The Evolution Of Indian Automobile Component Industry Economics Essay
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The Indian automobile component industry manufactures the entire range of parts required by the automobile industry for various vehicles including cars, jeeps, light and heavy commercial vehicles (LCVs and HCVs), tractors and two/three wheelers. The automobile component industry is an important sector of the Indian economy and a major foreign exchange earner for the country
The growth and maturity attained by the Indian automobile component industry is in line with that of the automobile industry in India. The automobile industry is cyclical in nature and is dependent on the growth of the economy and improvements in infrastructure. Factors like increased public spending, favourable interest rates and general improvement in per capita income lead to higher demand for automobiles. Although, the Indian automobile industry is expected to grow at a measured pace, the automobile component industry in turn is rapidly achieving global competitiveness, both in terms of cost and quality and is one of the handful of industries where India has a distinct competitive advantage.
The history of the Indian automobile component industry can be subdivided into various phases. In Phase I (1960-80) the Industry was predominantly a controlled, restricted and low growth industry. In Phase II (1980-95) with the advent of Maruti, this industry changed to a more quality focused, medium volume industry. Exports started growing although at a low rate during this period. During Phase III (1995 onwards), the market opened globally. Yet in this respect, unlike China where this opening up was planned and directed very carefully, India has been different. The opening up of the sector has been haphazard and the consequence has been the extreme fragmentation. 
Characteristics of the Industry
Size and Rate of Growth
The Indian automobile component industry has grown from US$ 18 billion during the FY 2007-08 to approximately US$ 19 billion, in 2008-09  . The industry is likely to grow up to US$ 20 billion by FY 2009-10 and almost double to approximately US$ 40 billion by FY 2015-16. 
Automobile Component Industry Growth 
The potential Compounded Annual Growth Rate (CAGR) of the Indian automobile component industry has been anticipated to be at 11% during 2008-2015  . By 2016, the industry is likely to contribute 10% of Gross Domestic Product (GDP) and 30-35% of the industry. 
The Indian automobile component industry can be divided into organized and the unorganized categories of manufacturers. The original equipment market is predominantly catered for by the organized sector of the industry. The organized automobile component manufacturers typically supply automobile components to at least one of the OEMs. They also usually have access to technology due to their ties with foreign collaborators or through Automotive Vehicle Manufacturers (AVMs). The unorganized sector, on the other hand, predominantly caters to the aftermarket. They operate independently with little investment and have a small scale of operation. Their primary focus is high volume and low technology components. They generally produce components based on copied drawings and their quality is sub-standard. These small-scale industries secure direct and indirect tax benefits through favourable government policies. A sizeable amount of production of automobile components comes from the unorganized sector.
According to the Automotive Components Manufacturers Association (ACMA), companies with an annual turnover of less than Rs. 50 crore can be classified as Small and Medium Enterprises (SMEs).
The majority of these units produce internationally competitive components. More and more SMEs are now looking for foreign partners for technology, skills and to find a potential market for their products. On a turnover basis, it is estimated that SMEs contribute around 20% of the total production in India and about 1% globally 
Sources of Demand 
The demand for automobile components is derived from three sources: the OEMs, the replacement market and exports. Currently replacement demand accounts for close to 35% of total demand, while OEMs account for 50%, with exports accounting for the balance 15%. 
The industry is on the fast track, clocking a CAGR of nearly 28% growth in the last four years, and is expected to grow at 13% per annum over the next decade to reach around US$ 130-159 billion by 2016.  This has been propelled by strong domestic demand and an indigenization drive.
OEM demand: The pattern of growth in the automobile segment affects the performance of the automobile component segment as the content of the components differs significantly across vehicle categories.. The demand emanating from the automobile segment could have a significant bearing on the performance of the automobile component manufacturers supplying this segment. In recent years, the principal drivers of demand for automobile components from the OEM segment have been passenger cars and commercial vehicles. In addition to the growth in production (on the strength of rising demand), increasing indigenization levels of the manufacturing operations of most of the OEMs that have entered the Indian market have also contributed to the growth in demand from OEMs.
