The Smart Factory Concept at Neemrana Industrial Park

The DMIC provides a tremendous opportunity to solve infrastructure issues and, as a project of the Indian government supported by the Japanese government, is perceived to be an opportunity to increase commerce in the surrounding area. In the summer of 2008, Hitachi set up a business support center in Delhi to develop new projects in India and also promulgated the concept of a joint energy center within the Neemrana Industrial Park, a joint-use facility to supply electricity to companies in the Park. Electric power supply is constantly constrained within India, and power outages are common lasting for few hours during the course of a day. These circumstances have caused companies at the Park to move toward in-house generation, although the costs to do so are high and can lead to an operational slow down. Also, because water is necessary to run diesel-based, in-house power generation systems, the joint energy center will serve to conserve water.

However, companies operating in the same region have already implemented inhouse power generation equipment, and so a proposal to install and jointly use new gas turbine generators was not adopted. In 2009, Hitachi obtained funding from the New Energy and Industrial Technology Development Organization (NEDO) for research into the feasibility of an interchangeable system to supply stable electric power supply to Indian industrial parks by implementing micro grids and smart grids that would connect approximately 40 in-house diesel power generators (power generating capability of 20,000 kilo watts) where companies may freely share power generated by such a system.

Ultimately, technical challenges surfaced and it was concluded that deployment of such a system was too complicated. However, Hitachi's efforts have endured as the smart factory concept in the Neemrana Industrial Park. This concept received certification as an “outsourcing project for research on infrastructure export promotion” from the Ministry of Economy, Trade and Industry (METI) in Japan, and with Sumitomo Corporation acting as the managing company, feasibility studies were conducted on three projects: (1) an electric power generation project, (2) a water treatment project, and (3) a logistics project. The power generation project was led by Kansai Electric, and with an anticipated increase in demand for electric power caused by new companies beginning production within the Park, the company is planning an electric and heat supply operation based on a co-generation system using on-site gas turbines (or gas engines). The water treatment project was led by Hitachi, which considered providing a treatment system for on-site wastewater. As a result of the feasibility study, the wastewater treatment project was canceled due to anticipated demand shortages required to make the system economically feasible. However, groundwater levels at Neemrana are found to be dropping, and it is possible that the project would become economically feasible in the event that the Rajasthan government imposed stricter water recovery regulations. The logistics project was led by Nihon Express, which considered a proposal to make logistics both inside and outside of factories more efficient via a milk-run system. However, freight theft is common in India, and implementing the project was deemed as difficult because, among other reasons, procedures to handle theft of goods from multiple companies were complex.

METI outsourced this survey of infrastructure exporting under a system created to promote exports of infrastructure packages, such as electric power and water. Specific projects have been initiated as a result of the Neemrana feasibility studies. Project entities are accumulating the necessary know-how, expected to be laterally expanding to similar projects at other industrial parks. The DMIC is a large-scale regional development project sponsored by both Indian and Japanese governments, and latent demand for electric power and water systems within the Neemrana region alone is thought to be significant. However, companies in the industrial park are required to expand operations within the confines of their own production plans and are not used to moving in tandem with implementing large, joint-use systems to become more efficient. Accordingly, the project entities providing infrastructure must make investments somewhat ahead of the curve, requiring them to forecast demand and ascertain profitability by appropriate means.

Significance of This Case Study and Suggested Questions

This case study was conducted to increase the understanding of operating environments in India from the perspective of manufacturers and cultivate a sense based on actual examples that having friendly relations with local governments (in this case, the government of the state of Rajasthan) is pertinent to expanding businesses within developing nations. Further, this case study highlights the support provided by the Japanese government owing to the expansion of automotive parts companies into India, thus influencing the industrial competitiveness of automakers.

Companies in the Neemrana Industrial Park are primarily parts and materials suppliers to local automakers such as Suzuki and Honda; we began our discussion with their expansion into India. However, there are many lessons to be learned from this case study in regards to risk management during a foreign expansion. In addition, the smart factory concept used by industrial parks provides a basis for further consideration of the possibility of infrastructure operations (for example, the complex service operations case study in Chap. 5) in India.

Using this case study, the following questions can be considered to further deepen the understanding of global strategy:

• The Neemrana Industrial Park was created in cooperation between the Indian and Japanese governments. Why did both governments work together on this project? Why is government involvement needed?

• What are the risks for building factories in India? How can companies reduce their risk by locating their facilities within an industrial park, such as the Neemrana Industrial Park?

• The smart factory concept was the subject of a feasibility study sponsored by the Japanese government. Is this project feasible? Detail the feasibilities of electric power, water, and logistics services.

• It is thought that infrastructure services (electric power, water, logistics, etc.) provide extensive business opportunities in India. How should Japanese firms participate in these opportunities?

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