A STUDY ON INTERNATIONAL TRADE OF AUTOMOBILE SPARE

PARTS

Submitted in partial fulfillment of the requirements for

Post Graduate Diploma in Management (PGDM)

2013-15

SUBMITTED BY

PARAS PAREKH

PGDM Roll No. (PG-13-30)

PROJECT GUIDE

PROF. CHIRAG SHAH

IES Management College and Research Centre

Mumbai

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I hereby declare that this report, submitted in partial fulfillment of the requirement of the award for the

Post Graduate Diploma in Management ( PGDM), to IES Management College and Research Centre is

my original work and is not used anywhere for award of any degree or diploma or fellowship or for

similar titles or prizes.

I further certify that I have no objection and grant the rights to IES Management College and Research

Centre to publish any chapter/ project if they deem fit the journal/ magazine and newspaper etc.

Place: Mumbai Signature

Date: Name:- Paras Parekh

PG-13-30

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________________________________________________________________has been submitted by

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towards partial fulfillment of the requirements of the PGDM / PGDM (HCPM) course 2013 - 2015 and

has been carried out by him / her under the guidance of Mr./Ms.________________________ at the IES

Management College and Research Centre.

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EXECUTIVE SUMMARY

The Indian automobile market is estimated to become the third largest in the world by 2016 and will

account for more than 5 per cent of the global vehicle sales; India is expected to become the fourth largest

automobiles producer globally by 2020 after China, US and Japan. Turnover of the Indian auto

component sector stood at USD40.6 billion in FY2012–13; the industry is expected to reach USD 115

billion by FY2020–21. During 2011–12, the indigenization level of domestic players was around 95 per

cent and foreign OEMs 65–70 per cent; indigenization of foreign OEMs is expected to reach around 80

per cent by 2014.

OBJECTIVE

The objective of the project is to identify the sector specific opportunities for Indian economy in Africa

and China based on global trade of respective countries, overall economic relationship between India and

Africa especially in bilateral trade and investment. The paper aims to analyze the dynamics of the

potential sectors in Africa selecting some of the emerging markets and scrutinizing whether the export

growth is due to rising demand, diversification of product basket or due to competitiveness. It will also

explain the nature of barriers in those sectors and what could be a policy drive for Indian government to

have a better market access. The project gives impetus to necessary strategic policy recommendations and

potential interventions for the identified sector.

ABBREVIATIONS

ICRA -

OEM - Original Equipment Manufacturers

PVs - passenger vehicles

CVs - commercial vehicles

M&HCV - Medium and Heavy Commercial Vehicle

CAAM - The China Association of Automobile Manufacturers

CMS – constant market share

FTA – free trade agreement

LITERATURE REVIEWS

Literatures reviewed for this project are:-

Global auto trade magazines.

Various automobile news reports from news paper.

Zig zag auto components magazine and there need is vehicles.

ICRA`s report on automobile spare parts.

Various other reports and research papers on this industry.

Research papers on overseas automobile industry.

Overview

The Indian auto components industry has experienced healthy sequential growth over the last one-and-a-

half years, following a period of de-growth in 2008-09. The recovery could be attributed to factors such

as strong buoyancy in the end-user industry; recovery of the global economy; improved consumer

sentiment and return of adequate liquidity in the financial system. The revival of the auto industry was

initially driven by the fiscal stimulus programme of the government.

Nevertheless, the fact that the growth momentum has sustained even after withdrawal of such incentives

in February 2010 highlights the strength of the underlying domestic demand. ICRA expects the trend of

automobile sales volume growth, and in turn the auto ancillary business growth to hold over the short-to-

medium term aided by strong underlying domestic demand across all automobile segments [comprising

two-wheelers (2W), three-wheelers (3W), passenger vehicles (PVs) and commercial vehicles (CVs)],

thrust on low-cost sourcing by Original Equipment Manufacturers (OEMs) and Tier-1 players based from

developed markets, aggressive supply side push from automotive Original Equipment Manufacturers

(OEMs) in the form of new model launches and expected continuation of facilitators like easy access to

vehicle financing, notwithstanding possible challenges related to pressures on commodity prices, interest

rate hardening and fuel price deregulation. While almost all segments of the automobile industry have

posted a steady growth over the last 18 months, the recovery in the Medium and Heavy Commercial

Vehicle (M&HCV) segment has been the slowest to gather momentum.

