ANGALORE, India, June 19 — The scramble by the recession-wounded global automotive industry to find a source for low-cost, high-quality components has been a big boon to India's auto parts makers.Posted on 06/21/2003 6:18:57 AM PDT by sarcasm
ANGALORE, India, June 19 — The scramble by the recession-wounded global automotive industry to find a source for low-cost, high-quality components has been a big boon to India's auto parts makers.
Among the rash of announcements just this month was one by the Delphi Corporation, the world's largest automotive parts maker, saying that it would have $140 million worth of auto parts — forged engine parts, intricate plastic moldings and other products — made by Indian concerns, and that such orders were expected to exceed $250 million a year by 2007. The Ford Motor Company said that it expected to get more than $100 million worth of components from Indian parts makers in the next two years. Volvo said that it planned to increase its manufacturing in India to 100 million euros ($117 million) worth of parts in one year instead of three.
The demand has come even from China, a rival to India in low-cost manufacturing. And the orders are flowing throughout India's auto parts industry, to subsidiaries of Ford, General Motors, Toyota Motor and other major carmakers; to global auto parts leaders like Delphi and Visteon; and to homegrown auto parts makers, including Bhart Forge and Hi-Tech Gears.
The flurry is spurring the industry to set ambitious targets.
Exports of auto parts are projected to reach $25 billion in 20 years, according to the Automotive Component Manufacturers Association of India. Already the exports, nearly two-thirds of which go to the United States and Europe, have risen to an estimated $800 million for the year ended March 31 from $578 million a year earlier — a 38 percent spurt.
While the current figure is less than a tenth of the amount India's software exports bring in, investors in India's stock markets are bidding up the prices of auto parts concerns in the belief that the industry holds as much promise.
The parts makers' success thus far has come in large part from two factors that have already helped make India's software and support services industry successful: low labor costs and one of the world's largest technologically adept work forces. Additionally, locally produced raw materials like rubber and steel are inexpensive.
"Big carmakers are under huge pressure to reduce costs," said Hans-Michael Huber, chief executive of DaimlerChrysler India. And purchasing specialists from the unit's parent company, DaimlerChrysler A.G., are combing India for top-quality low-cost suppliers, he said.
The Toyota Motor Corporation is setting up its own auto parts unit on the outskirts of Bangalore with a $197 million investment to supply transmission systems to Toyota worldwide beginning in mid-2004. Toyota is also converting a textile machinery plant in another Bangalore suburb to produce auto parts.
Much of the outsourced business is going to a handful of the more than 400 local parts makers. For example, India's leading auto components company by revenue, Bharat Forge, says its headquarters in Pune, southeast of Bombay, is being visited two or three times a week by delegations of product and supply experts from global carmakers.
Still, though India's auto parts exports are growing robustly, they account for just a minuscule portion — less than 0.1 percent — of the $1 trillion world auto parts industry. They are small even compared with those of other low-cost manufacturing centers like Mexico and Brazil.
But India's capabilities in a variety of manufacturing processes give it a competitive edge. "The level of manufacturing industry here rivals that in most of the developed countries," said Kiyomichi Ito, managing director of Toyota's new Bangalore-based unit, Toyota Kirloskar Auto Parts.
One sign of the new aggressiveness in the industry, as well as the many takers worldwide for its products, came in late May when the Automotive Component Manufacturers Association of India led a delegation of 33 domestic parts makers to the United States to meet with major manufacturers. Sundaram Clayton, Hi-Tech Gears, Shriram Pistons and Rings and Rico Auto Industries were among those represented.
"On earlier visits, we got the polite brush-off," said Arvind Kapur, managing director of Rico Auto. "But this time we had more than a dozen buyers surrounding us everywhere we went. From Ford and General Motors in Detroit to Cummins in Columbus to Caterpillar in Peoria, we sensed a desperation to source from emerging markets."
Rico Auto, based in Gurgaon, outside Delhi, sold $120 million worth of aluminum and ferrous engine and braking parts to G.M., Ford and other foreign customers last year.
When India opened its doors to foreign carmakers in the mid-1990's, nearly all the global car companies entered the market through joint ventures with local companies. They set up vigorous quality processes and brought in global quality certifications. "The local industry got tuned in to international needs, quality and logistics," Mr. Huber of DaimlerChrysler said.
