• OUTLOOK ARENA
  • VIEWS ON NEWS
  • SEPTEMBER 25, 1999

Indian auto ancillaries down on quality

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.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407