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GIL 2010 : Automotive Track Opportunities in Automotive Engineering Services in India

By Mr. V G Ramakrishnan

1st September 2010

Senior Director, Automotive & Transportation Practice

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Agenda
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Opportunities in Automotive Engineering Services in India

1 2 3 4

Engineering Services Market in India An Overview

Challenges Faced by Engineering Service Providers

Key Issues to beto add TitleESPs and OEMs Click Addressed by

Future of Automotive engineering services in India?

India - Preferred Destination for Off shoring Engineering Research and Development Services?
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Companies no longer outsource for cost benefits - but to achieve flexible resource capacity, reduce time-to-market and to develop localized products for emerging markets - Nasscom

India - Preferred Destination for Off shoring Engineering Research and Development Services Reasons Supply base as the Innovation hub As the Indian supply base becomes more global and entrenches itself deeply within the customer value chain and plays an integral role in customer strategies, it is required to augment its existing capabilities to engage in end-to-end product development initiatives Large engineering base and high on intellectual capital High quality delivery and significant cost benefits Support from Indian Government - dedicated export zones (STPIs and SEZs) and an investor-friendly tax policy.

Engineering Research and Development Scenario An Overview (2010)

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$ 1.1 Trillion

Global Engineering Services Market

81.1% $ 890
Billion

18.9% $ 210
Billion

Global Automotive Engineering Services Market

Global Non-Automotive Engineering Services Market 99.76%

0.24% $ 0.5
Billion

Automotive Engineering Services Market in India 82.5%

$ 209.5
Billion

Rest of the World

17.5% $ 74.4
Million

Domestic Market

$ 348.6
Million

Export Market

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

Is India Underleveraged in Automotive Engineering Services?

Production Volumes of Light Vehicles in Global and Indian Market, 2010

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Engineering Services in Global and Indian Market, 2010

70.0 60.0
Million Units

62.2
Indian Market is 4.2% of the total global market

250.0 200.0 150.0 100.0 50.0 0.0

210.0

50.0 40.0 30.0 20.0 10.0 0.0 Global

USD Billion

Indian Market is 0.24% of the total global market

2.6

0.5 Global India

India

Where is the Gap?

How is this Vehicle Growth in India going to impact Indian Automotive Engineering Services Market?

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7-8% of global producti on

Why is Engineering Services Market not growing in line with the Vehicle and Auto Components Market? www.frost.com

Forecast of Auto Component Industry (India), 2010-2020

Auto Components Growth 18.2%

113.0 120.0 100.0

Auto component sector to see 4-fold growth by 2020

In USD Billion

80.0 60.0 40.0 20.0 0.0 2010 2020

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

25.0

Is Indian Engineering Services An Export dependent market? www.frost.com

Forecast of Indian Automotive Engineering Services Market (India), 2010-2015

Forecast of Indian Automotive Engineering Services Market Indian Business (India), 2010-2015

855.0 1000.0
100.0 75.0

93.9

USD Million

USD Million
2015

800.0 600.0 400.0 200.0 0.0 2010 423.0

80.0 60.0 40.0 20.0 0.0 2010 2015

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Where is All this going to culminate?

How is it going to benefit the Automotive Engineering Services?

Share of the Wallet of Engineering Services by Program Area

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HVAC / Thermal

8.2%

24.4%

Body In White

Chassis

11.4%

Product Systems

23.1%

Engine / Powertrain

Electrical & Electronics

16.3%

16.7%

Drivetrain & TRIM

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

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Automotive Engineering Services Industry Structure

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Subsidiaries Subsidiaries of Indian of Indian OEMs OEMs

Engineering Engineering Design Design Firms Firms

IT Services IT Services Firm Firm

MNC Engg MNC Engg Services Services Firm Firm AVL IAV Ricardo Magna FEV EDAG KPIT Cummins MIRA IDEA Pinninfina

VMs / Auto VMs / Auto Component Component Mfrs Mfrs GM tech Centre Daimler Tech Centre Delphi Bosch Visteon

Mahindra Engineering Tata Technologies Defiance Technologies Eicher Engineering

Companies Companies

Plexion Onward Technologies Neilsoft Cades Satyam Ventures

TCS Wipro Infosys Tata Elxi

Services Services

Simulation Services

Only virtual / simulation services provided

Only virtual / simulation services provided

End to end solutions MNC firms have support of their parent firms to give entire gamut of services

End to end solutions

Source: Frost & Sullivan

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Is Domestic Market, A Small Piece in the Larger Pie?

Is Cost Arbitrage the Only USP of Engineering Service Providers in India?

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Engineering Service Providers Engineering Service Providers

Challenges Faced by

Availability of Few Domestic Vehicle Manufacturers

Establishment of Captives by MNCs

Component Mfrs Taking Up Design & Development for OEMs

Modularization of Indian Supplier Base

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Availability of Few Domestic Vehicle Manufacturers

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Market Share outsourced engineering services by type of vehicle manufacturers (India), 2009

Passenger Vehicles 80.5%

80.5% of Outsourced Automotive Engineering Services in India is by Passenger Car Manufacturers

Market Share of Passenger Car Manufacturers (India), 2009

Tier-1 Companies Comercial Vehicles 6.3% Off Highway Vehicles 11.8% 1.4%

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

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Establishment of Captives by MNCs

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Outsourced Engineering Services Market by Nature of the Firm (India), 2009

Subsidiaries of Indian OEMs 27.3%

Engineering Design Firms 7.2%

30.0% of the Automotive Engineering business in India is captured by MNC Captives

MNC Captives 30.0%

International Firms 24.8%

IT Services Firms 10.7%

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

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Fundamental Issues to be Addressed by ESPs and OEMs

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Specific Reasons for OEMs to Outsource Engineering Activity

Engineering Service Providers Lacking Domain Expertise

Expansion of OEMs Impacting the Business of Service Providers

Need for OEMs to Outsource to Companies (ESPs) Outside India

Cost Arbitrage in India

Resulting in Ideal Opportunities for Engineering Service providers

Come, Let Us Work Together To Achieve Them Through This Exclusive Forum

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Sessions in this Event Aimed to Achieve Ideal Future Strategies www.frost.com

Five Things That Indian Off shoring Companies Need to Do to Retain Competitiveness

Inhouse / Captive competency of vehicle manufacturers - A threat to Engineering service providers

Role of Engineering services companies in helping the Indian OEMs go global (Round Table Discussion)

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Thank You

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