Replacement demand: The automobile component supplier also caters to demand from the replacement market. Historically, the replacement market provided higher margins to vendors, but now the margins for vendors are declining as OEMs have increased their focus to boost their spare sales. The replacement market is also characterized by the presence of a large number of unorganized sector players who compete on prices. The five factors that primarily influence the aggregate annual demand for replacement parts are:
Size of the national vehicle population;
Average age of the national vehicle population;
Pollution norms and Government regulations;
Average number of kilometres driven per vehicle; and
Roads and other related conditions.
Export demand: India is a significant exporter of automobile components. Exports of automobile components from India have clocked a CAGR of 26% during 2003-2008 and the potential CAGR is expected to be around 27% during 2008-2015  .
Automobile components manufactured in India are mainly being exported to the US and European markets, which have a high population of automobiles. Neighbouring countries in South Asia are the next most significant export destination  . The major export destinations for the Indian automobile component industry with their respective market shares are depicted below  :
Major export destinations for the Indian automobile component industry with their respective market shares
Exports are targeted at global OEMs, the replacement market and domestic OEMs who export vehicles. Currently these exports largely cater to the replacement market, but this share is declining.
The share of exports as a percentage of turnover has risen from 18.9% in 2003-04 to 20.1% in 2008-09. The composition of exports in terms of the proportion of OEM and aftermarket has also undergone a sweeping change since the previous decade. The ratio of OEM to aftermarket has changed from 35:65 in the 1990s to 75:25 in 2007. 
The composition of exports is shown in the figure below  :
While exports have been booming, there has been a sharp rise in imports of automobile components as well, especially in the last few years. Imports of US$ 1,428 million in 2003-04 have gone up to US$ 6,360 million in 2008-09  . This is a healthy trend, indicative of rising domestic demand. 
India has around 575 firms making branded automobile components, with another 6,300  in the unbranded space, mostly clustered near the vehicle manufacturing hubs in National Capital Region (NCR), Pane-Mumbai and Chennai  . Thus, the Indian Automobile Component Industry is highly fragmented geographically.
OEMs have neglected the aftermarket for a long period due to their focus on mainstream products. This has led to proliferation of unorganized small-scale automobile component manufacturers. Presently, these manufacturers have grown in size and numbers beyond the control of OEMs. To counter this, OEMs are undertaking measures such as promotion of genuine brands, customer awareness programs, partnerships with local mechanics, branding of components and holographic packaging to protect against duplication.
Long controlled by families and limited to the home market, Indian firms are now looking overseas for increasing market shares, economies of scale and to boost profitability by attaining higher skill levels and a global customer base.
Globally, the automobile component industry is subject to a four-level tierisation:
Tier 0.5 suppliers: design and integrate components, sub-assemblies and systems into modules placed directly by the supplier in the assembly plants of the OEMs.
Tier I manufacturers: assemble the final modular systems and supply directly to the OEM or indirectly through Tier 0.5 suppliers
Tier II component manufacturers: supplies to Tier I manufacturers, assemble the sub-systems that go into the assembling of the modular systems.
Tier III suppliers: supply to Tier II and Tier I players and make the components that go into the assembly of sub-assemblies
Tierisation is the result of growing competition among the various automobile component manufacturers which forced them to curtail manufacturing costs through tierisation. It helps in reducing costs substantially by reducing the number of direct suppliers (i.e. purchase cost), providing economies of scale to suppliers through large volumes, sharing design and development costs of components, reducing time for vendor development, reducing capital investment for assembling sub-systems etc.
The process of tierisation entails a greater inter-dependence between the two levels of the industry. With the industry bending more towards integrated systems, component manufacturers are increasingly called upon to be competent and raise their quality standards. The efficiency of vehicle production is therefore crucially dependent on that of the supplier base. With these changes, the supplier-buyer relations in the automobile industry are also evolving in a more complex way.
