strategy development for enhancing …of the degree of doctor of philosophy in business management...

1

STRATEGY DEVELOPMENT FOR ENHANCING COMPETITIVENESS

AND EXPORT GROWTH FOR AUTO COMPONENT

MANUFACTURERS

WITH SPECIAL REFERENCE TO AUTO COMPONENT UNITS IN

PUNE, AURANGABAD AND NASIK

THESIS SUBMITTED TO THE PADMASHREE DR.D.Y.PATIL

UNIVERSITY‟S DEPARTMENT OF BUSINESS MANAGEMENT IN

PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD

OF THE DEGREE OF

DOCTOR OF PHILOSOPHY

In

BUSINESS MANAGEMENT

SUBMITTED BY:

SHWETA BHOSALE

Enrollment No: (DYP-PhD-066100007)

RESEARCH GUIDE

Dr. PRADIP MANJREKAR

PROFESSOR

PADMASHREE DR. D.Y. PATIL UNIVERSITY,

DEPARTMENT OF BUSINESS MANAGEMENT,

Sector 4, Plot No. 10,

CBD Belapur, Navi Mumbai – 400 614

NOVEMBER 2011

2

STRATEGY DEVELOPMENT FOR ENHANCING COMPETITIVENESS

AND EXPORT GROWTH FOR AUTO COMPONENT

MANUFACTURERS

WITH SPECIAL REFERENCE TO AUTO COMPONENT UNITS IN

PUNE, AURANGABAD AND NASIK

THESIS SUBMITTED TO THE PADMASHREE DR.D.Y.PATIL

UNIVERSITY‟S DEPARTMENT OF BUSINESS MANAGEMENT IN

PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD

OF THE DEGREE OF

DOCTOR OF PHILOSOPHY

In

BUSINESS MANAGEMENT

SUBMITTED BY:

SHWETA BHOSALE

Enrollment No: (DYP-PhD-066100007)

RESEARCH GUIDE

Dr. PRADIP MANJREKAR

PROFESSOR

PADMASHREE DR. D.Y. PATIL UNIVERSITY,

DEPARTMENT OF BUSINESS MANAGEMENT,

Sector 4, Plot No. 10,

CBD Belapur, Navi Mumbai – 400 614

NOVEMBER 2011

3

STRATEGY DEVELOPMENT FOR ENHANCING

COMPETITIVENESS AND EXPORT GROWTH FOR AUTO

COMPONENT MANUFACTURERS

WITH SPECIAL REFERENCE TO AUTO COMPONENT

UNITS IN PUNE, AURANGABAD AND NASIK

4

DECLARATION

I hereby declare that the thesis entitled ―Strategy development for

enhancing competitiveness and export growth for auto component

manufacturers. With reference to auto component units in Pune,

Aurangabad and Nasik‖ submitted for the Award of Doctor of

Philosophy in Business Management at the Padmashree Dr. D.Y. Patil

University Department of Business Management is my original work

and the thesis has not formed the basis for the award of any degree,

associate ship, fellowship or any other similar titles.

Place: Navi Mumbai

Date:

Ms.Shweta Bhosale

(PhD Scholar)

5

CERTIFICATE

This is to certify that the thesis entitled “Strategy development for

enhancing competitiveness and export growth for auto component

manufacturers. With reference to auto component units in Pune,

Aurangabad and Nasik” and submitted by Ms.Shweta Bhosale is a

bonafide research work for the award of the Doctor of Philosophy in

Business Management at the Padmashree Dr. D. Y. Patil University

Department of Business Management in partial fulfillment of the

requirements for the award of the Degree of Doctor of Philosophy in

Business Management and that the thesis has not formed the basis

for the award previously of any degree, diploma, associate ship,

fellowship or any other similar title of any University or Institution.

Also certified that the thesis represents an independent work on the

part of the candidate.

Place: Navi Mumbai Dr.R.Gopal Dr.Pradip Manjrekar

Date: (Director, Dean and (Research Guide)

Head of the department)

6

ACKNOWLEDGEMENT

In the first place, I am indebted to the Padmashree Dr. D.Y. Patil

University Department of Business Management, which has

accepted me for Doctorate program and provided me with an excellent

opportunity to carry out the present research project.

I would also like to thank Dr. Pradip Manjrekar, Professor and my

research guide and to Dr. R.Gopal, Director, Dean and Head of

Department of Business Management, Padmashree Dr.D.Y. Patil

University, Navi Mumbai for having given me their valuable guidance

for the project. Without their help it would have been impossible for me

to complete the project.

I would be failing in my duty if I do not acknowledge with a deep sense

of gratitude the sacrifices made by my Father Mr.Sunil Bhosale and

Mother Mrs.Meenakshi Bhosale for supporting me in completing the

project work successfully.

Place: Mumbai Shweta Bhosale

Date: (Signature of the PhD Scholar)

7

Table of content

Sr

No. Chapters

Page

No.

List of tables

List of Figures

List of Abbreviations

Executive summary 19

1. Introduction 27

2. Auto component industry overview 37

3. Trade agreements 90

4. Need for strategy development for enhancing

competitiveness and export 116

5. Organizations and initiatives to promote the growth of

Indian auto component industry 153

6. Industrial cluster 168

7. Review of literature 189

8. Objectives of the research 224

9. Research methodology 229

10. Data analysis and findings 237

11. Conclusion 293

12. Recommendation 297

References 303

Annexure 343

Questionnaire 344

Tables of data analysis 349

8

List of figures

Figure

no. Figure Title

Page

no.

1.1 Worldwide production of motor vehicles 29

1.2 Global automotive sales forecast 30

1.3 Gross turnover of the automobile industry in India 31

1.4 Domestic automobile sales trends in India 33

1.5 Automobile exports trends for India 35

2.1 International trade of major Auto component producing

countries 39

2.2 International trade of major Asian Auto component producing

countries 40

2.3 Supply chain of Indian Automotive industry 45

2.4 Structure of auto component industry 48

2.5 Supply chain structure in automobile industry 49

2.6 Classification of auto component market 50

2.7 Classification of auto component segment 54

2.8 Auto component parts manufactured 59

2.9 Segment wise cost structure in the auto component sector 60

2.10 Demand drivers of the auto components segment 61

2.11 Advantages for global leaders in manufacturing components 62

2.12 Export markets of India 63

2.13 Exports of Auto components 64

2.14 Major US Auto component Imports 66

2.15 Cost structure of factors of production 69

2.16 Share of SSI sector in the auto components segment 75

4.1 The 12 pillars of competitiveness 120

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4.2 Strategy formation 123

4.3 Drivers of competitiveness of the automobile and auto

components sector 124

4.4 Drivers of cost competitiveness 126

4.5 A General Model for Assessing Export performance and

variables 130

4.6 Competitiveness of Indian auto components 141

6.1 The pyramid model of regional competitiveness 172

6.2 Domestic vehicle sales by regions 183

10.1 Clusters in the automotive components industry in India 238

10.2 Distribution of automotive component units in Maharashtra 239

10

List of Tables

Table no Title of the table Page.No

9.1 Sample size 235

10.1.1.a Association between Size of company and export

strategy

359

10.1.1.b Chi-square (Association between Size of company

and export strategy)

360

10.1.2.a Association between year of establishment and its

effect on export level

360

10.1.2.b Chi-square (Association between year of

establishment and its effect on export level)

361

10.1.3.a Association of ownership pattern and export strategy 361

10.1.3.b Chi-square (Association of ownership pattern and

export strategy)

361

10.1.4.a Association between number of employees and

export strategy

362

10.1.4.b Chi-square (Association between number of

employees and export strategy)

362

10.1.5.a Effect of internal factors on productivity and exports 363

10.1.5.b Chi-square (Effect of internal factors on productivity

and exports)

363

10.1.6.a Effect of external factors on strategy development for

productivity and exports

363

10.1.6.b Chi-square (Effect of external factors on strategy

development for productivity and exports)

364

10.1.7.a Association between investment priorities and export

competency

364

10.1.7.b Chi-square (Association between investment priorities

and export competency)

365

10.1.8.a Association between competency index and export

competency

365

11

10.1.8.b Chi-square (Association between competency index


365

10.1.9.a Effect of present cost strategy on export competency 366

10.1.9.b Chi-square (Effect of present cost strategy on export

competency)

366

10.1.10.a Effect of present quality strategy on export

competency

367

10.1.10.b Chi-square (Effect of present quality strategy on

export competency)

367

10.1.11.a Association between competitiveness and export

competency

367

10.1.11.b Chi-square (Association between competitiveness


368

10.1.3.c ANOVA (Association of ownership pattern and export

strategy)

368

10.1.4.c ANOVA (Association between number of employees


368

10.1.5.c ANOVA (Effect of internal factors on productivity and

exports)

369

10.1.6.c ANOVA (Effect of external factors on strategy


369

10.1.9.c ANOVA (Effect of present cost strategy on export

competency)

370

10.1.11.c ANOVA (Association between competitiveness and

export competency)

370


strategy

385



385



386

10.2.2.b Chi-square (Association between year of 386

12




export strategy)

