The global auto giants are increasingly looking to reduce costs by moving parts production to low cost locations outside restrictive western markets. India’s Tata AutoComp Systems (TACS) is in a prime position to cash in on this trend, and a successful IPO could give it the financial backing required to maximise this opportunity.

Tata Group, India’s largest industrial conglomerate, has seemingly caught the IPO bug, with a report in the Calcutta Telegraph newspaper suggesting that TACS, the group’s auto parts arm, will follow Tata Consultancy Services, the IT company, down the road to flotation.

According to the report, TACS has become the fifth largest company in the Indian auto component sector despite being only seven years old. Over the past few years, the Indian automotive sector has experienced significant growth and competition has become tougher.

TACS has 12 joint ventures with world leading parts manufacturers including Johnson Controls, Yazaki Corporation and Faurecia. It has benefited from the synergies gained by the collaborations with these strategic partners, and it has been able to access cutting edge technology and improved its understanding of customer needs. With the funds generated by an IPO in the bank to support it, such alliances could be vital in enabling TACS to push on with the rapid expansion it has experienced since its foundation.

At a global level, the auto parts sector is led by major US and European players such as Visteon, Bosch and Delphi. TACS however could offer a different proposition to these firms: labour costs in India are low, yet staff are highly skilled, and the domestic market could eventually offer a springboard for expansion into other Asian markets as well, where the Indian business model could prove significantly more competitive than those offered by western players.

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The switching of industrial manufacturing processes to lower cost locations is a trend that is already in evidence in the auto industry: Volkswagen is reportedly considering switching some of these activities to the Middle East to escape punitive energy consumption regulations in Europe. Local parts manufacturers stand to benefit from this trend as they supply these relocated manufacturing centres. It would be little surprise if TACS were to emerge from this process as a significant winner.

SOURCE: DATAMONITOR COMMENTWIRE (c) 2004 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.