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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Sona Koya, an Indian auto component maker has set up an engineering designing solution center in Gurgaon and world's leading OEMs outsource their engineering designs from Sona Koya. Sona Koya's strengths lies in 3D digital image of a component, prototype and testing.

The Indian companies have also proved their competence in making minor modifications to existing products that either result in new uses for the product or significant cost cutting. For example, Bangalore-based Motor Industries Company (Mico) has indigenously developed a high-pressure single cylinder pump for its parent company, Bosch. The newly developed pump was highly advanced compared to the existing pump. Though Bosch did not handhold Mico by providing drawings, the product was derived from an existing product. Today, Mico has been designated Bosch's global development centre for single-cylinder, multi-cylinder and mechanical rotary pumps.

Product Liability

The Indian auto component companies need to adhere to strict quality control to prevent any defects in the designing and manufacturing of their products. The World's leading OEMs follow strict product liability rules while going for any contract with their suppliers. Under product liability rules any supplier could be penalized by its client if the product fails to meet the set quality standards and results in line stoppages, recalls and claims. In India the domestic insurance companies such as Tata AIG started providing product liability insurance to the Indian auto component makers. This will give the Indian auto component manufacturers the confidence to do more business with foreign automakers. With product liability insurance in place the acquisition and execution of export contracts will be easier for the Indian companies.

The Road Ahead

World's major automakers have announced their intention to develop India as a major sourcing hub for auto components. Indian enjoys enormous cost advantage in manufacturing, R&D, skilled labor and software. However, it can't relay on its low cost advantage for a long time. Countries like China, Thailand and Mexico are also becoming very competitive so far as cost is concerned. Moreover, over the years these countries have built large scale of production and technological competence. The recent success of Indian auto component industry is partly due to the fact that major automakers in the world were compelled to outsource from countries like India and China to cut costs. Sooner or later the global auto industry will come out of recession. Then cost won't be the only deciding factor for the automakers while sourcing components. The majority of the Indian auto component companies operate in the lower end of the value chain (like casting and forging) of the industry. Globally, the product life cycle and the product lead time is shrinking fast. To succeed, Indian auto component companies should develop capabilities to keep pace with major automakers.