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OEM Update

Auto Component Manufacturing: Newer Opportunities

June 15, 2010 6:15 am

Indian auto component manufacturing is new success story. Buoyed both by domestic and international demand, the sector is poised to attain newer growth dimensions. An OEM Update exclusive report.
 
The Indian auto component sector has been on a roll. Sales of automotive vehicles have crossed the 10 million mark. Riding on this growth and the outsourcing wave sweeping the developed countries, the Indian auto component manufacturing industry had touched the $ 15 billion mark, growing at a CAGR of about 30 per cent between the year 2002-03 and 2006-07. Projections by the automotive components manufacturing industry indicated that, even if the market continued to grow at the rate of modest 13 per cent CAGR, the industry could touch $40 billion by 2015-16.
 
Exports of auto components had touched $2.9 billion growing at a CAGR of 40 per cent between 2002-03 and 2006-07. The target set is to reach $20 billion by 2015-16. Investments in the auto components manufacturing industry were growing at a CAGR of 22 per cent and the sector has attracted cumulative investments during the preceding six years.
 
Current Scenario
The World is yet to fully recover from recession. Led by the recession, vehicles sales have been dropping so have been sales of auto components.
 
Original Equipment Manufacturers have been resorting to periodic shutdowns of plants and working weeks are being cut down by half, expenditure plans have been shelved. However, there are indications that the global market is showing signs of revival.
 
Nonetheless, the Indian market story seems pretty much intact led by sound demand fundamentals. However, it would require to be seen that how things will pan out in the next 2-3 years.
 
Preferred Sourcing Base
India has already established and consolidated its position as a preferred global sourcing base for auto components and small cars. Several global auto majors and tier-1 component manufacturers have already made India their global research and development, manufacturing and exports base. With marquee names such as Ford , Suzuki, Hyundai, Diamler-Chrysler, General Motors, Volvo, Fiat ,Toyota, Volkswagen, Renault, Nissan, Honda, Delphi, Visteon, Timken, Bosch, Cummins, Tenneco and Deutz already in the clients list today it is more a question of who is not there rather than who is already there.
 
Almost 80 per cent of India’s exports today go to the developed, quality conscious markets such as the United States, Europe and Japan – 50 per cent of this is to the original equipment manufacturers and tier-1 suppliers.
 
Thanks to Maruti and Hyundai, India already has certain level of built in competence to develop quality components at low cost. This combined with product development skills and uniquely high concentration of small cars, has consolidated India’s positioning as a preferred hub for components and small cars.
 
Today, India is a global sourcing hub for cars and auto components and global sourcing from India expected to reach $20 billion by the year 2014. Even, the global recession could not take away India’s unique advantages such as proximity to key markets, cost savings, availability of raw materials locally, capability to meet stringent quality and technical standards and availability of skilled manpower.
 
Quality Standards
Thanks to the exposure to global standards, practices and association with global players; many component manufacturers in India today can match the ‘best in business’ in quality standards and technical capability. India has already won the Deming Quality Award (regarded as the Nobel Prize for Quality) nine times. For the organized sector today, QS/ISO/ OHSAS/TS certification is a norm rather than an exception. Companies also embraced global best practices such as six sigma, lean manufacturing and total quality management and invested substantially to enhance their capabilities.
 
Action Areas
However, quality upgrades (or the lack of it) continue to be an issue with the bulk of component manufacturers, especially those in the unorganized sector. While at one end of the spectrum India has quality systems certified manufacturing units which are single source of global supplier for leading Original Equipment Manufacturers, at the other end it has manufacturers whose quality infrastructure and systems are best rudimentary and way below global standards.

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