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Indian auto ancillaries down on quality

Sep 25, 1999

The Association of Indian Automobile Manufacturers (AIAM) has given Indian auto ancillary units a thumbs down on quality consciousness. This was reported by a leading financial daily. The AIAM study cites an AT Kearney survey showing that defect rates in Indian auto ancillaries (including the popular suppliers) are in the range of 1,000-2,000 parts per million (ppm) against a Japanese average of 100-200 ppm. The biggest challenge for the local auto ancillary manufacturers is to upgrade technology and quality.

One area where domestic units compare favourably with their international counterparts is in terms of costs. Lower labour costs (one-twentieth of Japanese costs) gives Indian auto ancillary companies an absolute cost advantage of 20-30% over their Japanese counterparts. The absolute cost advantage could have been even higher except for the fact that Indian companies have lower labour productivity, which nullifies a part of the cost advantage.

Auto ancillary exports have enormous growth potential largely due to India's inherent cost advantages. A large number of joint ventures have enabled local manufacturers to upgrade themselves in terms of quality. Moreover, they have established relationships with leading global manufacturers, which has helped them to bag orders in overseas markets. In Sundram Fasteners, Indian auto ancillary units have the example of a company, which on the basis of its rigid quality, cost control and prompt delivery schedules, has bagged the No.1 supplier award from General Motors Corporation USA.

By the year 2002, the Indian auto ancillary sector hopes to target exports of US$1 bn. Given the figure of $300 m that it posted in FY98, this looks very ambitious. To emerge as a major in world markets, the sector needs to export at least a fourth of its sales value.

In the near future, companies will need to have manufacturing lines that can be adapted for new models, strong technology backing, an ability to export to developed markets, market dominance in specific products and a growth plan driven by volumes and product innovations.

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