With tierisation taking root, the Indian automobile component industry is expected to transform itself from a low-volume fragmented sector into a highly competitive sector marked by consolidation and world-class technology. Thus, a strategic shift is likely for the industry players. Currently, the level of system integration and specialization in the Indian industry is relatively low as compared with global industry standards. But as economies of scale and systems integration become key determinants of success for automobile component companies, size (of organization) will become a critical attribute. Accordingly, the Indian Automobile Component industry can expect a wave of mergers and acquisitions, with the top players consolidating their position as the rest are relegated to the Tier II and Tier III levels.
The challenges before global OEMs and Tier I players are pressure on sales and margins, stringent regulations driving technology, discerning customer demand, shifts in global markets and disintegration of global barriers. SMEs, that are broadly classified as Tier I and Tier II companies, driven by productivity, cost and volume, are beginning to play an increasingly important and supportive role to the Tier I companies, which are driven by technology. However, being small players, it is a challenge for them to avoid issues like delay in follow-up orders, inability to service large orders due to lack of scale and delay in shipments.
The tierisation of the Indian Automobile Component industry is also likely to have a considerable impact on the unorganized components sector. The weakest link in the tierisation chain is the Tier III vendors. There aren't enough of them in the market and those who exist provide a poor quality of products.
The key trends that have been witnessed in the Indian Automobile Component Industry are as follows:
Outsourcing: Global vehicle manufacturers are facing pressures on account of imperatives to launch newer models (as product lifecycles shorten) with additional features while maintaining selling prices. Globally, OEMs have identified the potential for cost savings through outsourcing to India, China and South East Asian countries among others. Global OEMs such as General Motors, Volvo, and Tier-I companies such as Cummins and Caterpillar have their global purchasing team present in India to source components are used in their plants across the world. Additionally, some players have announced their plans to increase the sourcing of components from Asia. While these exports offer higher volumes, margins may be lower in various cases than domestic sales due to higher costs of logistics and product liability insurance costs. According to recent estimates, global sourcing of components from India is to reach up to US$ 33-40 billion by 2015 from the current size of around US$ 15 billion  . Globally, according to a recent McKinney analysis, outsourcing in the Automobile Component sector could be worth US$ 375 billion by 2015. India has the potential to capture up to US$ 25 billion  of this total value to become the developing world's top sourcing base.  India has also emerged as an outsourcing hub for automobile parts for international companies such as Ford, General Motors, Daimler Chrysler AG, Honda and Toyota  .
Relocating to India is likely to benefit SMEs as much as the larger companies. Skilled and cheap labour, automation at lower cost and large investments in this sector are attracting global OEMs to India on a large scale.
Preferred manufacturing base: In the last couple of years, many automobile manufacturers have identified India as a manufacturing base for some of their models. The higher export of vehicles increases the demand for domestic automobile components.
Increasing focus on productivity: The increasing pressure on the margins of OEMs has translated into increasing pressure for the component manufacturers to deliver at lower cost. This has forced component manufacturers to enhance productivity through various techniques that include tear-down value analysis, lean manufacturing processes, and collaborative research among others.
Rising quality consciousness: The average quality of automobile components produced in India has been improving gradually, particularly during the past few years. Moreover, the increasing focus of the Indian automobile component manufacturers to address the stringent quality norms adhered to by global OEMs, has forced Indian companies to upgrade their facilities. Additionally, improvement in end-of-line rejection rates and customer rejection rates, the two measures of quality, point to the improved quality levels. According to an ACMA-McKinsey study, 564 automobile component companies in India have ISO 9000 certification, 56 have QS 9000, 397 have TS-16949, 186 have ISO 14001 and 60 have OHSAS 18001 certification. 
