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Cluster Overview:

The Rourkela Engineering Cluster is located at Rourkela City of Sundergarh District, the industrial capital of the state of Orissa. The Cluster mainly consists of machining and fabrication Units . These units are found in the two Industrial Estates of Rourkela (Machining & Fabrication Units) and Kalunga (Fabrication Units). The Rourkela cluster products cater to mainly metallurgical, cement and to some extent the power sector

International Scenario:

Engineering is a diverse industry with a number of segments. A company from this sector can be a metallurgical and power equipment manufacturer (like steel plants and boilers), execution specialist or a niche player (like providing environment friendly solutions). It can be a non-electrical machinery and static equipment manufacturer too. This industry stands at a worth of USD 6 trillion presently. The global engineering sector is experiencing a phase where demand is outstripping the supply hence the engineering companies world over are embracing global sourcing.

In the light of the modern state of the art technology the engineering sector forms a crucial sector for the fast developing economies. Apart from experience and technical skills, enthusiasm and innovation is what the present day engineering industry yearns for.

The machining and fabrication sector, which includes the global engineering projects, including light engineering industry, was expected to touch USD 1.9 trillion by 2015, of which around 40% (USD 700 billion) was potentially expected to be sourced from low cost countries like India. Of the total global trade of USD 185 billion, India’s share is merely 0.4%. It is expected that the present sourcing of Engineering projects and components from low cost countries (LCCs) worth USD 65 billion may actually reach USD 375 billion by 2015.

National Scenario:

The Engineering sector is a diverse industry with a number of segments, and can be broadly categorized into two segments - heavy engineering and light engineering. The engineering sector is relatively less fragmented at the top, as the competencies required are high, while it is highly fragmented at the lower end (e.g. unbranded equipments and machinery for the retail segment) and is dominated by smaller players.

The heavy engineering goods account for bulk of the production. Most of the leading players are engaged in the production of heavy engineering goods Requirement of high level of capital investment poses as a major entry barrier. Consequently, the small and unorganized firms have a small market presence.

VITAL STATISTICS:

A.(Principal Firms and Areas)

Criteria for Categorisation (Approx. Annual Turnover)	Category	Type of Establishment	Investment in Plant & Machinery	Type of Major activity	Monthly Minimum Fabrication capacity	Number of Units
Rs.50 Lakhs and above	Tier1	Private Limited and Partnership	Rs.50 lakhs to Rs. 2 Cr	Machining and fabrication	Approx. 100MT	30
Above Rs. 15 lakhs to Rs. 50 Lakhs	Tier2	Proprietary and partnership	Rs. 10 Lakh to Rs. 50 lakhs	Machining	Approx.50 MT	40
Less than Rs. 15 lakhs	Tier3	Proprietary	Rs. 2Lakhs to Rs. 8 Lakhs	Machining	Negligible	150

Major Issues:

	Raw material (Mild steel) constitutes the major component of the cost of the product. However, if stain less steel or special grade steel is used as raw material which are currently procured from Mumbai and traders from Kolkata, the cost is increased by 20% compare to benchmark cluster.
	The man days required to complete the job is around 24 hours where as in bench mark cluster it will be completed in 16 hours. This is due to the fact that traditional equipments and machineries are used in operation.
	Administrative expenses, inspection, order and payment follow up and procurement of special items from Calcutta/Mumbai etc. is 3% as most of them cater to EPC firms and PSU’s, where as the standard should not be more than 1%.
More

Geographical Location of cluster:

Rourkela, the industrial capital of the state is situated in the north western part of Orissa, in the mineral rich (iron ore, coal, manganese, limestone, dolomite mines) district of Sundargarh. Rou-re-kela means your village in local Sadri dialect. Rourkela located at a distance of 350kms from state capital of Bhubaneswar, is well connected by road and rail. It lies on the trunk rail route of Calcutta – Mumbai.

