INDIA

FASTEST GROWING
FREE MARKET DEMOCRACY

AUTO COMPONENTS

Auto Components : Drawing

The World’s Attention

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AUTO COMPONENTS : DRAWING THE

WORLD’S ATTENTION
Amidst all the hype about India’s strengths in the pharmaceutical,
India is increasingly information technology and other services sectors, the auto component
becoming a sourcing sector’s success in the international markets has gone relatively
base both for global unnoticed. But quietly and efficiently, using a combination of global
auto majors for expansion, domestic consolidation and quality management, Indian
exporting Completely suppliers are making inroads in the worldwide market.
Built Units (CBUs) as
well as for outsourcing India is increasingly becoming a sourcing base both for international auto
components. 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
India’s 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
India’s 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 COMPONENTS : DRAWING THE

WORLD’S ATTENTION
Given the trend from the last six- seven years, this target looks
The impressive growth achievable. Between 1997-98 and 2003-04, exports from this industry
of auto component have notched a compound annual growth rate (CAGR) of 25 per cent; in
exports is a crowning absolute terms. Exports have gone up from US $272 million in 1997-98
example of how FDI to over $1 billion in 2003-04. In the current financial year, ACMA
has positive spin-offs. projects that auto components are projected to grow by 25 to 30 per
The entry of major cent.
auto component
For auto component players with global aspirations, the prospects are
firms has resulted in
clearly upbeat. Tata Auto Components System (TACO), the auto
the domestic industry
component arm of Tata Motors, is targeting a turnover of US $1 billion
upgrading its quality
by 2008-09. A large part of this revenue is expected to come from
levels to international TAPS-- which makes interiors and exteriors such as dashboards, door
standards. pads, air vents, bumpers and trims.

Or consider the case of Bharat Forge, India’s 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 company’s 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. Here’s 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
government’s 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 Maruti—a
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
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 profes-
sional management.
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P A G E 4
AUTO COMPONENTS : DRAWING THE
WORLD’S ATTENTION
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 India’s 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
winners—Rane 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
Scorecard’s Robert S Kaplan new book ‘Strategy Maps’.
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AUTO COMPONENTS : DRAWING THE

WORLD’S 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
s
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