The stage is set for transformation of the $4-billion Indian auto component industry which is facing stiff competition from their multinational (MNC) counterparts. MNC players in the field are having an edge over their Indian counterparts as they have the advantage of larger markets and an ability to design and produce complete modules for vehicles at a faster pace.
The transformation, "tier-isation" in auto component industry parlance, is being brought about by the ongoing evolution of the domestic auto industry, as auto companies are now farming out most of the vehicular assembly work to vendors and are limiting their focus to research and development (R&D), vehicular design, final assembly and marketing.
As a result, MNCs such as Delphi & Visteon are positioning themselves as Tier-I companies, which produce complete assemblies or sub-assemblies for the auto companies, whereas domestic companies are being recognized only as Tier-II companies, which may be supplying components to the Tier-I companies in the future. So far, they have been doing business directly with auto companies.
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Ravi Khanna, managing director, Delphi Automotive Systems, said, "With big foreign companies entering the market, a large number of Indian manufacturers may get categorised under Tier-II or Tier-III segment in their existing form. This should be viewed as an extremely positive development for domestic manufacturers as they will continue to do what they are best at, which also gives them the competitive advantage."
Kavan Mukhtyar, director, Frost & Sullivan (India), said, "Most of the domestic component manufacturers are Tier-II players, having expertise in design and manufacture of components. However, most of them currently do not have the capability to produce entire modules for auto companies on a continual basis to keep up with the pace at which auto companies introduce new models."
K Kejriwal, president, Association of Component Manufacturers' Association (ACMA) told Business Standard that there are "not many Tier-I manufacturers in India" because of low volume sales. "If sales volumes of products introduced by the auto companies are high, their localisation will improve resulting in economies of scale favouring the domestic manufacturers as well."
Low sales volumes do not justify the high costs involved in tooling for new components, Kejriwal said. He, however, added that except for some electronic parts, domestic companies' skills in producing components for the auto industry are at par with the multinationals.
"Global players bring in their wake resources, whether engineering, finance, or functional know-how, in addition to introducting stable and developed international manufacturing practices. It is imperative that the products global players develop in India meet world-class quality standards, and to ensure this, they are prepared to provide a very high level of training and support to their suppliers," Khanna added.