Industry Analysis Case Study

Auto Component Industry: A New Perspective

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Abstract:
According to a report by McKinsey and ACMA in 2004 Indian auto component industry was worth around $ 5 billion (Rs.25, 000 crores) 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 Tier IV and Tier III category. High fragmentation, low investments in R&D, low capability in high-end designing, manufacturing and development hindered Indian auto parts maker to move up the value chain. Global OEMs and Tier 1 suppliers were relocating their plants and set up R&D centers from US/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 Industry value chain. Tier I 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 I suppliers got the order directly from automakers it helped them to recover the investments quickly and enjoyed better profit margins. Indian manufacturers, mostly belong to Tier III and Tier IV category, lacked in high-end designing, manufacturing and development skills. The case deals about how Indian auto components industry which is in the un-organised sector, could exploit its strengths, nullify its weaknesses and became the preferred sourcing partner of global OEMs, by moving up the value chain of the industry

Pedagogical Objectives:

• To discuss in details about global and Indian auto component industry, trends and patterns of the industry
• To discuss the value chain of the auto component industry
• To discuss how small players from an industry can move up the value chain and became the key growth driver of the industry
• To discuss how joint venture, technical alliance, designing, development and management skills help small companies to move up the value chain
• To understand the structure of the industry.

Keywords : Auto component industry; Original equipment manufacturer; Maruti Udyog Limited (MUL); Industry Analysis Case Study; Delphi Corporation; Tier 1 supplier; Research and development (R&D); Design and development; Auto ancillary; Backward integration; Bharat Forge Limited; ACMA (Automotive Component Manufacturer's Association of India); Components; MICO Bosch; Anand Group; Reverse engineering