SMEs: As mentioned earlier, according to ACMA, companies with an annual turnover of less than Rs 50 crore can be classified as SMEs.  A well-debated issue, the definition of small and medium enterprises in India was very recently ratified. The Micro, Small and Medium Enterprises Bill, 2006, defines the segment on the basis of investments in plant and machinery. Small enterprises are those with an investment of not more than Rs 50 million in plant and machinery, and medium enterprises are those with an investment of over Rs 50 million but less than Rs 100 million in plant and machinery. This definition has finally put the segment within a legal framework. 
With India becoming the preferred destination for foreign OEMs, small scale units are set to flourish even further, provided they are prepared to scale up their capacities while maintaining high quality levels. With a majority of automobile component units functioning at a turnover of less than Rs 50 crore, it is necessary that timely investments are made, for which financing options should be enhanced. It is also necessary that quality levels are improved, along with the much needed investments in R&D. In general, SMEs, due to lack of funds, are not able to invest in R&D activities to develop techniques that are globally competitive. Moreover, attracting the right skills has been a big problem with the small scale sector. In recent years, the entry of large automotive companies has helped build the necessary capacity and provide the financial strength to expand to a number of small suppliers  .
On a turnover basis, it is estimated that SMEs contribute around 20% of total production. North India, on the whole, is becoming a hub for auto component companies. And the fact that nearly 35% of auto components exports are from this part of the country makes it an increasingly important export hub in India  . The division of production processes and outsourcing among global automobile manufacturers has led to a major reorganization of the supply base within the automobile and auto component industry. This new business model being followed by global companies holds tremendous potential for the growth of SMEs in India.
The key limitations that the automobile component SMEs face include:
Fluctuations in the cost of production; especially raw materials like steel, aluminium, polymers etc.;
Poor negotiation powers due to the fragmented nature of the industry, which in turn limits pricing power;
Dependence on traders and agents to access overseas markets which threatens their competitiveness;
Product substitutes due to fast-changing technology; etc.
Addressing these challenges and risks will be crucial to promoting SMEs in the automobile component industry. The Indian Government has initiated cluster-based development - geographical concentration of enterprises having similar lines of business - which gives rise to external economies and favours emergence of specialized technical, administrative and financial services. This form of networking of small firms is a means of achieving economies of scale. Extending this initiative further, the Government is encouraging banks to adopt a cluster-based lending approach to ease availability of funds to SMEs.
Multinational automobile manufacturers like Magna International of Canada, Delphi and Ford of US and some European companies have announced plans to enter the Indian markets. This bodes well for the automobile component industry as it would enable the collective development of automobile component SMEs. This will bring in better technology, skills, new products and an assured market. Strategic links and contract manufacturing is another way forward for SMEs in the automobile component industry. 
Plant locations in proximity to OEMs: In a bid to facilitate faster delivery and lower freight charges, automobile component manufacturers are located largely around their OEM customers. This is particularly so since a large number of organized sector players supply directly to the OEM.
Indo-Thai Free Trade Agreement (FTA): The Indo-Thai FTA was signed by India and Thailand in 2003. With the signing of the FTA, under the `Early Harvest Programme,' both sides immediately reduced tariffs on 82 products (which included automobile components), with the objective of reducing them finally to zero by 2010  . These 82 items cover 7% of the Indo-Thai trade  . The FTA was expected to boost Indo-Thai trade, especially with regard to automobile component industries in the two countries. However, subsequent years have shown there to be several factors holding back the Indian automobile component industry in the context of the Indo-Thai FTA. These relate to high cost of production, higher import duties, infrastructure service costs and a huge interest rate differential compared with Thailand. These internal cost disadvantages are eroding the competitiveness of domestic companies with respect to Thai imports. A comparison of the import duties on certain raw materials in India and Thailand reveals that inputs such as glass parts and chemicals can be imported duty free into Thailand but attract a 15% duty when imported into India  . Nonetheless, the real impact of the FTA will be more apparent over the longer term.
