Third International Conference On Globalisation & Competitiveness

Globalization and recipe for Competitiveness of Indian Auto Component Industry.

Dr Vasant Khisty

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)

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

Introduction Auto Industry/Auto component Industry

Evolution of Auto Industry

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 18th to grow to 14th Rank

Country wise share of global car manufacture.

W-Europe 30.6% E-Europe 5.1% Australia 0.7% Asia 24.8% India 1.29% latinAmerica 2.9% South Africa 0.4% USA 33.9% Slice 9

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

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.

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%

Percentage Component production Mix

8% 16% 32% Engine Parts Others Drive , Transmission,Steering Suspension braking 17% 20% Electrical

Engine Parts-Others- Drive , Transmission, Steering-32% 20% 17%

Suspension Braking -16%

Electrical 8 %

Auto component investment(U.S. $ million. as on 31st March 2001)

96 1315 97 1705 98 1813 99 1850 2000 2000 2001 2383 2002 2300 2003 2645 2004 3100

4000 3000 2000 1000 0 96 97 98 99 2000 2001 2002 2004

: Auto component production (Value In U.S. $ million.)

95-96 952588 96-97 963278 97-98 973000 98-99 983250 00-01 003804 01-02 014470 02-03 025430 03-04 036730

8000 6000 4000 2000 0 95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04

Auto component exports (U.S. $ mln.).

95-96 95267 96-97 96291 97-98 97330 98-99 98350 00-01 00387 01-02 01578 02-03 02760 03-04 031000

1200 1000 800 600 400 200 0 95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04

Figure-10: Automotive export Destination 2000.

Europe Asia Africa USA Others

Europe

Asia

Africa

USA

Others

36%

16%

13%

27%

8%

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.

MAIN FEATURES OF INDUSTRIAL GLOBALIZATION

a) The unprecedented increase in competition between firms in different markets b) Second feature of global competitiveness internationalization of production. is the

c) 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.

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.

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.

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 A. B. C. D. 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.

Responsibility Transition
Responsibilities Product Planning/Maketting
R&D Design ,Engineering &Testing Quality Pragramme management Supply chain management Manufacturing After Sales activity(Warranty) Environmental performance

OEMs

Suppliers

Strength Component Industry Cost Competitiveness

The Indian component Industry is on an average 20% to 30% cheaper than Japanese supplier despite lower productivity.
Cost is low despite the fact that the productivity is50%to 75%lower than International standard

Profit 5% Over heads and others 20% Depreciation 4% Labour 32%

Profit 10-12% Over heads and others 15-18%

Depreciation 5-8%

Labour 8to 10% Material and capital 30% Material and capital 55 to 60%

CONCERNS OF COMPONENT INDUSTRY Small Size by global standards

Financial standing of Auto component Manufacturers

17 firms sales >$40 M 400 firms in organised sector 75% of sales

155 firms Sales between 5 40 m$ 180firms sales<$5 m

5000firms in Unorganised sector 25%of sales Mostly to after market

Source ACMA annual report A.T.Kearney Analysis

Low Labour Productivity

400 350 300 250 200 150 100 50 0 India Indonesia Thailand Malaysia Korea Taiwan japan East

Poor Quality Of parts and Services

2500 2000 1500 1000 500 0 Global best quality companies Global low quality companies European average Japanese average Leading Indian Firms
Rejected parts per million (PPM).

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

Partners Responsible for Industry competitiveness

The Auto component manufacturer The Industry association The Government (policies)

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

GAP ANALYSIS AUTO COMPONENT MANUFACTURERS

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

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

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

Information systems-38%
Enterprise Information systems

Exploring future Business opportunities-40%

Business research Market research

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.

Recommendations for Industry Associations:

1. 2. 3. 4. 5. 6. 7. 8. 9.

Resource Sharing Lobbying with Government Technological improvements Educational Institutes (National Institute of Global Competitiveness) Develop volume based supply chain Leverage Knowledge Low cost virtual association Facilitate and manage focused growth of clusters Facilitate Infrastructural development

Evaluation Government Policies

Auto Policy-2002
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.

(ii)

(iii) Establish an international hub for manufacturing small, affordable passenger cars and a key center for manufacturing tractors and two-wheelers in the world (iv) Ensure a balanced transition to open trade at a minimal risk to the Indian economy and local industry. (v) Induce modernization of the industry and facilitate indigenous design, research and development. (vi) Steer India's software industry into automotive technology. (vii) Assist development of vehicles propelled by alternate energy sources (viii) Development of domestic safety and environmental standards at par with international standards.

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

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

Final Recommendations Auto Manufacturers F

Modules/ Systems

Tier 1

B B B A A A
A

B
Sub-assembly

Tier 2

A
Parts

Tier 3
F

Proposed Model for Global Competitiveness

+ve

L E A D E R S H I p

Environment

Industry Association- Facilitator facilitators

-ve Government Policies

Global Resource and Knowledge Integration

Education

Govt

Firms

Associations

R&D

Competitiveness comes through the ability to collaborate and network resources and competencies across the world

Ministry of Industry Finance , commerce, etc

Industry Stalwarts

Financial institutes

Task force

National Institute Of Competitiveness

R &D Univesities

Industry Associations

International Consultants/ Advisor

FIRMS

Representation

Support

In the current knowledge force Structure Task 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.

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
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