City city bang bang

Sri City, with an integrated SEZ and domestic trade zone, is fast emerging as an investment destination for MNCs

Some of us will take a lifetime to master eating with chopsticks and some of us will die trying. But for Shigeo Hoshino, eating biryani with his hands was one of the most difficult things he has ever done. “It was very hard but ultimately very tasty, so it was worth the effort,” says the president of Japanese auto ancillary firm Piolax India, which supplies components to Nissan and Maruti Suzuki in India.

India has been home to Hoshino since December 2011, when his company set up shop here to supply to Nissan. Not satisfied with the terms at the Renault Nissan supplier’s park in Oragadam, Piolax decided to invest in Sri City, an integrated business city situated 55 km from Chennai.

“People felt that the distance between Sri City and Oragadam may be a little too far but we were impressed with the infrastructure and connectivity here.” The company invested ₹50 crore to set up a facility with 20 injection moulding machines. “India is a growing market that everybody is watching closely. If you have to get ahead in this market, you need to move quickly,” says Hoshino. The ¥54-billion Piolax was one of the first companies to set up operations in Sri City and is now talking to Tata and Mahindra about expanding its presence in the domestic market. 

Sri City, the brainchild of Ravindra Sannareddy, helps firms across the world set up a presence in India. On the Andhra Pradesh-Tamil Nadu border and with a land bank of around 7,000 acre, Sri City features 100 firms from 25 countries, including the US, the UK, France, Spain, Italy and Japan, and some of the leading MNCs, which invested nearly ₹1,400 crore to set up operations here. The facility houses a special economic zone (SEZ), domestic tariff zone and free trade and warehousing zones. It was planned by Jurong Consultants, Singapore, on the work-live-learn-play concept and offers residential, educational and healthcare facilities. Of the 100 companies, 60 have operational facilities and the remaining are under construction. 

 How it all began

After a long stint in IT in the US, Sannareddy decided to return in 2001. While spearheading his company, Megasoft, he was toying with the idea of developing an SEZ for manufacturing, after seeing Shenzhen in Hong Kong and Cyberjaya and Petrajaya in Malayasia. “Our customers would come to India for IT but go to China for manufacturing. We needed to develop world-class infrastructure for manufacturing in India,” says Sannareddy.

The push came when the SEZ Act was passed in 2006. Sannareddy, along with friend Srini Raju, part of the founding team of Satyam, Cognizant and Peepul Capital, set up Sri City in 2006. The location wasn’t hard to pick as the region had easy access to rail, roads (on the NH 5) and ports (four of them around a 100-km radius — Chennai, Ennore, Kattupalli and Krishnapattinam). Access to engineering graduates and semi-skilled labour close by helped.

“You need an ecosystem to develop infrastructure, along with the availability of land at affordable costs,” says Sannareddy. “You can go to the desert and buy thousands of acres at throwaway prices, but unless you have an ecosystem, any kind of development will be difficult.” The company has invested ₹1,000 crore to acquire land and develop the infrastructure, funded by loans and equity (₹300 crore). It has managed to attract PE investments from Ochziff PE Fund, Credit Asia Capital, Bedrock LLC, US, and Chintala Party Holdings. Once 5,000 acre was acquired, the project was formally launched in 2008, with Piolax and Kobelco among the first to invest. 

Takeshi Akiyama, director, operations, Kobelco Construction Equipment India, part of the $2.8-billion Kobe Steel Group, doesn’t share Hoshino’s love for spicy food but is equally enthusiastic about India. Akiyama first came to India in 2009, when Kobelco decided to set up operations here. It had a sales and service office in Noida but once the yen got stronger thanks to the Lehman crisis, the imports of these machines became uncompetitive, prompting it to set up operations here. After deciding that Mahindra World City was too posh for it, Kobelco zeroed in on Sri City. But what took Akiyama most by surprise was the speed at which things moved.

“Ten months from when we made our decision, the plant was up and running. Ten months is the usual lead time in Japan but I was surprised that the same was possible here,” says Akiyama. The plant assembles paints, ships 20- and 38-tonne hydraulic excavators and has the annual capacity to produce 1,200 machines every year. It invested ¥20 million (₹11.8 crore) in the project, with the total investment reaching ₹100 crore over a four-year period. The company has plants at six locations in Japan, China, Thailand and the US, and Akiyama is proud that machines coming out of the company’s Indian factory match the standards of its overseas plants. “I didn’t think we would be able to match our quality standards in Japan but we have Indian workers who are very eager to learn more about the Japanese manufacturing method,” he says. “All I have to do is train them right and they are able to match up in terms of quality.”

Making larger bets on the domestic market is fellow Japanese company, Isuzu Motors, which is investing around ₹3,000 crore to manufacture SUVs and pick-up trucks in India. “We chose Sri City since it provided us easy access to automotive hub Chennai,” says Shigeru Wakabayashi, deputy managing director, Isuzu Motors India.

