'India, China to lead in car parts supply'

The Japanese, American, and European automobile industries are going to be mainly dependent on Indian and Chinese component suppliers in the near future, says a McKinsey & Company study.

"In the period of transition, Chinese and Indian suppliers and the global OEMs (original equipment manufacturers) are all working to position themselves for the future, as the cost imperative propels the migration of more and more parts and components businesses to low-cost countries (LCCs)," the study says.

The report points out that the era of an unequivocal dominance of global automotive supply markets by suppliers residing in western Europe, Japan and the US appears to be coming to an end.

Leading suppliers in China and India have started building their position in the global supplier industry, driven by the rapid growth in their domestic vehicle markets and a surge in global sourcing from them.

Apart from the cost advantage, Indian and Chinese component suppliers are rapidly developing into world-class manufacturers, having global customer access.

They are not only becoming important in physical assembly of proximate parts but are also becoming skilled in designing sub-systems that are integrated through technology. Some of the highly successful suppliers are pursuing aggressive step-outs towards globalisation, says the report.

In turn, they are demanding purchase price reductions from their suppliers, thus exacerbating the already cut-throat competition among supplier markets that are fraught with over-capacity.

Stricter regulations and increasingly demanding end-consumers have forced OEMs to provide more features at a time when these automotive OEMs are finding it hard to walk the "cost and productivity treadmill" to sustain their profitability, the study says.

As a result, many leading automotive suppliers of yesterday are facing extreme performance pressure and the need to find new sources of cost reduction or value enhancement, it says.

In 2004, the Vision 2015 effort for the Indian Automotive Components Industry (developed jointly by the Automotive Components Manufacturers' Association and McKinsey & Company) had highlighted that India's automotive components market would touch $33-40 billion by 2015, from the existing $5 billion.