptsReverse

Engg.

Copy

.

.

Fig. 4. Cognitive map of managing partner of Prabhu Engineers.



11/14

He constantly strives for waste reduction. He does minor

innovations constantly. This is a must for KLNEPs success.

In this effort he has encouraged the use of value engi-

neering techniques heavily.

According to him, innovation is crucial for the growth of

an enterprise. For both of his products lters and si-

lencers, he faces tough competition from companies in

north India as those companies are able to get exempt from

duties and utility charges. Had there been no innovation,

Mr. NL feels he would have suffered against competition

from cheaper products. In the last 810 years, their

customer base has remained the same. This is because their

company has grown along with their customers, who are

major companies, such as Tractors and Farm Equipment

(TAFE), Simpson, Ashok Leyland, Lucky Goldstar (LG), Hin-

dustan Motors (HM), Cater Pillar India, Rane, Forbes, etc.

The only customer whom they could not retain is TVS-

Suzuki. They were supplying oil lter to Simpson and

later started supplying air lter as well. Air cleaners and

exhaust mufers supplied to TAFE. They established con-

tacts with TAFE through Simpson. Ashok Leyland buys

about 9095% of their lters. This throws light on the sig-

nicant role of innovation in the survival, success and

growth of an individual SME as experienced by Mr NL,

though this cannot be generalized in the context of all

innovative SMEs.

In the 1970s they started exporting their products to

Africa due to the entry of TATA into those countries, though

they have not developed any product exclusively for ex-

ports. In early 2007 they set up a unit in Sri Lanka with the

objective of serving their customers better, since they

export their products to that country. They are exporting to

Africa and Europe apart from Sri Lanka. Exports currently

account for about 10% of their total output but Africa is not

a major destination for their exports now.

They have developed multiple plants and currently,

they have a plant each in Bangalore, Chennai and Rajas-

than. The slow growth of demand and customers in

Bangalore alone, has forced them to go for multiple

plants. Location of multiple plants in Chennai and Alwar

(Rajasthan) apart from Bangalore, is the location of their

customers. Ashok Leyland asked KLN to open a plant in

Rajasthan. In Sri Lanka, they have about 4050% market

share. According to Mr. NL, the individual is the one who

drives an SME and its innovation. Innovation is mostly

related to cost. This is a constant process in which waste

reduction results in cost reduction. For this reason he

feels innovations are constantly happening on a day-to-

day basis. Mr. NL believes that even in a group engaged in

innovation, ideas come from an individual for a particular

innovation.

For SMEs, personal relationships are important for

success. According to Mr. NL, the chemistry of success is

notionally as follows: Innovation (40%) personal credi-

bility (30%)market condition (30%) 100%. There is a

specic reason for this perception of success. He feels the

leader/champion senses the sensitiveness of customer to

cost or quality or changed product and guides and drives

the small group towards it quickly. This entrepreneur feels

that quality is a factor more consistently contributing to

success than innovation.

The general operational problems faced by KLNEP are:

1. New plant location: situation near the customer con-

centration in order to facilitate customer interaction and

taking the product to user site is important for interac-

tion purposes location has to be determined on

customer convenience.

2. Innovation does not arise out of changes in customer use

or condition alone. It may arise out of packaging or achange in one component. This necessitates the change

in others in an integrated assembly (as in the case of

mufers) which has to be carefully considered.

3. Changes are acceptable in lab or plant and not accept-

able in eld conditions and these have to be

investigated.

4. Lending machines to subcontractors for rentals without

distributing their own schedules seriously.


This is a case where the experience of the entrepreneur

in a large organization has led him to the identication of(a) an opportunity of using technical skills protably for

developing his own business (b) a source of stable demand

for a product (lters) which could be extended and (c) the

critical encouragement of the parent company (TELCO).

The company had a set back soon, with the death of the

CEO but soon found in his son, a technical graduate to prop

it up and take it forward. The new leadership initially

concentrated on quality. However, soon in the late 1980s

the need for innovation was felt by him as competition was

increasing and the automobile industry was rapidly

growing. Initial innovative efforts were small and minor

changes.

Luckily KLNEP had developed a strong rapport withmany giant public sector organizations and private sector

companies to get orders. However, as perceived by Mr. NL

the relative need for each of the trinity of cost reduction,

quality and innovation was varying. This required a good

understanding of the customer needs, market uctuations

and the correct choice of the strategy to peg back compe-

tition. This indicates that the credibility of the entrepreneur

plays a central role. The subtle knowledge gained infor-

mally about demand variations, how the competitors are

aligning, what the forthcoming requirements of the cus-

tomers tend to be, becomes central in this. The market

condition is moving in several directions overtime and

pulls innovation efforts or quality improvement efforts or

cost reducing processing strategies to cope with varying

competition of sorts. The entrepreneurs credibility in the

SME industry, his sensitiveness to this movement of market

enables him to choose the right effort or strategy at a

particular point of time.

The rm moved from Manufacturing Against Drawing

(MAD) and Manufacturing Against Samples (MAS) in the

1980s to both process and product innovations by 2000 by

developing a Quality and R&D team. At the same time both

quality and price competition became strong and variety of

automobile air and oillters increased thus simultaneously

involving efforts of incremental innovations to meet indi-

vidual customer requirements and quality at low cost to



12/14

beat back competition. The innovation process itself was

highly customer induced with initial interactions and eld

trials to test the suitability of the innovated changes.

However, a lot of lab/shop oor trails were involved

actually.