387


export strategy

387



388



and exports)

389



389



390


competency

390



390


competency

391



391



competency)

392


competency

392


export competency)

393


competency

393

13



394

10.2.3.c ANOVA (Association of ownership pattern and export

strategy)

394

10.2.4.c ANOVA (Association between number of employees


395



395

10.2.9.c ANOVA (Effect of present cost strategy on export

competency)

395

10.2.11.c ANOVA (Association between competitiveness and

export competency)

396


strategy

407



407



407

10.3.2.b Chi-square (Association between year of


408



export strategy)

409


export strategy

409



409



and exports)

410



410

14



411


competency

411



412


competency

412



413



competency)

414


competency

414


export competency)

415


competency

415



416

10.3.1.c ANOVA (Association between Size of company and

export strategy)

416

10.3.2.c ANOVA (Association between year of establishment

and its effect on export level)

416

10.3.3.c ANOVA ((Association of ownership pattern and export

strategy)

417

10.3.5.c ANOVA (Effect of internal factors on productivity and

exports)

417



418

10.3.11.c ANOVA (Association between competitiveness and 418

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export competency)

10.4.1 T-Test (Pune and Nasik) 419

10.4.2 T-Test (Pune and Aurangabad) 419

10.4.3 T-Test (Nasik and Aurangabad) 419

16

List of abbreviations

Abbreviation Full form

ACEA European Automobile manufacturers association

ACMA Automotive Component Manufacturers Association

ADB Asian Development Bank

AICO ASEAN Industrial cooperation scheme

APP Asset Process Performance

ATMA Automotive tyre manufacturers association

AQL Accepted Quality Level

ARAI Automotive Research Association of India

ASEAN Association of the South East Asian Nations

BCI Business Competitiveness index

CAE Computer aided engineering

CAR Core group on automotive research

CBU Completely built unit

CEPT Common effective preferential tariff

CKD Completely knocked down

CMIE Centre for monitoring Indian economy

CMVR Central motor vehicle rules

DDA Doha development agenda

EDL Engine development laboratory

EOU Export oriented units

EPCG Export promotion of capital goods scheme

FDI Foreign Direct Investment

FICCI Federation of Indian Commerce and Industry

FTA Free Trade Agreement

17

GAC General administration of customs

GCI Global competitiveness index

GDP Gross Domestic Product

GOI Government Of India

IBEF Indian brand equity foundation

IIUS Industrial Infrastructure Upgradation Scheme

IMacS ICRA management consulting services limited

IMF International monetary fund

IPOs International Purchase Offices

ISO International organization for standardization

LCC Low Cost Countries

LCV Light commercial vehicles

LE‘s Large enterprises

LME London metal exchange

LME London Metal Exchange

MAI Market access initiative

MOU Memorandum Of Understanding

NABL National accreditation board for testing and calibration

laboratories

NAFTA North America Free trade Agreement

NATIS NATRIP implementation society

NATRIP National Automotive Testing and R & D Infrastructure

Project

OEM‘s Original Equipment Manufacturers

OHSAS Occupational health and safety advisory services

PIB Press information bureau

PIU Project implementation unit

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PMP Phased Manufacturing Programme

PTA Preferential trade agreement

R & D Research and Development

SAFTA South Asian free trade area

SAPs Special Auto-Component Parks

SDL Structural dynamics laboratory

SDRC State development and reform commission

SEZ Special economic zone

SIAM Society for Indian Automobile Association

SME Small and Medium Enterprise

SMERA SME Rating Agency of India Limited

SPSS Statistical package for the social science

VAT Value added tax

VRDE Vehicle research and development establishment

WCY World Competitive Yearbook

WEF World Economic Forum

WITS World integrated trade solution

WTO World trade organisation

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EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY

Automotive industry, globally, as well in India, can be said as one of the

key sectors of the economy. According to ACMA (Automotive

Component Manufacturers Association of India) India has risen to be

the second largest two-wheeler manufacturer in the world, seventh in

global production in motor vehicles, and every major automobile

manufacturer in the world has manufacturing facilities in India.

According to the industry experts key industry drivers of automotive

industry are:

It offers support to other industries such as iron, steel, rubber,

glass, plastic, petroleum, oil & gas, etc. As these are the major raw

material inputs for this industry.

Raising foreign investments which led to rapid growth in terms of

automobile production and exports. Overseas companies make

huge investments and install extensive production capacities in

developing countries as production cost is low.

Continuous investment in R & D resulted in the increase

productivity and better quality automobiles, automotive accessories

and parts.

Increase in standards of living and purchasing power parity have

resulted in the increase demand of automobiles especially four-

wheelers in developing nations, mostly in South Asian region. And

simultaneously increased demand for auto components also.

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This sector provides employment to major chunk of human

population in the world i.e. 25 million. This industry provides millions

of jobs to the people.

Adequate infrastructural facilities in form of power supply,

machinery, capital ready availability of raw materials and labour

help in the tremendous growth of this industry in India.

Auto industry helps to increase the efficiency and productivity, both

directly and indirectly in accelerating the efficiency of other sectors

through factor movements of goods and people in any economy. Due

to above reason the industry is recognized as one of the major drivers

of economic growth as it contributes significantly to the overall GDP of

the nation. Automobile sector has been identified at different forums as

a sector with a high potential to increase exports and increase

employment.

In India also automobile is considered to be a major industry.

Government is motivating automobile as well as auto component

sector to grow. Indian auto component manufacturing is currently

constrained by lack of large capacities. Indian automobile industry is a

fragmented industry. There are many small and medium scale

industries which are major contributors to this industry. Greater variety

in vehicle launches by Original Equipment Manufacturers (OEMs) in

recent years and increased export demand are offering newer

challenges to manufacturing capabilities and economies of scale of

component manufacturers. Due to rising competition and growth

22

potential, the auto component industry has been exposed to many risks

of varying intensity. Similarly, the current state of competition also

increases risks due to competitive forces. To grow and sustain in this

industry the companies have to develop certain strategies.

Strategy development, also known as strategic planning, is

fundamental to creating and running a business. Its plan that sets

specific goals and objectives, it is capable of being changed in

response to shifting market dynamics. Strategies define the overall

purpose and plans for the employer as well as for the employees, in

both the short and long term. It helps to give the employees and

managers a vision and purpose to move in one direction. This helps to

create employee cohesion and a purposeful working environment.

Direction is particularly important if the organization relies on funders,

investors or other external donors, as they need to have trust in the

organisation.

In this research major areas of strategy development for auto

component manufacturers to improving competitiveness and export

growth in globalised market and are been studied. The purpose of this

study is to analyse different aspects of strategy development for

enhancing competitiveness and export growth relating to the Indian

auto component sector, which is set within a globalised economy. It

examines the strategies development for innovation, quality

improvement, cost reduction, investment, identify export opportunities

and competency development.

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Objectives

To study the major areas of strategy development by auto

component manufacturers for improving competitiveness in

globalised market.

To study the strategies to enhance export growth in auto

component manufacturers.

To study the key factors of strategy development for auto

component manufacturers export competitiveness.

To study the relationship between strategies and the different

factors of competitiveness and export growth with respect to

auto component manufacturers.

Methodology

The research area is Maharashtra with special reference to auto

component units in Pune, Aurangabad and Nasik. The automobile

cluster in Maharashtra is developed, due to availability of good factor

conditions (Qualified human capital, geographical advantage with

access to ports, well-developed financial institutions, favourable

government policies) in the state, good demand in the western region,

and presence of two of the oldest and big industrial houses (Tata and

Bajaj).

For the research Data collection was done through a structured

questionnaire. Data analysis was done through SPSS (Statistical

Package for the Social Sciences) software. Statistical tools like

24

frequency distribution, mean values, standard deviation are used to

describe the profile of the responding companies. Tools like Chi-square

test, ‗t‘ test, and other relevant tools were used to test the hypothesis.

Recommendations

Developing strategy for enhancing competitiveness in R & D

department is one of the major factors for auto manufacturing

companies. It is also an important strategy to improve quality

which in return would help to promote exports.

Strategy development for using latest technology with the limited

finance is also an important area to focus on, for

competitiveness and export. It can be adopted by the company

by providing various resources in-house or by sharing it with the

local auto cluster.

Strategy development focusing on niche market segments and

niche export markets can be an innovative and effective

marketing strategy. The markets which are old are saturated so

there is a need to search for a new market.

Small companies can develop strategies for resource sharing

with companies by developing cluster.

For auto-components, borrowing can help to enhance

competitiveness and hence a strategy development to improve

credit availability is critically important for auto-components.

25

Strategy development for product diversification enhances

competitiveness and even helps to sustain in market for a long

period. Firms that produce more than one product have

significantly higher market share than those that produce just

one product.

Strategy development for the companies to get accredits such

as ISO 9000 has a significant positive effect on market share. It

increases competitiveness and the quality of the product.

Latest technology imported machinery is superior to domestic

ones, in terms of productivity and efficiency. Hence, strategy

should be developed for sharing imported capital-goods to have

a positive significant effect on market-share.

