Bumper-To-Bumper Harvest

Call it the next outsourcing wave. But this time, it's the auto sector that's grabbing the headlines: India is fast emerging as one of the world's favourite source for auto components. Some global players are even designing a few of their new products here. And in the near future, even Indian car makers could become major players, either as exporters or as manufacturers and designers of models meant only for global markets. Just visit a few plants in Delhi, Pune or Bangalore and check out the buzz.

Already, 15 foreign car makers (like GM, Ford, DaimlerChrysler, Mercedes-Benz, Audi, Isuzu and Nissan) have outsourcing offices in the country. Their combined budget: $1.5 billion. Leading OEMs (or component makers) like Delphi, Visteon and Caterpillar too have found India their best bet. Even local companies are nibbling away at huge slices of the pie. About 90 firms have been upgraded to tier-I status, ie they supply directly to the car producers, and two of them have won the prestigious Deming prize for quality (won only by five firms in the world).

No wonder then that exports of auto components have gone up from $450 million in 1999-2000 to over $800 million in 2002-03. This year, the figure is expected to grow by another 25-30 per cent. Buoyed by this upbeat mood, the Automotive Components Manufacturers Association (ACMA) expects the industry to clock exports worth $2.5 billion by 2010, although some industry watchers feel it could be four times higher.

But what explains this excitement and optimism? To begin with, it's triggered by the overall economic slowdown and large-scale bankruptcies abroad. Says Deep Kapuria, ACMA's president and CMD of Hi-Tech Gears: "The big three (global giants) are losing money. The European market has flattened out and the Japanese one has shrunk. This has put cost pressures on firms. India provides them with a (low-cost) option without compromising on quality." Hi-Tech Gears exports over 15 per cent of its production to foreign component firms like Cummins and Caterpillar.

In fact, estimates show that Indian-made components could be 10-15 per cent cheaper than those sourced from developed nations. Couple that with the fact that Indian firms can ensure such savings on really low volumes. Delphi, for instance, feels that its Indian facilities are "an integral part of its worldwide engineering and technical footprint". It has been in India for the last eight years and has five facilities in the country. Says Ravi Khanna, president and MD, Delphi India: "We are convinced that with the increasing emphasis of driving quality...India is fast moving towards becoming a sourcing hub for automobile makers." Delphi's Indian operations make gas-charged shock absorbers, airlift dampers, drive shafts and wiring harnesses which are assembled into modules at its US facilities. Says Khanna: "With our local manufacturing operations demonstrating the capability to meet the stringent quality and delivery requirements of our global customers in developed markets, there exists an immense opportunity for us beyond our existing portfolio." However, Delphi India's exports, which stood at $17 million in 2002, are minuscule compared to its total outsourcing requirement of $140 million. The company is confident the former figure will increase to $70 million by 2005, and further to $250 million by 2007.

Experts feel that these are not mere figures plucked out of thin air. A number of Indian companies are being audited by global majors and may be singled out for tie-ups or grab fresh orders over the next two years. When the ACMA led a 33-member delegation to the US last month to hold discussions with leading companies on an individual basis, the response was phenomenal. To cite a few current examples, while Toyota is setting up a transmission plant in India to cater to its global supplies, Fiat plans to source $200 million worth of components from India each year.And, like Delphi, DaimlerChrysler has already set up seven joint ventures to manufacture components.

Some of the more prominent Indian companies include Bharat Forge, the most successful tier-I supplier; Kalyani Brakes, which supplies products for Toyota's new world model; Hindustan Motors, which sells engines to GM and Ford; and Sundaram Fasteners and Shriram Pistons. All of these companies have notched up an impressive export portfolio in the recent past.

And this is just the beginning of the story. Two extraneous factors could catapult India into the big league. The first is its software success which has convinced global majors to look at using Indian firms to design and develop new products. According to the ACMA, Cummins has already sought Infosys' help for this purpose. Says Vishnu Mathur, executive director, ACMA: "MNCs are moving into India to create IPRs of products at a low cost. India could specialise on it and create its own IPRs."

Says another expert: "A lot of functions in a car, like multi-point fuel injection and ABS braking, are software controlled. With India's software prowess, there is no reason why we cannot develop our own IPRs in these fields."

If this happens, it could improve India's image and credibility. In fact, the world's perception about India has already changed, thanks to the development of the Indica platform by Telco and Scorpio's by Mahindra & Mahindra. This has demonstrated that India can design and develop cars at low costs. Agrees Surinder Kapur, chairman, Sona Group, which exports steering assemblies: "Car makers over the world have realised that India can design a car on its own and make it globally acceptable." With Indica and Scorpio, India became only the ninth country in the world to design a vehicle on its own.

According to ACMA officials, Scorpio has received a phenomenal response in Detroit, not just for its design but also because of its cheaper price tag. And Telco's success has enabled it to tie up with Rover to supply them with models based on the Indica platform. These vehicles will be sold in the British market and will be christened CityRover. At the same time, Ford exports kits of its Ikon models from India, Maruti exports Altos to Europe, and Toyota's Indian-made multi-utility vehicle (MUV) is sold in a number of neighbouring countries.

With world auto giants now pinning their hopes on India, it may not be surprising if India emerges as the global hub for both cars and components.