US automotive industry heads for
India By Indrajit Basu
KOLKATA - Amid all the offshoring brouhaha, the
fact is that there's at least one industry sector in the
United States in which India still features as the top
destination for moving jobs. An online survey conducted
recently by a global management consultant revealed on
Wednesday that the US automotive industry unanimously
voted India the most preferred destination for
offshoring engineering and technical jobs.
"India was the chosen country with a huge
margin," said AT Kearney principal Nagi Palle. Bigger
automotive markets, China and Mexico, lagged behind at
15 percent and 13 percent respectively, while auto hubs
Brazil, Thailand and the Philippines cornered just 10
percent, 2 percent and 3 percent of the votes. "Most
firms chose it for its cost competitiveness and good
quality," said Palle, adding: "What was most surprising
was automotive firms using India more for engineering
and technical services."
After a decade of
modernization and revamp, India's auto industry indeed
appears to be finally on its way to integrating with the
global auto industry, and staking its claim there.
Scarcely a day passes without news of the country's
increasing presence (in terms of booming auto exports)
in the global markets, or of global auto giants planning
to use India as a hub for their worldwide operations.
Take the instance of two recent major
announcements. The Detroit News created a sensation on
Tuesday when it leaked an internal memo of the world's
numero uno auto company, Detroit-based General
Motors, saying that the company was planning to send
US$48 million worth of white-collar jobs to India and
Canada to keep up with "competitors who are driving
relentlessly to reduce costs".
The Detroit News
added that GM's plan ignores the order of the Democratic
governor of Michigan, Jennifer Granholm, of giving
preferences for state contracts to firms that employ
workers in that state. Last week GM also said it had
decided to invest $21 million in its
research-and-development center in Bangalore, India -
its first outside the United States - to turn it into
its Asian R&D hub.
And in late January,
Akira Okabe, managing officer in charge of Asia, Oceania
and Middle East operations of US and Japan-based Toyota
Motor Corp - which has recently emerged as the world's
No 2 car maker - said: "One of my missions is to use
Toyota's know-how and culture of cost-cutting to turn
India into our lowest-cost manufacturing center in the
world. It would be wonderful if we could begin from the
development stage and utilize India's many resources to
achieve this."
Toyota and GM are just two of the
plethora of auto giants considering outsourcing from
India. Other big names that are eyeing India with a $10
billion outsourcing wallet include Volvo, Ford, Fiat,
Toyota, Delphi, Navistar, Cummins, Caterpillar and
DaimlerChrysler, AT Kearney said. Besides, United
Kingdom-based MG Rover, Korea's Hyundai and Japan's
Suzuki Motors, which have already been outsourcing from
India for a while now, have all said they plan to ramp
up their offshoring plan significantly going forward,
which will not only include components and engineering
and technical services, but also fully built cars.
Non-auto companies such as US Rail Roads and Oil Lines,
too, have started talking with Indian suppliers to
outsource forged components.
For India's auto
industry, though, this isn't the first brush with
outsourcing. In 1992, a 40-member GM team spent time in
India and identified about 10 suppliers. But GM said it
had to retreat hastily after "some did not deliver on
time [and] there were quality issues, which resulted in
consignments getting rejected". Then, in the mid-1990s,
when Ford, GM and Hyundai set up bases in India, its
auto-industry vendors got excited again and started
shouting: "If we are good enough to supply to Ford and
GM here, why can't we supply worldwide?" But successes
then were only stray cases and consequently the second
wave, too, never took off.
Of course there was
another reason behind those two failures. In the early
1990s, global auto makers were going through a period of
bumper profits. Ford even registered its highest profit
of the century, and therefore there was no great need
really for it to cut costs. "Naturally, global auto
makers looked at India only with amused interest," say
industry sources.
However, this time around -
the current flurry - it is different. The global auto
industry perhaps is going through its worst slowdown in
20 years. Last decade's profits have evaporated. In
2002, the Big Three - GM, Ford and DaimlerChrysler -
lost roughly $1 billion each, and wild speculation is
even doing the rounds that at least two majors, Fiat and
Ford, may not live beyond this decade. Moreover,
according to the US auto industry, more than 200
US-based suppliers (in the $10 million-$500 million
revenue bracket) that supply original equipment and
components are in trouble. "Suppliers have been filing
for bankruptcy at record rates for the last few years,"
though it can be used as a tool to become more
competitive, said Laura Marcero of Stout Risius Ross, a
US-based turnaround outfit.
Which is why
suddenly there's a rush to set up operations in India.
"While for the majority [36 percent] the outsourcing
route is primarily to cut costs, 17 percent chose these
destinations to support customers' global footprint and
14 percent to the route to develop capacity," said
Kearney's Palle. He added that nearly 75 percent of
surveyed auto makers have said the quality of products
and services sourced from India and Canada would be on
par with the original services, while another 14 percent
found the quality to be better than their original
suppliers elsewhere.
But even as a push from
Indian suppliers may be matching a pull from global auto
makers for the first time, hurdles still exist. The
first is, despite the fact that India's auto industry
has a large number of suppliers, few may be world-class.
And the challenge that global companies still face is to
get them to operate at the same level. The second, which
threatens to be a big one according to Indian auto
makers, is inadequate infrastructure facilities and
logistics. In fact, Indian auto makers such as Maruti
Udyog - India's largest car maker and a Suzuki joint
venture - and Hyundai Motors India say they had to set
up captive arrangements to overcome the infrastructure
and logistical problems.
Nonetheless, many
consider the latest round of global interest a watershed
and similar to the one seen in the
information-technology industry in the early 1990s.
"Vis-a-vis the international market, we are today where
the software industry was in 1992-93," said K N
Subramaniam, managing director of India's largest
manufacturer of shock absorbers - an auto component -
Gabriel India.
And according to Automotive
Component Manufacturers Association (ACMA) officials,
"this huge support from global auto companies" will help
the Indian auto industry secure a foothold in the global
arena, which is already evident from rising exports. "In
2002-03, the industry had exported products worth $800
million. This year, we are expecting to cross $1
billion, and next year onwards, exports could grow by 30
percent," ACMA said.
What India
could break into
Global auto
trade
$549 billion.
Trade in auto
parts
$950 billion
Sales of major car
maker
$1.303 billion
(Source industry
estimates)
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