Growth Opportunities for Indian Automotive Manufacturers

Being one of the important contributors to world economies, the automotive industry has been subject to globalization in the western world for a long time now. Need for high resource commitments, nature of the industry (scale sensitivity), the current stage in the industry life cycle, increasing competition and declining unit profit margins have forced automobile manufacturers to merge, form alliances or co-operate in the field of R&D, production , marketing and distribution.

The formation of global oligopolies first by regional consolidation and then on a global scale has been evident from the spate of mergers and strategic alliances. In the backdrop of mega mergers there has also been a change in the strategies of the global component suppliers. With the tierization of suppliers, the Tier 1 suppliers (those who directly supply to the OEM’s) have increasingly taken on the role of module integrators and have come under severe cost pressure from OEM’s as a direct result.

The OEM–vendor relationship has changed drastically over the last five years and it is now cost not allegiances, which determine who carmaker, buys from. Thus they too have taken the consolidation route to survive in the times of intense cost competition. The above trends have prompted them to look at emerging countries for component and vehicle manufacture due to the inherent advantages in production and potentially large markets. As it makes less sense to focus on the geographical origins of the components or assemblage (as long as the brand guarantees as certain level of quality), there has been a gradual re-orientation in the perspective of automobile manufacturers.