The segment had also experienced the sharpest volume decline in 2008-09, which had translated into

significantly lower off-take and losses for suppliers of M&HCV components - and had contributed to

around 40% of rating downgrades in the universe of auto and auto component manufacturers downgraded

by ICRA in 2008-09 and 2009-101.

However, with domestic economic activity having gained traction, ICRA expects the M&HCV segment

volumes over the near term to surpass the levels achieved in the predownturn period, which should result

in improvement in the credit profiles of auto component suppliers dependent on this segment.

On the whole, ICRA believes the Indian auto components industry is poised to sustain its revenue growth

momentum over the short-to-medium term. However, the industry profitability may face pressures due to

(a) pricing pressures from OEMs, which in turn are entering into a phase of heightened competitive

intensity constraining their pricing power;

(b) threat of rising commodity prices;

(c) likely higher cost of funds consequent to hardening of interest rates; and

(d) import from other low-cost locations.

In addition, companies engaged in select product categories within the auto components industry are

expected to incur large capex for enhancing production capacities to meet the growing demand, which

could affect the capital structure and return metrics of such companies over the short term.

However, in ICRA’s view, the anticipated strong business growth should result in healthy cash accruals

and enable such companies to tide over the short term pressures and emerge with a stronger credit profile

over the medium term.

Other risks to growth and profitability of the Indian auto components industry include increase in

competition from other countries to capture business opportunities both in the international as well as

domestic markets; uncertainty arising from currency volatility; and ability to acquire capabilities in tune

with technological advancements. The industry efforts to mitigate the above risks along with policy

measures of the government would determine the impact of the above risks on the auto components

industry going forward.

Introduction

Africa is now considered as a continent poised for economic growth, the reasons of which lies deep

rooted in economic, resource and operational factors. Africa today is the 3rd fastest growing economic

region in the world. The rate of urbanization is higher than India and lower than China. It is the continent

which comprises of some of the world fastest growing economies. According to World Bank data, Africa

is richer than India on the basis of GNI, and a dozen African countries have a higher GNI per capita than

China. Africa offers among the world’s best investment prospects. Also a shift of global economic power

to emerging giants benefits Africa. Large economies such as China and India are seeking resources from

Africa thus pushing up commodity prices internationally and providing investment opportunities in

African countries. While barriers to entry in Africa are high, companies that develop strong distribution

networks and acquire deep understanding of market forces can generate high margins. Sectors that offer

investment opportunities include oil and gas, telecom, infrastructure and information technology. Two

years ago Bharti Airtel acquired African assets of Kuwaiti Telecom firm Zain for US $10.7billion.

1. Companies that have evaluated market opportunity and understood consumer base are enjoying

remarkable growth rates ranging from 30 to 60 percent year on year. As far as trade is concerned,

Recently India has overtaken the US to become Nigeria’s largest export market. Nigeria’s exports to India

are mostly crude oil and cashew nuts while India exports pharmaceuticals, machinery, electronics, and

rice.

2. Also Trade between Africa and the rest of the globe increased by 200 per cent between 2000 and 2011.

Apart from the usual exports of oil, natural gas and minerals, the sale of African-manufactured goods is

also increasing. Over the past ten years, African manufactured output has doubled.

Some of the fastest-growing economies in the world are now in Africa. The charts below shows the top

12 fastest growing economies in the year 2011 and it is evident from this table that many amongst them

are African economies. Ghana, Liberia, Angola, Ethiopia Mozambique are growing faster than many

Asian economies. In next few years some more African countries such as Niger, Zambia, Uganda, and

Tanzania are expected to join the league.

China became the world’s largest automobile producer and market in 2009 with annual sales of nearly 14

million vehicles. The market continues to expand in 2010. In the first nine months of 2010, automobile

production reached 13.08 million units, a 36.1 percent increase from a year ago. The China Association of

Automobile Manufacturers (CAAM) raised its forecast for annual sales to reach a record 17 million this

year, matching the highest annual total ever reached in the United States.

Industry growth has been primarily driven by rising domestic demand stemming from rising incomes, a

growing middle class, and by supportive industry policies from the Chinese government.

The Chinese automotive industry remains very fragmented. In addition, Chinese central government

officials fear that unchecked expansion of China's auto industry encouraged by local authorities could

harm the wider economy, and that excess capacity must be stopped. Hence, the central government

continues to push for mergers and acquisitions (M&A) in the automotive industry which will support the

emergence of a few leading national companies.

