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Globalization
and Competitiveness of Indian Auto Component Industry
Page 2 of 3
Inferior Technological capabilities
Historically the sector has been dependent on the OEM segment
for product design and did not develop the engineering
capability on its own. Most of the technology improvements
made by Indian manufacturers are through joint ventures or
technological collaborations. Foreign majors like Visteon and
Delphi have recognized the advantages of production base in
India and a large number of joint ventures and technology
collaborations are leading to up gradation of technology. In
the increasingly tired manufacturing structure, Tier-1 players
are at the forefront of technology transfer. If the Indian
suppliers wish to upgrade technology they will have to
increase the global Tier-1 players operating in India up from
4 to 15/20 and develop relation ships with large global tier-1
suppliers. Over time there has to be a shift of design and
development capability to Tier 11 and tier-111 suppliers.
Indian suppliers in these categories must eventuality raise
their research and design expenditure from current level of
0.5% to global level of 5%.
Non-tiered structure
The long
supply chain for OEMs is becoming increasingly tiered all
across globe. However, the present structure of multiple and
cascading taxation presents an obstacle for systems
procurement and discourages the tiering of the supply chain.
Consequently, Indian firms suffer from an inherent
disadvantage compared to global competition that has
additional income advantage of tiering. According to
A.T.Kearney survey, over 20-30% of all parts were
uneconomically sourced due to central sales tax distortions,
which have no MODVAT relief. Indeed the vat system as adopted
by many European nations will open vast opportunities for
competitive sourcing and tiering in component Industry.
Higher Cost
of Finance In
India
India has
one of the highest interest rates for Capital and working
capital. These can range from 12% to 18% and higher. Most of
the Indian companies work for financial institution. Where as
In countries like USA Europe funds are available at 1/3 the
cost. This makes big difference on the health of the company.
Though the financial institutions are flushed with funds, more
funds are available for investment in Non-performing assets.
The financial institutions should work out means to channelise
foreign funds at a lower rate of interest for Indian
companies.
High
Cost of logistics
The Cost to
transport parts within the country is high due to high cost of
fuel, and poor turn around of vehicles. The cost to export can
be around 5 to 25 % depending on the commodity. Ports in
India are inefficient and ship turn around times is
higher than international standards. A finished product takes
additional week to leave the Indian shores due to various
documentation and other port formalities. A container load may
cost 3000 US $ to
USA. It is
inefficient for individual suppliers to export small container
loads.
The
uncertainties in Logistics prevent Indian companies to supply
just in time. In order to make up for the environmental in
efficiencies ware housing has to be organized which can cost 3
to 4% depending on the countries.
High
Cost and poor Quality of Raw materials.
Raw
material like steel, polymers, castings etc are at times 20%
to 50% more expensive than other countries and the quality of
these raw materials also are not comparable to international
standards. Steel is the major raw material used for automotive
applications and the same is increasing every quarter.
Government may have to think of reducing the import duties in
order to bring in competition for local manufacturers.
At the firm level it has been found that the firms lack in areas like
product development, Human resource management, use of
information systems in all aspects of business, Strategic
management and exploration of future business trends. Many
firms were not proactive in anticipating the future and died
their natural death in the tierisation process.
THE PATH
TOWARDS COMPETITIVENESS
As India
opens up to globalization, the competition for the best
customers, suppliers, and talent is intensifying. Firms in
India are asking how it can become more competitive. In order
to improve their competitiveness there are numerous strategies
that leaders can use directly to improve the competitive
position of their organizations which may include changing
their portfolio of businesses, entering new markets, reducing
costs, accessing new resources, developing alliances, and
changing the rules of the game.
In order to
achieve sustainable competitiveness in long run the Individual
firms, the Government and the Industry associations have to
take certain measures individually and collectively.
Firm Level
Initiatives
At firm
level there are few gaps that need immediate focus. Most of
the firms do not have a long-term vision in terms of business
development. Since the Indian firms are currently not at par
with the best in class, there is a need for access to new
manufacturing and engineering technology and this can be
immediately achieved through some kind of association with the
Best in class firms. The nature of this association can be
licensing, joint venture etc. The Indian firms have shown poor
success rate in managing such relationships and there needs to
be a more constructive approach to wards nurturing such
relationships.
