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GLOBAL OUTSOURCING OF THE

AUTOMOTIVE COMPONENTS

This case is about the Global Outsourcing of the Automotive components . In this case thegrowing market of auto components has been touched upon . Big big automotive Giants(OEMs) Like GM , Ford etc are now outsourcing the production of auto components whichare to be fitted in their vehicles or products because of the cheap labour and other resourcesand technological advancements available in global market . Company like GM has beenrepeatedly 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 worlds

biggest automarket imported components worth $69 billion last year . in this India shippedcomponents worth $177 million to US which is 0.26% of US imports . China Exports 10times more than India

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

Company Like GM in 1992 had rejected about 10 suppliers from India because some did notdeliver 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 over200 US suppliers are in trouble that is why in the last two years over a dozen of OEMs haveset up international purchase operations in India . For the first time , push from Indiansuppliers is being matched by a pull from global automakers.

Indian Auto Component Industry applies the cheap labour model like that of the IT industry .Indias $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 andThailand 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 belower than Indias .

Global OEMs are seeking Full Service Suppliers (FSS) . FSS are vendors who design ,develop , test , validate and manufacture components as for example the engine division ofInternational Trucks is the latest to setup and international purchase operation asInternational trucks engines power Ford trucks , but ford is demanding big price cuts . soforcing International Trucks to explore India because of low costs of production . AfterEvaluating around 30 Indian Suppliers for FSS consideration only 5 to 6 make the cut .

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Indian AutoComponent industry biggest weakness lies here . Indian Vendors dont haverequisite skills so the companies like DELPHI are setting up their own design and test centerand the manufacturing process if left for the Indian Suppliers as they dont have theinfrastructure.

The main reason of the incompetency of the Indian Auto Component industry is the missinglink in the industrys 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 andthey would manufacture it without going into much of detail. But with globalisation andeconomic slowdown global automakers have been passing on responsibilities of research ,design , testing , validation and integration to vendors . They now dont want mere or smallmanufacturers they want Full Service Provider which Indian Industry has not been able toadapt completely .