Investments: Investments in the automobile component sector have grown from US$ 7.2bn in 2007-08 to US$ 7.7bn in 2008-09.  . Moreover, the Investment Commission has set a target to attract Foreign Direct Investment (FDI) worth US$ 5 billion in the next few years. 
The Indian automobile components industry enjoys competitive advantage primarily on the strength of the following factors:
India has a highly skilled workforce and low labour costs which pull down the total cost of production. This gives it an added advantage over the other competitors.
The Indian automobile components industry has the advantage of the lowest skilled labour cost in the world. Hence, the overall manufacturing costs for firms in India are highly competitive in comparison to their western counterparts.
In-depth understanding of technical drawings and adoption of global automotive standards (like American, Korean, Japanese and European) by the Indian players has led to higher efficiencies and better quality. 
Sourcing parts from India is about 10-20% cheaper for American automobile makers and about 50% cheaper for European makers. Such cost benefits have played a major role in the fast pace development of this sector in India  .
Advantage doesn't come from cost alone. It is about Full Service Supply (FSS) capability. As product cycles and lead times for product development shrink, Indian manufacturers have evolved from "build to print" to customized offerings.  The industry is capable of becoming a full-fledged service provider (research, design, development, testing) to global OEMs and scores over competitors like China and Thailand more in terms of Information Technology advantages.
India has relatively less stringent environmental regulations (environmental regulations have rendered the production of some parts like castings cost prohibitive in developed countries).
Overseas acquisitions by Indian automobile component manufacturers in situations that offer proximity to global OEMs have been growing. Benefits of such acquisitions include multi-location manufacturing facilities, expansion of product range, access to clients and to new technologies and progress in the value chain of component supply.
The ability to adapt to low-volume production using appropriate technology and automation and to improve productivity and quality strengthens the industry's position in the global arena.
The industry's competitive advantage coupled with brand consciousness is increasing the attractiveness of India as an outsourcing hub and consequently is increasing the focus on exports.
Better growth opportunities are expected to arise for OEMs due to the increasing rush to add high-tech features to vehicles in order to distinguish them and to comply with safety and emission regulations.
Compliance with higher emission norms has led to progress in technology, which has established India's capability in developing cleaner vehicles and components. Using standards equivalent to European levels encourages export of Indian products. Components such as catalytic converters, electronic fuel injection devices and the design capability for developing cleaner combustion chambers should soon attract the attention of private R&D centres and institutions for more collaborative efforts.
India's high designing and engineering capability is evident from statistics, which rank India second in the world in terms of availability of skilled labour and first in terms of availability of qualified engineers in comparison with six other countries, namely Germany, Brazil, China, Mexico, Czech Republic and the US.
Government initiatives like automatic approval for foreign equity investment up to 100% for the manufacture of automobile components have been very beneficial for the sector. Manufacturing and imports in this sector are free from licensing and approvals. There is no local content regulation in the automobile industry. The engineering export promotion council, under the aegis of the Ministry of Commerce and Industry, Government of India, has been engaged in promoting exports of engineering goods including auto parts. Some other government initiatives that have been effected recently are:
Reduction in the duty of raw material to 8% from the earlier 10% so as to protect vulnerable industries from global economic crisis. 
In the 2009 Budget, excise duty has been reduced from 16% to 12% on small cars, two and three wheelers, from 24% to 14% on hybrid cars, from 8% to nil on electric cars and 16% to nil on specified parts of electric cars. This has created positive market sentiment towards automobile units, especially the ones having exposure to small car producers. The reduction in peak customs duty levels from 10% to 5% on specified raw materials for the tyre industry and a 125% weighted deduction for outsourced R&D should provide some relief to automobile components producers.
Setting up of the National Automotive Testing and R&D Infrastructure Project (NATRIP) to create state of the art testing, validation and R&D infrastructure in the country, which would help in transferring technology from Tier I to Tier III cities. This project, with an investment of US$ 380 million, aims to set up independent automotive centres at Manesar, Chennai, Pune, Indore and Rae Bareily. 
