Honda Siel Cars India has set up a research and development division at its Greater Noida facility, as it strives to reduce costs and increase parts localisation in India.

According to a report in The Hindustan Times, the division - which comprises 15 engineers - will identify suitable vendors for component sourcing for its existing and future products.

Honda, which made its entry into the small car segment in India with the launch of the Jazz this week, has been hit hard by currency fluctuations and has been forced to look at increasing local content to preserve margins.

"The primary role of this team of R&D would be to further localisation with suppliers and component manufacturers," said Masahiro Takadegawa, president and CEO, HSCI.

Honda has already started work on its second small car for India which will be positioned just lower than the Jazz. The car is being developed for 2011-end launch, at Honda's global R&D headquarters in Tochigi in Japan but India is the lead country for the project.

"We have not decided on the engine yet and other than the K series cars in Japan which have 660 cc engines, Jazz sports the smallest engine that we have. Our target is 80 per cent local content at the outset for this car,"  Masahiro Takadegawa said.

"We are hopeful of double digit growth but remain cautious on future investment. We will be ready to produce cars in Tapukara in Rajasthan but unless our full capacity in Greater Noida is utlilised, it will remain idle."