Strategy development is needed for considering currency

fluctuation clause in their medium and long-term contracts with

the customers during export contracts to avoid currency risk.

Strategy development to identify need to diversify the client base

and the need for doing business in different and more stable

currencies is important for competitiveness in exports.

Strategies should be developed where the companies should

identify markets where there is continued demand for products

with old technologies, even though the original equipment

market has moved forward.

26

Strategies development should consider the factor of workforce

also. There is a need to change their attitude to increase

productivity and efficiency.

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CHAPTER 1: INTRODUCTION

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CHAPTER 1

INTRODUCTION

1.1 Global Automotive Industry

Global automobile production started in Europe and USA in the late

19th century. It expanded worldwide through export, licensing and

foreign direct investment from the late 1910s. The global automotive

manufacturing sector consists primarily of about twenty large

multinational corporations. The automotive component supply sector

comprises of thousands of firms ranging in size from a few employees

to more than 100,000. According to industry estimates, the size of the

global automotive component industry in the year 2008 was

approximately US$1.4 trillion and is estimated to grow to about US$1.9

trillion by 2015.

The global automotive industry has undergone radical change in the

past decade. Industry growth has shifted from the developed countries

of North America, Western Europe, and Japan to the developing

countries of Asia, South America, and Eastern Europe. Industry

experts have estimated growth in the coming year in the mature

markets of North America, Western Europe, and Japan is expected to

be flat. Sales in developing counties, however, are forecast to grow at

7.5 percent over the same time period. Driving this robust sales growth

is the emergence of a middle class in heavily populated countries such

as China and India.

29

Growth in vehicle production in developing countries is forecast to rise

at a rate similar to the sales growth rate. The worldwide production of

motor vehicles is given below in figure 1.1. The growth in the global

automotive industry in the next five years will be concentrated in

developing countries; the world‘s automotive manufacturers will also

turn their attention to these regions.

The worldwide production of motor vehicles. (Figure : 1.1)

Source: ACEA : European Automobile Manufacturers Association 2009

In the above figure we can see the demand and production for motor

vehicles. There are many countries who are trying to have their share

in the total production. The industry experts have forecasted auto sales

30

for countries having potential increase in the demand for auto vehicles.

(Figure 1.2).

Global Automotive Sales Forecast (Figure 1.2)

2011 2012 2013 2020

U.S. 13.0 14.5 15.5 15.0

Japan 4.7 4.6 4.7 4.5

W. Europe 14.6 15.3 16.0 14.5

E. Europe* 2.1 2.3 2.7 3.2

Brazil 3.4 3.6 3.8 5.7

Russia 2.2 2.5 2.9 5.7

India 3.2 3.5 3.9 8.4

China 18.7 20.7 22.4 30.2

Asia 5.6 5.8 6.0 6.8

Rest of

World 10.0 10.5 10.3 13.1

Total 77.5 83.3 88.2 107.1

Note: In millions of units. *Eastern Europe excludes Russia and Asia excludes

China, Japan and India. Source: Goldman Sachs Japan (2010)

31

1.3 The Automotive industry in India

The automotive industry of India is one of the largest in the world and

one of the fastest growing globally. According to ACMA, India

manufactures over 11 million vehicles (including 2 wheeler and 4

wheeler) and exports about 1.5 million every year. It is the world's

second largest manufacturer of motorcycles, with annual sales

exceeding 8.5 million in 2009.

India's passenger car and commercial vehicle manufacturing industry is

the seventh largest in the world, with an annual production of more

than 2.6 million units in 2009. The turnover growth of the automobile

industry in India form 2004-2009 is given below in figure 1.3

Figure 1.3

Source : Society of Indian Automobile Manufacturers (2009)

32

The turnover of automobile manufacturers is showing a continuous

growth. According to the SIAM statistics in 2009, India emerged as

Asia's fourth largest exporter of passenger cars, behind Japan, South

Korea and Thailand. The automotive industry is one of the leading

industries in India for FDI (Foreign Direct Investment), and the U.S.

automakers have made considerable investments since the early-

1990s. According to statistics from the Government of India, FDI in the

transportation sector, the fourth largest sector in India, totalled $3.5

billion from August 1991 through December 2006.

Growing at 8.7 percent for 2007-08, India has one of the fastest

expanding economies in the world and the second fastest in Asia, and

it has the potential for a sustained growth of 8-10 percent for the next

several years (government of India statistics). India‘s GDP is $1.16

trillion, which equates to $4,139 per capita for 2007-08. With a large

and growing middle class estimated to be in the hundreds of millions,

along with a small wealthy sub-population, the Indian population

provides a largely untapped opportunity for growth in the automotive

sector.

According to SIAM, India has 40 million passenger vehicles and more

than 2.6 million cars sold in India in 2009 (an increase of 26%), making

the country the second fastest growing automobile market in the world.

Details of India‘s domestic sales from the year 2003 to 2010 for all

category of automotive vehicles which includes passenger vehicles

commercial vehicles, three wheelers and two wheelers is given below.

33

Table for domestic automobile sales trends in India (Figure. 1.4)

Automobile Domestic Sales Trends (Number

of Vehicles)

Category 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Passenger Vehicles 902,096 1,061,572 1,143,076 1,379,979 1,549,882 1,552,703 1,949,776

Commercial Vehicles 260,114 318,430 351,041 467,765 490,494 384,194 531,395

Three Wheelers 284,078 307,862 359,920 403,910 364,781 349,727 440,368

Two Wheelers 5,364,249 6,209,765 7,052,391 7,872,334 7,249,278 7,437,619 9,371,231

Grand Total 6,810,537 7,897,629 8,906,428 10,123,988 9,654,435 9,724,243 12,292,770

Source : Society of Indian Automobile Manufacturers (2010)

The Indian auto market is currently small with potential for considerable

growth. Given the large size of the middle class with increasing

purchasing power and the youthful population (over half the population

is less than 25 years of age and India has the highest proportion of

population below 35); there is the potential to penetrate a largely

untapped market. Also, given the availability of cheap, skilled labor,

India has the potential to serve as a regional export hub for

manufacturers in the Asia-Pacific region.

According to the Society of Indian Automobile Manufacturers, annual

car sales are projected to increase up to 5 million vehicles by 2015 and

more than 9 million by 2020. By 2050, the country is expected to top

the world in car volumes with approximately 611 million vehicles on the

34

nation's roads. Most automotive exports go to developing countries in

Asia, where inexpensive cars can find a market. Egypt, Kenya and

Nigeria are important destinations for India's automotive exports. More

recently, as the quality and technology of India-made automobiles have

improved and met stringent requirement of the international market,

some cars have found buyers even in Western Europe.

1.4 Indian Automobile Exports

The automotive industry with its deep backward and forward linkages

in the economy has been identified by the Government of India as an

important industry with a high potential to increase the share of

manufacturing in gross domestic product, exports and employment

(Government Of India 2006b). Currently, Asia and Africa are India‘s

largest export markets, but the European market has seen recent

growth as well. According to ACMA exports of passenger vehicles

nearly tripled from 72,005 in 2002-03 to 198,478 units in 2006-07. With

India‘s goal to be a major regional export hub, coupled with

manufacturers‘ increased investments, it is expected that the number

of exports from India will continue to rise significantly.

The growth is boosted by these several factors such as India's cost

competitiveness in terms of labour and raw material; established

manufacturing base; economies of scale due to domestic market;

potential to harness global brand image of the parent company, as well

as the global hub policy for small cars like Hyundai, Suzuki, etc. The

automobile export trend of India for passenger vehicles, commercial

35

vehicles, three wheelers and two wheeler vehicles from the period

2003 to 2010 is given below in figure 1.5.

Table for automobile exports trends for India (Figure 1.5)

Automobile Exports Trends (Number of

Vehicles)

Category 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Passenger Vehicles 129,291 166,402 175,572 198,452 218,401 335,729 446,146

Commercial Vehicles 17,432 29,940 40,600 49,537 58,994 42,625 45,007

Three Wheelers 68,144 66,795 76,881 143,896 141,225 148,066 173,282

Two Wheelers 265,052 366,407 513,169 619,644 819,713 1,004,174 1,140,184

Grand Total 479,919 629,544 806,222 1,011,529 1,238,333 1,530,594 1,804,619

Source : Society of Indian Automobile Manufacturers (Industry Statistics) (2010)

1.6 Linkage between automotive sector and auto component

industry

There is a direct correlation between growth in the automotive industry

and growth of the automotive components industry. Growth for auto

component industry is supported by demand generated by segments

within the automotive industry. For example, it is expected that the

passenger cars and utility vehicles segment which was approximately 1

million in terms of production in 2003–2004, would increase to 3 million

units by 2015 thereby helping increase the market size of the

36

automotive components manufacturing industry by generating large

scale demand for automotive components parts to fulfil the demand.

Auto component amount to 31.5% share of the global automobiles and

components industry groups value. The global automotive component

industry is highly diverse and comprises of various product segments

like engine parts, drive transmission and steering parts, suspension &

brake parts and other auto components parts.