“Our plant in Sri City is expected to be fully operational by 2016 and will have capacity for 50,000 units in the initial stage. After a few years, the capacity will be increased to 100,000-120,000 units.” When the plant becomes fully operational, it will provide employment to 2,000 persons.

 The MNC brigade

Europe has fair representation too, with French major Alstom and Italy’s Danieli making sizeable investments. For Alstom, investing in Sri City was part of its strategy of being closer to its clients. The company has bagged an order to supply 42 trains to Chennai Metro as part of a €243-million (₹2,053-crore) order. The first nine, of which two have been delivered, will be built in its plant in Brazil and the rest at Sri City. Alstom will invest ₹250 crore in the facility, which is expected to be commissioned in 2014. Danieli, which manufactures stainless steel products for automotive, steel and bearing industries, has also invested ₹750 crore to set up a manufacturing facility. 

But some of the largest investments have come from the FMCG sector. Mondelez India Foods is setting up its largest chocolate manufacturing facility in Sri City. “After evaluating several options and based on our own internal business needs, we decided to invest here as it is a unique world-class integrated business city with access to multiple logistics hubs,” says Arjun Bhowmik, director, expansion, Mondelez India Foods.

“We believe the location will help us strengthen our operations in south India, reduce delivered cost and improve product freshness.” The company will invest ₹1,000 crore as part of phase 1 of the project, spread over 134 acre. The project will be completed in four phases from 2015 to 2020 and will eventually have an annual capacity of 250,000 tonne. “We plan to begin operations by mid-2015 and the facility is expected to create close to 1,600 direct jobs by the year 2020,” says Bhowmik.

 

Biggies come home

Several crucial international names feature on the list of units in Sri City

PepsiCo is setting up its largest manufacturing plant in the township. As part of its plan to invest ₹33,000 crore in India by 2020, the company will spend ₹1,200 crore in setting up this greenfield facility, which will manufacture its fruit-based, carbonated and sports drinks.

The plant is set to provide employment to over 8,000 people. FMCG heavyweight Kellogg’s is also investing Rs 200 crore to set up a manufacturing facility here, while Colgate Palmolive is setting up a toothbrush manufacturing unit investing ₹150 crore. 

While companies from Japan, Europe and the US setting up shop in India may be common, what’s unusual about Sri City is that it has even got some companies that have moved from China. Take the case of Pals Plush, a Chinese toy-maker that is investing in India instead of scaling up operations in China. “Expanding in China was a challenge because there was limited availability of labour and wages were inching higher,” says Seema Nehra, director, Pals Plush.

The toy company zeroed in on India after ruling out Vietnam and Bangladesh. After a futile three-day hunt for locations in Chennai, the Pals Plush team was ready to give up when they were informed about Sri City. “We arrived here to check the location and went back only once we inked the deal. Thanks to their single-window clearance, we didn’t have to run around for approvals,” says Nehra.

Pals Plush, which has an overall revenue of $10 million and counts Disney, Hasbro, Kohl’s and Argo as customers, has set up its facility here at an investment of $2 million. The facility houses 250 machines and employs 400 workers, compared with 180 employees and 120 machines in China. The company is planning to invest another $2 million to increase the number of machines to 600 and workers to 800 by the end of 2014. Nehra says that by shifting operations to India, the company can offer a 7-15% discount to customers thanks to lower wage costs.

 Pushing ahead

Over the years, the journey hasn’t been hunky dory for Sri City. Post the Lehman crisis towards the end of 2008, several companies pressed the pause button on their plans here. Things started to slow down, but Sannareddy stuck to his decision to invest in the infrastructure.

“We saw the slowdown as an opportunity to develop infrastructure at the lowest cost. We knew that unless we developed world-class infra, we wouldn’t be able to attract world-class companies,” he says. He adds that once the companies saw that the infra was in place, they started to sign up.

Since the export markets were looking lacklustre, the company set up a special domestic trade zone for multinational companies to help them improve their footprint in the domestic market. At full occupancy, Sannareddy expects Sri City to house 300-400 companies and provide employment to 300,000 people. Currently, Sri City and the companies in it provide direct and indirect employment to about 30,000 people. In the next three or four years, Sannareddy expects another 100 companies to sign up as infrastructure further improves. 

While there are chinks such as power cuts and traffic en route the ports, companies that have invested in Sri City seem to be a happy lot. Some are looking to expand operations by the year-end. “Hopefully, the next time you come here, we would have expanded our facilities,” says Piolax’s Hoshino, pointing to a vacant plot adjacent to the current facility. “I am very bullish about the Indian market,” he says, one of the few people actually enjoying Chennai’s summer — not for its heat but for its delicious mango season. Sometimes, we all need an outsider to find the silver lining, and with customers like these, Sannareddy may not have too much to worry about.  

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