Cluster Snapshot:

The following are the spread of areas and mainly falls in two industrial estates ie. Rourkela and Kalunga.
B. Engineering Cluster Concentration – Area Wise (Rourkela & Kalunga Township)

Sl.no	Cluster Area	No of units
1	Rourkela Industrial ( Indust.) Area	40
2	Kalunga Indust. Area	60
3	Kuarmunda	20
4	Vedvyas	30
5	Gandhi Road	25
6	Orampara	20
7	Lathikata	10
8	Bisra Road	15
	Total :	220

BDS :

BDS Providers
Sl.no	Cluster Area	Public	Private Organized	Private Un-organized
1	Technology	0	5	2
2	HRD	2	4	2
3	Marketing	3	0	7
4	Quality	2	2	3
5	Logistics	0	100	0
6	Finance	70	20	10

Milestones/Turning Points :

The establishment of cement factory OCL at Rajgangpur in 1951, the Hindustan Steel Limited (now Rourkela Steel Plant) in 1955 and Utkal Machinery, a heavy engineering unit serving the Rourkela Steel Plant (RSP) of the Steel Authority of India Limited, (Utkal Machinery soon evolved into Larsen and Toubro's Heavy Engineering) were mainly responsible for rapid industrial development and associated growth of fabricated equipment in this area.

After the modernization of RSP, during the ninties, due to non availability of scrap (skull), the foundries units operating at Rourkela became unviable and had to shut down. At present, less than 13 cupola based units are in operation.

However, due to encouragement like clearances under single window scheme for establishing units provided by state policies, large number of sponge iron, steel melting (induction furnace), and re-rolling units came up in and around Rourkela, catering to the need of not only large and medium scale but also small individual customers.

Today Sundargarh district is home to approximately 35 sponge iron units, 40 Induction furnace units (ingot) and 10 rerolling mills. The fabrication and machining units were mainly responsible for supplying equipment and structures required for the above units, In addition to being ancillary to SAIL RSP and other mother plants.

SWOT Analysis :
Strengths

	Easy availability of raw material, power, and workforce.
	Existence of undergraduate and graduate technical institutions, including one of high repute
	Proximity to mother plants
	Entrepreneurs are experienced in there core area of machining and fabrication
	Cordial labor relations
	Financial institution’s willingness to fund bankable projects
	Facility to undertake high value power plant fabrication and equipment exists

Weakness

	Majority of Tier 2 and Tier 3 units in the cluster have never used fee based services
	Absence of strong BDS linkages in critical areas like marketing, product development, quality, technology, finance, etc.
	Scarcity in availability of adequate skilled manpower for welding, fitting, supervision and machining operations
	Training in technical institutes is not in tune with skill required in the cluster
	Tier 3 units not aware of scientific system of estimating the cost of job being undertaken.
	Tier 2 lacks in poor marketing skills
	Deficient support services in equipment calibration, equipment refurbishing, technical consultancy and upgrading to higher value chain, e.g. manufacturing power plant equipment
	Government of Orissa testing laboratory equipments are in bad shape and the laboratory is run by skeletal staff. There is less linkage with Tier 3 units.
	Most of the jobs are tailor made. But there is lack of common design centre for detailed design/drawings.
	Orissa Small Industries Corporation services are not fully utilized by the units due to procedural problems.
	Raw material price of steel can be reduced by about 3% through common procurement.
	Bulk purchase of consumables would reduce the procurement price by about 10% of the present procurement cost.
	If the cluster goes for modern machineries like CNC multi nozzle cutting machine, automated welding machine etc, there is scope for at least 25-30% increase in production resulting in execution of more tonnage of work per month.
	Usages like internet and scientific methods may result in higher production levels but there are only two website development agency Tier 3 unit lacks access to credit from financial institutions due to there unorganized nature of operation and absence of book keeping and minimum accounting practices, and lack of collaterals to provide. They source loan from informal source at high interest rates of 3 to 5 per cent per month. The immediate potential for loan to these Tier 3 units is approximately Rs.300 lakhs. This will enable them to upscale their production base, explore direct marketing channels, take higher order and facilitate in increase in profitability. They also need business management advisory, infrastructural services for expansion, financial linkages are needed to purchase raw materials, tools etc.
	Tier 2 units need financial services for diversification and expansion
	Lack of effort for new geographical Market penetration for Tier 1 and Tier 2 units.
	Tier 3 units lack direct market linkages and registration with PSUs
	No product specific association
	The BMOs are inactive to provide BDS services or facilitation

