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Abstract

According to a report by McKinsey and ACMA (Automotive Component Manufacturer''s Association of India) in 2004, the Indian auto component industry was worth around US$5 billion (25,000 crore rupees) and was growing at the rate of 18% yearly. But industry experts felt that in auto component exports, India was far behind other developing countries. Indian companies did not have the scale of production to beat global companies. The Indian auto component industry was highly fragmented as most of the auto makers belonged to the tier IV and tier III category. High fragmentation, low investments in research and development (R&D), low capability in high-end designing, manufacturing and development hindered Indian auto parts makers in moving up the value chain. Global original equipment manufacturers (OEMs) and tier 1 suppliers were relocating their plants and set up R&D centres from the US and Europe to India due to its low cost and skilled manpower. But the majority of Indian auto component firms belong to the lower tier of the industry value chain. Tier 1 manufacturers enjoyed advantages over Tier II and Tier III suppliers in getting orders with the help of their designing, manufacturing and development skills. Since tier 1 suppliers got the order directly from automakers it helped them to recover the investments quickly and enjoy better profit margins. Indian manufacturers, mostly belonging to the tier III and tier IV category, were lacking in high-end designing, manufacturing and development skills. The case deals with how the Indian auto components industry which is in the unorganised sector, could exploit its strengths, nullify its weaknesses and become the preferred sourcing partner of global OEMs, by moving up the value chain of the industry.
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Abstract

According to a report by McKinsey and ACMA (Automotive Component Manufacturer''s Association of India) in 2004, the Indian auto component industry was worth around US$5 billion (25,000 crore rupees) and was growing at the rate of 18% yearly. But industry experts felt that in auto component exports, India was far behind other developing countries. Indian companies did not have the scale of production to beat global companies. The Indian auto component industry was highly fragmented as most of the auto makers belonged to the tier IV and tier III category. High fragmentation, low investments in research and development (R&D), low capability in high-end designing, manufacturing and development hindered Indian auto parts makers in moving up the value chain. Global original equipment manufacturers (OEMs) and tier 1 suppliers were relocating their plants and set up R&D centres from the US and Europe to India due to its low cost and skilled manpower. But the majority of Indian auto component firms belong to the lower tier of the industry value chain. Tier 1 manufacturers enjoyed advantages over Tier II and Tier III suppliers in getting orders with the help of their designing, manufacturing and development skills. Since tier 1 suppliers got the order directly from automakers it helped them to recover the investments quickly and enjoy better profit margins. Indian manufacturers, mostly belonging to the tier III and tier IV category, were lacking in high-end designing, manufacturing and development skills. The case deals with how the Indian auto components industry which is in the unorganised sector, could exploit its strengths, nullify its weaknesses and become the preferred sourcing partner of global OEMs, by moving up the value chain of the industry.

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