India is a brave new world for Canada’s auto-parts makers, who set out last month to test the largely untested waters.
Eleven Canadian companies were at the recent Auto Expo 2012 in New Delhi, with the Automotive Parts Manufacturers Association (APMA) leading efforts to place Canada’s component makers on the map of one of the world’s biggest auto industry shows. (I wrote about one of the companies, Creaform Inc., last month).
What should matter more than the show are visits that AMPA members made to India’s automotive hubs. “It is about investing in India and getting to know the Indian OEMs [original equipment manufacturers]better,” said APMA president Steve Rodgers in an interview.
The effort, he said, was a big-picture one, “whether it is technology exchange, the whole process of selling into the Indian market or finding Indian suppliers or finding the right relationships and to extend it to other places.”
India’s domestic passenger and commercial vehicle sales, including cars, utility vehicles, vans and trucks, grew from 1.4 million units in the year to March, 2005, to 3.2 million in 2010-2011; current projections put annual sales at five million by the end of 2015. An estimated 40 million vehicles are on Indian roads.
With many more millions of vehicles expected to be on the roads in coming decades, and India’s economy expected to grow by at least 7 per cent in the current fiscal year, despite high interest rates and an economic crisis in Europe, Canada’s auto-parts makers believe their opportunity may be found in helping India leapfrog into greener and more fuel-efficient technologies.
“We are good at lightweighting, design, innovation and new process development. We also have biofibres,” said Mr.Rodgers, who has seen India’s economy change from a sleepy, closed one to one hungry for infrastructure and growth. He believes “connected cars” with intelligent systems could gain in India because of growing concern for eco-friendly vehicles.
Lightweight material use in Canada has been largely driven by regulatory pressures to check carbon emissions but, for the cost-conscious Indian market, the same may appeal more for fuel economy, Mr. Rodgers said.
However, because they have been substantially absent from North America, relationships have to be built virtually from scratch with Canadian suppliers. The APMA team visited the auto hubs of Pune and Chennai (called the Detroit of India) as part of its tour to get started.
Mr. Rodgers said Canadian auto-parts makers had to be convinced to come to India – unlike China, where they simply followed North American auto makers because of existing relationships.
About 80 per cent of APMA’s 200 members are small and medium-sized enterprises. Their success depends not only on the unique offerings they have but also on carefully built relationships. Both of these bring challenges.
On the one hand, India already has a strong engineering industry that includes world-class auto-parts exporters. This means new entrants must be strong on innovation or other unique offerings.
On the other hand, the global auto industry is such that competitiveness often depends on how suppliers time their ventures so that they can ride the fortunes of their large customers.
For instance, this could mean that a company that makes high-tech touch sensors or gear for keyless entry might stand a better chance than an old-model component maker.
Building an auto-parts plant involves many considerations. Its location has to be right so that transportation and logistics are tied well to clients. The tooling has to be done so that the right parts can be supplied in the right quantities to the OEM in time – and that requires strong relationships and forecasting capabilities.
“It is important for us to understand the new geography and knowing where to locate so we can produce good quality, high-end products. You have to find out where your best opportunity is,” Mr. Rodgers said. “Your whole timeline takes on the voice of the customer.”
One thing that could help APMA’s members is the proposed Comprehensive Economic Partnership Agreement between India and Canada, which is expected to get going by 2013. Canada is looking for tariff reductions so that its companies could sell into India or bring in components. That would at least provide some economic safety in an industry where big, long-term bets already involve uncertainties.
Special to the Globe and Mail
Narayanan Madhavan is associate editor of the business news pages of Hindustan Times, a leading Indian daily newspaper. He has previously worked for Reuters, the international news agency, as well as The Economic Times and Business Standard, India's leading business dailies. Though focused mainly on business and economic journalism with a strong focus on information technology and the Internet, he has also covered or written about issues including politics, diplomacy, cinema, culture, cricket and social issues. He has an honours degree in economics and a master's degree in political science from the University of Delhi.
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