India’s automotive industry is booming. Expectations are rising. But can it become a significant player in the global automotive industry?
The industry currently contributes about U.S. $34 billion to the Indian economy, equivalent to five percent of GDP. It produces over 11 million vehicles a year. Directly and indirectly it employs more than three million people.
Burgeoning home market
Growing mainly off burgeoning domestic demand, the industry has been expanding at around 16 percent annually over the past five years.
Through a study done by international consultants , Some believe the Indian automotive industry could emulate the Indian IT sector, which has emerged as a leading supplier of low-cost, high-quality IT services to the world. Is this realistic, given that India has to compete with fast-developing auto industries in China, Brazil and Eastern Europe?
The Indian automotive executives are optimistic it can. They expect domestic growth to continue, fuelled by rising disposable incomes and increasing consumerism. They also believe that global automakers will continue to allocate an increasing proportion of their foreign direct investment into India, initially into manufacturing and then later into auto engineering and R&D.
And why not?
India is a billion-citizen economy where vehicle usage and ownership are still very low by world standards. The Indian automotive market is now one of the fastest-growing in the world.
However, companies recognize that their labor cost advantage is eroding as both shop floor and management wage costs rise. They plan to offset these labor cost increases through automation and improved management efficiency. Whether this can be achieved remains to be seen.
Good reasons for caution, but there are good reasons for caution.
India’s ramshackle infrastructure is retarding the industry, particularly its ability to increase physical exports. The auto industry also lags sectors such as IT and financial services in management training, reward and retention.
India’s fragmented component industry needs more consolidation if it is to achieve critical mass. Distribution and marketing remain relatively rudimentary.
Internationally, Indian automakers and component manufacturers accept that they need more alliances in distribution and marketing. They need to make more well-chosen acquisitions, especially in the components sector.
Critically, they acknowledge that to attain truly global scale the industry must build persuasive global brands.