Competetiveness Of Indian Auto Component Industry

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Third International Conference On Globalisation & Competitiveness Globalization and recipe for Competitiveness of Indian Auto Component Industry. Dr Vasant Khisty

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Introduction Vasant .P.Khisty Employed with Fairfield Mfg. USA Working as V.P.International Business Experience in Auto Industry-24 yrs Certified Auditor for ISO9000, ISO 14000, QS9000 Doctorate from Pune University Authored( How to be exclusive and maximise your returns)

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Presentation Overview Introduction To Auto Industry Globalization, Its Opportunities and challenges for Indian Auto Industry Strength , and concerns of Industry Need for competitiveness Evaluation of competitiveness of Auto component manufacturers Evaluation of Industry Associations Evaluation of Government Auto related policies Findings Recommendations

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Introduction Auto Industry/Auto component Industry

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1769 First, true automobile, a steam lorry designed by Nicole -Joseph Cugnot. 1801World s First Passenger –carrying vehicle, built by Richard Trevithick in the U.K. 1984 Karl Benz builds worlds two seater Tricyle powered by Four-stroke petroleum engine. 1902 Ford Motor Company formed 1908 Ford pioneers first moving assembly line with Model T ford. 1925 Mercedes and Benz companies merge. 1938 Volks wagon Beetle enters production. 1958 Mini small car launched in Britain. 1961 Jaguar car s produces first 150 mph car. 1872 Sales of VW Beatle reach 15 million. 1986 Toyota of Japan overtakes VW. 1994 BMW of Germany acquires Rovers group in worlds largest Industrial merger . 1998 Diamler Benz Acquires Chrysler Corporation. 2000 BMW breaks away from Rover group, GM acquires 20% of Fiat, and Ford buys Land Rover. 2001 Profit warnings at Ford, Renault, Volvo, Daimler Chrysler, Fiat, Delphi, and Visteon. 2002 Major restructuring launched by Big three US carmakers. Future Prediction, Disintegration and Emergence of Asian Companies . Telco currently 18 th to grow to 14 th Rank Evolution of Auto Industry

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Country wise share of global car manufacture.

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The auto industry employs six lakh families. Revenue generation for government is over Rs. 25,000 crores . There are several auto manufacturers with a combined turnover of Rs. 25,000 crores ) The further investment planned during 1996 to 2003 is 15,000 crores. The Evolution of Auto Industry -Indian 1925-GM India Ltd started assembly of Trucks and Cars 1930-Ford Motor started assembly of CKD 1956-Activity terminated due to restriction of Foreign exchange for imports 1970-75- Slow down in Auto Industry 1975- 26 new Automobile firm registered 1980-Growth in Industry, import of capital goods and components permitted -Japanese JV in LCV and two wheeler. 1991-95-Gulf war and recession 1993-Auto Industry liberalised, license abolished, new JVs in component Industry

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Statistics- Indian Auto Component Industry Local Demand met by Component industry 97% Large and Medium Sized firm –Over 350 Small scale ancillary Units-6000 Total production –30,000 Crs Rs Foreign Collaboration-322 Japan-92 Germany-55 USA-38 UK-35 Investments around 7000 Million US$ Employment –250,000 Direct. Global Share-2%

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Percentage Component production Mix Engine Parts-Others- Drive , Transmission, Steering-- Suspension Braking -- Electrical 32% 20% 17% 16% 8 %

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Auto component investment(U.S. $ million. as on 31st March 2001) 96 97 98 99 2000 2001 2002 2003 2004 1315 1705 1813 1850 2000 2383 2300 2645 3100

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: Auto component production (Value In U.S. $ million.) 95-96 96-97 97-98 98-99 00-01 01-02 02-03 03-04 2588 3278 3000 3250 3804 4470 5430 6730

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Auto component exports (U.S. $ mln.). 95-96 96-97 97-98 98-99 00-01 01-02 02-03 03-04 267 291 330 350 387 578 760 1000

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Figure-10: Automotive export Destination 2000. Europe Asia Africa USA Others 36% 16% 13% 27% 8%

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GLOBALISATION Globalisation is an economic phenomenon, involving the increasing interaction, or integration, of national economic systems through the growth in international trade, investment and capital flows.

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MAIN FEATURES OF INDUSTRIAL GLOBALIZATION a) The unprecedented increase in competition between firms in different markets b) Second feature of global competitiveness is the internationalization of production. A third feature has to do with the pattern of international trade. d) A fourth feature is the growing interdependence between the various levels of globalisation, namely direct investment, trade, transfers of technology and capital transfers.

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Opportunity for Auto Industry in Globalised Economy Worlds one of the most favoured source for Auto components Indian Car manufacturer poised to be Global players. E.g Scorpio, Indica 15 car makers have out sourcing office in India Combined budget 1.5 billion us $ 90 Indian firms upgraded to Tier I status Two firms awarded Deming award (only 5 in the world) Export up from 450 million in 2000 to 800 million US$ in 2003 30% growth expected in current year $2.5 billion by 2010 Experts feel it would grow to 25 billion $ by 2010.

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Why This Opportunity Overall slow down and large scale bankruptcies The three Global giants are loosing money European market has flattened out Japanese market has shrunk This puts cost pressure on manufacturers India offers them 15-20% cheaper parts at low volume and equivalent quality.

