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Just past the inflexion point

Despite ‘unfair’ competition from China, the Indian auto components industry is ready to take on all comers.

Kushan Mitra | Print Edition: March 9, 2008

One of the stranger sights at the recently concluded expo in New Delhi was the presence of a large number of Chinese component manufacturers. Given that the Automotive Component Manufacturers Association (ACMA) has been shouting from the rooftops about the threat from China, it was surprising that ACMA, one of the co-presenters of the show, allowed so many of them to display their wares.

But Sanjay Labroo, Managing Director, Asahi India Glass and President, ACMA, says: “I am all for globalisation; many Indian components companies are also venturing abroad. What we have a problem with is the ‘dumping’ of components into the Indian market.” L. Ganesh, Vice Chairman, Rane Group, puts these concerns in perspective. “The Indian automobile industry is increasing its imports of components from China even as Chinese manufacturers are targeting our export markets with lower prices on the back of a controlled currency,” he says.

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To be fair, while imports of components have grown substantially over the past few years, the components industry, too, has grown quite dramatically. According to ACMA data, the industry, which has clocked a CAGR of 19.4 per cent over the last five years, will close 2007-08 with revenues of Rs 74,200 crore. And it is investing Rs 28,800 crore during the current year on refurbishing old facilities and establishing new ones. The target: Rs 100,000 crore in revenues by 2010.

The launch of the Tata Nano has given the industry a massive fillip because of the close integration of several component vendors with the project. “We have been working with Tata Motors for over three years on this vehicle. I believe over one million Nanos can be sold annually by 2010-11. Imagine the boost that will give the components industry,” says Surinder Kapur, MD, Sona Group. Sona is one of several components vendors that have set up shop close to the Tata Motors plant at Singur, West Bengal.

The Nano project has also bolstered the confidence of Indian manufacturers in other ways. “The entire world wants to make small, cheap cars now. So, they will have to come to vendors who have the skills in designing and building quality components at a low cost—in other words, vendors like us,” says D.K. Jain, Executive Director, Lumax Industries, which designed the headlights and the tail-lights for Nano.

Meanwhile, Argentum Motors, promoted by Ajay Singh, Director, SpiceJet, B.V.R. Subbu, former President, Hyundai Motor India, and Ashish Deora, Founder, IndiaOnline, is introducing a new model that may, if successful, change the way the Indian components industry will work. “India has better intellectual property protection than China, India has better skills than China, but India does not have the manufacturing scale,” says Subbu. Argentum plans to set up complete sub-assembly manufacturing facilities in India, at Daewoo Motors’ now-defunct factory in Surajpur, from where entire car sub-systems will be shipped to Europe for assembly. “Look at what Hyundai, Suzuki, Nissan and Renault are doing. They are all manufacturing their small cars in India and sending them to Europe, and this is what makes them price competitive,” he says, adding that Argentum can offer manufacturers ready capacity and experience.

So, despite the wariness about China—imports from that country will touch Rs 10,000 crore, or 10 per cent of total components sales in India in two years—there is a consensus that the domestic industry has crossed the inflexion point—both in R&D and in manufacturing—and will be able to withstand competition from all comers, including the Chinese.

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