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There is a new buzz in Indian manufacturing. Now, automobile exports growth races past that of auto components
RAVI KRISHNAN Posted online: Saturday, March 19, 2005 at 0000 hours IST
Send Feedback E-mail this story Print this story First, it was Maruti Suzuki. Then, Hyundai joined the group. Now, a host of automobile players including multinationals like Ford and Skoda have started heavily exporting from India. And what more testimonial do you need than the fact pbuttenger vehicle manufacturers are ramping up capacity by 44% in the next two years.
Made in India auto exports rising is not news. But what is however new is the little known fact that vehicle export growth is higher than that of components. The compounded annual growth rate (CAGR) for vehicle exports over the past 4 financial years is 44% while that of component exports is 30%.
Auto exports are slated to grow at a CAGR of 35-40%, while component growth is projected at 25-30%. Investments are pouring in with an estimated Rs 10,000 crore lined up between 2003-04 to 2006-07 to upgrade existing facilities and increase capacity, even as other players like BMW and Renault are looking at India as a production hub. Why, even Hindustan Motor is planning to launch new versions of the Amby, which is exported to Wales and Japan and sold as a clbuttic car!
Motorcycles diary
For Bajaj Auto, imitation is not the best form of flattery. The company is considering legal action against certain Chinese companies who are copying the design of its bestselling Pulsar and three-wheeler models.
No doubt, it is a serious issue and a case of concern for India Inc, but at the same time it highlights India's rise to the top of the world motorcycle market. While the Chinese may be able to sell at dirt cheap prices of $300 (Bajaj's lowest cost model is at $600), when it comes to the cost-quality equation, desi champions Hero Honda, Bajaj and TVS are hard to beat. "The Chinese cater to a market where no one expects to keep a bike for more than three years. Here, we produce bikes which have a longer life. Quality comes at a cost and that's where we have an advantage," said Atul Sobti, executive director at Hero Honda.
Two-wheeler exports have risen 30% for April-Feb 2004-05 at 3.19 lakh vehicles. Of this, motorcycles accounted for a lion's share at 2.4 lakh units. With Japan becoming a declining force in the two-wheeler space, analysts expect an India versus China slugfest in the years to come.As on date, these two together account for around 50% of global volumes of 33 million units.
''We are getting into Philippines. We hope to expand into Asean and Latin America" - Rahul Bajaj Chairman, Bajaj Auto It is interesting to note the global footprints of Indian manufacturers. Once restricted to neighbours like Sri Lanka and Bangladesh or at most South Asia, now exports take place to destinations across the world. According to government data, car exports take place to 80 plus countries.
Made in India Hyundai vehicles' main markets are Europe (54%), Latin America (27%) and Africa (17%). Similarly, two-wheelers were exported to about 115 countries from Nigeria to Philippines to Italy. This is only expected to increase as the two-wheeler industry targets new markets such as Thailand, Indonesia and Vietnam besides a few South American nations. "We are getting into Philippines through the Kawasaki network. We hope to expand our foot print further into Asean and Latin America," said Rahul Bajaj, chairman, Bajaj Auto Ltd.
Components of success
When OEMs are doing so well, can components be lagging far behind. As noted above, the component industry is growing at a CAGR of 41%. Indian auto ancillary firms are riding the outsourcing wave.
Not a week pbuttes by without some news on auto ancillaries entering new markets or upping investments. As recent as Thursday, global leader Robert Bosch announced that it is shifting the production of several products from countries like Brazil, UK and the Czech Republic to India, reaffirming its status as a low cost producer of quality goods.
According to a 2004 AT Kearney survey of US automotive industry players, while for majority (36%), outsourcing is primarily to cut costs, 17% chose these destinations to support customers' global footprint and 14% saw it as a route to develop capacity. India was also voted as the most preffered destination for offshore engineering and technical jobs.
Spanner in the works
''If the current imbalances do not disappear, projected growth may not happen" - Deep Kapuria Chairman, ACMA While exports are on a roll, there are certain bumps on the way forward. Like the free trade agreement (FTA) with Thailand for instance. Early figures show that the Thais have racked up a 400:1 trade surplus on FTA items with India. This coupled with the 50% excess capacity in the Thai OEM sector doesn't augur well for India.
"The recent figures are only the tip of an iceberg. If the current imbalances in infrastructure and taxes do not disappear, the projected growth may not happen, "said Deep Kapuria, chairman of Automobile Component Manufacturers of India.
Certain industry players also felt that India still has a long way to go to become a global force, mainly due to lack of scale economies. The Chinese market, for instance, is around 4 times that of India.
This is precisely the same problem plaguing the components sector too. Apart from a couple of players like Bharat Forge and Sona Koyo, there hardly exists anyone who can fulfil huge global orders. In this highly disaggregated industry, very few players can position themselves as global Tier I vendors. However, with the Asia-Pacific slated to account for half the increase in world car output by 2011, the predictions of 35-40% CAGR in exports may hold true for some time to come.
