GLOBAL OUTSOURCING OF THE

AUTOMOTIVE COMPONENTS

This case is about the Global Outsourcing of the Automotive components . In this case the
growing market of auto components has been touched upon . Big big automotive Giants
(OEM’s) Like GM , Ford etc are now outsourcing the production of auto components which
are to be fitted in their vehicles or products because of the cheap labour and other resources
and technological advancements available in global market . Company like GM has been
repeatedly giving orders to Indian Auto components manufacturers like sundaram Fasterners ,
Rico Auto .

Auto Industry has seen a slowdown in the past but the auto component industry grew 38%
last year . Auto Parts Trade has amounted to $750 billion last year of which US. The world’s
biggest automarket imported components worth $69 billion last year . in this India shipped
components worth $177 million to US which is 0.26% of US imports . China Exports 10
times more than India

Indian Components Industry face many challenges and hurdles and has many weaknesses
which impede its process in becoming globally competitive . First of all , The Indian Industry
is fragmented . Of the 400-odd components manufacturers , only 30 have revenues higher
than Rs.150 crore . Two third of the industry players are smaller than Rs.50 Cr. Less than 15
companies have exports of over $10million .

Company Like GM in 1992 had rejected about 10 suppliers from India because some did not
deliver the order on time and there were quality issues and entire consignments were rejected.
The Industry was not prepared in terms of scales , skillset or mindset.

Because of the global economic slowdown and slowdown in the auto industry as well over
200 US suppliers are in trouble that is why in the last two years over a dozen of OEM’s have
set up international purchase operations in India . For the first time , push from Indian
suppliers is being matched by a pull from global automakers.

Indian Auto Component Industry applies the cheap labour model like that of the IT industry .
India’s $8 per hour wage rate for skilled labour is lower than the $20 per hour prevelant in
developed markets. Indian Industry faces major challenges and competition from China and
Thailand as China has larger economies of scale and in some areas , lower labour costs.
Thailand has excess Capacity and depreciated assets , their manufacturing costs could be
lower than India’s .

Global OEM’s are seeking Full Service Suppliers (FSS) . FSS are vendors who design ,
develop , test , validate and manufacture components as for example the engine division of
International Trucks is the latest to setup and international purchase operation as
International truck’s engines power Ford trucks , but ford is demanding big price cuts . so
forcing International Trucks to explore India because of low costs of production . After
Evaluating around 30 Indian Suppliers for FSS consideration only 5 to 6 make the cut .
Indian AutoComponent industry biggest weakness lies here . Indian Vendors don’t have
requisite skills so the companies like DELPHI are setting up their own design and test center
and the manufacturing process if left for the Indian Suppliers as they don’t have the
infrastructure.

The main reason of the incompetency of the Indian Auto Component industry is the missing
link in the industry’s offerings i.e; design , development , testing and validation capabilities .
The reason behind this is that the vendors had been working in a “Build to Print” mode-
domestic manufactures would give them the drawings and specifications for the parts and
they would manufacture it without going into much of detail. But with globalisation and
economic slowdown global automakers have been passing on responsibilities of research ,
design , testing , validation and integration to vendors . They now don’t want mere or small
manufacturers they want Full Service Provider which Indian Industry has not been able to
adapt completely .