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Defining the Role of Government in the Transnationalization Efforts of the Indian SMEs in the Auto Components Sector

Confidential

Defining the Role of the Government in the Transnationalisation Efforts of the Indian SMEs in the Auto Components SectorIDC (India) Limited CYBER HOUSE B-35, Sector 32-Institutional Gurgaon 122001 Phone: +91-124-4031234 Fax: +91-124-2381683 Prepared for: Department of Scientific & Industrial Research (DSIR), Ministry of Science & Technology, New Delhi DATE: August, 2008

Defining the role of the Government in the Transnationalization Efforts of the Indian SMEs in the Auto Components Sector

Table of ContentsEXECUTIVE SUMMARY .................................................................................................................................... 9

1. 2. 3. 4. 5. 6.

MARKET OVERVIEW ................................................................................................... 9 EXPORT SCENARIO...................................................................................................... 9 KEY PRODUCT CATEGORIES AND SEGMENTS FOR EXPORTS ....................................... 9 MAJOR CHARACTERISTICS ........................................................................................ 10 MAJOR FINDINGS ...................................................................................................... 10 CHALLENGES FACED AND ROLE OF THE GOVERNMENT ............................................ 11

1.0 INTRODUCTION ........................................................................................................................................ 21

1.1. BACKGROUND .......................................................................................................... 21 1.2 RESEARCH OBJECTIVE ............................................................................................. 21 1.3 DEFINITION OF SMES AND TARGET COMPANIES ...................................................... 22 1.4 METHODOLOGY ........................................................................................................ 22 1.4.1 Data collection................................................................................................... 22 1.4.2 Sample size......................................................................................................... 23 1.5 SME AUTO COMPONENTS MANUFACTURERS PROFILE IN THIS STUDY ...................... 23 1.6 REPORT STRUCTURE ................................................................................................ 252.0 AUTO COMPONENT INDUSTRY IN INDIA: AN OVERVIEW ................................................................... 26

2.1 INTRODUCTION ......................................................................................................... 26 2.2 TOTAL AUTOMOTIVE COMPONENT MARKET IN INDIA .............................................. 26 2.2.1 Market overview................................................................................................. 27 2.2.2 Characteristics of the Indian Automotive Components Industry....................... 29 2.3 COMPETITIVE STRUCTURE ........................................................................................ 29 2.4 AUTOMOTIVE CLUSTERS IN INDIA ............................................................................ 30 2.5 DISTRIBUTION STRUCTURE ...................................................................................... 32 2.5.1 Indian Auto Component Supply Chain Structure............................................... 32 2.6 CURRENT STATE OF TRANSNATIONALISATION.......................................................... 33 2.7 GROWTH DRIVERS FOR THE AUTO COMPONENT SECTOR.......................................... 33 2.8 EXPORT SCENARIO IN THE AUTO COMPONENT MARKET .......................................... 33 2.8.1 Export Mechanism and Key Product Categories and Segments for Exports .... 34 2.8.2 Potential for exports in various categories........................................................ 36 2.8.3 Key auto component export destinations from India ......................................... 36 2.9 EMERGENCE OF INDIAN SUPPLIERS IN THE GLOBAL MARKET ................................... 39 2.10 INDIAS POTENTIAL TO BECOME EPICENTER OF HIGH-END R&D.......................... 403.0 POLICY ENVIRONMENT FOR AUTO COMPONENT INDUSTRY IN INDIA AND OTHER COUNTRIES 41

3.1 INDIAN POLICY ENVIRONMENT ................................................................................. 41 3.1.1 Tax Structure...................................................................................................... 42 3.1.2 Custom Duties Over The Years......................................................................... 42 3.1.3 Trade Policies .................................................................................................... 43 3.1.4 Automotive Mission Plan ................................................................................... 43 3.1.5 Recent initiatives from the Government of India ............................................... 46 3.2 GOVERNMENT INITIATIVES IN SELECT COUNTRIES .................................................... 47

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Defining the role of the Government in the Transnationalization Efforts of the Indian SMEs in the Auto Components Sector

THE ASEAN FREE TRADE AREA (AFTA)................................................................. 47 3.2.1 Indonesia............................................................................................................ 47 3.2.2 Malaysia............................................................................................................. 49 3.2.3 Thailand ............................................................................................................. 51 3.2.4 Vietnam .............................................................................................................. 52 3.2.5 Australia............................................................................................................. 53 3.2.6 Korea.................................................................................................................. 54 3.2.7 China.................................................................................................................. 55 3.2.8 Japan.................................................................................................................. 57 3.3 INTRA-APEC FREE-TRADE AGREEMENTS ................................................................. 57 3.4 MERCOSUR INDIA PREFERENTIAL TRADE AGREEMENT ..................................... 584.0 STUDY FINDINGS.................................................................................................................................... 61

4.1 INDUSTRY TRENDS AND FORECASTS ......................................................................... 61 4.1.1 Global Overview ................................................................................................ 61 4.1.2 Global Market Dynamics................................................................................... 61 4.1.3 Dynamics of International Trade....................................................................... 61 4.2 GROWTH TRENDS IN THE AUTO COMPONENT SECTOR .............................................. 62 4.3 CURRENT STATUS OF TRANSNATIONALISATION AMONG THE SME AUTO COMPONENT COMPANIES ............................................................................................................... 64 4.3.1 Current level of transnationalisation................................................................. 64 4.4 LEARNINGS FROM PAST EFFORTS TO TRANSNATIONALISE ........................................ 65 4.5 FUTURE FOCUS OF TRANSNATIONALISATION, METHODS, MARKETS AND STRENGTHS 66 4.5.1 SME focus for future methods of transnationalisation ...................................... 66 4.5.2 Potential Markets for Transnationalisation ...................................................... 67 4.6 INTERNATIONAL ACQUISITIONS BY INDIAN SUPPLIERS .............................................. 69 4.7 PERFORMANCE ON TRANSNATIONALISATION EFFORTS OF AUTO COMPONENT COMPANIES IN CHINA ............................................................................................... 70 4.7.1 Factors supporting transnationalisation ........................................................... 70 4.8 PERFORMANCE ON TRANSNATIONALISATION EFFORTS OF AUTO COMPONENT COMPANIES IN SOUTH KOREA ................................................................................... 73 4.8.1 Development trend for auto components in Korea ............................................ 73 4.8.2 Some features of South Korean auto component industry ................................. 73 4.8.3 Foreign direct investment (FDI) in South Korea.............................................. 74 4.8.4 Key Success Factors of South Korean Auto Component Companies in Global Markets .............................................................................................................. 74 4.8.5 Government Support to Auto Component Industry in South Korea .................. 75 4.9 FACTORS DRIVING COMPETITIVENESS OF INDIAN SME AUTO COMPONENT MANUFACTURERS ..................................................................................................... 76 4.9.1 Exports from India to global destinations ......................................................... 76 4.9.2 Quality certification ........................................................................................... 76 4.9.3 Indian companies being recognized as a quality supplier................................. 77 4.9.4 Cost will continue to be the key competitive advantage .................................... 77 4.9.5 Indian auto component makers will incre