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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
2000 BMW breaks away from Rover group. true automobile. built by Richard Trevithick in the U. 1984 Karl Benz builds worlds two seater Tricyle powered by Four-stroke petroleum engine. Daimler Chrysler. Volvo. and Ford buys Land Rover. 1961 Jaguar car s produces first 150 mph car. Renault. 1801World s First Passenger –carrying vehicle. Telco currently 18th to grow to 14th Rank . 1994 BMW of Germany acquires Rovers group in worlds largest Industrial merger . a steam lorry designed by Nicole -Joseph Cugnot. 1872 Sales of VW Beatle reach 15 million. and Visteon. Future Prediction. 1902 Ford Motor Company formed 1908 Ford pioneers first moving assembly line with Model T ford. Delphi.Evolution of Auto Industry 1769 First. 2002 Major restructuring launched by Big three US carmakers. 1998 Diamler Benz Acquires Chrysler Corporation. 1938 Volks wagon Beetle enters production.K. 1958 Mini small car launched in Britain. 2001 Profit warnings at Ford. Fiat. GM acquires 20% of Fiat. 1986 Toyota of Japan overtakes VW. Disintegration and Emergence of Asian Companies . 1925 Mercedes and Benz companies merge.
9% Slice 9 .9% South Africa 0.7% Asia 24.1% Australia 0. W-Europe 30.6% E-Europe 5.29% latinAmerica 2.8% India 1.4% USA 33.Country wise share of global car manufacture.
Slow down in Auto Industry 1975.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. . 1991-95-Gulf war and recession 1993-Auto Industry liberalised. import of capital goods and components permitted -Japanese JV in LCV and two wheeler.000 crores. new JVs in component Industry • The auto industry employs six lakh families. 25.000 crores. license abolished. 25.26 new Automobile firm registered 1980-Growth in Industry. • Revenue generation for government is over Rs.000 crores) • The further investment planned during 1996 to 2003 is 15. • There are several auto manufacturers with a combined turnover of Rs.
000 Crs Rs •Foreign Collaboration-322 Japan-92 Germany-55 USA-38 UK-35 •Investments around 7000 Million US$ •Employment –250. •Global Share-2% .000 Direct.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.
Steering Suspension braking 17% 20% Electrical Engine Parts-Others.Percentage Component production Mix 8% 16% 32% Engine Parts Others Drive . Steering-32% 20% 17% Suspension Braking -16% Electrical 8 % .Drive . Transmission. Transmission.
$ million.S. 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 investment(U.
S.: Auto component production (Value In U. $ 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 .
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 .Auto component exports (U.). $ mln.S.
Figure-10: Automotive export Destination 2000. Europe Asia Africa USA Others Europe Asia Africa USA Others 36% 16% 13% 27% 8% .
or integration. involving the increasing interaction. of national economic systems through the growth in international trade. . investment and capital flows.GLOBALISATION Globalisation is an economic phenomenon.
d) A fourth feature is the growing interdependence between the various levels of globalisation. trade. . transfers of technology and capital transfers. is the c) A third feature has to do with the pattern of international trade. namely direct investment.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.
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. E.5 billion by 2010 •Experts feel it would grow to 25 billion $ by 2010. Indica •15 car makers have out sourcing office in India •Combined budget 1. .g Scorpio.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.
.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.
B.Auto component Industry-Globalization and Challenges •Turnover worldwide is concentrated with few firms. •OEMS are moving towards modular manufacturing •The Component Industry will be dominated by Mega suppliers having four characteristics A. 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. D. •As the Original Equipment Manufacturers (OEMS) move production to match markets. they are taking their key suppliers with them. . C. The top thirty global firms account for over fifty per cent of component industry. 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. They will have entire Global coverage( Delphi .
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 .
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% .Strength Component Industry •Cost Competitiveness The Indian component Industry is on an average 20% to 30% cheaper than Japanese supplier despite lower productivity.
T.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.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 . Industries. Countries which are Competitive can only Survive and flourish in the Globalised Economy. Organisations. Associations .
GAP ANALYSIS AUTO COMPONENT MANUFACTURERS .
Rating:27% •Involvement of customers in product development •Poor capability assessment of new inquiries •Virtual prototyping for process and product design .Findings And Recommendations Business Strategy -Rating :65% •Strategic alliance / Joint Ventures •Cutting edge strategy •Allocation of corporate capital fairly Product development.
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. which represents the auto component manufacturers in India. . as The auto component manufacturers association is the association. •Society of Indian Automobile Manufacturers ‘SIAM’ represents the Indian automobile manufacturers. •ACMA spelt.
Recommendations for Industry Associations: 1. 8. 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 . 3. 7. 4. 2. 9. 6. 5.
Evaluation –Government Policies .
(v) Induce modernization of the industry and facilitate indigenous design. 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. (vii) Assist development of vehicles propelled by alternate energy sources (viii) Development of domestic safety and environmental standards at par with international standards. .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. research and development. (ii) (iii) Establish an international hub for manufacturing small. Promote a globally competitive automotive industry and emerge as a global source for auto components. (vi) Steer India's software industry into automotive technology.
Neglected Tierisation process 7. No focus on Global opportunities 8. No incentive for foreign Investors 6.China announced Auto policy in 1994 where as India in 2002 2. More focus on small cars neglecting other segments 5. More stress on analysis of current status and less emphasis on new measures 3.Findings 1. Policy not focusing on Auto components . Policy Lacks objectiveness and transparency 4.
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 D E Tier 1 B B B A A A A B Sub-assembly Tier 2 A Parts Tier 3 F B C D E .
Proposed Model for Global Competitiveness +ve L E A D E R S H I p Environment F I R M S 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 .
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.Ministry of Industry Finance . .
associations and the firms manufacturing auto components.Summary •There needs to be a serious and an integrated approach from the government. The task force should develop a blue print for all the three participants and monitor their progress. a very encouraging future is anticipated for the firms with proactive leadership. 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. advice and control. • At firm. • In order to chanelise the efforts a task force is needed. which will provide service . •Formalise Ministry for Global competitiveness and develop National Institute of Global competitiveness. Overall. 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. .
and this repeatedly leads to its own eclipse” --Mervin Gordon .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.
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