While still small, the growth in the auto component industry in India is driven both by the growth in the domestic automobile industry and by the fact that a large number of global car manufacturers are zeroing in on India as a hub for component sourcing. Major original equipment manufacturers (OEM) including Ford, BMW, Volkswagen, Daimler, Fiat, Hyundai, Renault, Nissan and GM and component manufacturers like Caterpillar, Bosch, Eaton etc are part of this league. Cost pressures due to the economic slowdown are forcing OEMs to work on sourcing plans from India, says Abdul Majeed, leader, automotive practice, PricewaterhouseCoopers. There is significant saving on components sourced from India compared to component manufacturers in the developed markets.
According to industry estimates, components made in India and China are 10-15% cheaper than those made in Europe and in the US. Till about a couple of years ago, Indian components were sourced for a handful of European markets. Vehicle manufacturers are looking to source components from India for their plants in developed as well as developing markets such as North America, Brazil, Argentina and Russia. European manufacturers are likely to enjoy a cost advantage of 20-25% here and Latin American manufacturers nearly 10%.
India would always have low-cost country advantage, says Jayant Davar, president, ACMA. Though we have cheaper products, we are extremely quality conscious. We also have the sense of flexibility to cater to different volumes and segments. No company would outsource until and unless it has a distinct advantage of 20-25%. There are over 100 international purchasing offices in India, which source out components from the country.
The availability of a large pool of engineers and skilled labour is also helping home-grown auto component companies serve the global OEMs more efficiently. Globalisation in the Indian auto industry over the last few decades has exposed Indian components manufacturers to international quality systems and standards, says Majeed. They have built excellent relationships with domestic and international vehicle manufa- cturers, which have helped these companies develop their R&D capabilities. Some of the component manufacturers have acquired compa- nies overseas to expand their reach and access advanced technology.
Overall, the industry is upbeat. We have been supplying parts and assemblies to our overseas vehicle manufacturing plants since 2004, says KG Mohan Kumar, director, Toyota Kirloskar Auto Parts. We supply parts to vehicle manufacturing locations in the ASEAN region and in South America and South Africa. From these locations, the vehicles are sent to countries in Europe and to Australia. In all, vehicles are sold in over 58 countries fitted with our parts and assemblies.
According to reports, Italian auto major, Fiat Group Purchasing, plans to buy auto parts worth $1 billion (around Rs 4,900 crore) from India by 2010 for its European and other operations. Niraj Hans, India head for Fiats purchasing office, says, Being an emerging market India enjoys an obvious cost advantage. First, it was Europe, then America; its time now for China and India to service the global markets.
Japanese auto major Nissan Motors said that it would source auto components worth $40 million from India by 2011-12. South Korean auto major Hyundai Motor Company too is looking at increasing sourcing components from India for its global operations. It is also reported that Germany luxury car maker BMW plans to increase component sourcing from India for its global operations. Currently, the company sources components like horns for cars and handle bars and die cast from India.
General Motors is planning to source components worth $1 billion from India. So is Ford, which is looking to import components worth $500 million from India for its world-wide operations. If you compare Indian components to those available in, say, Korea, we are 10-15% cheaper but comparable in terms of quality. Quality-wise, we are equal to Europe and price-wise, cheaper says P Balendran, vice-president, General Motors India. In two to three years time we would source out components worth $1 billion from India. Last year the market had slowed down that had affected sourcing, but we are hopeful we will soon pick up pace.
Both the sourcing companies as well as the supplier benefit from this. The competitiveness of suppliers gives them access to the global markets of OEMs. The sourcing companies get access to low cost trained manpower, low cost engineering and large reserves of natural resources. This also opens up the potential of alarge growing domestic market that is looking to ramp up demand.