In the pre-liberalisation India, especially in the 'bad old times' as the 1970's have now come to be called, Indian auto consumers suffered the ignominy of being in a sellers market.

Sub-standard and outdated models were the order of the day and there was actually a huge waiting period of as much as a year at times after one booked a vehicle. Post-liberalisation, all that has changed, and how!

The recent past has witnessed a continuous influx of global auto majors into India. Many auto majors have established facilities, which have also been aided by the liberal Government policy. India crossed the million mark for autos last fiscal, which, in turn has set the domestic auto-ancillary industry on a roll.

Auto MNCs are also launching their latest models in India. The domestic auto industry has also come up with new and quality models. Consequently, the importance for precision auto components has been growing.

The increase in demand for auto components in India has also resulted in an increase in revenues and exports. Exports of auto components from India have witnessed a compounded annual growth rate of 19 per cent plus over the last six years.

Except for fiscal 2002, when the exports were down by 7.5 per cent, the Indian auto ancillary sector's export graph displays a steady northward incline. During the fiscal 2004, the industry achieved a milestone of $1 billion worth of exports.

Spreading wings

India now ranks amongst the most preferred destinations for most of the major global OEM players. To buttress this point, detailed herein is an extract from the list of companies already outsourcing from India:

Hyundai: Exports base for small cars

Ford: Exporting CKDs of Ikon to South Africa and other countries

Skoda: Hub for export of cars to neighbouring countries

General Motors: Global purchasing team

Volvo: Global buying team

Delphi: International purchase office

Renault: Scouting for truck part suppliers

Key advantages

• The country provides skilled and cheap labor. For example, the wage cost as a percentage of sales in Indian forging industry is less than 9 per cent and the same for US companies was 38.80 per cent.
• Indian component manufacturing companies have achieved significant level of automation at a lower cost. Global benchmarks for quality standards are also being achieved.
• Total quality management and total productivity management by the companies also help in lowering the production cost.
• Investments in the auto-component sector in India have witnessed growth over the last seven years.
• Legal and accounting systems are in place to meet the global standards.
• The technology in the industry has improved significantly with quite a few Indian companies entering into technological collaborations with global majors.

As a testimony of its growing quality standards many Indian companies have achieved various certifications:

• 391 companies with ISO 9000 certification
• 222 companies with QS-9000 certification
• 95 companies with TS 16949
• 66 companies with ISO 14001 certification
• 9 companies with ISO 18001 certification
• 5 Deming prize winning companies
• Japan quality medal winning company

Standing tall

The auto component sector is on a growth trajectory as is evident by the fact that auto components have been designated as a "Thrust Sector" by the Government of India under the EXIM Policy. The Indian Department of Commerce is now set to aggressively promote export of auto components through a specific sectoral strategy.

The size of the global auto component industry is $1.2 trillion with most of it located in high cost countries. Global purchases of components by international vehicle manufacturers are currently estimated to be $45 billion. However, the role of outsourcing is constantly increasing.

Furthermore, the problem of high rejection rates which plagued the domestic auto ancillary industry has been overcome. This is reflected in the number of overseas deals concluded by the domestic industry amidst stiff competition from other Asian countries. The government has extended various fiscal incentives and policy measures which too has helped the industry.

The road ahead

Critically, outsourcing of automobile components that have relatively high engineering and design content from suppliers in low cost countries like India, is rapidly gaining momentum. It is estimated that in the next 10 years the auto components industry will reach $33-40 billion.

Going by the current trends in the domestic automotive industry and as stated above, it is expected that the indigenous demand for auto components will also reach $13-15 billion in the next 10 years and about USD 20-25 billion would be exported. To meet the combined demand from domestic and international customers the industry will have to make significant incremental investment.

Hence, the Indian auto component industry is poised to achieve a prominent position in the global market and will in all probability be a major driver of growth and employment in the domestic economy.

Considering the recent figures, whereby domestic demand is increasing by about 15 per cent over the previous year and exports by over 25 per cent, the above estimates, while undoubtedly challenging, appear achievable.

To, conclude, the auto-components sector in India appears well revved up to speed on from here on the success-track. 

Ashok Kumar heads Lotus Knowlwealth, Mumbai.