End of Project Report under the project ‘Support to Country Effort for SME Cluster Development’ of UNIDO (US/IND/01/193) during 2002-05

The Office of DCSSI, Ministry of SSI, Govt. of India (Small Industry Development Organisation – SIDO)

By: UNIDO Cluster Development ProgrammeNovember 22, 2005

1. Executive Summary: The Office of Development Commissioner Small Scale Industry is the counterpart institution for various UNIDO projects on cluster development at the national level. The current project “Support to Country Effort (SCE) in taking up cluster development” provided scope for assistance to the office of DCSSI not only as the recipient of the technical assistance but also as the monitoring body of the overall project. The report herein provides an over-view of the structure of the partner organisation, the context in which cluster development fits into its framework of SME development activities and the evolution of cluster development initiatives over the SCE project duration 2002-05. The report marks the major turning points both with reference to internal support under the project and external macro factors that enabled the partner take up cluster development in a major way. The office of DCSSI having the triple advantage of being the policy making body, a funding institution and an implementing agency in its own right through a network of field based ‘Small Industries Service Institutes’ provides a unique example of cluster initiative with a vision to reach out to all the industrial clusters within a period of 10 years from the year 2002.

The report also provides an insight into the challenges faced in expanding cluster initiatives and the responses emerged as consequence. It also describes how the partner took up institutional and systemic corrective actions by setting up two national technical resource centres, duly assisted by the SCE project to take care of the long term requirements. The range of assistance provided under the project, the impact that it seems to have generated in terms of policy changes and perceived gaps that remain to be corrected in the medium to long term have been elaborated in the forthcoming sections. Specific suggestions have been made on how the future challenges may be met by taking up a series of initiatives through a structured three tiered system of linkages, at international, national and state level.

2. About the partner

a) About the partner: Small Industry Development Organisation (SIDO) was set up in 1954 as part of the Ministry of Industry, Government of India. Its primary functions are to formulate and oversee the implementation of the policies and schemes for Small Scale Industry (SSI) development. The office is headed by a senior Indian Administrative Services (IAS) officer of the rank of Additional Secretary, designated as Development Commissioner, SSI (DCSSI). SIDO’s primary functions are to:

(i) Implement and fund its cluster development programs: SIDO has taken up cluster development through its field based institutions called ‘Small Industries Service Institutes’ (SISIs) and by funding other external agencies such as consultancy organisations, research & development organisations. It also implements and coordinates the implementation of a national program for rural industrialisation for tiny industrial clusters.

(ii) Provide technical assistance to small industrial firms through a large variety of activities such as entrepreneurship training, skill up-gradation, dissemination of market information, technology development & promotion, financial consultancy, international trade facilitation, organisation of management development programs, facilitation of ancillarisation, provision of inputs in areas such as energy conservation, pollution control etc.

(iii) Coordinate and Implement employment generation scheme: SIDO coordinates the implementation of Prime Minister’s Rozgar (Employment) Yojana (Scheme) in collaboration with several banks.

(iv) Implement SSI Ministry’s schemes for individual firms to take up quality up-gradation, facilitate industry associations to set up testing laboratories on pubic private partnership (PPP) mode , assist setting up of sub-contacting exchanges by industry associations, provide funding support to state governments for setting up Integrated Infrastructure (1994, revised 2000)

(v) Coordinate with state government agencies, financial institutions, other ministries with relation to small industries

b) Organisational Structure: SIDO spread comprises of 30 Small Industry Service Institutes (SISIs), 28 branch SISIs, 4 Regional Testing Centres (In Metros), 10 Tool Rooms, 6 Product and Prototype Development Centres (in specific product areas), 2 Central Footwear Training Centres, 7 Field Testing Stations (in bigger towns with specific product focus), 2 Entrepreneurship training institutions and 3 Product specific training institutions (3) spread all over the country. It has gross staff strength of 3244 of which 1042 are officers. In terms of the field presence, 2221 out of present 2571 strength of SIDO are based in the field. The gross developmental budget of SIDO per annum currently is in the range of Rs 400 crores.

In terms of the organisational structure, the office is headed by the Development Commissioner, a senior level bureaucrat. With reference to cluster development initiatives, s/he is supported by a middle level administrative person of the rank of Director in his office. The Director coordinates all cluster related initiatives to be taken up directly by SISIs and/or funded by this office. The concerned Director has several other responsibilities and within the realm of clusters, is assisted by a junior officer in the headquarter office of SIDO, based in Delhi. The directly assisted clusters undertaken by SISIs choose the CDA from one of their local offices who reports to the SISI administrative head, also called ‘Director SISI’. The day to day monitoring of cluster work undertaken by Director SISI is then reported to the concerned Director in the head quarter office. In all those clusters that are financially supported by the office of DCSSI, the

implementation and monitoring work is undertaken by the same implementing agency.

c) Major Schemes of assistance: that are currently operational are: ‘Credit linked subsidy scheme’ for individual units, Integrated Infrastructural Development (IID) scheme for state

governments, UPTECH renamed as ‘Small Industry Cluster Development Programme’,

applicable for any public or private institution, Quality Up-gradation assistance for ISO accreditation available to

individual small firms ‘Promotion of Exports’ through subsidisation of participation in international fairs and training on export worthy packaging that is available for individual small firms and industry associations.