Finalization of the Automotive Mission Plan (AMP) 2016 aims to increase turnover to US$ 145 billion, export revenues to US$ 35 billion and provide employment for an additional 25 million people, thereby making India a preferred destination for design and manufacture of automobile and automobile components. 
The key factors that inhibit the growth of the Indian Automobile Component Industry are as follows:
Indian Automobile Component manufacturers are deprived of economies of scale, as too many models are being produced in the market with comparatively lesser demand. This makes it difficult for companies to invest extensively in R&D and development. Simultaneously, with pressure on prices of components, the automobile component manufacturers are not able to recover investments in new equipment and technology.
The Indo-Thai FTA has hurt domestic players as they pay a relatively high duty as compared to the duty being paid by their Asian counterparts. This has led to a huge surge in imports from Thailand into India while exports from India have not benefited so much, given the small size of the Thai market.
The Indian automobile component industry is marked by high transaction costs, high infrastructure and power costs. This reduces the competitiveness of the industry with respect to other competitors.
The industry also has inadequate facilities/technologies. This prohibits it from undertaking large export orders. As such India cannot ignore competition from other outsourcing destinations like China and Brazil. Raw material prices have been going up over the past year. For instance, the price of lead, which constitutes 70% of total cost for battery manufacturers, have been sky rocketing for the last year and companies like Exide have not been able to pass on the entire cost pressure to the consumer. 
Most international OEMs enforce a product liability clause, which stipulates that suppliers will be charged punitive damages in case of a line stoppage or a product recall caused by supply of defective components.
In the case of export contracts from international OEMs, the lead time from the request for quotation until the time of commencement of actual supplies can be as high as 3-4 years. This could prove disadvantageous for the sector.
Counterfeit products account for close to 35% with a market share of Rs. 5,300 crore of the current size of Rs. 16,000 crore of the automotive parts to the replacement market.
Impact of Global Economic Slowdown
The automobile industry is being severely affected by the liquidity crisis. What started off with the commercial vehicle segment now afflicts almost all segments. With sales below expectations, the collections of gross contribution (sales - truly variable costs) are not adequate to pay for total periodic expenses like salaries, rent, etc. This cash crunch is further compounded by the compulsion to pay for the raw material currently lying in finished goods that have not been sold immediately (in the automaker's own warehouse or at the dealers/distributors). As a knee-jerk reaction, many companies are cutting back payments to their suppliers. Payments more than two months overdue (on a credit period of two months), compounded by the reluctance of banks to lend more to small companies, have pushed some component suppliers to the brink of shutting down.
The severe working capital issues of suppliers are causing a boomerang effect back on the OEMs. The suppliers are finding it difficult to supply for current (immediate sales) of the OEMs. So we have OEMs stuck with huge finished goods inventory of some products which are not selling fast and not having components for items which can sell immediately, further hindering the flow of liquid assets.
Due to the higher risk of carrying high inventory in these uncertain times, distributors and dealers are not accepting the push until they clear their current inventory. This and the current huge piles of finished goods (more than two months) with automakers have pushed them to cut production by 30-50 percent a month, which they are ensuring through block plant closures.
Production cuts by customers amplify the production cuts at the suppliers even more, as the suppliers also have finished goods. Suppliers give workers long breaks, which is a huge business risk as they may not get them back when required, affecting both their business and that of the OEMs. These are extraordinary times for the global auto industry. The Big Three US automakers, GM, Ford and Chrysler are asking for US$ 34 billion from the US government after presenting their restructuring plans to the US Congress.
In recent years, growth also accelerated in resource-rich economies such as the Middle East, Russia and Brazil while India posted double-digit growth in 2006 and 2007. Although worries associated with sub prime lending had started to surface in August 2007, even at the beginning of 2008, there were few signs that the situation would escalate to the extent that it has and that the global economy and the auto industry would fall into a synchronised global slump.
