Indian automobile component manufacturers, who have been catering to international car companies, are taking additional value out of the supply chain by getting involved in the designing of auto parts.
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With strong engineering skills, design and development capability, Indian companies such as Tata AutoComp Systems, Sundram Fasteners and Bharat Forge, have established their own brand names and registered intellectual property rights for their products. By entering into international joint ventures and providing performance guarantees, many of these companies have managed to achieve annual sales of hundreds of millions of dollars.
In November, India’s Business Standard newspaper quoted Volkswagen India President and Managing Director Jörg Müller as saying that the company has started sourcing local components for its Russian plant and one day India would become a major source for auto parts for its global units. He mentioned “light systems, plastic related items and metals”.
However, the spokesman of the German manufacturer attributed the news report to a “misunderstanding” and told just-auto that, “we are [only] looking for the parts to be delivered for our Pune factory (near Mumbai)”. However, he added that, “every supplier who supplies to us [in India] has a chance to supply [our] factories worldwide”.
Indian manufacturers are well aware of the factors that put them in the top league. “We may not be the least in price but if quality, productivity and delivery requirements are put together than we may be the best cost option,” said Vishnu Mathur, executive director of the Automotive Component Manufacturers Association of India (ACMA).
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By GlobalDataHis views are supported by P Balendran, vice president of General Motors India, who told just-auto that “in terms of quality we are at par with [South] Korea and in terms of price, we are 15% down as compared to them and 20 to 25% cheaper as compared to Europe.”
GM already sources components for its overseas units and before the 2008-9 recession, had even announced plans to import US$1 billion (Euro 667 million) worth of components from India.
According to Balendran, the local component industry has matured, and these days there are no delivery constraints.
“The prospects are very exciting and bright for the [Indian] component industry and there is adequate internal capability to meet the requirements of the global customers,” Mathur told just-auto.
ACMA has 558 members – mostly based in Chennai (Madras), Pune and Gurgaon (near New Delhi) – with US$18 billion (Euro 12 billion) of annual sales and US$3.6 billion exports, but not all these companies make products that go straight to a car factory. Only the ‘tier-1’ suppliers, as per the association’s definition, make components like piston rings, steering gear, wheel rims, door handles and bumpers that are used directly by the car companies.
Shriram Pistons & Rings, ZF Steering Gear, and Bosch India are some of the 170-plus Indian companies in this category which, according to Balendran, vehicle manufacturers can explore for sourcing components. The tier-2 and tier-3 suppliers make products like forged sheets, metal parts and friction material, which become inventory for the other component manufacturers.
According to Mathur, for any OEM to locate a new supplier, audit it, and bring it up to the requirement process, it takes between one to two years and depends upon the supplier’s existing capacity. The main challenge for the supplier while moving to a very high volume operation, he said, is to “sustain reliability of operation and the stability of the processes.”
To play safe, many OEMs hedge one component supplier against the other – but this cannot be done for small quantities. “Dividing an order for just 10,000 units into more than one supplier cannot give economic volumes,” said Mathur.
Furthermore, the design capability of the suppliers is emerging as an important criterion for winning orders from the big car companies who, while introducing their future models, do not want to produce modified components’ drawings and designs. Mathur said that for qualifying as a long term dedicated supplier, local companies must have in-house designing teams, and added that “Indian companies are very rapidly getting into it.”
Raghavendra Verma