3. Principal turning points (1997-2002):It is difficult to clearly determine the turning points that may have led SIDO to undertake significant changes in their cluster development activities. A series of bi-lateral and multi-lateral interactions with UNIDO CDP even prior to the launch of the current SCE project, is likely to have played a role in the office of DCSSI amenable to take up cluster related initiatives. The program of UNIDO CDP has been monitored by DCSSI by virtue of his being the chairperson of the National Steering Committee that monitors and approves all UNIDO cluster activities in the country ever since 1999The cluster visits by the Development Commissioner, SSI to ‘Ahmedabad & Baroda’ (Drugs & Pharmaceuticals) cluster and subsequently to Bangalore (Machine Tools Cluster) in January 2003 provided a very positive feedback from the cluster stakeholders (i.e. local entrepreneurs, local public/private institutions, regulatory agencies and academic institutions) and a rich understanding about the process involved in cluster development. The regular interactions of the office of DCSSI with UNIDO CDP through time, led to new proposals that have been taken up by SIDO with respect to cluster development.

On a broader context, outside the scope of SCE project, some macro factors played concurrently a positive role. In order to give a bigger thrust to the promotion of small industries, the Government of India created a new ‘Ministry of SSI & ARI’ in October 1999, under an independent Minister of State. Subsequently, in order to analyse this sector’s key problem areas and find appropriate policy thrust to redress them, a ‘Group of Ministers’ was constituted in June 2000.

The comprehensive Policy package for SSI and Tiny Sector announced by the Prime Minister on the 30th August 2000 mentioned the need to follow cluster approach as one of the important ways for SSI development. During the year 1999-2000, the union budget announced by the Finance Minister of India, contained a paragraph about the need to take up cluster development initiatives for rural clusters through ‘National Program for Rural Industrialisation’ (NPRI) covering 100 clusters by several national institutions to be coordinated by SIDO. Subsequently, the new Union Government under its ‘National Common Minimum Programme’ announced in May 2004 further stated “ Infrastructure up-gradation in major industrial clusters will receive urgent attention”.

In order to improve the outreach of the services, there was also an increasing recognition of the potential role of the civil society organisations such as Industry associations. It was felt that the industry associations should be able to reach out to larger number of firms for skill up-gradation and technology dissemination. With a view to ensure sustainability of SIDO’s institutions, accountability in terms of revenue generation has been emphasised strongly in several policy directives. The changed focus of the SISIs from working with individual firms to groups of firms through cluster based approach is likely to help achieve SISIs reach out to larger numbers with greater effectiveness and market their technical services better.

4. Vision of the Partner with respect to its relationship with cluster programme There is no stated version of the vision of DCSSI office, pertaining to cluster development. However, during the course of discussions and dialogues in the year 2002, the concerned officers stated the need to cover all the 388 UNIDO identified SME clusters in the country over the next 10 years. Second, they expressed the need to follow multi-thematic, multi-stakeholder, integrated approach that not only helps to build the capacities of local civil societies in the clusters, but also seek firm level quantifiable results in the given time frame. Such an approach, they believed, would lead to sectoral development, wherein each sector would essentially be comprised of several clusters, chalking out their independent development initiatives and yet be knit together at sectoral level to address macro economic and policy level issues that cut across several clusters of the same kind.

5. Implementation strategy of partner’s CDP and evolution thereof on yearly basisOne may visualise the change over 3 years (2002-05) in terms of implementation strategy at the cluster level, number of clusters assisted and allocation of funds. In the year 2002, the focus of the cluster oriented scheme started in 1998 as UPTECH, was shifted from firm specific demonstration of technology up-gradation and modernisation to system based cluster development approach, as stated above. Diagnosis of clusters, trust building with cluster partners thereafter, formation of networks and Industry association capacity building became an integral part of cluster development in most of the clusters assisted under the new scheme.

The UPTECH scheme was launched with an allocated budget of Rs. 6.25 crores ($1.5 million) in 1998 for 11 identified clusters/‘groups of clusters’ across 5-year plan period. The number of clusters taken up by December 2003, directly through SISIs and indirectly through external institutions was 51 which has further increased to 74 in almost all the sectors and geographically covering the entire country by December 2004 with an estimated development outlay of more than Rs. 30 crores for all the clusters. The listing of these clusters is provided on the ministry’s website www.smallindustryindia.com. For each of the clusters to be assisted, it was considered essential to get a formally trained Cluster Development Agent (CDA) who would undertake a detailed diagnostic study and prepare a ‘cluster action plan’ that would encompass a wide range of activities leading to development of the cluster.

6. Evolution of the administrative set-up of the partner for cluster programme management on yearly basis - Role of UNIDO CDPThe quick growth in the number of clusters to be assisted posed several challenges in terms of lack of systems available for program designing, training of human resources and monitoring of programs. The DCSSI office responded to this problem in the year 2003 by designating and strengthening the capacities of a national training institution called National Institute of Small Industries & Extension Training (NISIET) based in Hyderabad to take up the role of National Resource Centre (NRC) for cluster development. It was agreed that with the initial assistance provided by UNIDO CDP under the framework of SCE project, the NRC would eventually undertake the following tasks:

(i) Training of potential CDAs from SISIs and external institutions(ii) Provision of technical advisory services to the CDAs through the

project duration for effective implementation of the cluster program. This included field reviews, conflict resolution at the cluster level, provision of institutional linkages at national/international level and providing references for private consultants.

