FASTEST GROWING FREE MARKET DEMOCRACY

INDIA

AUTO COMPONENTS

Auto Components : Drawing The Worlds Attention

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India Brand Equity Foundation

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AUTO C O M P ONEN TS

AUTO COMPONENTS : DRAWING THE WORLDS ATTENTION India is increasingly becoming a sourcing base both for global auto majors for exporting Completely Built Units (CBUs) as well as for outsourcing components.
Amidst all the hype about Indias strengths in the pharmaceutical, information technology and other services sectors, the auto component sectors success in the international markets has gone relatively unnoticed. But quietly and efficiently, using a combination of global expansion, domestic consolidation and quality management, Indian suppliers are making inroads in the worldwide market. India is increasingly becoming a sourcing base both for international auto majors for exporting Completely Built Units (CBUs) as well as for outsourcing components. Hyundai, Ford and Scorpio are reported to have made India a manufacturing hub for particular models of cars. At the same time other MNCs such as Toyota, GM, and Daimler Chrysler are making India a hub for components. Two other developments are likely to make this global focus gain further momentum. First, there has been a shift in the focus of Indian component companies from the replacement market to the OE (Original Equipment) market. Ten years ago, the after-market accounted for around 80 per cent of Indias auto component exports. Today, on a much larger export base, the after-market share has shrunk to 45 per cent with 55 per cent of Indias exports going directly to OEMs and Tier-1 suppliers. This spells good news for the domestic industry because selling to OEMs and Tier-1 suppliers means better margins for Indian companies. Not just that, it also enables them to forge long-term relationships and get repeat orders on a regular basis. Second, there has also been a shift in geographical markets. Today, the more developed markets of USA and Europe are accounting for a majority of exports. Of the total auto-component exports, America and Europe together accounts for 56%, Asia accounts for 27% and Africa accounts for 11% of the export earnings.

Yet despite the relatively small share of Asia in the global pie, India is still managing to tot up the numbers. During 2003-04, auto component exports from India crossed the $1billion mark and if the Automotive Component Manufacturers Association (ACMA) is to be believed this figure will touch the $5 billion level by 2010.
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AUTO C OMP O N E N T S

AUTO COMPONENTS : DRAWING THE WORLDS ATTENTION The impressive growth of auto component exports is a crowning example of how FDI has positive spin-offs. The entry of major auto component firms has resulted in the domestic industry upgrading its quality levels to international standards.
Given the trend from the last six- seven years, this target looks achievable. Between 1997-98 and 2003-04, exports from this industry have notched a compound annual growth rate (CAGR) of 25 per cent; in absolute terms. Exports have gone up from US $272 million in 1997-98 to over $1 billion in 2003-04. In the current financial year, ACMA projects that auto components are projected to grow by 25 to 30 per cent. For auto component players with global aspirations, the prospects are clearly upbeat. Tata Auto Components System (TACO), the auto component arm of Tata Motors, is targeting a turnover of US $1 billion by 2008-09. A large part of this revenue is expected to come from TAPS-- which makes interiors and exteriors such as dashboards, door pads, air vents, bumpers and trims. Or consider the case of Bharat Forge, Indias largest forging company. Exports accounted for 35 per cent of its total income in 2003-04 with the US making up 15.4 per cent of the companys total income, Europe 8.2 per cent and China 10.4 per cent. Bharat Forge now has footprints across three continents North America, Europe and Asia. Its OE customers include Volvo, Ford, and Daimler Chrysler. The impressive growth of auto component exports is a crowning example of how FDI has positive spin-offs. Heres how - the entry of major international auto component companies has resulted in the domestic auto component industry upgrading its quality levels to international standards to meet their stringent norms. There is no doubt that the Indian auto component industry has gone through a sea change since the eighties. Till then, suppliers' fortunes revolved around few companies like Telco, Hindustan Motors, Ashok Leyland and Mahindra. Auto component makers had family owned and run units. They enjoyed high margins and were sheltered by the governments policy against imports. Obviously, there was no motivation to innovate, step up production scales or to enhance quality and product range. The environment changed for the better with the entry of Marutia joint venture between the government of India and Suzuki of Japan. Indian auto part makers were exposed to Japanese methods of
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A U T O

C O M P O N E N T S

AUTO COMPONENTS : DRAWING THE WORLDS ATTENTION The ability to cope with changing times was first shown by Sundram Fasteners (SFL), a Chennai-based company-- a neat blend of family owned enterprise and professional management.
production. Some companies forged tie-ups with Japanese counterparts. Of course, margins remained high as many vendors to Maruti like Sona Steering Systems and Motherson Sumi enjoyed near monopoly in OE supplies. But the real change came with economic liberalisation in the nineties. Along came the global auto majors. And with them, came the clarion call to improve quality, or else Faced with marginalised business and poor growth prospects, a number of Indian component vendors started investing in quality. They embraced Japanese concepts such as Six Sigma, TQM, TPM and Toyota Production Systems in their operations. Today, a number of them have also secured various quality certifications and even the coveted Deming Awards and the Japan Quality Medal. These initiatives have assisted companies in improving operational efficiencies, eliminating wastes and reducing costs. The ability to cope with changing times was first shown by Sundram Fasteners (SFL), a Chennai-based company-- a neat blend of family owned enterprise and professional management. Not only did it pave the way for others by putting in place better manufacturing systems, product innovation and economies of scale, it was also the first to pierce the OE market in US with radiator cap exports. Today, the quality movement in Indias auto component sector has made it easier for Indian companies to penetrate overseas markets. Also, by investing in quality, local component manufacturers have become part of the global sourcing systems of some of the international automotive companies who have put up manufacturing facilities in India. The 2003 Deming Awards list has three auto component companies as winnersRane Brake Linings, Brakes India and Sona Koyo Steering Systems. At the recent sub-contracting fair Z 2004 at Leipzig in Germany, Indian components companies generated enquiries worth 50,000 Euros. Tata Auto Plastics Systems (TAPS) the auto component vendor company of the Tata Group, recently bagged the GM supplier of the year award. The TAPS case study also finds mention in the Balance Scorecards Robert S Kaplan new book Strategy Maps.
www.ibef.org India Brand Equity Foundation

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AUTO COMPONENTS : DRAWING THE WORLDS ATTENTION

Resources 1. To learn more about the auto component industry in India, contact the industry association, Automotive Component Manufacturers Association at Telephone: 91-11 5501669, 5593190, Fax: (91) (11) 5593189

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The India Brand Equity Foundation is a public - private partnership between the Ministry of Commerce, Government of India and the Confederation of Indian Industry. The Foundation's primary objective is to build positive economic perceptions of India globally.

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India Brand Equity Foundation