China’s weak R&D, domestic innovation and design capabilities are key challenges to its international

competitiveness. With the government’s encouragement, domestic firms have opted for strategic

partnerships with foreign players, aiming to facilitate technology transfer and improve domestic design

and engineering capabilities.

The Chinese government has implemented a number of tax adjustments and subsidies for automobile

purchases to encourage hybrid electric vehicles, pure electric vehicles and traditional vehicles of small

engine displacement.

Beijing has gradually introduced higher automobile emission standards for new vehicles. Plans to

develop hybrid electric and pure electric vehicle production capabilities are part of a broader,

environmentally friendly strategy to develop the auto industry.

Market opportunities exist especially in the following areas:

Developing domestic innovation capabilities (e.g. vehicle design and engineering, hybrid electric

and pure electric engines, electric motors and electric controls)

Productivity and quality upgrade (e.g. engines, transmissions, electronic control systems and

safety systems)

Mergers and acquisitions (both in China and in Israel)

Clean transportation technologies

Advanced manufacturing technologies

Supply of essential automotive components/systems to OEMs (e.g. electronic control systems and

safety systems)

China’s automotive market has the most growth potential in the world; per capita car ownership is still

remarkably low at 4.78% and is expected to grow significantly.

Domestic whole-vehicle manufacturers and automotive suppliers are still extremely

fragmented (government-supported consolidation is imminent in the near future); challenges

remain for domestic R&D and design.

With government subsidies and tax incentives, China is aiming to establish an early footing in

the production of low-emission and environmentally friendly automobiles.

Component imports surged by 130% in the first half of 2010; 60% of imported components

were drivetrains, engines or automotive body components.

On the basis of these two variables African countries have been placed and ranked in two dimensional

scatter diagrams. The diagram is then divided into four quadrants based on the 'average of country data'.

Hence the vertical line represents the average of country specific export values calculated from the export

values of all selected countries.

Similarly, the horizontal line depicts the average growth of India's exports to all African countries. Thus,

the scatter diagram is divided into four quadrants. The quadrant one represents a situation of high growth

and high export value. These markets capture significant opportunity and they are matured. Second

quadrant stands for high growth but low export value thereby govt. of India must identify them as

potential markets and provide incentives for export growth. Third quadrant consists of low growth and

low export value. These markets don't attract value to Indian products. Fourth high export value yet low

growth or a decelerating saturated market. We need to maintain the market share there. So, competitive

strategy like investment on brands, promotional activities are necessary. Some of such markets may be

small in size and we need to keep this in mind while selecting such countries.

At the second stage, the paper concentrates on the dynamics of export growth of selected products in

short listed countries through the above procedure. For this purpose Constant Market Share (CMS) model

has been picked up. CMS analysis is a popular tool for analyzing changes in exports of a country. The

intrinsic norm of this analysis is a country's export share in a given market should remain unchanged over

time. However, in reality trade is dynamic and market share keeps on changing.

India-Africa Economic Relationship: Gaining Momentum

India’s trade with Africa has doubled in the past four years, from $24.98 billion in 2006– 07 to $52.81

billion in 2010–117. This steady upward path on the trade front is being supported by stronger investment

ties, with Indian companies in Africa totaling $1.52 billion in 2009–10. With the leadership on both sides

committed to providing a businessfriendly environment, bilateral ties are expected to continuously grow

in scope and significance.

On India’s side, economic growth is inevitably pushing the country to expand its footprint across Africa,

including sourcing raw materials and energy to sustain industrial activities at home as well as securing

new markets and consumers abroad for its expanding array of manufactured goods and value-added

services. And on the African side, high commodity prices and robust external demand have provided

more space for national governments to consolidate gains from improved macroeconomic management at

home. This has enabled greater private capital flows, faster debt relief, and allocating greater resources to

enhancing non fuel exports. The political and economic developments have substantially improved

business opportunities for the international community and consequently, both trade and investment in

Africa indicate a growing trend.

Africa today represents one of the largest untapped potential for investment as it is one of the richest

natural resource regions in the world. Further, Africa has a middle class that is larger than India’s,

estimated at 350–500 million, with a rising per capita income and greater propensity to trade and to

invest. The continent is today the third-fastest growing economic region in the world and its rate of

urbanization is higher than India’s.