(iii) Provide an administratively flexible base to ensure reimbursement of communication and mobility expenses that would otherwise not be possible in the available accounting rules/procedures. Also to enable reimbursement of expenses for the use of business development services (BDS), not amenable to the given rules/ procedures

(iv) To review the administrative constraints & bottlenecks besides the need for refresher training to plug the gaps, as they emerge

(v) Transfer the technical advisory competencies to the administrative heads of the CDAs viz. SISI Directors in SIDO and heads of external institutions that were provided funding assistance by the office of DCSSI

The growth in the number of clusters assisted and the quantum of work involved outpaced the capacities built in NISIET that had by then begun to technically assist 20 clusters across the country. It therefore required a second national institution called Entrepreneurship Development Institute of India (EDII) based in Ahmedabad to act as the second National Resource Centre from the year 2004 that would build upon the cluster development methodology and framework developed with UNIDO CDP under the SCE project. EDII began to technically assist in 11 of the clusters being assisted by DCSSI office. By the year 2005, it became clear that with several states and other national institutions launching their own cluster development initiatives, the need to have regional resource centres will be essential and therefore proposals emanating from Kerala and Orissa states were being considered for their capacity building which would enable them provide necessary technical assistance on a regional basis.

7. Areas of handholding assistance by UNIDO:

The SCE project provided scope for assisting all the 7 partner institutions including the office of DCSSI at two levels viz.

I. Assistance to 2 clusters undertaken for implementation by the partner organisation. In the case of DCSSI, the two selected clusters were the clusters of auto-components in Chennai (TamilNadu) and rubber processing

in Kottayam (Kerala). The auto-components cluster of Chennai, a very large cluster of more than 10,000 small and medium enterprises in the growing automotive industry of India posed challenges for quality up-gradation and coherent linkages with the mother firms. On the other hand, the rubber processing cluster in Kottayam is a much smaller cluster where comparatively smaller firms struggled to compete with a few larger firms, primarily based upon lower prices using inferior processing technology. The successful outcome upon assistance of these 2 clusters, it was envisaged, would lead to greater interest in the partner to expand the number of clusters to be assisted. For the 2 select clusters in Chennai and Kottayam, the areas of assistance by UNIDO CDP pertained to the following: (i) Identification of the local implementing partner for Kottayam cluster

(2002)(ii) Assistance in preparation of diagnostic study reports (2002)(iii) Identification of strategic activities to be taken up and thus provision of

training thereof (2002-03)(iv) Identification of alternate options for collective activities to be taken up

(2002-05) and on the job training on Action Plan preparation (2002-05) in both the clusters

(v) Building trust between the CDA in Chennai and the local industry (2002-03)

(vi) On the job training to CDA on conflict resolution in case of Chennai (2002-03)

(vii) Identification of need for instituting administrative flexibilities required at the local level for Chennai cluster (2002)

(viii) Resolution of conflict and providing inputs on the basic principles of cluster development within the local office of SISI (2002-03)

(ix) Identification of the BDS providers and linking up with clusters (2002-05)

(x) Technical assistance in preparing of project reports for seeking funding assistance for a common processing facility in case of Kottayam (2003-04)

(xi) Providing assistance in building linkages with local institutional partners such as banks, financial institutions, private sector quality training institution etc. (2002-05)

II. Policy level assistance to the Partner DCSSI office: The focus of this assistance was to build up institutional capacities to help the office of DCSSI undertake cluster initiatives in an effective manner. This involved:

i. Technical assistance in developing a financial assistance mechanism, ii. Initial capacity building of national resource centres at NISIET & EDII,

provision of training modules, cluster selection mechanism, iii. National database on clusters, iv. Training of administrative heads of SISIs, v. Development of customised monitoring & evaluation frameworks, vi. Compilation of multiple sources of technical & financial assistance

outside the office of DCSSI which the CDAs may draw upon,vii. Database on cluster level BDS providers, viii.Knowledge sharing through seminars/workshops,

ix. Exposure to international best practices by organising study tour to Italy,

x. Literature sharing and re-training of faculty in the national resource centres.

Moreover, by the end of SCE program assistance, a special one-year project funded by multi-stakeholders including the office of DCSSI to undertake development of BDS providers in the area of exports, has also been developed that is likely to alleviate the problems arising out of cluster level export BDS providers.