Gradually, the bigger homegrown parts companies geared up to compete with the world's best, alongside Indian subsidiaries of international parts leaders like Delphi and Visteon.
Vinay Piparsania, director of sales operations at Ford's Indian unit, said, "India's small auto parts manufacturers are as much a success story as the country's software industry."
But as local manufacturers acknowledge, it has been a slow path to maturity, and some Indian companies are only beginning to emerge as reliable suppliers. "We relentlessly pursued Ford and General Motors to source from our company," Mr. Kapur of Rico Auto said. "In the case of General Motors, we had a breakthrough after seven years."
With India's credentials now more established, automakers like DaimlerChrysler are benefiting from the cost differential. "Indian firms offer 20 to 25 percent cost reduction, and this gets automakers excited," said Deep Kapuria, chairman of Hi-Tech Gears, also based in Gurgaon. Customers for his company's transmission gears and shafts include Cummins, the diesel engine maker, and Honda Motor.
Exports from India to DaimlerChrysler reached 63 million euros ($73.8 million) in 2002, up from 45 million euros in 2001. "Granted, this is only 1 to 2 percent of my company's total purchases worldwide, but the doors are now open and the most difficult part is over," Mr. Huber said.
DaimlerChrysler now buys forgings in Pune in western India, wiring harnesses in Gurgaon in north India and automotive software and electronics in Bangalore in the south. "Auto parts exports to DaimlerChrysler should touch 100 million euros by 2005, conservatively speaking" Mr. Huber said.
Still, the going may not be as easy as some parts makers believe.
Mr. Ito of Toyota said that the Indian legal system was not set up to uphold international business contracts, and that might hinder growth.
Then there is the fact that most of the 400-odd Indian auto parts firms are family-owned. While some have technology transfer relationships with Japanese and European automakers, many others have been slow to adapt to global business standards — some are still learning, for instance, that failing to honor their commitments can incur heavy penalties.
Competition from other southeast Asian countries like Thailand, Indonesia, Vietnam and Malaysia is growing, and as in nearly every sphere of Indian exports, China is also an aggressive player.
As inexpensive car batteries from China flooded the Indian market a couple of years ago, nervous Indian car parts makers scurried to China to study the competition. But the Indians breathed easier when they found that while China had an edge in the lowest-cost work, it did not necessarily have an advantage further up the quality scale.
Some Indian parts makers even sniffed opportunity there, led by Bharat Forge. Forged and machined crankshafts shipped to China now account for one-quarter of the company's $60 million in annual exports, up from nothing a year ago. "In metal-intensive components where software-oriented design and engineering is involved and where technically skilled manpower is required for manufacturing, Bharat Forge offers an advantage in terms of both price and quality," said Baba Kalyani, the company's chairman.
P. Balendran, a vice president for General Motors India, said that quality was central to India's appeal. "Qualitywise, India is better than Mexico, China, Taiwan or for that matter, Korea," he said, referring to South Korea. "In terms of price, India is 15 percent cheaper than Mexico, 10 percent cheaper than Korea and at par with China and Taiwan."
Land of opportunity.
Leverage against the Chicoms. Definately win/win.
For India and China perhaps but not the USA. How many of these foreign subsidiaries were built with US taxpayer assistance. How much is the US taxpayer ponying up to subsidize these imports.
Yeah, if we can export our goods to them. Otherwise, our job losses will lead to a lower average wage, the American consumer will have less money to spend; plus higher taxes to pay for the federal support of unemployment insurance; plus higher taxes to pay for other "benefits". Oh, gosh, guess we can't export our goods to them, wonder why not? Could it be because their governments impose trade barriers? Yep.
So how is this "the best thing to happen"? If our exports are slack, and we lose jobs -- who wins? You might say the consumer due to lower cost goods, but recently the goods I have bought from China were crap for quality, and I had no alternative -- all the goods were Chinese.
Try going there and finding out. you're wrong, anyway.
I have no idea of how much we're sinking there. Can anyone comment?
I accept that production has gone overseas. I hate it, but it seems a done deal.
On the other hand, I notice that most of the dirtier industries are in those places, like battery manufacturing and heavy steel production, while we've managed to hold on to manufacture of things like conventional motors.
I'm really worried about China's growth, their rampant nationalism, and their designs on Taiwan. Binding their feet a little is not a bad thing geopolitically, and a little competition might do that.
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