Automobiles & its components:

With a growing population and improved economies in most African countries, demand and investment

in the automobile industry is improving. The sector could but it lacks the necessary technology to fully

exploit its potential. Among African

economies, South African auto manufacturers have shown great success and it is

expected that some other markets can also be tapped for production and then to gain access to other

African countries. To nurture the sector, Africa will need to have policies that promote the development

of technology and skilled manpower, and meaningful investment in research and development.

As a growing industry, the prospect in automobiles sector looks bright and provides attractive

opportunities for investors. In many African markets, imported vehicles from emerging economies such

as China, India are fast replacing the second hand Japanese made car market. Component industries are

also growing at a fast pace. Because of the strong growth in middle class income group people and that of

premium group segment, overall demand of automobiles, be that a car or a bike attained great heights. It

has been speculated that Africa sells nearly 2.5 million bikes every year and that is the reason Indian

firms are interested in African markets to a great extent.

There is huge potential in these markets for automobiles and automotive parts business. African market

offers the same opportunities for untapped growth that were available in China before it grew to its

current status as the world’s largest car market, and this is perhaps what attracts Chinese brands to the

region. India is one of the emerging nations which both have both huge production capacity and internal

market. It is one of the fast moving developing nations which are considered as upcoming hub of

production of automobiles and auto spare parts.

Changes in the design of models and use of technology have made Indian automobile industry compete in

the global market. This sector has been growing exponentially over the last 5-7 years. Despite the down

turn, the Indian automotive industry has been amongst the first few manufacturing sectors to recover.

With the opening up of the sector, FDI is pouring in. Many foreign automobile giants also outsource

critical components from India. During 2009, India exported vehicles to more than 40 countries.

The new challenge in front of the industry is to manage the growth and develop a strategic foresight

looking into evolving competitive paradigm of the industry globally. Considering its strength Indian

industry can excel through product diversification, technology absorption and modification and exploring

export opportunities in countries such as in Africa.

Fast growth is visible in all segments in last few years. Major export markets for Indian automobiles in

the African region are Nigeria, Egypt, Tanzania, Kenya and Sudan. In 2011-12, Maruti Suzuki India

Limited shipped 17,247 cars to this North African country of Algeria, making it the Indian company's

largest export market14.

In terms of value in 2008, India’s export to Africa was slightly less than US$ 1 billion but in 2011, the

figure reached hopping US$2.45 billion. As mentioned earlier, along with traditional African markets

several new markets experienced high import growth from India.

Indian companies existence in Africa:

a) Tata Motors entered South African market in 2004 to open two production facilities to make

small cars but its original intention was to take advantage of European Union’s Free Trade

Agreement (FTA). Tata motors would use this to assemble and export its cars to European

markets as its competitors like Toyota, Volkswagen and Ford were already doing. With the

growing demand of cars within the country itself, the company targeted both local and

international market. The distribution and marketing of Tata cars in South Africa was handled by

Accordian Investments Ltd., Joint Ventures between the Imperial Group, Ukhamba Holdings

(Pty) Ltd. and Tata Africa.

b) Mahindra and Mahindra entered the African market as Mahindra SA into JV with Renault on the

terms that it will be the first right hand driver automobile manufacturer of its low cost Logan car.

c) Maruti Suzuki Udyog Limited (MUL) took the advantage of right hand drivers in South African

markets to start its business in African subcontinent and is setting up its plant there. Maruti sells

its product in number of African nations and makes parts and components available there.

Against the reconditioned Japanese cars, new Indian vehicles with the availability of parts have

been found a good strategy in these countries.

d) In two wheeler market, Chinese companies give tough competition to India. Countries like

Ethiopia, Algeria the potential gain for China is significant. Indian companies like Bajaj, TVS

and Hero Motors Corp are aiming to set up assembly plants in Africa in the near future, but as of

now they are catering to the growing demands through exports only.

Auto Ancillary Industry:

The spine of the automobile industry is its suppliers of auto components and accessories which is also an

exclusive industrial segment. The total market size of the Indian auto components industry is estimated at

over Rs 700 bn. The sector comprises 500 medium and large players, and also includes 5,000 units (Tier 2

& Tier 3) in the small scale sector.