8. Policy level changes in the partner with respect to cluster development policyThe office of DCSSI under the Ministry of SSI, like several other institutions in the country has undertaken several policy level changes to become increasingly effective in terms of its developmental objectives. The SCE project of UNIDO CDP has certainly contributed positively in the endeavours of the partner in several ways. With specific reference to cluster development policies, one can enumerate:

i. Reformulation of the partner’s UPTECH scheme to undertake holistic cluster development initiatives

ii. Greater integration of activities in other schemes of assistance such as training of SMEs in the area of packaging, increased usage of sub-contracting exchanges scheme in the assisted clusters and higher usage of quality up-gradation support in assisted clusters

iii. Restructuring internal mechanisms to ensure greater administrative flexibility within the SICDP scheme to partially fund private sector groups for their development activities, to ensure flexibility in identifying emerging private collective actions through networks with greater public good

iv. Engagement of private commercial BDS providers and undertaking of special project for the development of private commercial consultants for SME development in clusters

v. Increased inter-relationship on SME development matters at the cluster level with other public institutions and ensuring greater pooling of funds from development schemes outside the scope of Ministry of SSI. At different levels, it reflected a greater public-public partnership

vi. DCSSI office became a source of knowledge and experience for other sister institutions and offices within the Ministry of SSI, Ministry of ARI and Ministry of Textiles to provide assistance in formulation of new cluster based assistance programs. Specific reference to NSIC taking up its own cluster initiatives in around 18 clusters, Ministry of ARI taking up around 200 micro-enterprise clusters under SFURTI and recently KVIC working on several clusters for assistance demonstrate leveraging of inspiration, knowledge and experience base of the office of DCSSI in this regard.

vii. Setting up of the national ‘Foundation for Micro, Small & Medium Enterprise Clusters’ mid 2005. Recognising the recently developed, but dispersed knowledge and experience base in the area of cluster development, the Foundation was created at the request of the office of DCSSI, with an operational ambit in the international arena

9. An assessment of the perceived gaps in original program formulation and implementation of programme At the time of initial program design, the specific unique requirements of the partner were not assessed by the UNIDO CDP either comprehensively or systematically. In the original program design of the SCE project, it was envisaged that all the 7 partner institutions including DCSSI would adopt the standard UNIDO CDP model on ‘as it is basis.’ It is now felt that institutional diagnosis of the potential and administrative feasibility to adopt the approach would have further improved the effectiveness and speed of assistance to some extent. However this has only emerged with the hindsight of one year’s implementation. Thereafter the process of collaboration between UNIDO CDP and the office of DCSSI evolved to take care of the emerging needs of the partner rather than transference of pre-decided knowledge and skills sets.

While the need for a CDA for implementation in the cluster and Cluster Development Coordination Cell (CDCC) for monitoring and assisting CDAs was envisaged and provided for in the project design stage, the extent of technical assistance required to assist the CDAs in helping them to discharge their function effectively was not fully understood and therefore not communicated to the partner. On the other hand, the clear job description, sources of recruitment, nature of training assistance for the CDA positions were clearly provided at the outset of the project initiative. In the hindsight, after a year of project implementation, the significance of a specially designated and trained technical advisor (TA) within the CDCC emerged. Its implication is that institutions like NISIET and EDII as the National Resource Centres took time to establish and assume the role of technical advisors with clearly designated persons and focussed job-descriptions on how to assist the CDAs.

The level of understanding of UNIDO CDP about the administrative procedures and systems of the partner institutions the complexities involved in their redesign were not fully understood. As a consequence, limited and sometimes no technical assistance was provided to the partners on this matter. This led the office of DCSSI to work out its own re-designing of internal administrative systems by trial and error that ensured greater flexibility required in case of such process based approaches as cluster development.

10.Scope for future work and capacity of partner The offices of Development Commissioner, SSI in particular and the office of Ministry of SSI, Government of India have become the national hub to steer the cluster initiatives with regard to SMEs. The scope of initiatives both in terms of funding and execution is likely to pose a series of challenges some of those are elaborated as under:

a. Evaluation of requests for funding cluster development proposals: With a large number of funding requests emanating from a variety of autonomous institutions in the country, seeking Small Industries Cluster Development Program funding, it is becoming increasingly necessary to objectively grade them before approvals are given. It is believed that clear assessment parameters and templates for seeking funding proposals will help a great deal in ensuring consistency in approval of worthy projects

b. Lack of competent BDS providers and industry associations: Across several clusters where the cluster development has been taken up over the last few years, a consistent gap exists in terms of BDS providers focusing on SME in areas such as export development or industry associations willing and capable to taken up development work. Therefore setting up schemes and taking up special projects for financial and technical assistance for BDS development and Industry associations capacity building need to be taken up

c. Fostering continuous learning: Every cluster is unique and requires a customised set of development assistance initiatives. However, continual learning and documentation of best practices as they emanate from practical experiences have a big potential to help the CDAs and policy makers draw up right initiatives at different levels that will prove effective developmental initiatives. As the nodal agency within Ministry of SSI intending to take up several hundred more clusters and being ahead of other public institutions whether in the states or central government, the office of DCSSI needs to strengthen its cluster development cell to ensure internal knowledge gathering mechanisms, sharing of the best practices in cluster development within and outside its institutional framework.

d. Coordination with support schemes from other public institutions: Several schemes and assistance programs of other national and state level ministries have a strong potential to feed into the cluster development initiatives undertaken by the office of DCSSI, and vice versa. Such schemes exist more specifically in the areas of infrastructure by Ministry of Industry & Commerce in the Govt. of India, research & development by various R&D institutions, credit linkages with financial institutions & banks. A greater coordination among the various institutions at the policy level, program design level and operational level can together make an enormous positive difference in the areas of development assistance that would go a long way in fulfilling the objectives of the various institutions. Therefore special focus should be given to inter-relationship in these areas (Infrastructure, Credit, BDS development, Technology…) where clusters can become the platform to integrate the dispersed and diffused initiatives in several instances

e. Lack of trained human resources to execute cluster initiatives: With the experience of cluster development over the last decade or so, it is clear that the quality of CDAs and Technical Advisors (TAs) has a very strong influence on the success of cluster development initiatives. CDAs in several ways are the system integrators who help to pool in the diverse resources and competencies for integrated cluster development. Thus templates and strengthened systems for the selection and on-going monitoring of the CDAs and TAs would help significantly.

