India’s Auto Component

Suppliers: New Frontiers

in Growth
As India prepares to be a top three global automotive
market by 2020, more component suppliers are entering
the market to add capacity and upgrade technology.
Can India’s homegrown suppliers compete?

India’s Auto Component Suppliers: New Frontiers in Growth 1

India’s automotive market is basking in a 13 percent compound annual growth rate,
going from five million vehicles produced in 2002 to 18 million in 2011. India, already the
second-largest global market for two-wheelers (2W) and the fourth largest for commercial
vehicles (CV), is now poised to rank among the top three global automotive markets in all
vehicles, including passenger cars, by 2020.

There are two very good reasons for Indian

component suppliers to diversify: India is
awash in capacity constraints, and the
market requires newer technologies.
Market growth is naturally translating into growth in the automotive component sector,
where suppliers are focused on moving into new vehicle segments and manufacturing new,
higher-margin products—for example, engine sensors and advanced exhaust after-treatment
products such as diesel particulate filters (see figure 1). As global and Indian manufacturers

Figure 1
Auto component sales will increase almost fourfold by 2020

Domestic vehicle production Domestic auto component

(Million units) production ($ billion)

50
+10% 125
+16% 2W
44 $113
CV
1
13
40 100 PV
9 4
6 Tractors

2 Construction
21
30 75
Aftermarket

All vehicles
21

20 18 50
0.5 32
3
0.8 $30
4
10 25 47
14
26

0 0

2011 2020e 2011 2020e

Notes: 2W is two-wheeler vehicles; CV is commercial vehicles; PV is passenger vehicles. Due to rounding figures may not add up exactly to total.
Source: A.T. Kearney analysis

India’s Auto Component Suppliers: New Frontiers in Growth 2

invest in new capacity for new programs, more component suppliers are riding their coattails,
anticipating short-term growth while eager to capture longer-term advantage.

Indian auto component suppliers that succeed in grasping this opportunity

will do so by growing across three strategic dimensions:

• Wider. Diversifying by manufacturing new components for new segments

• Deeper. Developing stronger relationships with existing customers

• Faster. Acting now to capture the next wave of growth

Wider: Diversifying by Manufacturing

New Components for New Segments
Indian component suppliers generally have deep technological capabilities but are not yet
deploying them across the total range of vehicle segments. For example, 40 to 45 percent
of the approximately 110 suppliers studied in our recent analysis manufacture components
for only one segment—two-wheel, commercial, or passenger vehicles—while another 30
to 35 percent focus on just two segments. This stems largely from historic reasons as many
suppliers began as ancillaries to original equipment manufacturers (OEMs) and so naturally
supply their parent companies. For example, a tier 1 automotive seating supplier manufactures
seats and interiors for India’s leading automaker, Maruti Suzuki, but it confines its activities
mostly to passenger vehicles when it could diversify horizontally into other segments.
(For example, why not build seats and interiors for buses?) Although some suppliers have
started moving into new segments, progress is slow.

Indian suppliers that step up their

product development capabilities now
will have the best chance of capturing
this growth opportunity.
There are two very good reasons for Indian component suppliers to diversify into new
products: India is awash in capacity constraints, and the market requires newer technologies.
For example, the trend toward lighter vehicles is moving the industry toward aluminum parts
and new technologies such as tailor-welded blanks and hot forming. For select players, some
of these new products may be in adjacent industry segments that are relatively easy to enter,
while others can be targeted via technology tie-ups or acquisitions.

In diversifying, whether in vehicle segments, component products, or both, the leading

component suppliers share three characteristics: They undertake a systematic analysis of the
field of opportunity including a validated customer needs assessment; they follow it up with
a well-defined strategy, targeting three or four specific opportunities rather than trying to boil
the ocean; and they assemble a strong program-management team to drive execution.

India’s Auto Component Suppliers: New Frontiers in Growth 3

Figure 2
Compact cars will lead the way in the passenger vehicle segment of India’s
booming automotive market

Passenger vehicle production

(Million per year)

+13% 8.7
Mini

1.2 Compact

0.1 Midsize

0.8 Executive

Luxury and premium

3.0
MPV and UV
0.5
0.1 5.2
0.4

1.9

1.2

0.1

2011 2020e

Notes: MPV is multipurpose vehicles; UV is utility vehicles. Due to rounding figures may not add up exactly to total.
Source: A.T. Kearney analysis

Deeper: Developing Stronger Relationships

with Existing Customers
As manufacturers develop large-scale expansion plans for India, the most successful
homegrown component suppliers are already busy developing stronger relationships
with their existing customers. Of course, the approach taken depends on whether the
automaker customer is in the passenger vehicle segment (long dominated by multinationals)
or other vehicle segments such as commercial, two-wheelers, or farm equipment, which have
been long dominated by Indian manufacturers. The following offers a more detailed
discussion of each segment.