	Key Issues
BDS Areas	Issues	Types of Firms	Suggested Solutions	Required BDS providers / Facilitators
Raw Material	1) Lack of sufficient common procurement centers. 2) Lack of credit system for purchase of steel	1) Tier 1, Tier 2 and Tier 3 units 2) Tier 2. and Tier 3	1) Establishing common procurement centre for Raw material 2) Frequent Bankers meet 3) Organize loan mela	Large firms(RSP),Associations and local Dealers. Banks, FI’s
Technology	Lack of awareness on manufacturing high value products Lack of automated machineries. High percentage of wastage during the process Lack of drawing/design centre	Tier 1 and Tier 2 Tier 1, Tier 2 and Tier 3 Tier 2 and Tier 3 Tier 2 and Tier 3 Tier 1, Tier2 and Tier 3	Conducting Awareness programme on manufacturing process. Demonstration of automated machineries like CNC. Awareness Programme on waste minimization. Promote Design centre.	Technical Institutions like NIT. Technology Consultants Technical Training institutes like ITI,NIT Professional Institute like IIPM Individual design Consultants
Marketing	No proper Distribution channel. Uneconomical pricing practices among the cluster units. Lack of awareness among end users regarding products offered by cluster firms	Firms to cluster units Tier 1, 2 and 3 units Large firms (RSP) and engineering units	Organizing buyer seller meets in cluster. Capacity Building of Association on price fixation. Create Web Portal	NSIC, OSIC and associations. DIC,MSME DI and Pvt. Institutions BDS like Hi technology and Services
Skill Development	Shortage of skilled manpower	Cluster units	Conducting cluster specific trainings for skill up gradation.	Reputed training institutions (Eg. Welding research institute,Trichy) and Govt. ITI DIC and Associations
Finance	Absence of financial linkages	Tier 2 and Tier 3	Developing specific financial models with the support of MFIs and FIs	CA’s and pvt certified consultants
ICT	Low usage of ICT tools in design/fabrication	Tier 3 units	Conducting workshop on usage of ICT in design/fabrication..	Through professional institutes NIIT & BMOs
BMOs	Role confined to advocacy and readdressed of grievances	Associations	Capacity building of association in market facilitation and organize cluster specific seminars.	DIC, MSME –DI & BMOs

Benchmark Cluster :

The Trichy heavy fabrication and machining cluster in Tamilnadu, with about 400 SMEs has emerged as a model cluster in the country. The cluster caters to its mother plant, Bharat Heavy Electricals Limited (BHEL) and other power sector (high pressure boilers, pressure vessels, heat exchangers, windmills etc) the stakeholders of the cluster have inherently adopted cluster approach under a UNIDO programme. The association BHEL Small Scale Industries Association (BHELSSIA) is today taking lead in pursuing several collaborative interventions for the growth and competitiveness of the Industry.

One of the important contributions of BHELSSIA is establishment of BHEL Industrial development and service society (BIDASS) to procure consumables in bulk and retail the same to member units and is a price setter in trade circles. This is perhaps the oldest and largest initiative of its kind in SME engineering sector in India. Common facility center for addressing critical inputs like inert gas were established. The cluster also avails the strategic services of BDS providers such as NIT, Welding Research Institute, Indian Institute of quality assurance, certifying and inspection agencies such as Lloyds and there exists a strong linkage between private BDS providers who provide services as per the needs of the SMEs in the cluster. Absorption and dissemination of modern technology, public private partnerships in training, infrastructure are systemized (A separate committee is formed by the association for each programme and the activities are monitored and reviewed periodically by the committee for effective implementation) in the Trichy cluster. The Trichy heavy machining and fabrication cluster has made good progress in moving up the value chain and are still progressing and creating examples for others.

Against the above background the Trichy heavy engineering and machining cluster may be considered as the bench- marking cluster.

Cluster Map :

Opportunities :

	Increased infrastructure activity within and outside the country gives good scope for executing large projects.
	Expertise of machining and fabrication of Sponge iron plants can be put into maximum use in emerging sponge iron clusters in other states.
	Huge Investments in power plant and metallurgical plants in pipe line at this part of the country.
	Opportunity exists for becoming a one stop source for mining spares.

Threats :

	Lack of availability of freehold land limiting expansion and growth of the industry.
	Slowdown in infrastructure activities will adversely affect the units.

Dependence on design for fabrication of equipment and structures resulting in outsourcing of orders by RSP/EPCs from competing cluster.

This website is an output from a Project funded by Small Industries Development Bank of India (SIDBI) for the benefit of developing countries. The views expressed are not necessarily those of SIDBI.

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