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Auto component Industry-Globalization and Challenges Turnover worldwide is concentrated with few firms. The top thirty global firms account for over fifty per cent of component industry. As the Original Equipment Manufacturers (OEMS) move production to match markets; they are taking their key suppliers with them. OEMS are moving towards modular manufacturing The Component Industry will be dominated by Mega suppliers having four characteristics They will have entire Global coverage( Delphi , Visteon) They will have huge research and development capability( Robert Bosch) They will have a critical mass of $ Three to Four million in revenue They will be suppliers of complete systems. This will result into elimination of Component manufacturers who will not gear up to compete with these Giants and give total Monopoly To mega suppliers forcing Indian OEMS to buy at a higher cost.

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Understanding MODULARISATION PROCESS

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Responsibility Transition

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Strength Component Industry Cost Competitiveness

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CONCERNS OF COMPONENT INDUSTRY Small Size by global standards Financial standing of Auto component Manufacturers

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Low Labour Productivity

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Rejected parts per million (PPM). Poor Quality Of parts and Services Inferior Technological capabilities Lower competitiveness due to non tired structure Higher cost of Finance In India Higher cost of Logistics High cost of raw material

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Partners Responsible for Industry competitiveness The Auto component manufacturer The Industry association The Government (policies)

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Individuals , Organisations, Industries, Associations , Countries which are can only Survive and flourish in the Globalised Economy. Competitive

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GAP ANALYSIS AUTO COMPONENT MANUFACTURERS

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Findings And Recommendations Business Strategy -Rating :65% Strategic alliance / Joint Ventures Cutting edge strategy Allocation of corporate capital fairly Product development- Rating:27% Involvement of customers in product development Poor capability assessment of new inquiries Virtual prototyping for process and product design

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Manufacturing capability-Rating:61% Lean Manufacturing Six Sigma Kaizen Toyota Production System Quality Assurance -Rating:40% Implementation of QS9000 Implementation of TS14969 Implementation of six sigma

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Supply chain management-Rating :50% MRP systems Global sourcing initiative Human Resource management-Rating:25% Action Learning Making rewards and recognition a wholesome experience Performance appraisal Flexibility Finding and keeping Top Talent Investing in Spiritual Capital Managing Intellectual capital Organisational Environment Survey

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Information systems-38% Enterprise Information systems Exploring future Business opportunities-40% Business research Market research

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Industry Associations-An Evaluation Structure of Associations : Confederation of Indian Industry ‘CII’ is the apex body for Indian industries in general. Society of Indian Automobile Manufacturers ‘SIAM’ represents the Indian automobile manufacturers. ACMA spelt, as The auto component manufacturers association is the association, which represents the auto component manufacturers in India.

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Recommendations for Industry Associations: Resource Sharing Lobbying with Government Technological improvements Educational Institutes (National Institute of Global Competitiveness) 5. Develop volume based supply chain 6. Leverage Knowledge 7. Low cost virtual association Facilitate and manage focused growth of clusters Facilitate Infrastructural development

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Evaluation –Government Policies

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Vision and Policy Objectives (i) Exalt the sector as a lever of industrial growth and employment and to achieve a high degree of value addition in the country. Promote a globally competitive automotive industry and emerge as a global source for auto components. Establish an international hub for manufacturing small, affordable passenger cars and a key center for manufacturing tractors and two-wheelers in the world Ensure a balanced transition to open trade at a minimal risk to the Indian economy and local industry. Induce modernization of the industry and facilitate indigenous design, research and development. Steer India's software industry into automotive technology. Assist development of vehicles propelled by alternate energy sources Development of domestic safety and environmental standards at par with international standards. Auto Policy-2002

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Findings 1.China announced Auto policy in 1994 where as India in 2002 2. More stress on analysis of current status and less emphasis on new measures 3. Policy Lacks objectiveness and transparency 4. More focus on small cars neglecting other segments 5. No incentive for foreign Investors 6. Neglected Tierisation process 7. No focus on Global opportunities 8. Policy not focusing on Auto components

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The most important needs of Global customers are: higher value for money regular cost reduction customer focus world class products made on world class equipment just in time supplies flexibility in supplies small batch sizes Ethical business practices cordial labour relations ships friendly business interaction E-Compatibility

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Final Recommendations A D E F Tier 1 Tier 2 Tier 3 Auto Manufacturers Parts Sub-assembl y Modules/ Systems A E D C B F A A B B A B B

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F I R M S Environment +ve -ve Government Policies L E A D E R S H I p Industry Association- Facilitator facilitators Proposed Model for Global Competitiveness

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Govt Education Associatio ns R&D Firms Global Resource and Knowledge Integration Competitiveness comes through the ability to collaborate and network resources and competencies across the world

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Task force Structure Task force R &D Univesities National Institute Of Competitiveness Industry Associations Ministry of Industry Finance , commerce, etc Financial institutes Representation International Consultants/ Advisor Industry Stalwarts Support FIRMS In the current knowledge society competitiveness would be derived from the ability to reorganise and integrate all form of knowledge leading to innovation in every area of human endeavor.

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Summary There needs to be a serious and an integrated approach from the government, associations and the firms manufacturing auto components. In order to chanelise the efforts a task force is needed. The task force should develop a blue print for all the three participants and monitor their progress. A certain degree of empowerment should be provided to this autonomous body. The task force should formulate strategies and should carry out competitiveness assessment periodically to assess the effectiveness of the strategies. At firm, level researcher strongly recommends that the component manufacturers should go up the value chain and evolve into module/system supplier in order to exist and prosper. Formalise Ministry for Global competitiveness and develop National Institute of Global competitiveness, which will provide service , advice and control. Overall, a very encouraging future is anticipated for the firms with proactive leadership.

Thanks:

Thanks No research is ever quite complete. It is the glory of a good bit of work that it opens the way for something still better, and this repeatedly leads to its own eclipse” --Mervin Gordon