f. Need for regional technical support institutions: As a consequence of very fast emerging interest in the area of cluster development, the need for more regional level resource agencies closer to the cluster initiatives is considered necessary. The capacities of currently only 2 National Resource Centres in NISIET and EDII are inadequate to

handle the emerging pressure of the volume of cluster development work.

g. All the above mentioned work cannot be undertaken by one single institution since it will require coordination of multiple stakeholders and institutions. It is therefore suggested that a national apex body that understands and has the necessary competence & resources to drive such an initiative in close coordination with different organisations be given this mandate. In the current framework the newly founded Foundation for MSME Clusters seems to be in the best position to take up this challenge effectively provided close cooperation and adequate resource support is ensured for the same.

Annexe 1Auto component cluster at Chennai

1. Key cluster actors: The key cluster actors in Chennai auto component cluster are about 40 large and Medium enterprises, Vendors to these large firms, Small firms catering to replacement markets, Job shops in metal cutting, grinding, metal forming, foundries, Heat treatment units, Forging units, OEM manufacturers of vehicles- as customers and Material supplier. Most of the 40 large and medium enterprises in this category are sub assembly manufacturers supplying to OEMs in India. Each of the larger units have 100-200 vendors who serve them. Small firms catering to replacement markets are estimated to be more than 200 in numbers. There are about 1000 job shops that serve the industry. However most of them cater to not only automobile industry but also other engineering industry. To support these industries there are approximately 31 foundries in the cluster. About 21 of them are SMEs. About 100 heat treatment units support the cluster. Dealers and alloy casters are the major conduits for material suppliers. Most of the units buy the material through the dealer of big manufacturers. Raw materials like steel and Fe-alloys are principally sourced from SAIL, and its suppliers. For Non-Ferrous alloys like Aluminium, there are local re-melting units & Foundries that manufacture the alloys & ranges with different composition based on the requirements of the manufacturers.

2. Major problems faced2.1 Poor networking amongst different stakeholders: Although the cluster is richly endowed with various institutions to support the cluster firms, not much networking was happening at the cluster level. A platform was essentially missing where the institutions could be in touch with the cluster firms on a continuous basis and respond to changing needs of the cluster firms. 2.2 Weak marketing linkages for small firms. In the cluster small firms were facing problems in marketing of their products. This was mainly because they were more like job shops and were not delivering a sub assembly. Moreover most of the units did not have any scientific method for marketing. They were depending upon word of mouth approach. Due to limited market capacity utilization was low. The awareness about newer markets was not there.2.3 Low usage of BDS: Most of the entrepreneurs in small industries were not used to using outside expertise for improvement in their businesses. However fast changing scenario in auto-component industry was putting up lot of pressure on these firms to change and upgrade their practices, quality and delivery mechanisms. The principal companies were trying hard to impress upon their vendors the need for using periodicity tools like 5s, QC Tools, Single piece flow, certifications, energy audits etc. However this culture of using BDS expertise to upgrade was largely missing in the cluster. BDS also did not see smaller units as their market.2.4 Lack of second line management in small industries: The small units quite often lack a second line management system and all operations depend upon the sole entrepreneur. This leads to lot of problems in terms of business not getting critical and strategic inputs from the entrepreneur. The training schemes avaible have no such programme wherein small businesses can get their managers trained on second line management.

3. MAJOR ACTIVITIES TO SOLVE THE PROBLEMS3.1 Creating a platform for networking amongst firms and institutions: SISI Chennai organized 8 awareness programmes and 10 seminars/ workshops wherein a total of about 600 firms were provided opportunities to network with Institutions. About 20 units were LINKED with NSIC and other nationalized banks for a uptake of app s 4 Crores of credit under CLCSS. 5 firms sought support from SIDBI for energy audit. Institutions like SIDBI,

NSIC etc, sponsored quite a number of the above programmes. The training schedules were often drawn as the need of the principal company. Institutions like CIPET, CSIO and ATI were also roped in cluster development.

3.2 Improving marketing linkages for small firms: A Group of 7 firms from diverse functions was brought together to form a consortium called CEN. The group printed a common marketing brochure and hoisted their details on a web site. They started participating I high-end exhibitions including international exhibitions. Similarly 20 firms in Perungudi industrial estate were brought together in to a consortium called Perungudi Engineering cluster. After printing a common brochure they opened a common marketing office and appointed a full time person. This group too started participating in exhibitions. Both of these groups also started approaching big manufacturer for sub contracting relationships. Based upon the need of a principal company –Ashok Leyland, 3 groups of foundries were promoted for sub contracting linkages with the principal. This helped the principal in their process of tierisation of vendors. ThDue to group working lot of enquires were generated due to cross-references.