Hence we can see how auto component industry has developed and

expanded because of automobile sector. Any change in the automobile

production directly affects auto component industry.

37

CHAPTER 2: AUTO COMPONENT INDUSTRY OVERVIEW

38

CHAPTER 2

AUTO COMPONENT INDUSTRY OVERVIEW

2.1 Global Auto component industry

Globally, industry experts have estimated automotive components

sales at US$250 billion annually. Major exporting countries of auto

components include the United States, Canada, and Mexico. Each of

these countries exports between $25 billion and $35 billion in auto

components annually. China and India are said to be global Low cost

countries (LCC) suppliers, selling components to customers in North

American, Asia, and Europe.

Other LCC supplier countries, such as Mexico, are regionally focused.

Most of Mexico‘s automotive exports are to customers in North

America, in particular the United States. Mexico offers at least two

major advantages to U.S. customers. One advantage is the ease and

low cost of logistics, since goods can move quickly across the U.S.–

Mexico border on trucks, with no ocean shipping necessary. Another

advantage is the North American Free Trade Agreement (NAFTA),

which allows goods to flow between Mexico and the United States with

few or no duty or taxes. In addition, NAFTA has allowed the creation of

maquiladoras —assembly plants in Mexico that import materials from

the United States, assemble products, and re-export them to the United

States tax and duty free. For these reasons Mexico has become a

strategic manufacturing location for the U.S. automotive industry. Apart

39

from the trade in the above countries following table shows global trade

of major auto component producing countries.

Table 2.1

(Source: World Integrated trade solution 2006)

From the above table we can see that Germany, Japan and Korea are

the major giants in auto component manufacturing and exports. We

can see that France and Germany are major importers of auto

component industry. The exports have increased to a great extend

over years. The growth rate of exports from Korea has increased

significantly in the decade. With increasing exports the imports for auto

component parts are also showing an increasing trend. But the

increase of auto component imports is not so tremendous. Apart from

the global trade we can see the international trade of imports and

exports for major Asian auto component manufacturing countries in

table below.

40

Table 2.2

(Source: World Integrated trade solution 2006)

2.2 Overview of Indian Auto Component industry

The evolution of the automotive component industry followed the

evolution of the auto industry. With the start of local production of cars,

trucks, and two-wheelers in the 1950s, many of the associated

component manufacturers (mainly from Europe) started operations in

India (Badri Narayanan G., Pankaj Vashisht 2008). Over a period of

time, many of the major manufacturers had established plants for

manufacture or assembly of parts. Many of the OEM‘s also increased

their business. These included companies like Bosch (fuel injection

systems and spark plugs) and Mahle (pistons) from Germany; Lucas

(auto electricals), Girling (brakes), and Lockheed (clutches) from the

United Kingdom; and Champion (spark plugs), Armstrong (shock

absorbers), and Union Carbide-Exide (batteries) from the United

States.

41

According to Badri Narayanan G., and Pankaj Vashisht, during the

1970s, the Indian auto industry had lost direct relevance to the global

industry, since its products were obsolete. As a consequence,

prospects for exports were severely restricted, except for those cases

where technology had been upgraded for the component manufacture

with help from the foreign collaborator. Even in these cases, exports

were directly related to some form of buy-back arrangement with the

foreign partner providing distribution and marketing. With the arrival of

the Maruti and the Japanese joint-venture LCVs, a range of products

that were contemporary by global standards was again produced.

Furthermore, a renewed discipline for quality control had been instilled

for these new products. All this had led to an improved outlook for

export prospects for auto components from India.

The auto component industry received a major boost along with the

auto industry in the 1980s. The arrival of the Japanese in the Indian

auto industry (for cars, trucks and two-wheelers) saw a major new

source of joint-ventures emerge in the 1980s. Companies such as

Nippondenso and NGK followed the Japanese automakers into India

with joint-ventures or technical collaborations. In 1990, the United

Kingdom led with the most joint-ventures (104) followed by Germany

(74), the United States (70), Japan (67), Italy (30), and France (28) (V.

Sumantran, K. Ramchand and David J. Andrea1993) which changed

the scenario of auto component industry with automobile industry. Lot

of foreign technology was introduced easily in India.

42

2.3 Supply chain of Indian automotive industry

The supply chain of automotive industry in India is similar to the supply

chain of the automotive industry in Europe and America. However the

products, as channelled in every traditional automotive industry, flow

from the top of the supply chain to reach the consumers. Automakers

in India are the key to the supply chain and are responsible for the

products and innovation in the industry. According to ImaginMor,

Inderscience Enterprises Ltd and United Nations Industrial

Development Organisation the description the supply chain is as

discussed below.

Third tier suppliers (indirect suppliers):

Third tier companies include companies which supply raw materials

and components and basic parts to the second tier ie. Direct suppliers

of automotive component manufacturers. They are not involved in

supplying develop integrated systems or completely finished, complex

auto components. These companies provide basic raw materials like

rubber, glass, steel, plastic and aluminum, etc

Second tier suppliers (direct suppliers):

The second tier suppliers include those companies, which

manufacturers finished parts of auto components. These are the

companies which are large manufacturers. They are the ones who,

does not have either the financial or technological recourses or

extensive geographical (global) reach in order to supply integrated

43

systems directly to automobile manufacturers. They work on designs

provided by the first tier suppliers or OEMs. They also provide

engineering resources for detailed designs. Some of their services may

include welding, fabrication, shearing, bending etc.

First tier suppliers (system integrators):

The first tier of component manufacturers comprises companies, which

supply integrated systems to the vehicle manufacturer e.g.

dashboards. These suppliers need to offer a broad range of

technologies and materials and required strong research capabilities to

work closely with the vehicle manufacturers to develop better systems.

Tier 1 suppliers are involved in the design, development and testing

process of the products/systems they are responsible for. They need to

be financially strong in order to invest continuously into new

technologies and manufacturing capacities. The tier 1 suppliers would

involve companies that are financially strong, technology-oriented,

large players who operate on a global basis, e.g. Delphi Automotive

System, Bosch, Visteon, and Magneti Marelli These companies provide

major systems directly to assemblers.

These companies have global coverage, in order to follow their

customers to various locations around the world. They design and

innovate in order to provide ―black-box‖ solutions for the requirements

of their customers. Black-box solutions are solutions created by

suppliers using their own technology to meet the performance and

interface requirements set by assemblers.

44

Automakers/ Vehicle Manufacturers/ Original Equipment

Manufacturers (OEMs):

After researching consumers‘ wants and needs, automakers begin

designing models which are tailored to consumers‘ demands. The

design process normally takes five years. These companies have

manufacturing units where engines are manufactured and parts

supplied by first tier suppliers and second tier suppliers are assembled.

Automakers are the key to the supply chain of the automotive industry.

Examples of these companies are Tata Motors, Maruti Suzuki, Toyota,

and Honda. Innovation, design capability and branding are the main

focus of these companies.

Dealers:

Once the vehicles are ready they are shipped to the regional branch

and from there, to the authorised dealers of the companies. The

dealers then sell the vehicles to the end customers.

Parts and Accessory:

These companies provide products like tires, windshields, and air bags

etc. to automakers and dealers or directly to customers.

Service Providers:

Some of the services to the customers include servicing of vehicles,

repairing parts, or financing of vehicles. Many dealers provide these

45

services but, customers can also choose to go to independent service

providers.

Supply chain of Indian automotive industry (Figure 2.3)

Source: ImaginMor, Inderscience Enterprises Ltd and United Nations

Industrial Development Organisation

2.4 Development of Indian auto component industry

The Indian automobile ancillary sector transformed itself from a low-

volume, highly fragmented one into a competitive industry, backed by

competitive strengths, technology and transition up the value chain.

Indian automotive component industry can be divided into the

http://upload.wikimedia.org/wikipedia/commons/0/0d/Supply_Chain_of_Automobile_Industry_India.png

46

organized and the unorganized segments. While the forte of the

organized sector is the high valued added precision engineering

products, the presence of a large unorganized sector is characteristic

especially of the lower value-added segments of the industry. The

ACMA-McKinsey Vision 2015 document forecasts the potential for the

Indian auto component industry to be US$ 40-45 billion by 2015.

Entry of global OEMs has transformed the Indian automobile and auto

components landscape. India is being perceived as a major market for

cars and two wheelers by global OEMs. Steered here by the country's

high engineering skills, established production lines, a thriving

domestic automobile industry and competitive costs, global auto

majors are rapidly ramping up the value of components they source

from India.

According to the Automotive Component Manufacturers Association of

India, more than a third (36 per cent) of Indian auto component exports

head for Europe, with North America a close second at 26 per cent.

Over 20 OEMs have set up their International Purchase Offices (IPOs)

in India to the components. India enjoys a cost advantage with regard

to castings and forgings. The manufacturing costs in India are 25 to 30

percent lower than its western counterparts. India's competitive

advantage does not come from costs alone, but from its full service

supply capability.