There are 50 leading companies in the organized sector which account for a major share of the total

output. The number of items produced exceeds 25,000. Having gained global recognition, the Indian auto

components industry exports are growing at a rapid speed. The exports crossed the Rs 10 billion mark in

1996-97 and have progressively risen to a level of Rs 145 billion in 2007-08.

Globally speaking, the competitive edge of the Indian players is the low labour cost. The Indian prices are

estimated broadly to be 10 to 25% less than the world market prices but are much higher when related to

some specific items, where better material inputs and technology are involved.

Source: Automotive Component Manufacturers Association of India

Companies such as Delphi, Bosch, produce components in India both for domestic and export market.

The auto component suppliers are now emerging as systems suppliers with capacity to design and develop

critical parts. The large labour cost advantage translates into an overall cost advantage of 20-30% over the

Japanese producers, despite lower labour productivity.

Moreover, innovative capacity, good patent protection, capability of technology diffusion etc. provide a

significant opportunity to Indian firms in becoming part of global value chain and also develop

technology base in India. Major Indian auto component players such as Bharat Forge, Amtek Auto, Sona

Group are now actively exporting to global giants. The rapid industrialization and modernization

currently sweeping through many African countries has resulted in an increased demand for capital goods

such as machinery, lubricants, spare parts, ball bearings and other mechanical goods and accessories.

Competition heats up as manufacturers of auto components engage in battle to gain market supremacy in

Africa.

Taking the case of tyres, the African continent is one of the fastest growing markets for the global tyre

industry. The rapid growth of the middle class in many African countries has pushed demand for

automobiles to an all-time high – in turn creating a growing market for all kinds of tyres: passenger car

tyres, off-theroad tyres, industrial tyres, agricultural tyres, truck, bus and trailer tyres as well as

motorcycle and bicycle tyres. Competition is fierce among traditional European players with Chinese and

other Asian players. India is also seeking market entry vigorously in many of the African countries. Same

is the case for many other accessories.

Nigeria, Egypt, Tanzania, Kenya, etc are major markets of India. However, several new markets

experienced significant high growth in recent times such as Algeria, Togo, Cameroon, Ghana, etc. To

shortlist the countries as described in methodology section, we have compared mean export value and

mean export growth of Indian exports in major African markets. The details are given in Table 6. The

export market in Africa is clearly divided into two groups:

One with high value but relatively low growth and other high growth but small in terms of market size.

Hence, India requires strategizing African market considering this unique phenomenon. Big markets are

important and India needs to diversify its product basket persistently in these markets to keep the current

growth buoyant. In smaller economies, India needs to continuously test the market focusing into nature of

local demand so that it remains ahead of other competitors.

Barriers in case of automobile exports:

Excessive documentation requirements for the purpose of customs clearance in Africa.

Port delay and custom valuation procedures are stringent.

Opportunity is there to negotiate tariff with some countries also.

Luxury tax for car with bigger engine is high in some countries.

If India plans to export SUV, this requires to be negotiated.

High Non tariff barriers exist in most of the African nations. For eg. Passenger vehicles may only

be imported into Egypt within 12 months of the year of production. Government to government

discussion may be encouraged to facilitate Indian exports further.

High tariff rates are applied on some components. Other duties are also prevalent. For example,

in Nigeria, National automotive council levy of 20% are charged on automotive product.

Technology collaboration, R&D centre development after sale service etc. requires attention.

Setting up business is costly.

MARKET GROWTH OF CHINA

Primarily fueled by domestic and partly by foreign demand, China’s rapidly expanding automotive

industry has outpaced the nation’s already impressive GDP growth rates in recent years. Domestically,

rising incomes and encouragement from the Chinese government for the urban population to obtain

drivers licenses have spurred the demand for passenger vehicles.

The booming passenger vehicle market has led to a soaring demand for automotive components.

Internationally, automotive manufacturers faced with decreasing margins and profitability have sought

out more affordable supply chain solutions, looking to China as a potential source for lower cost

automotive components.

Unlike developed markets for passenger vehicles, where growth in demand has been largely stagnant,

China’s domestic demand for new automobiles has skyrocketed in the past years. Strong car sales in

China in 2009 pushed the auto market to the largest in the world, and 2010 is set follow the positive trend.