3.3 Increasing the usage of BDS: Lucas TVS was grapping with the issue of upgrading practices of their vendors. They had formed a group called LESA, which was not taking off. CDA met the concerned authorities and offered to synergise the cluster approach with LESA. BDS like 5s, energy auditing, automation and QC techniques were brought to LESA and matchmaking done. Later LESA took up issues like Single piece flow, TPM and activities were driven on a group approach. Similarly for Perungudi Engineering cluster and CEN BDS were deployed for improving manufacturing practices. Experts from IIP-Indian Institute of Packaging were taken to 4 firms for inputs on packaging. Initially some part of expenditure was borne by the programme to kick-start the usage. BDS of different kinds were grouped together in to consortia so as to improve availability of BDS to cluster actors.

3.4 Design and execution of customized training programmes: CDA identified the need for specialized training inputs as and when expressed by the cluster actors. Suitable curriculum was designed in consultation with beneficiaries. 3 courses of Manager Development Programmes were conducted benefiting 46 managers drawn from about 40 small units. Similarly there was a problem of CNC programmers amongst the LESA firms. A special course was got conducted at advanced training Instituion benefiting 16 firms.

3.5 Reorganizing foundry vendors of a principal in to tiers:

4. Results:

The results of CDP intervention may be summarized as follows.4.1 Firm level impact indicators. 3 firms helped to build linkages with Bangalore machine tool industry and Bobsty

Pune equipment manufacturer for orders. Regular enquires are getting generating. Orders worth of 200 Lakhs received benefiting 2 firms.

4 firms helped to build linkage with Merchant exporter .One firm has received export order worth of 120 Lakhs per annum. Second unit received and executed orders worth of 35 lakhs.

1 firm has been facilitated to build linkage with auto component cluster in Chennai. Enquires worth 105 Lakhs have been received. 45 Lakhs orders have already materialized.

140 lakhs worth of export enquiries generated for 4 firms. A visit was orgasied for the buyer to these 4 units.

TNFC a consortium of 6 firms have participated jointly in three exhibitions – Indus Expo 2003, vendor development cum exhibition at Visakhapatnam. And Foundrex

2004 at Hyderabad, 120 Lakhs worth of enquires generated. 70 Lakhs orders have been finalized.

TNFC has been linked with NSIC for marketing assistance. TNFC has registered with Ordnance factory-Medak and Vishakhapatnam Steel plant. Enquires worth 11lakhs have been generated from Vishakhapatnam steel plant.

Enquires worth 260 lakhs have been generated for 5 firms through reverse auctions.

3.9 Lakhs has been saved by 9firms on account of common procurement of coke. Common procurement of crucibles has saved Rs 2.20 lakhs per year for 3 firms.

Brain storming sessions lead to savings in usage of coke- 1.35 Lakhs per year for 1 firm.

Through reverse auctions 3 firms saved Rs. 3.5 lakhs. Savings on account of Energy audit are more than Rs 1 lakhs per year for 3 firms. Walk through energy audits helped 4 units to save Rs. 1 lakh per year. One unit on implementation of lean cost solutions saved Rs 80 lakhs. Process improvement helped 3 units reduce their rejection percentage from 6% to

4%.

10 units got ISO 9000 Certification. Joint negotiation with consultants saves Rs 1 lakhs.

Redesign of coke fired pit furnaces in 2 unit led to improved melting output per kg of coke by 36%. This has saved Rs. 36000 per annum.

5 units have shifted from Graphite crucible to silicon carbide crucible. This has lead to an increase of 20-25% productivity in terms of additional capacity.

Awareness and interaction with SIDBI on Credit linked capital subsidiary scheme lead to disbursement of Rs 6.3 lakhs to 3 Units under capital subsidy scheme.

4.2 Cluster level impact indicators. BDS usage in the cluster has gone up Exposure visit to Belguam & Kolhapur has helped 5 firms to improve shop floor

lay out leaing to productivity improvement. Lot of small units have developed linkages with export market. Domestic market has expanded from Andhra to other states. Entrepreneurs realized the importance of exhibiting their products in exhibitions Having realized the need for an association, the foundries are grouping together

under a new association4.3 Sustainability indicators: -

TNFC –a consortium of non-ferrous foundries is taking joint initiatives. Linkages with support institution like SIDBI, NSIC SISI have strength.

Annex 2

Rubber Cluster of Kottayam

1. Introduction:

Kottayam is situated in the State of Kerala. The initiative for development at the rubber cluster of Kottayam under the cluster development methodology was started in the year 2002-03 by the Industries Department of the Government of Kerala. UNIDO, CDP, then recommended selection of the cluster for development by the Development Commissioner Small Scale Industries (DCSSI) and offered Technical Assistance to the CDA and stakeholders to facilitate initiatives. Long-term strategic interventions continue to be supported by the Department who remain an integral institutional partner of the cluster.

2. Evolution of the Cluster: Manufacture of rubber products in Kottayam started in the 1950s. The major products were rubber mats, rubber bands, Hawaii chappals, etc. The Small Scale Industries (SSI) reservation policy for certain categories (such as rubber bands), encouraged the development of small units. The second phase commenced in the 1980s with the emergence of large manufacturing companies such as ‘Paragon’. A number of SSI units started up as sub-contractors to these companies and to medium-sized rubber and coir product exporters, based in the coir cluster at Aleppy.