Passenger vehicles

India is projected to produce 8.7 million passenger vehicles per year by 2020, with the
majority—5.2 million—expected to be compact cars (see figure 2). This will make India the
world’s compact-car hub (see figure 3 on page 5). Indians prefer compact cars primarily
because they are less expensive and taxes are lower. Many auto industry giants—Toyota,
Honda, Ford, GM, Volkswagen, and Renault-Nissan—have built or are building state-of-the-art
facilities in India to manufacture compact cars. For most manufacturers, establishing a global
presence in an industry or segment requires the following:
India’s Auto Component Suppliers: New Frontiers in Growth 4
Figure 3
India’s production level of compact cars easily outpaces other developing countries

Passenger vehicle sales, 2010–2011

(% by segment)

0 20 40 60 80 100

Compact
India 42 19 8 32
Mini

Midsize
Thailand 46 22 32
Others
2 1

Indonesia 10 87

Brazil 10 60 12 18

China 6 8 35 51

Note: Due to rounding figures may not add up exactly to total.

Source: A.T. Kearney analysis

Figure 4
Too few Indian auto component players do business globally

Suppliers
(%)
100
100

80

64
60

40

22
20

11
0
3

Total <10 10-20 20-50 >50

Export level 2010–2011 (%)

Source: A.T. Kearney analysis

India’s Auto Component Suppliers: New Frontiers in Growth 5

Develop global supply capabilities. As more global platforms are introduced in India for the
small- and compact-car segments—joining Ford’s Figo and Nissan’s Micra—manufacturers
want suppliers that can operate within global supply chains. Increasingly, it will be difficult
for OEM procurement teams to get approval for introducing a local supplier without global
capabilities. Most Indian component suppliers have not reached this threshold. Only a small
number of them focus on exports or conduct business on a global scale, even as future
growth and survival in this market require doing both (see figure 4 on page 5).

While the global automakers may want to develop local suppliers because of the cost
advantage, it is often too difficult to do so. Instead, most automakers are establishing
state-of-the-art global plants to attract their global suppliers to India.

At the same time, the largest automakers are moving toward fewer global platforms to
manage complexity (see figure 5). Volkswagen is adopting a modular strategy, planning
to perform more than 90 percent of production on three platforms by 2020. Ford plans
to have just nine core platforms by 2013, and GM will have just 14 platforms by 2018, down
from a high of 30. In all, 12 global automakers are expected to reduce their platforms from 223
in 2010 to 154 by 2020. This translates into the production of many more vehicles per platform.

Still, the global automakers contend that their ultimate goal is to develop Indian suppliers that
can meet global requirements and eventually move up the value chain into more complex
assemblies. Both GM and Ford are making efforts to achieve this goal. GM’s Supplier Footprint
Optimization team works with Indian suppliers to improve their capabilities and has already
developed 25 percent of its Indian supplier base for its global operations. And for the first time,
Ford developed Indian suppliers to build its block-and-head castings for its Figo product range.

Improve product development capabilities. As India becomes the global hub for small
vehicles, design and development is expected to shift there. Sensing an opportunity, global
tier 1 suppliers that entered India in the past few years are becoming increasingly confident
in their ability to pull off complex activities. Many are either scaling up their R&D facilities in
India or setting up R&D facilities for the first time. For example, Continental, Bosch Chassis
Systems, Faurecia, and Tenneco have established R&D centers in India that not only adapt
global designs for Indian conditions, but also focus on new product development.

Figure 5
Leading OEMs are reducing the number of global platforms

OEM Target Examples

Volkswagen Three platforms by 2020 MQB platform (Jetta, Golf, Polo, Fabia,
among others)

Ford Nine platforms by end of 2013 B (Ford Fiesta); C (Focus);

C and D (Fusion)

GM Fourteen platforms by 2018, Delta lll (Cruze, Volt, Astra,

down from 30 Zafira); Gamma ll (Aveo, Corsa, Sail)

Renault Nissan Working on its global platforms B0 (Logan, Duster, Bluebird);

new generation renamed V (Micra, Pulse)

Note: OEM is original equipment manufacturer.

Source: A.T. Kearney analysis

India’s Auto Component Suppliers: New Frontiers in Growth 6

Indian suppliers that step up their product development capabilities now will have the best
chance of capturing this growth opportunity. While more than 90 percent of Indian suppliers
budget about 1 percent for R&D, global manufacturers budget 3 to 10 percent for R&D,
depending on the technological intensity of components.

The learning curve for Indian component suppliers is likely to be steep and may require
technology licensing or small-scale acquisitions to bridge the gaps. Many auto component
suppliers in developing markets are ramping up their acquisitions to gain access to more
technology across categories. For example, Dynamatic Technologies acquired German
component maker Eisenwerke Erla to improve its design and development capabilities in
producing complex ferrous castings for engines and turbochargers. Similarly, chassis maker
Wonder Auto Technology acquired airbag manufacturer Jinheng to improve its performance
in safety systems.