These factors portend a robust auto ancillary industry in India and the

overall expected good growth provides several opportunities for the

47

emergence of new enterprises. Extending the reach to global markets

is the pre-dominant outlook among the top auto component

manufacturers in the country. According to data collected from CMIE

Prowess and ICRA 2004, The Indian auto-component industry‘s annual

turnover was US $6.73 billion in the year 2003. This is miniscule

compared to the global automotive components industry turnover of US

$737 billion. However, at a compounded annual growth rate of 20-25

%, the growth in India‘s auto-component exports is significantly higher

than that of the domestic market in India (10-14%) and markets

elsewhere.

A very visible outcome of the transformation of the auto-component

sector is the rapid growth in cars exported from India. Indian auto

OEMs exported 13.1% of their production; up from 3.9%. The

significant growth of exports from India signals that the auto sector is

rapidly becoming globally competitive, particularly in the small car

segment (Morgan Stanley Equity Research 2004). Other than OEMs

there are other players also in the Indian auto component market which

contribute a substantial share. According to the research study

conducted by Shuji Uchikawa and Satyaki Roy (2010) the structure of

auto component industry is divided in 3 parts. The assemblers, tier I &II

suppliers and tiny enterprises. Major exports are provided by the tier I

& II suppliers. They comprise of large scale companies and small and

medium enterprises. The tiny and small scale industries are suppliers

to the domestic market only.

48

Structure of Auto component industry (Figure 2.4)

Source: The Development of Auto Component Industry in India

Shuji Uchikawa and Satyaki Roy (2010)

2.4.1 Changing Role of the auto component manufacturers

According to SIAM the supply chain of the auto industry has completely

changed over the years. Major OEM players are increasingly focusing

on basic design and assembly operations as well as servicing the after

sales market and they prefer to deal with a smaller number of large

suppliers. Consequently, the supply chain is morphing into sub-system

integrators, component makers, and commodity players.

The segregation is increasingly defined by ―risk sharing,‖ which was

earlier defined by only cost pressure. Tier-I suppliers (concentrating on

system supply, module assembly and sub-supplier management) are

taking increasing risk from major players, shifting the cost pressure to

49

tier-II suppliers who concentrate only on the production of sub-

components. This is a major change which is pushing the tier I and tier

II auto component manufacturers toward competitiveness due to cost

pressure.

Figure 2.5

2.5 Sources of Demand for auto components

Demand is generated primarily from two sources, the OEMs and the

replacement market, and the former has a majority share in demand.

The industry enjoys robust demand in both domestic and export

markets. Companies have been expanding their production capacities

and have also upgraded themselves rapidly to serve the increasing

demand for components; as a result, they have been displaying brilliant

50

R&D efforts, designs and engineering skills. These skills play a major

role in promoting India as a global hub for auto components apart from

its advantageous low-cost manufacturing base.

The classification of Indian auto component market is given below:

Figure 2.6

Source : ACMA (2008)

According to ACMA the auto-component industry that helped to enable

this transformation caters to three markets: (1) Original equipment

manufacturers (OEM) or vehicle manufacturers, who comprise 25% of

the total demand. (2) The replacement market that forms 65% of the

total demand. (3) Export market that comprises primarily exports to

international Tier I suppliers and constitutes 10% of the total demand.

51

2.5.1 Original equipment manufacturers (OEM)

OEM components are custom designed, engineered, and

manufactured for each vehicle model to provide optimum performance

and durability. OEM components are typically highly engineered to

meet a long list of demanding specifications. In most cases, to be

considered a supplier for a major OEM, a company must have

capability in design engineering, validation testing, manufacturing

engineering, and quality assurance. This is also true for subcontracted

suppliers.

Direct suppliers to the OEMs are referred to as Tier 1 suppliers, while

the subcontracted suppliers are referred to as Tier 2, or Tier 3,

depending on how many steps they are removed from the OEM).

In the OEM components industry, each supplier is required to have the

technical capability, experience, equipment, and systems to meet the

exacting OEM specifications. OEM components are installed on

vehicles by automobile manufacturers, while aftermarket components

are installed at some point after the purchase of the vehicle by a

service shop, dealer, or mechanic.

2.5.2 Aftermarket parts

A further important segment of the automotive value chain is the

market for replacement parts. This is the sector that many firms in

developing countries first moved into; even before local assembly

52

sectors were developed. Nowadays, there is an international trade in

aftermarket products.

Firms in this section compete predominantly on price. Access to

cheaper raw materials and process engineering skills is important.

Innovation is not required because designs are copied from the existing

components, but reverse engineering capability and competence to

translate designs into detailed drawings are important.

Replacement parts are designed so that a single version of a

component can be installed on as many vehicle models as possible.

This is a practical necessity, because the large number of

manufacturers, models, and variations makes distributing and stocking

unique components for every vehicle variation an overwhelming task.

Minimizing cost is also a top priority in the aftermarket component

business, to lower the cost of vehicle repair and to maximize profit for

the parties involved in the business. Standards for aftermarket

components are usually much lower. This means that the technical

capabilities required from aftermarket components suppliers are lower

than those required from OEM suppliers.

For an auto ancillary company, a balanced mix between OEM and

aftermarket sales is a significant positive. Typically, a strong

aftermarket provides for greater sales stability and stronger operating

margins than an OEM. However, strong OEM sales are often the basis

for an established presence in the aftermarket, given that OEM sales

provide significant brand visibility. A balanced mix between OEM and

53

aftermarket sales helps maximise returns on investment by enabling a

component manufacturer to exploit the entire product cycle from

product launch to replacement.

2.5.3 Export market

The Indian auto components industry has evolved from a small,

government-regulated and slow-growth-industry in early 1990s to a

multi-segment, export-oriented industry that is witnessing rapid growth

and high competition due to changes in the government‘s policy

regime. The once-protective government policies have been relaxed to

a great extent now in a bid to attract foreign capital and adopt

technology across borders so that a globally-competitive industry is

developed.

According to ACMA exports to OEMs constitute around 75 per cent of

the total exports and exports to replacement market makes up for the

balance 25 per cent. India generally exports low-end, low-cost

components and majority of its exports go to the European market

followed by the US. However, as India‘s engineering and technological

skills have advanced over the years, it is looking at tapping technology-

intensive product markets also.

2.6 Auto component products manufactured and their respective

shares in total production

The Indian automotive components industry produces the entire range

of components. Engine parts constitute the single largest share of

54

components in total production, followed by drive, transmission and

steering parts. The remaining production is relatively evenly divided

among the remaining product segments.

Classification of Auto component segment (Figure 2.7)

Engine parts

The largest segment of the automotive components industry is engine

parts. This segment is estimated to have contributed approximately 31

per cent in value i.e. USD 3.76 billion. This segment can be divided

further into three sub-segments. They are the following:

• Core engine parts like pistons and piston rings

• Fuel delivery systems

• Other components

55

Some of the major manufacturers of pistons are Escorts India Pistons

Ltd, and Federal Mogul Goetze. Petrol based fuel injection systems are

manufactured by Ucal Fuel Systems, Spaco Carburettors, and Escorts

Auto Components whereas Diesel based fuel injection systems are

manufactured by Bosch Limited, Delphi and Tata Cummins among

others. Bharat Forge is a major company that manufactures

crankshafts while Kirloskar Oil Engines Ltd and Gabriel India Ltd

manufacture bearings. Purolator India Ltd manufactures filters/

elements/ inserts.

Drive, transmission and steering parts

This is the second largest segment within the Indian automotive

components industry. The major sub-segments in this segment are

gears, wheels and wheel rims, steering gears and systems. This

segment is estimated to have contributed 19 per cent in value i.e.

approximately USD 2.3 billion. A brief description of the sub-segments

of the drive, transmission and steering parts segment has been given

below.

Axles – Due to bad roads in India, the replacement market for axles is

very high, contributing significantly to the growth of this sub-segment.

Few OEMs source complete assemblies, but a large number of them

source individual components like housings, shafts and differentials

from vendors. Automotive Axles, GKN Driveline and Axles India are

some of the largest companies in the segment. With regard to wheels

56

and wheel rims manufacturing, Wheels India Ltd is the most prominent

player in India.

Gears and steering systems – some of the biggest companies in the

gears segment are Bharat Gears Ltd, Gajra Gears, JMT Auto, and ZF

Steering Gear India Ltd. The steering systems segment is dominated

by Sona Koyo Steering and Rane Power Steering Ltd. However these

companies mainly manufacture steering systems for cars. With regard

to commercial vehicles ZF Steering Gear India Ltd is the main

manufacturer.

Clutches – Luk Clutches is the major player in the clutch manufacturing

segment. Rane Brake Lining and Rico Auto are also prominent players.

Other players include Amalgamations Repco that has collaboration

with Valeo of France and Ceekay Dakin that has collaboration with

Exedy Corporation.

Suspension and braking parts

The suspension and braking parts segment is estimated to have

contributed 12 per cent in value i.e. approximately USD 1.45 billion.

This segment consists of shock absorbers, leaf springs and brake shoe

assembly segments.

Gabriel India Ltd and Munjal Showa are the major companies in the

shock absorber sub-segment. Jai Parabolic Springs and Jamna Auto

Industries are the two major manufacturers of leaf springs/ coil springs.

