Interview with K.Mahesh, Apr'2000
K Mahesh, chairman and managing director, Sundaram Brake Linings and past president, Automotive Component Manufacturers' Association (ACMA) spoke to the autopartsasia.com correspondent on the highlights of the Indian auto component industry its trajectory and travails; how it can step into world markets.
Q: How does the Indian autoparts industry compare with the other Asian counterparts like the Japanese and the Koreans?
A: Its hard to compare them on an equal footing on account of the manner in which they evolved.
The auto component industry which had its beginning in Japan in the 1950s was protected for a good 40 years; however, it was nurtured by its mother industry which made great headway in technology and supplied vehicles for the global market.
The Korean market even today doesn’t have a very liberal policy that supports imports. There are non-tariff barriers that control free import of automotive components into Korea.
In India, despite the fact that we were early entrants in the automotive industry, the vehicle industry, be it trucks or cars, did not constantly come out with any new models. As a result of this, the autopart makers had no challenge to upgrade technology.
Q: Briefly outline the evolution of the Indian autopart industry.
A: Although India was an early entrant in the automotive market, component makers faced a drastic change only from 1984 when the entry of Maruti Suzuki brought about newer models. With it, came new technology and bigger volumes.
Yet, for about 15-16 years thereafter, there wasn't much headway as Maruti was only concentrating on the 800cc vehicle. Barring small volume production of Zen and the Esteem, there was not much dynamism in the automotive scenario that could egg on suppliers.
Then, came the multinationals like General Motors, Ford, Fiat, Daewoo and others; some have had their vendors like Delphi and Visteon following them
Now the challenge is to see how much share of the business they would take away from the Indian auto component market- remember that Delphi alone is a $36 billion company whereas the total auto component industry size in India is about $3 billion. So, we are not really talking about equals in any sense of the word.
As the industry evolves, it is likely that the Tier I suppliers will be the Delphis and the Visteons who have worked with their own manufacturers in other countries as well. So, Indian auto component makers may eventually become Tier II and Tier III suppliers.
Q: Has the entry of automobile MNCs led to changes in Indian auto component industry?
A: Definitely. Companies like Hyundai and Ford which have localized procurement of parts to a large extent, have helped Indian auto part industry to upgrade technology either internally or tie-up with their suppliers overseas. This ensures the supplier quality they want.
But, I don't think they are very happy with the quality of suppliers here because several parameters need to be addressed still. Tier I suppliers should maintain returns rate of 5 and 50 parts per million (ppm) and Tier II around 200 ppm. Of course, many companies are now trying to adapt to this.
The only area of concern is the MNC auto companies commitment to localization. For instance, I'm not sure whether Honda has policy for localization; lot of claims in terms of percentage are there but these are sometimes mere numbers. For instance, if a component maker imports a sub-assembly and supplies it here, it is localized from the vehicle manufacturers point. But truly speaking, the component itself is not localized; customers will be paying for spares in dollar terms
Q: Does the Indian industry need to improve further? In what way?
A: The Indian industry has been asked to swim against the tide in a very short of span. Unlike China or Korea or Malaysia; there are around nine to ten car manufacturers which don't give any volumes to their component manufacturers. Here, the auto-policy changes from time to time; the local content policy will go away by 2003.
Sure, the Indian component industry needs to improve in terms of reliability of supply, quality of supply and timeliness of supply. I understand Toyota is able to get four supplies a day from vendors in Bangalore and daily supplies from rest of vendors in India, But this will be the trend and we need to step up towards hourly supplies.
Also, customer returns will have to reduce to 50-100 ppm level, rather than expressing the same in percentage terms as some manufacturers in India are doing at present.
On the other hand, the ability to innovate will take a long time and this is why many Indian part makers will not make it to Tier I supplier position. In terms of cost, the vehicle manufacturers world over except component manufacturers to drop prices every year by two to three per cent and this is going to be a Herculean task bearing in mind our inflation rate of five per cent. This means that the labor productivity, space productivity, capital and raw material productivity will have to more than offset the inflation rate so that the prices can be held for three to four years.
Q: Is financial muscle a problem for auto component companies in India, that hinders progress?
A: Well, not really; it may be true for some companies in the hi-tech sectors. In most cases, like pistons, valves and brake linings, the ability of the company to compete domestically and internationally is important. Price competition in these segments will lead to a shake-out in the industry and only the fittest will survive.
Q: Are Indian auto-component manufacturers worthy of being placed in the global map? How should they take steps to achieve this?
Very few companies in India are in a position to compete in the world market. By mind set, most company heads didn't want to compete in the world market because it was a lot of hassle. Second, lot of upfront investments need to be done to promote exports; about three to four per cent of sales on research and development and, one to two per cent in market promotion, travel and sales.
No doubt, this is the need of the hour. If they don’t get on the world map, they will not build up volumes to compete with MNCs like Delphis and Visteons. Unfortunately, export has been neither the thrust nor the strength of the auto-component industry and they have to take a re-look at it.
Q.Which are the areas where Indian companies can compete effectively in global markets?
Indian component companies are competitive in the commodity range of products like fasteners, valves, brake linings, some chassis parts,
There's no point trying to compete in fuel injection equipment and catalytic converters since these are high technology equipment where you have to work with the vehicle manufacturers and they have their own vested interests.
Of course, the segment you are in depends on the products you make. For example, radiator caps made by Sundram Fasteners Limited, has to be OE supplies as these are seldom replaced during the life of the vehicle. On the other hand, items like brake linings which are wearing out components which will be replaced several times over within the life of the vehicle, has a strong after-market demand.
Of course, companies might face the catch-22 situation while aspiring to become OE suppliers, as OE supplies needs support of warehousing for complying to the JIT demands of vehicle manufacturers. So, new aspirants to global markets could take the first step ahead by focusing on the after-markets.