Speedy and
first time right approach to product development shall be most
critical success factor for Indian firms to exploit the global
opportunities. Product development is the weakest factor and
the reason for the shortcomings are that the customers are not
involved during development, poor capability assessment, and
inadequate virtual prototyping capability.
As far as
manufacturing capability is concerned there has been marked
improvement over few years however firms, which are
implementing JIT, Lean Manufacturing and other Japanese
practices, are showing radical improvement in business
results.
Supply
chain management is one area where suppliers have not been
electronically dovetailed with the firms. There is immense
unutilized skill and capacities available and they need to be
harnessed and utilized in order to reduce capital investments
and duplication of assets.
Firms do
not carry out utilization of Information technology for
decision-making process and overall business process
effectively. There is a vast potential for improvement in
business efficiency that can be derived out of appropriate use
of information technology.
The Cluster
of Indian Auto component manufactures constitute of around
eighty percent single part manufacturers and around 20% module
manufacturers. Firms, which are Tire-III supplier, should
evolve itself as Tier-II and eventually as Tier-I suppliers in
order to maintain its profitability and growth.
Industry
Association Level Initiatives
Associations are currently carrying out various activities.
Associations further need to take responsibility to achieve
the financial goals of the industry and spearhead the industry
as aggressively as the soft ware industry in India.
There is
unutilized capital equipment available in the industry and
there is no common database available. A common data base
should be provided to the member companies for all the unused
assets available and their where about so that these
capacities can be leveraged by the firms who need them
There are
several experts in every field available in this country.
Associations need to channelise their services to user firms
Associations need to develop a barometer to evaluate the
competitiveness of firms and industry. The Automotive
component industry should be bench marked with other
industries and strategies should be developed.
Associations should lobby and develop National Institute of
Global competitiveness for all the Industries. This institute
should be providing research and academic support to the
Industries.
Association
should evaluate the educational requirement for future need of
the industry and work with educational institutes to develop
curriculum suitable for future needs.
Initiative
at the Government level
The
Government is responsible to create a growth-oriented
environment for the industry. The Auto policy is the most
important medium to initiate various measures.
Few areas
where the Government and policy makes need to focus are
Reduce
import duties so that system suppliers have an option to
procure components from cheapest sources in the world and to
be achieving overall competitiveness.
Since Auto
industry is a capital-intensive industry, special interest
policies should be developed in order to bring down weighted
average cost of capital.
Clusterisation of industry improves competitiveness. Clusters
should be developed for different kind of components in order
to achieve overall cost competitiveness.
Competitiveness should be a National agenda. Periodic
competitiveness review of Industry and firms should be carried
out and incentives can be planned for performing firms.
Speedy
improvement of infrastructure to facilitate exports should be
carried out and that would include, roads, ports,
communication, warehouses etc.
All the
above-mentioned measures can be effectively implemented not
only by individual approach but also with the help of an
integrated task force approach.
Integrated Strategies-Recommendation
An
integrated model for competitiveness specific in context to
Indian component manufacturers is suggested by means of figure
-A
The most
important factor for competitiveness is a favorable
environment in which the firms prosper. It is the
responsibility of the government to provide appropriate inputs
to create business environment, which shall nurture firms
towards global leadership.
The role of
the associations is to facilitate the government to create a
favorable environment. In order to do so it has to carry out
continuous interaction with the firms and the government. It
has to negotiate the favorable needs for the industry with the
government.
The role of
the leaders of the firms is the most contributing factor.
Environment remaining constant there are firms that are
succeeding and some that are not. The only variable is the
leadership provided by the business professionals.
A united
effort within the framework of the model can create
environment, which can nurture growth and competitiveness for
the firms.
The model shown in Figure
A above describes the relationship between various
participants in the local environment. Individual firms
prosper depending on the quality of leadership as depicted by
arrows of various heights. These firms are working in a
business environment created by the policy inputs by the
government, and associations are the interface between the
firms and the government. In order to achieve global
competitiveness the three participants should have a common
agenda.
Seamless Global Integration:
The firms, government and associations are not
restricted to the geographical boundaries of the country and
the researcher proposes that the environment of the country
and the participants should have seamless integration with the
global economy in order to leverage knowledge and resources to
enrich the local environment.
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