57

Players like Brakes India Limited, and Automotive Axles Ltd dominate

the brake shoe assembly segment.

Electrical parts

This segment is among the smaller segments in the industry. It is

estimated to have contributed 9 per cent in value i.e. approximately

USD 1.09 billion. Lucas TVS is the largest player in terms of market

share. The major companies in this segment include Bosch Limited,

Denso, Motherson Sumi, MIL and India Nippon. The main products in

this segment include starter motors, generators, spark plugs and

distributors. Starter motors and generators are two sub-segments that

account for a major portion of this segment in terms of value.

This segment of the automotive components industry is expected to

grow at a robust rate as the newly manufactured automobiles in India

contain a higher proportion of electrical parts. Electric two-wheelers

production has started only recently and is expected to boom. Electrical

components in passenger cars and commercial vehicles have also

been increasing due to increasing automation in the vehicles. Such

innovations in technology are expected to increase the demand for

electrical parts in the automotive components industry.

Equipment

The equipment segment is also among the smaller segments in the

industry in terms of value. This segment is estimated to have

contributed 10 per cent in value i.e. approximately USD 1.2 billion.

58

Major companies in this segment are Pricol, Lumax Industries and

Siemens VDO among others. The major products manufactured in this

segment include headlights, dashboard instruments, wiper motors and

electric horns.

Sub-segments like headlights may experience a significant expansion

to meet the demands of the foreign car manufacturers and they also

have a strong potential for exports. The tie-up between MIL and

Volkswagen is an example. MIL has tied up with Volkswagen to supply

headlights and rear combination lamps for Volkswagen´s facilities in

other parts of the world.

Body and Chassis parts

This segment comprises of body and chassis, sheet metal component,

and plastic-molded parts. The global sourcing of automotive

components comprises of chassis, frames, brakes, steering and much

more has reached to U.S $ 185 billion. This product segment has 12%

share in the global automotive components and parts industry.

Others

All other components are classified in the others segment. Sheet metal

components, fan belts and plastic parts are three of the major sub-

segments. International majors like Delphi are present in the rear view

entertainment sub-segment and the share and size of this sub-segment

is likely to increase significantly. In some of the other sub-segments

like the iron castings segment, Autocast Limited and Brakes India

59

Limited are dominant. The wiring harness and parts sub-segment is

dominated by Motherson Sumi Systems Limited.

Auto component parts manufactured (Figure 2.8)

Source : ACMA (2008)

We can see that engine parts has a major contribution with 31% in auto

component industry which is followed by drive transmission and

steering parts with 19%, then body and chassis and suspension and

breaking parts both 12%, equipments with 10% and other parts.

Morgan Stanley report states, that out of the 5 sub-segments i.e.

equipment parts, braking parts, steering parts, electrical parts and

engine parts, the percentage contribution of raw material out of the

total cost at 75% is highest in the braking parts sub-segment. The cost

of raw materials for engine parts is the lowest, so we can say the

reason for highest contribution of engine parts can be low cost of

production. The exhibit below provides the cost break up for the auto

component by segments in the Indian auto component market:-

60

Segment wise cost structure in the auto component sector

(Figure 2.9)

(2004)

2.7 India export competitiveness

The auto components industry in India has been driven by certain key

attributes like 60favourable government policies, low cost of

production, skilled labour, burgeoning demand, especially from the

international markets, and competitive environment.

The industry is, however, vulnerable to certain concerns and

challenges that are likely to erode its competitiveness. Even though

competition has intensified over the years, its severity has increased

ever since global automobile manufacturers have started considering

India as an outsourcing destination. According to Automotive mission

plan, Indian domestic automobile demand supported by industry‘s

capability to manufacture and supply quality products at internationally

competitive prices is the major demand driver for the auto component

industry.

61

Figure 2.10

The industry‘s own fragmented nature and low entry barriers for

international players have stepped up the situation. Besides these

factors, pricing pressure faced by component manufacturers from

OEMs and raw material suppliers have also contributed substantially to

rise in competition.

According to the study by Indian brand equity foundation, there are few

factors for India‘s competitive position globally. India has a long history

of manufacturing vehicles and has developed strong credentials in

engineering. Low cost of employment and a high proportion of first time

right designs. Indian engineers and workers possess inherent

advantages due to their strong process, product & capital engineering

skills and strong domain knowledge of the industry.

62

Advantages for global leaders in manufacturing components

(Figure 2.11)

India is emerging as a global design hub with an increasing number of

multinational companies outsourcing automotive design jobs to India.

Global majors like Toyota have setup design centre in India and are

outsourcing design tasks. India produces the second largest number of

engineers worldwide at 400 000 a year. This combined with the fact

that Indians are good in English is a big advantage, making India an

attractive pool of talent.

63

The Indian automotive component industry has made a sustained shift

to the global Tier 1 market for their products. Indian component

suppliers have displayed a growing capability to cater to the

engineering and production needs of the some of the world's biggest

auto companies. This is largely due to Proficiency in understanding

technical drawings and being well conversant in all global automotive

standards: American, Japanese, Korean and European, Appropriate

automation has led to economically attractive production costs,

Flexibility in small batch production and Growing IT capability for

design, development and simulation

In terms of geographic mix, 36.9 per cent of the auto component

exports are going to Europe, 28.1 per cent to Asia and 24 per cent to

North America. About 80 per cent of auto component exports are to

vehicle manufacturers.

Export markets of India (Figure 2.12)

64

Automobile manufacturers in U.S. and Europe are facing pricing

pressure and weak demand. To improve competitiveness,

manufacturers are looking to outsource components from countries like

India that produce comparable quality components at lower prices.

As the global markets continue to face sluggish growth, discounts and

attractive finance options are used to attract customers further bleeding

the bottom line of automobile manufacturers. The only way to achieve

sustained cost reduction is to outsource to countries like India, which

has inherent cost advantages. Hence, this trend is expected to help

Indian manufacturers in garnering more outsourcing contracts from

global automakers.

The trend showing export growth of Indian auto components is given

below in figure 2.13:

Figure 2.13

Source: www.dnb.co.in (2010)

65

The main export markets are the USA, Germany, Japan, Sweden, the

UK and Italy. Asia, Africa and the Middle East together take up 44% of

India's auto part exports.

According to Automotive Mission Plan 2006-2016, More than 60% of

the exports of auto-components are to USA and Europe, which

constitute high AQL (Accepted Quality Level) countries. Moreover, over

the last 5 years, the structure of the customer base in the global

markets has also undergone a major change. In the 1990s more than

80% of the exports were to the international aftermarket. In 2009, more

than 75% of the exports are to the global OEMs and Tier 1 companies

and only 25% is to the aftermarket.

This signifies that the Indian component industry has now reached a

high degree of maturity in terms of quality and productivity and has also

developed capabilities in the area of design and engineering, which are

critical requirements for being a part of the global supply chain.

Foreign carmakers in rich countries are increasingly turning to India for

parts, as low costs, relatively good technology base and access to

cheap raw material make India highly competitive in its auto parts

exports.

US is a major importer of auto component. The majority of exports are

from Mexico, Brazil, China, Thailand & India.

Given below is the industry statistics of major imports of US from the

year 2001-2005.

66

US Imports (figure 2.14)

2.8 Export constraints

Indian auto component manufacturers enjoy advantages such as

global delivery mechanism, low cost skilled manpower and quality

standards, inexpensive manpower alone cannot sustain it in long term,

particularly against other low cost countries. Product innovations and

process up gradation are equally essential for the industry to have an

edge over other countries and most top auto component manufacturers

have already realized this challenge.

Indian auto component manufacturing, currently constrained by lack of

large capacities, is slowly but steadily working on expanding capacities

and automation levels. As the users increasingly become discerning in

their buying behaviour, new model introduction by the auto

manufacturers has become the trend. Greater variety in vehicle is

offering challenges to the manufacturing capabilities and economies of

67

scale of component suppliers. Hence the component industry is

constantly looking at maintaining lean and efficient manufacturing

systems. Having established themselves in the domestic market,

tapping opportunities abroad was a natural step for the auto

component manufacturers in their growth path. The Indian auto

component industry has expressed its anguish it has coping up with the

onslaught of imports of cheaper parts from countries like China and

Korea.

Auto component industry, being one of the nation's front ranking

sunrise industries is left high and dry by allowing import of parts from

abroad. Besides a lot of small and medium players in the auto

component industry closing their shutters, a large number of

workforces would lose their jobs.

The Indian auto component industry is targeting a bigger share of the

export market and is in the process of ramping up its manufacturing

capabilities to meet the capacity and quality requirements. According to

the automotive mission plan, during 2004, the auto component industry

increased its investment by 17% while the automation processes in this

industry registered a growth of over 40%.

Auto component industry growth is directly linked to the growth of

automobile industry since more than 50% sales is to the OEMs.

