India’s place in the core club of global suppliers
If one were to examine the automotive landscape globally, one can easily notice that in terms of pecking order in car prodauction, India’s position is quite low.
If one were to examine the automotive landscape globally, one can easily notice that in terms of pecking order in car prodauction, India’s position is quite low. China, which recently displaced the US in 2012 for the top spot is, of course, the largest market with a production of 15.5 million units per annum. It is followed by the US with 10.1 million units and then by Japan with 8.5 million, Germany with 5.4 million units and South Korea with a production of 4.2 million units. India, with a production of 3.3 million units, comes a distant sixth.
So prima facie, one might feel that we can hardly contend to occupy a spot in the sun when it comes to the global automotive scene. However, there is something else happening here that these numbers do not reflect.
Let us take a closer look at the rate at which automotive production is growing in major countries in the world. Automotive production in the US has been consistently declining from 2008. While the number of units produced was roughly about 9.2 million in 2008-09, it was around 8.8 million in 2010-11. It touched 10.1 million units again only in 2012. The conditions in other developed markets are hardly any different, with most showing a growth of less than 4 percent.
The Indian market, on the other hand, has been growing at a healthy clip of 13.83 percent per annum. The density of cars currently in India is 13 per 1000, whereas the corresponding figures in US, Germany and France are 641, 532 and 499 respectively. We obviously have much bigger headroom than other nations. So if one were to project these trends, it becomes evident that India will overtake Germany, Japan and Brazil by 2016 to become the world’s third largest automotive market.
WHY INDIA MATTERS
Another reason why automotive manufacturers world over will turn to India for growth is the growing disinterest amongst youngsters in US and Japan in owning a car. It has ceased to be the ‘object of desire’ that it used to be.
As a matter of fact, the number of fresh driving licenses issued every year has gone down considerably. Moreover, people are choosing to travel via new car-sharing models, such as Zipcar in the US or Car2go in Germany rather than buying a car. Thus, in the years to come, the number of cars owned per 1,000 people may actually go down in these developed markets, strengthening India’s position further.
But while India may become a major manufacturing hub in the foreseeable future, the real question here is, whether it will become a major automotive development centre in the world.
SHIFTING THE CENTRE OF GRAVITY
Before we get to that, let’s look back at how the ‘centre of gravity’ has shifted in the world of automotive development in the last 150-odd years. It is interesting to know that in the late 19th century, when cars were handcrafted, France was the automotive centre of the world. When cars stopped being works of art and became engineered marvels, the automotive centre moved from France to Germany. When mass production of cars became the norm, the hub moved from Germany to the US. After the Second World War, the shift occurred again, this time from the US to Japan. Factors like increasing fuel prices and affordability played a major role. Japan also introduced the world to lean manufacturing. Today, China is the world’s largest automotive producer. China is making significant investments in the electric car, betting that it would lead the next wave of automotive development.
So will it be India’s turn next to be at the centre of gravity in the automotive world?
Perhaps, but for that we need to start working towards making India a global hub for the development of new generation of automobiles. Agreed that Tata’s Nano and Mahindra’s Reva are great examples of innovation. However, there haven’t been any major home-grown innovations, even by the international companies operating in India.
There’s a saying in ice hockey, which is incidentally one of the fastest games in the world, that goes: “You can win the game by not going to where the puck is, but by going to where the puck is going to be.” So where is the puck going to be in the next 20-30 years?
Let’s take a look at some of the key areas of development to answer this question. I believe a key area of development will be the smaller car segment. India already has an advantage here.
ELECTRONIFICATION of the automobile
The second area to look at will be the use of electronics in vehicles, which has grown in the last two decades. Many industry experts predict that electronic components will account for around 30 percent of the total car production costs in the near future. Similarly, the number of lines of code has grown from one million lines of code per car in 2000 to roughly about 80 million lines of code in 2012. The number of ECUs in the car has grown from 20 (in 2000) to over forty. Most of the new features in cars are driven by electronics. So it is evident that in every facet of the automotive, whether it is powertrain or infotainment, body or cluster, diagnostics or in-vehicle networking, electronics is going to play a major part. This is where the puck is going to be.
Fortunately, India has a strong IT industry, which can collaborate with the automotive industry to help build this car of the future.
There is a third factor. The new car will be lighter, better, more fuel efficient, safer and more fun. All this will require lot of innovation and India is strongly positioned to achieve this.
More importantly, what will propel India towards becoming a global automotive hub will be having a strong automotive eco-system. This is because a car is a result of a complete eco-system, which includes OEMs, Tier 1s and Tier 2s. For example, Germany that has many OEMs also has several German Tier 1s; so do Japan and the US. We need to build such an ecosystem in India as well, an eco-system which is focused on the needs and preferences of the local market.
Such a system will help develop vehicles which will match the cost structures and features that the cost-conscious Indian customer is looking for.
As India transitions from being an automotive manufacturing hub to an automotive development centre, a well-knit eco-system will be an essential pre-requisite. I believe the players in India have to come together to build such an eco-system. This is essential in making India a truly global automotive development centre.
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