Evolution of the third phase should be seen in the light of intense competition from abroad. Since the Far East Asian currency crises (and subsequent depreciation and rationalisation of their currencies) in 1996, countries like Indonesia and Thailand became major competitors in cluster products. This phenomenon was also due to other advantages that they enjoyed.

3. The Cluster and its Major StakeholdersThe Kottayam Rubber Cluster consists of about 516 enterprises in different product groups, i.e. footwear (186), adhesives and rubber cements and solutions (39), latex foam (25), rubber bands, latex thread and gloves (100), thread rubber (51), rice polishers, rubber sheets, mats, tyre flaps, etc. (77) and other moulded products (38). In 2002 (prior to interventions) the number of employees was about 15,500 and the total annual turnover was Rs. 390 crores (USD 88 million). Exports (largely indirect) stood at about Rs.100 crores (USD 22 million).

The cluster has a plethora of associations. Poovanthuruthu Industrial Association and the Rubber and Plastic Small Industries Association of Changanassery are the largest, and are the only ones that have independent office space. They have about 150 and 100 members respectively. The other associations comprising of tiny enterprises have hardly 10-30 members on their rolls. Prior to interventions, these associations had only one role, i.e. advocacy.

A number of technical and other support service providers are located within or close to the cluster. These include: The Rubber Board, functioning under the aegis of the Department of Commerce

(Ministry of Commerce and Industry)

Cochin University of Science and Technology (CUSAT – Polymer Technology Division)

Common Facility Service Centre (CFSC), Changanassery, providing R & D and testing related assistance.

Prior to intervention, there was a lack of interaction between the cluster units and support service providers.

4. Major ProblemsThe Cluster Development Agent (CDA), representing the implementing agency, The Industries Department of the Government of Kerala, identified the major problems as: High cost of production due to sub-optimal procurement and weak linkages with

financial institutions. This affected export competitiveness vis-à-vis Sri Lanka, Indonesia and Vietnam.

Poor physical infrastructure (roads, overhead power cables, water supply distribution etc.) within the industrial estates.

Technical line imbalances in the manufacturing process (of the ‘mixing mills’ vis-à-vis the ‘press’). This affected capacity utilisation and hence costs, quality and scope for manufacturing high value-added products.

Poor entrepreneurial initiatives and inadequate marketing and market development efforts. As a result, many cluster SMEs are predominantly sub-contractors to medium-sized exporters of the Coir Cluster at Alleppey.

Inadequate R & D base and initiatives for product development, quality, product-mix and design of moulds for manufacture of floor coverings.

Competition from non eco-friendly synthetic substitute products. (PVC tufted mats have a larger market share vis-à-vis rubberised or latex backed coir mats during the last few years.)

5. Vision for the ClusterThe vision for the cluster that was progressively evolved by the implementing institution was: ‘The Rubber Cluster at Kottayam would have evolved into a globally preferred source for rubber related home furnishing products by the year 2006’.

6. Implementation StrategyIt all started off with a ‘revitalisation’ programme organised by the Industries Department in association with the Entrepreneurship Development Institute of India (EDII), Ahmedabad. The intervention served to evolve specialised purchase consortium and also underlined the need for evolving appropriate financing instruments for this purpose. The route to realising the cluster vision was further evolved over several stakeholder meets organised by the CDA in 2002-03. A Cluster Development Co-ordination Committee (CDCC) was formed with the involvement of key stakeholders and support institutions, which identified critical gaps on various fronts. During this period, the cluster was undergoing some product-related structural changes. Therefore the CDA focused its attention on SMEs making products with better market potential, such as mats1. A combination of training, awareness-

1 Other product manufacturers with relatively better potential are being encouraged to emulate these options.

generation programmes, workshops and exposure visits served to evolve consensus amongst specific SME segments on various common business plans. Throughout this process the State Government took special interest in promoting supportive policy framework. For example, in order to facilitate quick decision making in small but important issues, a nominal flexible funding (of Rs 10,000) is also provided to the CDA2. Dissemination of interventions was also simultaneously pursued for upscaling of initiatives.

7. Major Interventions: Major interventions to resolve critical problems include

Reducing Cost of Production through Purchase Networks: A ‘revitalisation’ programme organised by the Entrepreneurship Development Institute of India (EDII), Ahmedabad, in association with the Industries Department identified the benefits of common purchase of inputs and the necessity for evolving appropriate financial instruments to increase financial resources to SMEs. Simultaneously, at the policy level a unique model of financing raw materials for the consortia of SMEs registered as corporate entities, by way of Margin Money Loan (MML) assistance, was evolved by the Industries Department. Interventions facilitated the establishment of a large institutionally financed raw material and consumables purchase network. Thirty-eight member units of this network (NRFPMC), mainly manufacturing mats, are benefiting by way of optimal scale and source of purchase.

Removing Gaps in Physical infrastructure: The problem of poor infrastructure in industrial estates in clusters was reflected in the ‘overturning’ of container trucks transporting export shipments from cluster SMEs. The CDA led a team of entrepreneurs to the Special Economic Zone, Kochi, to expose them to the quality of physical infrastructure required to cater successfully to export markets. A proposal was subsequently submitted to KINFRA, the State level nodal agency for considering projects seeking support under the Assistance to States for Developing Export Infrastructure and other allied activities (ASIDE). The project worth Rs. 40 lakhs was implemented within the first quarter of 2005.