However, in recent years, component exports are becoming an

important growth driver and it is expected to assume greater

importance in future. Even while as the industry is just limping back to

68

normalcy after the global economic slowdown, the import of cheap

parts from China and South East Asian countries are affecting the

Indian auto parts industry to a great length. Auto experts say that the

number of auto parts getting imported to the country is rising like never

before, so it would a matter of time, when the Indian players would

completely lose ground to their overseas counterparts and they feel in

unison that the government need to lay a level playing field.

Federation of Indian Commerce and Industry (FICCI), said the share of

imported auto parts in the Indian domestic market is bound to leap from

the existing 31 percent to well over 42 percent by 2013-14, if the

current rate of growth in import continued.

In view of customs duty reduction or elimination on several auto

components under India-ASEAN and India-South Korea Free Trade

Agreement (FTA) and forthcoming India-EU and India-Japan FTA, the

share of imports in domestic auto market is likely to be 50 percent by

2013-14.

The custom duty on auto components including pistons, piston rings,

bumpers, gearboxes, radiators and more, for instance, would be zero

by 2013 under India-ASEAN FTA. Likewise, the custom duty on

motorcycle parts, components of engine, piston and more would also

come down to five percent level or zero under India-South Korea FTA.

Precisely, this could affect India's plans to achieve the targeted size of

$ 40 billion-$4 5 billion of auto component industry by 2016 under the

Automotive Mission Plan announced in 2006, study asserts.

69

The paradox is that India continues to be a net importer of auto parts,

although the country is a preferred hub for compact cars. India‘s trade

deficit in auto components has showed an upward tick, right from $ 371

million in 2004-05 to $ 2.8 billion in 2008-09. India's auto components

imports rose by an annual average rate of 30 percent during this

period, but its exports grew only by 17 percent, much below the imports

for the same period.

From the study below we can see that the cost of factors for production

in India for power and interest rate is much higher than the competing

countries. For ant company power cost and interest rate is a major

concerning factor as the contribution of these factors to the total cost is

high. Labour cost and productivity Index is showing equal figures as

China. So India has to be more cost competitive in power cost and

interest rate if it has to bet China.

Cost structure of factors of production (figure 2.15)

Source: IBEF (2009)

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Furthermore, the share of China in India's auto component imports

increased 4.5 times from a mere two percent in 2004-05 to nine

percent back in 2008-09, while the share of South Korea increased

from 15.4 to 17 percent in the same period. What is more, the share of

US and Japan has come down over a period. If in 2004-05, Japan was

the second largest source of our auto parts, of late, imports from

ASEAN countries have also shown rising trend. The industry body said

that Thailand has emerged as the largest exporter of engines with 32

percent share in the country's total imports of engines including diesel

and semi-diesel engines. Thailand has, in fact replaced South Korea

which at one point of time was the largest exporter of engines to India.

2.8.1 China

One of the major threats for the Indian auto component industry is the

alarming increase in unfairly priced imports from China. According to

the industry data, in some cases, the landed cost of Chinese

components are said to be cheaper than the raw material cost of the

same component when manufactured in India. Auto component

imports from China have rapidly grown in the past two years from less

than 1.5% of all component imports to almost 10% in 2007-08. This is

at a time when input costs for domestic industry have escalated

phenomenally. Significantly, not all component manufacturers have

been able to recover these cost increases from their customers.

This has led to a squeeze on margins and profitability of companies.

Rationalizing internal costs and improving operational efficiencies can

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to an extent contribute in sustaining performance. However, when

external factors such as a strong currency, higher interest rates,

unfairly priced imports etc., come into play, industry needs

government‘s proactive intervention. However the threat from unfairly

priced imports can be neutralized only if our anti-dumping and

safeguards mechanisms are re-enforced to make them more

responsive to industry‘s needs.

The imports of auto components from China have been increasing at

an alarming rate of 88 percent a year. With this growth, the rate share

of China in India's domestic auto component market would increase

from current 2.7 to 15.6 percent by 2012-13. China was the largest

country among all other overseas players to put up a formidable show

of strength at the export.

The Automotive Component Manufacturers Association of India,

leading industry body in the auto parts segment in the country is of the

view that parts from China has clocked a 97 percent compounded

annual growth rate over the past seven years. Elaborating on the

precise reason as to why China is widening its footprint in India, At

Kearmey, the consultancy firm, in its report says that an estimated

12,000 auto component firms in China are much more competitive than

the 5,000 odd players in India and cites various reasons including

lower expenses of wages, steel, power rates and taxes.

The agency goes on to say that the wage rates in the neighbouring

country were 15-20 percent lower than in India. The auto parts firms in

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China also receive higher subsidy on power consumption from the

government. ACMA has further found that the difference between

Indian and Chinese auto parts firms‘ factory-to-factory cost, taking into

consideration the cost of transport, octroi, customs duty and others, is

a whopping 45 percent in China‘s favour. The Chinese auto

components started inundating the Indian market after the government

lowered the import duty from 15 percent back in 2005 to 12.5 percent

in 2006 and 2.5 percent the subsequent year.

Indian auto component players are increasingly going to face

competition from these Chinese firms and other players from South

East Asian countries. Containing the heavy influx of auto parts players

from these countries is a tad bit difficult, especially given the fact that

India has signed agreements with these countries for free trade.

Competition is getting fierce by the day as the influx of parts from the

overseas markets are selling cheaper than the Indian products. Apart

from that companies need to nurture highly competent and committed

workforce to sustain and improve our competitiveness further. Indian

auto component industry consists of majorly SME‘s.

2.9 Challenges faced by Indian SME Auto Component Industry in

global markets

In both developing and developed countries, promoting small and

medium-sized enterprises is one of the most viable strategies for

achieving national development goals such as economic development,

strengthening the industrial base, and local production structure

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(Hallberg, 2000). SMEs represent a sector of growing importance and

play an important role in the growth of emerging nations especially with

regards to providing employment and driving economic development

(Kula and Tatoglu, 2003). The small business sector has become more

important as they emerge as a dominant force impacting the growth of

national economies (Shridhar, 2006). According to World Bank Report

(2002, 2004), there are three crucial functions of SMEs as the engine

of growth in developing countries. First, SMEs enhance competition

and entrepreneurship and therefore, have external benefits on

economy wide efficiency, innovation and aggregate productivity growth.

Second, SMEs are generally more productive that Large Enterprises

(LE‘s), but the financial market and other institutional failures and non

conducive macroeconomic environmental aspects impede SME

development. Third, the expansion of SMEs boosts employment more

that LEs' growth because SMEs are more labor-intensive.

Export orientation has a direct impact on SME growth and profitability

(Ibesh, 2004; Roper, 1999). Firms may export to avoid stagnating

because of limitations inherent in the local market (Kazem, Heijden,

2006). Small and medium-sized enterprises substantially contribute to

country exports around the world (Fletcher, 2004). Small-scale

businesses can play an especially crucial role in export and

employment generation in developing countries (Arinaitwe, 2006).

According to report on ―technology branding in SME‘s‖, In most OEM or

replacement markets the final product has a value chain which runs

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deep into the system and SMEs are an integral part of the value chain.

Especially for technology products it holds greater relevance owing to

the heavy reliance on the ancillary industry for either as an after sale

medium or pre-manufacturing stage.

In this background looking at the issues and challenges in the context

of technology branding for SMEs becomes quite relevant and dynamic.

Globally, there are enough evidences of companies or clusters where

the SMEs have been exploring the possibility of branding in SME‘s and

specifically in technology companies. This is imperative in the long run

as it helps to fetch a better price and even develop a loyal base of

customer. The auto component industry of India is ruled by SME. The

SME auto component companies in India are facing challenges on

many fronts in their efforts export. If these factors are overcome, they

have the potential to drive the competitiveness of the Indian SME auto

component companies.

There are tremendous outsourcing opportunities available for the

Indian component manufacturers. The industry is on a growth path and

has truly become globalized by convincing the key global buyers

through its best practices and delivery. It has helped them both in

increasing their customer base globally and acquiring global

companies. The acquisition of overseas companies and opening own

offices in different countries has helped the auto-component

companies in increasing their responsiveness to customer needs. SSI

sector also contributes considerably to component industry.

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Figure 2.16

According to IDC report on ―Defining the role of the government in the

transnationalisation efforts of the Indian SME‘s in the auto component

sector‖, Challenges faced by the Indian SME auto component industry

are brand building as a quality manufacturing destination.

Indian auto manufacturers face a very steep brand building challenge

in the global market. Very often, small companies lose out as a result

of low awareness created about the Brand India. Bigger markets like

Germany and Europe are sceptical about the quality of product. Even

in other countries, OEMs purchase only minor parts from Indian

component manufacturers. Barring a few companies, products of

Indian component manufacturers cater only to aftermarkets or tier-I

suppliers.

Establishing Indian brands as quality brands in key markets is going to

be a huge challenge. Indian components have to compete against

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established players, and need to spend a huge amount of time and

energy on demonstrating the qualities of the brand. Brand building

needs substantial and long term investment.

For many Indian companies, overcoming perceptions on performance

and quality is one of the biggest challenges. The reputation of some of

the Indian component companies such as Bharat Forge and Sundaram

Fasteners has risen globally and needs to be replicated by others. For

example, today anything coming from Bharat Forge and Sundaram

Fasteners is recognized as first quality. According to the IDC report

following are the common problems which are faced by Indian auto

component SME‘s in the export markets.