KLNEPs efforts to develop new product designs based

on technical advice from doctors and supported by tech-

nical literature tended to fail in the market and was suc-

cessful only after the design were modied based on eld

trials during interactions with prospective customers.

These are highlighted in the innovation chain inFig. 5.

5.3.2. The cognitive map of Mr. NL

Fig. 6depicts the cognitive map of Mr. NLs perceptions.

He mainly perceived the strategies as (i) incremental in-

novations based on customer interactions and the R&D

team to meet varying customer requirements, (ii) design of

the lters, reducing the cost by using alternate material and

(iii) improving the quality of lters by redesigning their

structure. He felt an appropriate choice of the strategies (or

mix of the strategies) was possible only if he is able to

assess accurately the market conditions, to develop high

credibility with customers and to sharpen his technical

discernment.

6. Inferences and conclusions

The three cases demonstrate that SMEs in the auto

components industry of Bangalore are able to aim, plan,

strategize and implement technological innovations

successfully in terms of new product developments.

Entrepreneurial motivation was the prime factor which

was responsible for the emergence and implementation of

innovations in all the three cases. Entrepreneurs played an

instrumental role in recognizing market opportunities,

building up crucial in-house technological capability, sup-

plement it with appropriate external assistance, put in

place the process of carrying out technological innovations

including its modications to suit customer requirements

andnally deliver it to the market. An important feature of

these innovations is that constant interaction with its

customers is built into the system. This brings out that both

internal and external factors played a crucial role in the

planning and successful implementation of technological

innovations in SMEs. This answers our rst research

question.

Periodic new product developments have been the

performance indicators of their continuous innovations.

A natural development of this process of innovations is

the entry of these SMEs into the international market

which facilitated their learning process further. The

overall outcome of innovations is the growth of SMEs,

experienced not only in terms of factor inputs but more

importantly in terms of sales revenue. This answers our

second research question that technological innovations

do have a positive impact on the growth of sales revenue

of SMEs.

Furthermore, from the aggregate analysis of the three

cases we have tried to develop a theoretical construct on

the inspiration of the arguments of Eisenhardt [10],

Customer

KLNEP

(Incremental

Innovation)

KLNEP

(Radical

Innovation)

Change of use

condition

Failure in

Field

Successful

field trialMarket

rejection

Selected customer

interactionField

trialsMarket

acceptance

Manufacture

Develop new

Design

Successful

lab trials

Modify design/

redesign

New product

idea

Basic product

idea

Develop

product design

Manufacture Eliminate Design

Lacunae

Supply design

(Parent

company)

Product possibility

(medical

specialist)

Technology

literature

Fig. 5. Innovation chain (KLNEP).



13/14

Siggelkow[20]and Burgelman[4] on case studies. In our

view, the innovation process in a SME is an evolving pro-

cess with three identiable stages as outlined below:

In the rst stage, start up and/or in the immediately

following period, the company is protected by a defensive

strategy, sticking to standard products meeting the speci-

cations of an already existing product, substituting im-

ported material carrying out minor modications.

But in the second stage, the SMEs try to establish

credibility among the customers in the market niche for the

products it handles, by meting customers special re-

quirements arising out of changes in their technology and

product needs. Incremental innovation of a higher order is

the hallmark of this phase. Interactions with the customer

and customer acceptance and satisfaction play a dominant

role. Worker training becomes critical to develop innova-

tive skills. New technology like computer software im-

provements for quality gain and cost reduction are

attempted.

The credibility and support of the entrepreneur plays a

central role in the success of the SME. Suitable knowledge

of the demand variations and how competitors align for

forthcoming requirements of customers decides to be of

great importance in it. The choice of strategies of cost

reduction or quality improvement under varying compet-

itive forces at a particular point is critical to both innovation

and success.

In the third and nal stage, new markets, particularly

the foreign markets are explored. The rm tends to link

marketing and innovation strongly and projects its tech-

nological capability (in exhibitions and conferences). The

opening of foreign markets further boosts the renements

of process and product attributes and efforts.

In the light of these close observations and inferences,

we recommend an innovation promotion scheme as part of

Indias SME policy. Such a scheme must address the in-

house technological capability building requirements in

SMEs, information on kinds of external assistance that they

Growth

Target

Performance

Hold on to

the Major

customers

Diversify

Selectively

Customer

acceptance

Expand

facility

Appropriate

product

strategy

Customer

interaction

Cost

reduction

Quality

improvement

CompetitionAssess market

condition

Develop

personalcredibility

Technical

qualification

Build R&D

Team

Incremental

innovation

.

..

..

.

.

.

.

.

.

.

.

.

.

.

Fig. 6. Mr. NLs cognitive map.



14/14

can access, workshops to motivate dynamic entrepreneurs

to undertake innovations, involvement of banks in

extending support to innovative SMEs, linking large en-

terprises with SMEs having threshold technological capa-

bility, etc. Promoting SME innovations and SME growth

would contribute to the efcient growthof SME sector at

the aggregate and in turn industrial development of the

country. Furthermore, it would enhance the internation-

alization process of SMEs to the larger benet of Indian

economy.

Acknowledgement

This paper forms part of a research project on The In-

uence of Technological Innovations on the Growth of

Manufacturing SMEs sponsored by the Department of Sci-

ence & Technology (DST), Government of India. The views

and analysis contained in the paper are those of the authors

and not that of the sponsor. The usual disclaimers apply.

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Technological Innovations and Its Influence on the Growth of Auto Components

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