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 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

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2] Businessworld, 23rd February 2004