Monday, October 20, 2008

Which ‘part’ do you like?

The auto components industry could be the next big thing for India after software, pharmaceuticals and BPO. Sounds astounding?! Digest this: As per the automotive mission plan 2016, the auto industry plans to attain a domestic turnover of $145 billion by 2016 and provide more than 25 million jobs. So, with such huge plans it’s only natural to expect a parallel growth rate for the industry if not more.

Certainly the auto components industry has been one of the fastest growing (at a CAGR of 20% since 2000) manufacturing sectors in India. In fact FY 2007-08 saw the industry soar with exports crossing the $4-billion mark and investments touching new highs ($7.2 billion). What more, the industry experts estimate the global sourcing of components from India to double from the current $2.95 billion to $5.9 billion in 2008-09, and touch $20 billion by 2015 (ACMA)! All thanks to the escalating demand from both within India, and overseas. “Indian auto component industry is today emerging as one to be reckoned with. With more & more global auto majors setting up manufacturing facilities in India the industry is poised to grow,” N. K. Minda, MD, N. K. Minda Group, a leading component manufacturer tells B&E. Certainly, it’s because of these factors the domestic auto components industry is heading for a whopping 18% growth in the near future. Even the export market is estimated to reach $2.7 billion by the year 2010 (ACMA). However, what is more striking is the fact that exports to OEMs and tier I suppliers now constitute over 75% of total exports as against a mere 35% in the early 1990s.

No doubt, India enjoys a cost advantage with respect to casting and forging as production costs in India are 25-30% lower than their western counterparts. However, with increase in input costs and rising steel prices, the industry now seems to lose this price advantage to their Asian peers including China, Thailand, et al as these players offer a cost advantage of about 12% over their Indian counterparts. Moreover, “the auto components industry in India today is highly fragmented.

However, this presents a simultaneous opportunity as well as a challenge for the players,” avers Yezdi Nagporewalla, Auto analyst with KPMG. These factors, coupled with an unfavourable tariff regime, are now pushing India towards becoming a net importer of auto components. Moreover, “concerns about quality also remain. We still lack original R&D activities. But I am sure that these issues will get resolved soon,” adds Minda. However, “the challenge is to manage the rising cost of raw material and at the same time stay competitive,” avers N. K. Dhand, Chairman and MD, MGT.

Certainly the industry is transforming, and the boost in demand will see the emergence of several new players in the industry. But, to improve upon the domestic auto component industry, the players surely need to adhere to global standards, be quality conscious, inculcate some original R&D activities while maintaining globally acceptable innovative standards.
For Complete IIPM Article, Click on IIPM Article

Source :
IIPM Editorial, 2008
An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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