Import

Positive demand growth for automobiles and components has not only caused domestic industry

development, but has led to increased attention from leading foreign automotive manufacturers eager to

expand into the rapidly growing market. Foreign automotive manufacturers have also been encouraged by

lower import tariffs, which have been lowered for whole vehicles from 70-80% to 25% since China

joined the World Trade Organization (WTO). Import tariffs on Semi-Knocked-Downs (SKDs) and

Complete-Knocked-Downs (CKDs) have dropped from 50% to 25%, while import tariffs on vehicle

components have dropped from 15% to 10%.

China’s automotive import growth was slowed due to weaker demand caused by the global economic

crisis of 2009. Annual total import were USD 33.1 billion in 2009, representing a year-on-year increase of

only 5.34%. Assisted by government incentive programs and China’s economic recovery, China’s auto

import total bounced back from a sluggish 2009, surging by 130% to USD 27.22 billion in the first half of

2010. Imported European luxury cars had a remarkable 237.2% increase in 2010 compared to the same

period the previous year.

China’s automotive component imports grew to USD 12.7 billion in the first half of 2010, a 90% increase

over the same period of 2009. Drivetrain, engine and automotive body components accounted for over

60% of the total component imports (see chart). More than 80% of the imported components came from

Japan, German, Korea, and the United States.

The main groups of imported automotive components to China can be divided into three categories:

Japanese and Korean OEMs and Tier I suppliers: Generally these companies tend to only use suppliers

from their country of origin. For example, Toyota typically sources components from Japanese JVs or

Wholly Owned Foreign Enterprises (WFOEs) on the mainland, or directly imports from Japan. Such

practice tends to result from strict quality requirements, cultural compatibility and logistical concerns.

German OEMs and Tier I suppliers: These companies typically import components in the areas where

Chinese suppliers are weak (e.g. safety systems for high-end passenger cars).

The US and French OEMs operating in China have not increased their automotive component imports

as much as their peers for different reasons. US OEMs have steadily increased their sourcing from local

Chinese suppliers for vehicles manufactured in China to stay competitive, and French OEMs are facing a

shrinking market share in China.

Chinese OEMs are emerging buyers of imported automotive components, especially in the segments of

hybrid and electric vehicles and Chinese-brand luxury vehicles.

Export

The impact of the economic crisis in 2008-2009 forced many multinational companies to reduce their

sourcing of automotive vehicles and components from China. According to CAAM, China exported a

total of 369,600 units in 2009 worth USD 5.19 billion, which was down by 46% from 2008.

China’s auto exports rebounded as the global market recovered in 2010, with 250,100 vehicles exported

in the first six months (up 55.93% year-on-year). Passenger vehicle exports surged 115.93% to 116,500

units, while commercial vehicle exports increased 25.50% to 133,900 units. Algeria, Vietnam and Egypt

were the major whole-vehicle export destinations in the first half of 2010.

The auto component’s export growth has witnessed even more impressive growth than whole-vehicles.

Exports increased 54.11% to reach USD 18 billion in the first half year of 2010, with drive system

components exceeding 50% of the total by value. More than 50% of the components were exported to the

USA, Japan, South Korea, Germany and the United Kingdom.

Industry Consolidation

China is determined to restructure its automotive industry, with the hopes of changing the market from

many fragmented manufactures to two or three dominant domestic firms. According to the State

Council’s regulations released in early September 2010 which called for greater industrial consolidation,

the automobile industry was at the top of the list of targeted sectors. The State Council set the goal of

reducing the number of major automakers who are responsible for 90% of domestic sales output, from 14

to 10.

Under the plan two or three companies would dominate the industry, responsible for producing more than

three million vehicles annually, while four others would have annual output capacity of 1.5 million units.

The State Council named the following four groups as potential industry heavyweights, urging them to

take advantage of consolidation opportunities: FAW; Dongfeng; SAIC and Chang’an. Additionally, it

named four regional leaders that it encouraged to consider regional consolidation: Beijing Automobile;

Guangzhou Automobile; Cherry and Sinotruck. All of these companies are passenger vehicle

manufacturers with the exception of Sinotruck which manufactures heavy-duty trucks (sales of over

125,000 units in 2009).

Industry analysts predict that the coming wave of M&As within the automotive sector could see a deal

that breaks the USD 1 billion mark, more than doubling the largest deal to date which was the USD 450

million purchase of General Motors' Nexteer steering components unit by a joint venture established by

Beijing's Tempo Group and the Beijing government.

