Competitiveness of the Indian Auto Component Industry
Article by - Sanjib
Datta ,
Faculty Member ,ICMR Case Studies and Management Resources.
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Abstract
The Indian auto component industry
could be the next big success story after software, pharmaceuticals, BPO and
textiles.
The size of the global auto component industry is approximately $1trillion. The
leading auto component manufacturers (OEMs) in the world are Ford Motors,
General Motors (GM), Delphi Corporation, Caterpillar, International Truck and
Engine Corporation and Cummins. The US is the world's biggest auto component
market. In 2002 it imported auto component worth $69 bn.
Major US Auto Component Imports
(In $mn)
|
Year
|
Mexico
|
Brazil
|
China
|
Thailand
|
India
|
|
1998
|
14,574
|
1,082
|
863
|
309
|
99
|
|
1999
|
16,814
|
1,147
|
1,041
|
374
|
117
|
|
2000
|
18,791
|
1,086
|
1,368
|
362
|
150
|
|
2001
|
18,402
|
824
|
1,483
|
380
|
141
|
|
2002
|
20,397
|
1,137
|
1,884
|
516
|
177
|
Source: US Census Bureau's Foreign Trade Statistics 2003 .
In India, Chennai, Pune and Gurgaon are the three big clusters for the auto
component manufacturers. The approximate size of the Indian auto component
industry is 25,000 crore (approx. $5 bn). The size of the Indian auto component
industry is still very small; it is just one-sixth the size of the world's
largest auto component maker, the $28 bn Delphi Corporation.[1].
|
For the year ended March 2004, the domestic auto
component sector had registered revenues of $1.1 bn (Rs 4,800 crore) from
exports. This was 38.8% higher compared to export revenues during the FY
2002-03. According to Automotive Component Manufacturers' Association of
India (ACMA), the projected compounded annual growth rate (CAGR) for the
domestic industry is 18% and the export projections for 2010 is $2.7 bn.
India falls way behind other developing countries when it comes to auto
component exports. Indian auto component manufacturers don't have the
scale of production required to beat the global majors. For example,
Kayaba, world's biggest shock absorber maker, produces 240 mn units/year
whereas, Gabriel India, India's largest shock absorber maker,
manufacturers only 9 mn units/year. Low scale of production acts as a
hindrance for Indian auto component manufacturers from getting large
export orders. Most of the export orders Indian manufactures receive are
worth less than $100 mn. In global standard any export which is less than
$100 mn is considered insignificant. |
|
Major Auto Component Exporting
Nations in 2004 (In $bn)
|
Country
|
India
|
Mexico
|
China
|
Thailand
|
Brazil
|
|
Export
|
1.1
|
16
|
3
|
2
|
4
|
Source: Compiled from Businessworld 23rd February 2004
The auto component industry in India has seen high growth
in recent years. There are three major reasons behind the recent robust growth
of auto component industry. First, the domestic automobile industry
(two-wheelers, commercial vehicles and passenger cars) has registered good
growth. High demand for automobiles has subsequently fuelled the demand for
auto component from automakers. Second, the replacement market is growing
rapidly as more and more new vehicles hit the road. Moreover, the product life
cycle of automobiles are becoming shorter. As more new models hit the road the
demand for auto component keep rising. The increasing number of vehicles means
an expanding market for replacement components. Third, the global automobile
industry is going through its worst phase ever. To cut production cost, the
world's leading automobile companies are sourcing cheaper auto components from
countries like India and China. To become globally competitive, Indian auto
component industry has to learn the best manufacturing practices, be quality
consciousness and adhere to strict delivery schedules.
The Indian auto component industry is also highly fragmented. Of the 400 odd
players present in the market, only 30 record revenues higher than Rs 150 crore.
Two third of the industry players have annual revenues less than 50 crore. And
out of 400 companies, only 15 generate export revenues over $10 mn.
The Indian auto component manufacturers serve major OEMs as Tier II or Tier III
suppliers. China is the hottest destination for auto component sourcing as it
has many Tier I suppliers. China has over 500 Tier I auto component
manufacturer. Tier I manufacturers have enormous advantage over Tier II or Tier
III suppliers. The major advantage is that Tier I suppliers are the first to
get orders for components from vehicle makers. Getting early orders help the
Tier I supplier to recover the investments very quickly. Moreover, when vehicle
sales peak they earn profits. Unlike Chinese manufacturers, the Indian auto
component manufacturers lack the high-end designing, manufacturing and
development skills. According to Deep Kapuria, CMD, Hi-Tech Gears: "To succeed,
you need greater integration with the original equipment manufacturer and the
tech partner (design integration and R&D); innovation and indigenous
technology; and a global mindset (product liability/logistics). We are learning
the ropes in the latter two, but are yet to get to the first."[2]
COMPARISON OF LABOR COSTS
ACQUISITIONS BY MAJOR INDIAN PLAYERS
[1]Businessworld, 23rd February 2004.
[1]Businessworld, 23rd February 2004
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