While demand in the US and Western Europe was expected to be sluggish in 2008, demand in emerging markets such as India and China was expected to show healthy growth, while high oil and commodity prices were expected to underpin strong growth in Russia, the Middle East and Brazil.
During the first three quarters of 2008, high energy and commodity prices were the major cause for concern for countries that relied on oil and commodity imports while commodity producing countries enjoyed an unprecedented boom. In this environment, the US saw high fuel prices and an economic slowdown that triggered not only a slowdown in demand but also a shift in demand from large petrol-guzzling SUVs and pick-up trucks to more fuel efficient passenger cars. Initially, the major theme was segmentation shifts but as the year progressed, the bigger concern was the collapse in demand for all vehicles.
In 2009, tight credit, the virtual disappearance of leasing, rising unemployment levels and massive reduction in wealth will all combine to hit vehicle sales. The contraction of five million units in the US light vehicle market between 2007 and 2009 means that companies with high exposure to the US market are facing the biggest challenges. 
The Indian Automobile Component industry as a whole has the potential to grow from US$ 35 billion presently to US$ 145 billion in the next seven years while exports are expected to grow to as much as US$ 35 billion  . Furthermore, exports as a percentage of total sector revenue are expected to nearly double over the next few years. To meet the combined demand from domestic and international customers, the industry will have to make incremental investment. ACMA has forecasted that the industry will invest close to US$ 20 billion by 2015-16 to expand, which translates into a CAGR of 13.6% in investment  .
The industry is expected to witness healthy growth in sales on the strength of strong growth in exports. However, while the export growth potential remains significant, the ability of automobile component players to capitalize on their strengths and overcome challenges assumes greater importance. The recent overseas acquisitions by automobile component companies will allow diversification of revenues, thus reducing exposure to cyclicality in domestic market and lending an increased access to new customers and technologies.
The Indian Automobile Component Industry needs to put in considerable efforts and incur substantial expenditure in order to tackle the high degree of competitive pressure and accordingly align itself with global standards. This might, in the short run, put additional pressure on margins, which even presently are small.
Innovation and cost pruning hold the key to meeting the global challenge of rising demand from developed countries and competition from other emerging economies. Several large Indian automobile component manufacturers are already gearing to this new reality and are in the process of substantially investing in capacity expansion, establishing partnerships in India and abroad, acquiring companies overseas and setting up Greenfield ventures, R&D facilities and design capabilities.
The trend of domestic automobile component manufacturers acquiring companies abroad is indicative of the changing business environment in the country. Top automobile component manufacturers are gearing up to take bigger risks. Their cross-border vision has established them as global companies. Though the going-global phenomenon is limited to a handful of companies, the smaller companies are also indirectly gearing to this trend by entering into formal manufacturing contracts and specialization. 
The Government of India is drawing up an Automotive Mission Plan 2016 (AMP 2016) that aims to make India a global automotive hub. To maintain the high rate of growth of the automobile industry and to retain the attractiveness of the Indian market and further enhancing the competitiveness of Indian companies, the Government has prepared this ten-year AMP. The idea is to draw a futuristic plan of action with full participation of the stakeholders and to implement it to meet the challenges coming in the way of growth of industry. Through this AMP, Government also wants to provide a level playing field to the players in the sector and to lay a predictable future direction of growth to enable manufacturers to make more informed investment decisions. 
The industry is transforming, and the boost in demand will see the emergence of several new players in the industry. The vast market for automobile components, and the diverse products and technology involved ensures a place and role for many. At the same time, the entry of several global automobile manufacturers will bring in more regulation into the industry and see a pruning of the spurious market. Among the smaller players in the unorganized segment, this implies moving away from being standalone companies, to entering into either contract manufacturing or being ancillary units. The newly defined rules that hold the key to success in the automobile component industry are specialization, development.
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