Global Expansion

As the leading automotive market, China automakers are accelerating global transformation to increase

their presence in the overseas market. Zhejiang Geely Holding Group (one of China’s largest independent

carmakers) recently completed its acquisition of Ford Motor’s Volvo brand for USD 1.5 billion. This is

an indication that Chinese automakers have begun to recognize the power of strong brand reputation.

Geely’s Volvo bid is the largest takeover in Chinese auto industry and will provide a pattern for Chinese

carmakers to expand aboard and acquire companies with a strong reputation. Beiqi Foton, China’s leading

commercial automaker followed Geely’s step and announced its global expansion plan. This includes

setting up a production base in Russia by 2012 with an annual capacity of 100, 000 vehicles and building

five other plants in Brazil, India, Russia, Mexico and Thailand before 2015.

REGULATORY OVERVIEW

Government tariffs on automotive imports are in compliance with WTO rules, but minimum capital

barriers still exist for foreign investors. The government has created some incentives to spur R&D

partnership, and regulations for foreign distributers have been eased somewhat.

The government has plans to implement higher auto emissions standards for new cars in China. So far

four regions have implemented “China IV” emission standards (Beijing, Shanghai, Nanjing and

Guangdong Province).

The Chinese government views the development of the new energy vehicle industry in China as a top

priority and has introduced a wide range of subsidies and policies in its favor.

China’s automotive industry supply chain is very broad with many components such as import and

export, manufacturing, environmental protection, technology upgrades and quality control. As such, the

industry is regulated by a range of government organs, both at the national and sub-national level.

DOCUMENTS REQUIRED

Certificate of Insurance: This document indicates the type and amount of insurance in force on a

particular shipment for loss or damage while in transit. It is sometimes referred to as Marine insurance,

but may cover the entire voyage.

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requirements or local regulations, according to an industry, government, or carrier specification. Neutral

organizations specialize in these types of certifications, whereby an inspector checks the goods in

question prior to shipment. Sometimes an inspector can look at a sample, but other times inspection must

occur when the goods are packaged to issue a certificate.

Certificate of Free Sale: This form may be required by the importing country to ensure that the goods

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original document.

Documentary Letters of Credit (L/C): A letter of credit is a document issued by a bank committing to

pay the seller/exporter a stated amount of money on behalf of the buyer/importer as long as the specific

terms and conditions are met. Of all shipping documents, errors or making changes to the L/C are the

most costly and time consuming because of the risk of payment in error.

Certificate of Origin (C/O): A document prepared by the original manufacturer and certified by a quasi-

official authority - such as a Chamber of Commerce - stating the items’ country of origin. Most countries

that require a C/O will accept a generic C/O as long as all of the required data elements are given.

However, some countries, like Israel, have a special green C/O form that must be used. To take advantage

of duty free provisions in a U.S. Free Trade Agreement, be sure to use the particular C/O that addresses

the “rules of origin” criteria for each country.

Ocean Bill of Lading (OBL): The Ocean B/L is an invoice, and may be issued as a “clean” bill of lading,

meaning the carrier certifies that the goods have been received without visible damage. An “On-Board”

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port officer and certifies that the goods have been received by the shipping company. This document is

used to transfer accountability when goods are moved by the domestic carrier to the port of embarkation

and left with the international carrier. At this time, the carrier’s Bill of Lading is also signed by both

parties and copies are issued accordingly.

Packing List: A packing list is prepared by the shipper and is a detailed break down of the items within a

shipment. It may also include any “special marks” for identification. For example, the customer may want

“ABC XX” in blue letters on the side of the packaging. For insurance claims and tracking purposes, it

helps to describe what is in each “package”.

LIMITATIONS

Most of the information for this project is taken from secondary research. Practical application was not

possible while doing this project. Market size, future growth, demand and supply, etc. were on basis of

various literature, magazines, news reports and research reports, the practical touch to this aspects was not

possible i.e. having the actual field experience was missing. Had a talk with one of the exporter of

automobile spare parts Mr. Mohammad Bhatti, who is also an intermediate supplier to companies like

Maruti Suzuki (India) Ltd., Mahindra and Mahindra, Tafe, New Holland, Kirloskar, etc.- various

problems were discussed like payment default of parties, duplication of original spare parts, pricing

manipulation, quality degradation, etc. Sample survey was not possible for carrying out this project. Was

also in constantly touch with one of the person who is retailer vendor of automobile spare parts from last

42 years, so it was easy to figure out things that how real market works.