Removing Gaps in Technical Line Imbalances in the Manufacturing Process: Rubber is mixed with the required chemicals in an open mixing mill where the quality of the mix is dependent on the efficiency of the operator and the mixing time. Thus quality variations are high. The problem was diagnosed and overcome by the installation of an internal mixer, which ensured consistent quality and high output. However, as per prevalent technology amongst SMEs, a mixing mill needs to operate three shifts for the press (for moulding operations) to be able to operate one shift.

A project proposal to establish an inter-mix on a Public Private Partnership (PPP) basis was prepared by the Technical Consultancy Division of the Rubber Board in association with the CDA. The Small Industry Cluster Development Programme (SICDP) Committee sanctioned a grant-in-aid for 90 per cent of the cost of plant and machinery in February 2004 and an amount of about Rs 3.5 crores (US$796,000) was given to the newly created NRFPM Consortium. Equipment and machinery are currently being installed at the facility offered on a lease basis by CFSC, Changanassery. There will be a three-fold increase in productivity and a reduction of

2 By the State Government through KBIP

about 5-8 per cent in cost per unit of output through savings on labour and energy. This will enhance competitiveness and better standardisation of products.

Marketing and Market Development Efforts: The association organised a series of awareness and capacity building training programmes. These included workshops on social auditing, internet marketing, technical skill up-gradation, training for managers and workers, Management Development Programmes (MDPs) on communication/ management skills, quality management, creativity and innovation, etc. NRFPMC has participated in fairs such as India International Trade Fair (IITF-New Delhi), Rubber Expo (Mumbai), B2B Meet (Kochi), etc. These contributed to direct export turnover.

8. Consolidated ResultsFirm specific: Over seventy enterprises in the cluster are working together in the form of networks. Thirty-eight member units of one network (NRFPMC Pvt. Ltd.) have benefited in cost reductions of 20-30 per cent on many inputs. The consortium company secured a profit of Rs. 10 lakh (US$23,000) in the last 15 months of operation. Common purchase of inputs has resulted in savings of about Rs. 20 lakh (US$46,000) for consortium members.

Cluster SMEs utilised the services of private BDS providers extensively for management training and in preparation of common project proposals. Negotiations are on with a private supplier of Quality Management Systems (QMS), with experience in providing services to rubber product manufacturing enterprises, to provide BDS from outside the Cluster. A ‘group’ ISO 9000 option involving common training is expected to reduce the cost of relevant BDS by about 50 per cent.

Direct export turnover of network members increased by about Rs.10 crores (US$2,273,000) over the intervention period. The service provider representing the SES led a delegation of German buyers to Kottayam to inspect enterprises and place orders from cluster SMEs. Trial orders worth Rs. 4 lakh (US$9,000) have already been shipped.

Cluster Specific: An exchange for sub–contracting was established at the Changanassery Association premises with support from the DCSSI. This will enhance backward and forward linkages. The scope and model of the ‘bank-financed’ raw material network has resulted in similar consortia being evolving. A critical problem of SSIs with respect to institutional credit is being resolved. New products such as rubber tiles and rubber play balls and new buyers have been introduced.

The Changanasserry Association has taken the lead in constituting a Federation of Kottayam Rubber Industry Associations (FRIA), which brings together five specific associations representing about 400 enterprises. This lends critical mass to pursue strategic cluster level initiatives such as submission of a proposal for registration under the GI Act.

Policy Specific: Two major policy changes have been introduced by the State Government:

Interventions in the cluster have resulted in the creation of a consortia-supporting Margin Money Loan (MML) scheme by the Government of Kerala.

The implementation of the project supported under the ASIDE scheme (PPP mode) built up pressure on authorities to issue title deeds to SMEs. Thus land, as collateral to financial institutions, is now available to seventeen industrial estates (about 1,000 enterprises).

9. SustainabilityMost of the broad interventions have been led by industry associations and are being closely monitored by a CDCC representing different stakeholders. All business ventures are being managed by business networks. None of these efforts are operationally subsidised. The Federation of Kottayam Rubber Industry Associations (FRIA) has been evolved. A Cluster Development Co-ordination Committee (CDCC) monitors progress, guides interventions and involves all relevant stakeholders. All these efforts suggest reasonably good sustainability of efforts made in the cluster.

10. Future ScopeFuture interventions are expected to be largely led by SMEs and support institutions. Some of the important ones include:

(i) Registration of Natural Rubber (NR) of Kottayam under the GI Act and Subsequent Promotion of the Brand

(ii) Industry Institute Partnership: Department of Polymer Science and Rubber Technology, CUSAT, has submitted a proposal for support under the Industry Institute Partnership Scheme of the AICTE, which has been sanctioned.

(iii) Large Projects to Manufacture Value Added Products: SMEs from Changanassery Associations are implementing projects for rubber tufted coir mats and continuous rubber mat manufacture. The consortium has acquired 3 acres of land adjacent to the industrial estate at a cost of Rs. 90 lakhs (US$205,000). The total project cost is estimated at about Rs. 12 crores (US$2,727,000). This project would serves as a demonstration project for new technology and products.