Over the past few years India has grown into one of the leading offshoring/outsourcing regions, with banks, telecommunication providers and IT companies establishing a presence in the region to take advantage of the highly skilled and relatively low cost workforce that resides in the region. Many British banks for example have established their call centres in the region, IT companies have established their help desks in order to provide their customers with 24/7 support and many software companies have established their R&D facilities in the region as well.
During the last decade there has been a huge shift in the manufacturing footprint of the global automotive industry with regions such as China, Eastern Europe and Russia enticing the global automotive companies and their respective supply chains to establish a presence in their respective regions. However over the past couple of years India has been positioning itself for further growth by encouraging automotive OEMs to establish new manufacturing plants in the region. Manufacturers have rushed in to take advantage of the low cost and relatively highly skilled workforce and manufacture cars for both the domestic market and for export, well thats what they expected to do. The map below shows the current OEM landscape across India with four major regions being established.
However as the graph shows below, the adoption of four wheel vehicles is still relatively low and most of the population prefers two wheeled bikes etc.
This preference for two wheel rather than four wheel vehicles is for a number of reasons namely:-
- Most of the population doesn’t actually need a car
- They are uncertain about the cost of running a car
- The road infrastructure is not good enough
- The roads are heavily congested with two and three wheeled bikes
- Parking space is not sufficient
- They do not know how to drive
- They are unsure whether some manufacturers will last as long as the vehicle thus creating a “trust” gap
So what about manufacturing cars for export, well there are a number of factors which, for the moment will limit the export of cars from India:-
- The geographical position of India, effectively being land locked to the North of the country by the Himalayan mountain range makes exports by road, (the most popular method of moving freight in India at the moment) relatively difficult
- Many of the country’s coastal ports are unable to handle vehicle exports due to infrastructure issues
- The quality of the road infrastructure is relatively poor meaning that supply networks, especially via road freight are not as efficient as those in other western countries
- As with China there is the western “perception” that Indian made vehicles may not be as high quality as western made cars
Now many of these issues are currently being addressed, the Indian government is financing improvements to the country’s road and port infrastructure and many joint venture manufacturing projects have been announced partnering western manufacturers with domestic car manufacturers in India. In addition, it was announced by TATA in June that they had taken over Jaguar and Land Rover and so immediately the quality perception issues surrounding some India car manufacturers such as TATA have been addressed as they will now be able to learn from Jaguar and Land Rover about how to improve the quality, safety and design of their own vehicles. Indeed at the same time as announcing the acquisition of Jaguar and Land Rover, TATA announced their own new vehicle, called the Nano, which they reckon will sell for $2500, and they also announced an engine project that runs on air. So within the space of two months TATA in particular has made a strong impact on the global automotive industry, quite timely given the current economic climate in regions such as North America.
For the moment at least the one area where India will excel at is the provision of components and spare parts for the automotive sector. Manufacturing castings for gearboxes and engines can be a lengthy and labour intensive process and the Indian companies are highly skilled in this area. The graph below highlights the proportion of car parts
being manufactured in India at the moment.
But many western automotive companies are use to their Tier1
suppliers manufacturing complete sub-systems for their vehicles rather than individual piece parts. So the supply chain in India will have to be improved and take onboard the best practices employed by the likes of Bosch and Valeo in order to provide the correct parts and sub-system supply infrastructure that many western car manufacturers have become use to. India has been able to entice a number of car manufacturers to setup their global parts distribution centres in India, Volvo and Renault are the latest to establish such logistics hubs in the region.
So what about B2B infrastructures?, well EDIFACT is the preferred
electronic document standard that has been adopted by many companies in India and this at least allows them to exchange EDI related information outside of the country. But as with China five or so years ago, many of the smaller Indian companies have limited access to IT technology or indeed infrastructure. As with the improvements to the road and port infrastructures the telecommunications infrastructure will have to be significantly improved to get many of the Indian parts suppliers “e-enabled” before they can become true players in the global automotive manufacturing market. The Indian port authorities, given their requirement to link with global logistics providers are probably the most advanced users of EDI at the moment. I will be taking a closer look at the current EDI and B2B adoption levels in India over the next week or so and will post my findings in my next blog entry 
