Competitiveness of the Indian Auto Component Industry

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Authors: Sanjib Datta,
Faculty Member
ICMR (IBS Center for Management Research).

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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

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1] Businessworld, 23rd February 2004