Automotive to India
Trends and opportunities
Indian auto industry is the world’s six-largest producer of the automobiles in terms of volume and value. It has grown 14.4 per cent over the past decade. With more than 35 automakers the industry contributes seven per cent to India’s GDP and is responsible for seven to eight per cent of India’s total employed population (Source: AT Kearney report, The Contribution of the Automobile industry to technology and value creation, Jan 2014).
India is now a globally recognised hub for the small car market with a number of international original equipment manufacturer (OEM) entering the market in the last few years. Besides the passenger vehicle segment, India is also a leading manufacturer of tractors, two-wheelers and commercial vehicles. In recent years, domestic automobile majors have ventured into international markets, and exports of automobiles are growing.
The growth of the Indian economy in recent years has attracted global auto majors to the market and provides trained engineering manpower at competitive costs making it a favoured global manufacturing hub. The long term growth potential of the market, combined with the stagnation of the auto sector in markets such as Europe, US and Japan, has resulted in a shifting of capacities and flow of capital to the Indian automobile industry.
Export growth has been the strongest in the small-car segment to emerging economies in Africa, South and Southeast Asia and Latin America (especially right-hand-drive countries with similar price point preferences), supplementing earlier penetration into European markets. Passenger Motor Vehicles (PMV’s) are now India's leading merchandise export to Australia. (Source: Department of Foreign Affairs and Trade, India - Fact Sheet, Dec 2014)
The potential for growth exists in India as just 12 people in every 1000 own a passenger car, while in the most European countries it is over 500 cars per 1000 people (Source: International Road Federation, World Road Statistics and data files, Dec 2014).
The Indian market has become highly competitive, complex and is rapidly changing. Demand for new technology is driven by three key factors:
- Government policies pertaining to fuel economy, emissions and safety have encouraged the adoption of new technologies.
- In the highly competitive market, OEMs are now depending upon new technologies as their key differentiation to win market share.
- Increasing consumer demand for superior technology and enhanced performance are driving the demand for new features including light-weighting, improved design and new vehicle data and communications technologies.
The average research & development (R&D) intensity of major OEMs has increased from less than one per cent a decade ago to two to three per cent of total revenue. Most OEMs current activities will further increase to a global average level of more than four per cent over the next five years and the budget for advanced technologies is also expected to double from 10 per cent in the next five years.
Recently, companies have made aggressive investments and entered into new collaborations employing every possible avenue to adopt newer technologies:
- outsourcing projects to engineering consultants
- collaborating with academic research institutions
- forming joint ventures/technical alliances
- hiring experts from global OEMs.
A recently commissioned report from KPMG highlighted interest from Indian OEMs to partner with international organisations in:
- vehicle electrification and gaseous fuels.
Areas for growth in India for Australian technology and solution include:
- research and development partnerships
- technology transfer
- IP agreements for local manufacturing
- innovative services including design, process re-engineering, testing and new manufacturing techniques such as 3D printing.
(Source: KPMG, Opportunity assessment of automotive R&D market in India, March 2015 - Please contact Austrade for a copy of this report)
The Indian market for components, new technologies and services is competitive.
Global OEM’s are increasing investment in India to cater to the growing domestic demand. These manufacturers are leveraging India’s cost competitive advantage to set up export-oriented production hubs, offering new opportunities for Australian industry players. However in many cases they are strong connections to suppliers and expertise from their country of origin or through existing global supply chains. Multinational companies are also relying on Indian expertise to get the cost right and localise their vehicles for the Indian market.
Indian OEMs such as Mahindra & Mahindra and Tata Motors are banking on global engineering firms like South Korea's LG and Italy's Pininfarina and their R&D bases in Europe and the USA to develop world-class products. Tata Motors' advanced modular platform, X4, is being developed out of the company's Technical Centre in Coventry, UK, while Mahindra & Mahindra is relying on its engineering bases in Europe and the USA for the future compact utility vehicles.
Indian companies are trying to fill the gap that they have (need access to high technologies), by going overseas for solutions and the global multinationals are trying to leverage Indian expertise (need access to low cost engineering), by relying on local engineering talent. Both segments offer niche partnerships for Australia.
Tariffs, regulations and customs
The Government of India intends to make the country an automotive manufacturing hub by offering:
- no restriction on Foreign Direct Investments (FDI)
- no requirement of local content although the Indian automotive industry is sensitive about importing Complete Built Vehicles (CBU) and local assembly is preferred.
- no export obligation
- no foreign exchange neutralisation
- no minimum R&D spend
- World Trade Organization (WTO) compliant policies
- conditions of import – emission and safety norms as applicable to domestic companies
- robust legal system and stable foreign exchange regime
- increased engagements in Free Trade Agreements
For more information on specific tariffs, visit the Society of Indian Automobile Manufactures.
Marketing your products and services
Partnering with local company through technical licensing or with a local presence reduces the cost of service delivery and is the preferred option by the OEM’s in India. Establishing trade relationships with suppliers who sell to OEM component manufacturers is a recommended approach. Often this trading relationship is converted into an investment partnership in order to secure market share.
Another option is R&D collaborations and contract research in the areas of advanced technologies directly with auto component manufacturers or OEMs. Exporting directly or through an Indian partner is a suitable option for the supply of aftermarket products and services through importers/distributors as the market is large and fragmented.
Key strategies that should be considered when marketing automotive technology services/products include:
- Automotive technologies and products are industry focused and specialised, targeted market visits to potential customers and strategic partners are effective for initial market development.
- Promotional activities such as Research Symposiums are useful for promoting new technologies and material applications.
International Commercial Vehicle Fair, Chennai 11 to 13 Sep 2015
Innovation Showcase Mission to India 2015, New Delhi, Mumbai, Bangalore and Chennai, 21 to 25 Sep 2015
International Exhibition on Foundry Technology, Coimbatore, 29 to 31 Jan 2016
Auto Expo – The Components Show, Pragathi Maidan, New Delhi, 4 to 7 Feb 2016
Auto Expo - The Motor Show, India Expo Mart, Greater Noida, Delhi NCR, 5 to 9 Feb 2016
Links and industry contacts
Society of Indian Automobile Manufacturers
Automotive Component Manufacturers Association of India (ACMA)
Confederation of Indian Industry
Federation of All India Automobile Spare Parts Dealers Association
The Federation of Motor Sports Clubs of India (FMSCI)
National Automotive Testing and R&D Infrastructure Project (NATRiP)
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