The Hindu Business Line : Indian auto component team in China to study cost competitiveness

Beijing, March 11 China, the bicycle kingdom of yore, has firmly given way to the reign of the car, having overtaken Japan to become the second largest vehicle market in the world last year. It is this substantial market that a 24-member delegation from the Indian Automotive Component Manufacturers Association (ACMA) is in China this week, to explore.

The delegation, led by the ACMA President and Managing Director of Asahi India Glass, Mr Sanjay Labroo, comes to Chinese shores with a quest, a hope and a belief.

The quest in question is to try and solve the “mystery” of the cost competitiveness of Chinese auto components, a cost the Indian manufacturers say they are simply unable to replicate.

More imports

Auto components have until recently been seen as somewhat of a sunshine industry in India, with the potential to emulate Indian software exports’ global success. But even as the sector makes its presence felt internationally, Mr Labroo points to what he calls the industry’s “dirty little secret.” This is the fact that since 2006, India’s imports of auto components have actually overtaken exports.

In 2007-2008, for example, imports are estimated at $4.5 billion, while exports are only around $3.5 billion. When asked for the reason behind this recent trend, Mr Labroo says one word: “China”.

The export of Chinese auto components to India has been growing at 130 per cent annually over the last 5 years, he reveals. Last year, India imported Rs 3,000 crore worth of components from China. Exports to China, on the other hand, languished at a relatively negligible Rs 100 crore.

Reality

The bald reality is that Chinese auto components sell in India at a price that is some 20 per cent cheaper than Indian equivalents (although this varies from product to product). If one takes into account the cost of transport, customs duty etc.,, Mr Labroo calculates the real difference in factory-to-factory cost between India and China at a huge 40-45 per cent.

While the obvious advantages that Chinese companies enjoy regarding infrastructure, logistics, cheap power, economies of scale and so on may explain up to 10-12 per cent price differential between products manufactured in the two countries, the reason for the real extent of the gap remains the “mystery” that it is one of the goals of the delegation to try and solve.

Visit with hope

“The surge in Chinese imports is really beginning to hurt us,” admits Mr Labroo but adds that rather than immediately crying the wolf of dumping, the delegation members decided to visit China with an “open mind and see the situation for themselves.”

Other than the quest, the delegation is thus in China with a hope. The hope is that the opportunity presented by the burgeoning Chinese market in automobiles, can in fact translate into benefit for component manufacturers south of the Himalayas.

If the cost of manufacturing in China is so much lower, then it makes sense for Indian companies to also set up shop there. From a Chinese base, they could both export as well as supply local and MNC clients present in China.

Presence in China

Some Indian companies are already following this strategy. For example, Sundram Fasteners has had a plant in Zhejiang province since 2004. More recently, Bharat Forge set up a joint venture with China’s largest foundry unit, FAW Corporation, in Jilin province.

“We (Indian auto component manufacturers) are intensely competitive within India as well as globally. It’s only against China that we are struggling. We need to find out why and to change this,” continues Mr Labroo.

Increasingly, it is clear, the ACMA President says, that Indian companies can neither ignore China, nor blame all their ills on the country. Instead, India must try and engage with its northern neighbour.

The delegation thus comes to China with a belief that India and China together present “the greatest opportunity that has ever existed in the auto components sector.”

Partnership

The two countries today account for some 11.5 million vehicular units. They have moreover been experiencing a 20-25 per cent growth rate over the last 5 years. ACMA thus predicts that by 2040, India and China will account for between 40 and 70 million vehicles.

To put this figure in perspective, Mr Labroo points out that the vehicle figure for Europe, the US and Japan combined stands today at around 40 million.

“We want to partner with China. We are willing to sell to them and buy from them. What’s important is that we don’t shut the door.”

The delegation which includes names like Brakes India Ltd, Talbros, ZF Steering Wheels, GNA Axles, Luxite and Sundaram Brake Linings will spend a week in total in China, visiting the cities of Beijing, Tianjing, Shanghai, Wuhu and Wuhan.

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