India emerges as auto outsourcing market

Pradeep Rane
09 June 2004

During FY04 Auto components exports are estimated at over $1bn up from $760mn in FY03. The Auto Components Manufacturers Association has set an annual export target of $5bn by FY10.

The cost advantage and pool of skilled engineers are attracting global auto and auto parts manufacturers to India.

For instance, auto parts giant, $10 billion Textron Inc and $7.2 billion Eaton sent outsourcing delegations to India to participate in Global Outsourcing Summit organised by ACMA during Auto Expo in Jan 2004.

Also global majors such as Electrolux, Caterpillar, Kautex, Textron and Eaton have planned to outsource auto components such as machined castings, water/oil pumps, heavy and simple fabrications, etc. This could be worth $1.3 billion by 2005.

It is learned that MTU Friedrichshafen, one of the worlds leading manufacturers of high-end diesel engines, is looking to India as a high potential source for auto-component supplies.

It is now clear that Indian auto compenent producers are getting special attention from global majors.

Some known names like Renault, Navistar and Detroit Diesel have also established their procurement offices in the country.

Bharat Forge is the leader in auto component segment.

The company has established a strong brand equity and boasts of hugely impressive client list. The process quality and capability to provide designed forged components at low cost, vis-à-vis its US / UK counterparts (30 per cent cost savings) will keep it in the prime league. Bharat Forge will continue to be a big beneficiary of outsourcing.

Among others, MICO due to its parents increased focus on outsourcing components from India will be a big player in the export market. Sundaram Fasteners will also benefit due to its long-term relationship with GM and its proposed venture in China.

According to anlaysts with B&K Securities, a host of Indian companies are committing themselves for huge jump in the global market. These include, Sona Koyo, Motherson Sumi, Amtek Auto, Rico Auto, Omax Auto, etc.

A large part of export from India is accounted for by the few MNCs that are setting shops in India.

"Recent momentum in auto components outsourcing space is encouraging. However, due to high entry barriers in the global market, outsourcing remains a long term story for the most," says
analaysts.

Also acquisitions will form part of the central growth strategy for large and globally competitive component manufacturing companies, both in India and in other markets. Bharat Forge, Amtek and Sundram Fasteners will be seen the most aggressive Indian companies in this space. Smaller players like Rico Auto are also considering acquisition opportunities domestically as
well as globally.

During the past quarter, Bharat Forge inked the deal to acquire assets of CDP - a German forging manufacturer.

With this acquisition, Bharat Forge is aimimg at targeting highly lucrative car market in EU countries.

Bharat Forge is also carrying out feasibility of setting up a plant in China.