Opportunities will arise for suppliers to

become strategic partners in two areas:
technology and support.
Establish an agile supply chain. As growth explodes in the passenger vehicle segment,
so does competition for market share. The growth will not be uniform, and we expect high
volatility—periods of very high growth followed by tough periods. This means higher risks
for auto component suppliers as they may have to make larger bets (capital investments)
to support their customers’ new product launches and capacity additions. Suppliers can
reduce their risk by establishing an agile supply chain, and can do so in several ways:

• Standardize. Increase commonality in proprietary products.

• Increase flexibility. Develop a manufacturing strategy that can easily shift

capacities across models; when adding capacity, think modular.

• Share investments. Reduce investment threats by sharing investments

in tooling with manufacturers.

• Disseminate. Allow agility to filter down the value chain to tier 1 and tier 3 suppliers.

Commercial vehicles, two-wheelers, and farm equipment

These segments will likely remain dominated by Indian manufacturers for at least a few more
years, which means opportunities will arise for suppliers to become strategic partners in two
areas: technology and support. Manufacturers are constantly seeking differentiation from
competitors and the ability to provide cost-effective technology for consumers. To this latter
point, one Indian manufacturer started a group called Local Partnerships for Smart
Technologies to introduce affordable technologies in India.

Suppliers will succeed by taking a mid- and long-term view—first to understand what will
competitively differentiate their automaker customers and then to become a strategic partner
in bringing the required technologies to the table. Rapid growth and numerous new vehicle
launches will require support from strategic suppliers. For example, one two-wheeler

India’s Auto Component Suppliers: New Frontiers in Growth 7

Figure 6
Many tier 1 players are already in India

Category Top 5 global players

Airbags Autoliv TRW Takata Toyoda Gosei KSS

Brakes Continental Delphi TRW-Lucas Bosch WABCO

Clutch TRW Exedy Luk Valeo —

ECUs and sensors Bosch Continental Denso Delphi Magneti Marelli

Engine cooling Behr Valeo Delphi Visteon Denso

Seats Johnson Controls Lear Toyota Boshoku Faurecia —

Steering JTEKT NSK Nexteer TRW ZF

Suspension KYB Tenneco ZF Sachs Showa Magneti Marelli

Transmission ZF Getrag BorgWarner JATCO Aisin

Tires Bridgestone Continental Michelin Goodyear —

Wiring harness Yazaki Sumitomo Delphi Leoni Lear

Present in India Planning to enter No presence or entry plans

Note: ECU is engine control unit.

Source: A.T. Kearney analysis

manufacturer has about 20 strategic suppliers that cater to almost 80 percent of its requirements;
these suppliers focus on product development and the creation of flexible manufacturing
strategies to support the launch and ramp-up phase. In return, the suppliers acquire
a substantial share of the business. The manufacturer credits this strategy for its position
as an innovation leader in the two-wheel vehicle segment.

Becoming a strategic partner usually means being indispensable to the manufacturer and
having strong account management skills. Both attributes are evident in an advanced account
development process and active selling time, as are market intelligence and the ability to manage
internal stakeholders during the bidding process and through all stages of product development.

Faster: Acting Now to Capture

the Next Wave of Growth
With the supply market at an inflection point, the time is ripe for all would-be participants
to act fast to avoid the risk of falling behind. Already, a host of international tier 1 component
makers are in India, and those that have not yet entered say they have plans to enter soon; the
supply landscape is expected to rapidly evolve over the next three to four years (see figure 6).
As global and Indian manufacturers invest in new capacity for new programs, more component
suppliers will have an opportunity to participate in the next wave of growth.

India’s Auto Component Suppliers: New Frontiers in Growth 8

The Pitfalls and the Payoff
As the Indian auto component segment ramps up, more suppliers are moving beyond their
current products, customer segments, and capabilities to capture new growth opportunities.
The biggest challenges, as discussed in this paper, lie in developing new capabilities and
convincing existing customers that an Indian supplier is up to the global challenge. Suppliers
that diversify into new products and vehicle segments will be less exposed to demand cycles
and more able to pursue the next growth wave. Those that are fully prepared for the competitive
angst are not only the most likely to survive in the near term, but also the best positioned to
thrive in the longer term.

Authors

Shiv Shivaraman, partner, Mumbai Vinod Kumar, principal, Mumbai

vinod.kumar@atkearney.com

Manish Mathur, partner, Gurgaon Gaurav Gupta, consultant, Gurgaon

manish.mathur@atkearney.com gaurav.gupta@atkearney.com

Goetz O. Klink, partner, Germany

goetz.o.klink@atkearney.com

The authors wish to thank Arunav Tripathi and Tamanna Padhi for their valuable contributions to this paper.

India’s Auto Component Suppliers: New Frontiers in Growth 9

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India’s Auto Component Suppliers: New Frontiers in Growth