2.9.1 Raw Material Prices

Price Rise

Raw material costs are by far the largest cost portions. Steel is the

most important raw material for auto component manufacturers. The

SMEs in the auto component sector in India are currently grappling

with the high raw material prices, price rise and the monopoly of

suppliers. There are three categories of steel used by the automotive

industry—flat (hot/cold rolled and plates for making vehicle bodies),

long (used for making forged components) and pig iron (used by

foundries for making cast components). While the flat and long

products witnessed an increase of 25 percent, prices of pig iron have

gone up by as much as 40 percent. With the increase of prices of raw

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material the final price of the goods also increase and it makes it

difficult to be competitiveness in export market.

Cartelization in the steel industry has resulted in the price of domestic

steel to be on par with the imported steel leaving the auto component

manufacturers with little option to choose from. This cartelization is

evident from the fact that India is the cheapest source of iron ore and

still steel price is high when compared to other countries. India is

exporting steel to countries where it is a scarce resource and these

countries do not have any import duty on steel. This scenario is making

Indian auto component industry almost unviable as the domestic price

of steel in China and some other competing countries is lower that the

steel prices in India. London Metal Exchange (LME) rates are also not

matching the landed price of raw material in India. The cost in India is

higher than LME prices while in few cases the customer takes LME as

a base price. The variation in the quality of steel (raw material in form

of bars/rods) available to the manufacturers leads to the inconsistency

in the finished output.

Price Fluctuation

Price fluctuation of steel, coal and coke and other raw materials has

become a hindrance to the industry. The Indian steel suppliers have

been accused of cancelling the previous supply contracts in the wake

of increased prices without any firm commitment on the delivery

schedule at increased prices. This influences global competitiveness

adversely as Indian component manufactures are unable to schedule

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their production and extend the delivery commitment to their

customers. Discriminatory Pricing Even foreign suppliers seem to go

for discriminatory pricing while supplying the raw material to Indian

companies. It has been reported by the industry that in few cases, the

Freight On Board (FoB) price for the same product is higher for Indian

customers as compared to European customers.

2.9.2 FTA with ASEAN Countries

The SMEs in the Indian auto component sector are apprehensive of

the FTAs with the ASEAN countries as they are on par with India on

quality and end up pricing their products lower than the Indian products

in India due to lower raw material cost, thus losing the domestic market

in India.

Competitiveness

The small and medium enterprises in the auto component sector

consider massive scale of manufacturing in China as a major threat.

Unlike Chinese companies, the scale of operation of most of the

companies in this segment does not allow them to execute large orders

at a short notice. The South East Asian companies are over taking

Indian auto-component companies in competitiveness. Thailand and

Korea apart from China are highly competitive. Thailand‘s

competitiveness emanates from higher efficiency of the manpower and

consistency in quality. Korean companies have strength in higher

manufacturing efficiency and consistent product quality. China is highly

competitive in cost. Chinese components like steering, gears, and

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wheel rims for heavy and light commercial vehicles, are giving

competition to Indian vendors with an estimated price difference of 30

to 35 percent, making them price their products lower than raw

materials‘ costs in India. The major threat to India‘s export potential is

expected to be from other Asian nations such as Thailand and Taiwan.

SMEs face multiple challenges primarily due to their scale of

operations. Such challenges include collecting market intelligence, raw

material requirement estimation, centralized purchase decisions, price

negotiation, marketing, and legal support. In case of SMEs the

important challenges would also include exploring and developing

shared infrastructure for R&D, design and testing laboratories,

identification of technical collaboration/ joint venture partners/ R&D

partners etc. Such support services are by and large not available to

small and medium auto-component manufacturers.

2.9.3 Inability to have dedicated R&D, testing and design

capability

Many auto component companies in India have moved up the

technology ladder and are confident that they are comparable to the

best global component manufacturers. However, there are a large

number of small size companies who don‘t have capabilities to design

the products end-to-end. These companies do not have necessary

infrastructure for doing R&D to match the requirements of their

customers. Their financial strength and their size do not permit them to

have a dedicated inhouse designing and R&D facilities.

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The automotive companies and large tier-I suppliers look for designing

capabilities in their suppliers before placing order for their regular

requirements. Indian auto component companies having designing

capability are preferred by foreign companies looking for collaboration

in India. A number of small and medium sized companies have

expressed an interest towards having shared facilities for i) R &D, ii)

Testing and iii) product design closer to their respective manufacturing

hubs.

This will encourage the SME auto component manufactures in

acquiring research and design capabilities, which has proved to be a

major weakness in getting orders from OEMs. Though the Government

has taken major initiatives under NATRIP and has big plans under this

scheme to provide expensive infrastructure for developing capabilities

of automotive industry, the non-availability of such facilities in each hub

may be of limited help to SME auto component manufacturers.

2.9.4 Finance related issues

Availability of Capital and Cost of the Capital in the wake of entry of

global auto component manufacturers in India, technology up-gradation

involving huge investments has become a necessity for the SME auto

component companies. Many Indian SMEs in auto component sector

are facing challenges in getting credit and credit at a low cost. Many

companies are finding it difficult to get necessary financial resources

from banks or venture capitalists. Inability of these companies in

getting credit has led to difficulties for such companies. The companies

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need to upgrade their technology in order to remain competitive in

global market. The manufacturers feel that the rate of interest for

working capital should be less. The finance is available at high interest

rate (nearly 12%), which is very high in comparison to other countries.

The rate of interest has relationship with the level of modernization,

high technology adoption and professional management of the

companies. The challenge of getting credit from banks is not so acute

for the companies having processes and advanced technology, which

manufactures high quality products for major OEMs. Initiatives to rate

the SMEs could help the better SMEs overcome this challenge. Banks

have been reported to be open to not only providing funds quickly but

also offer good deal on interest rate to SMEs getting better rating by

the SME Rating Agency of India Limited (SMERA). SMEs in auto-

component sector can also benefit from the scheme.

Duty drawback and incentives

Auto component exporters find duty drawback a cumbersome process.

It requires dealing with too many procedures and offices. For relatively

small players, at times the expenditure incurred on follow-up is higher

than the duty drawback amount.

The Government takes a long time to refund duty drawbacks and

incentives. Right now it takes anywhere between 3 months to 6 months

to get duty drawback amount. The industry is looking for less time in

getting duty drawbacks and other incentives/refunds from the

government offices. This will help them have enough capital for their

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requirements thereby reducing the cost of working capital and business

expansion.

Currency Fluctuations

A recent phenomenon that has impacted export earnings of automotive

component manufacturers is the appreciating Rupee. The component

manufactures‘, which have entered into fresh negotiations with their

customers, have started insisting on building in currency fluctuation

clauses to counter further changes in the Indian Rupee.

The contracts currently under negotiations are building in currency

fluctuation clauses. Previously this was not a common practice,

particularly since no one anticipated this kind of appreciation of the

rupee. Most automotive component manufacturers working under old

contracts are asking their customers to revise pricing based on rupee

appreciation. Some of the Indian auto components makers are rushing

to re-open key supply contracts with their U.S.-based customers as the

rising rupee is sending the entire industry into a tailspin.

According to the Automotive Component Manufacturers‘ Association of

India, exports to US companies are worth over INR 2,000 Crores. As

Indian auto component makers work in a very competitive environment

with thin margins, many companies, which do not have currency

fluctuation clause built into the old agreements, are now trying to re-

negotiate the contracts. But there are other manufacturers who are

trying to shift their focus to the Euro.

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Indian automotive component companies are trying to balance out this

impact by focusing on European exports while decreasing its exports to

the U.S. Even though the Euro is emerging as the most preferred

currency for Indian exports, there could be hurdles to move away from

the U.S. Dollar. Some companies who have their exports in Pounds

and Euros have not been impacted due to the appreciating Rupee.

The dual trap of high interests and the appreciating Rupee have

squeezed the margins of the exporters. The currency fluctuation and

the appreciation of the Indian Rupee in comparison to the Dollar have

affected the profitability of Indian companies dependent on the U.S

market. Since China is not having the floating rate currency system for

the Industry, the Chinese industry is insulated from these fluctuations.

Frequent changes in DEPB rates

The duty entitlement passbook (DEPB) scheme is regarded as a

positive initiative of the Government. Exporters keep the available

benefits from this duty in mind while negotiating the orders with the

foreign customers and any change in it affects the profitability of the

company. There is also a time lag between applying for it and getting

the benefit. The cost of agents and time cost nullifies its benefits. As a

result, quite often, it remains only a notional income.

2.9.4 Law related issues

Trust in Indian Arbitration System

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At present, foreign partners of Indian companies insist on arbitration in

their home country primarily due to lack of trust in Indian arbitration

process. Among SMEs, this works as a deterrent for entering in to any

business relationship with a foreign company.

Documentation for transnational business

Small companies find it difficult to navigate through the legal

documentation for any transnational business interaction. Such

companies are not aware of legal experts who can address to their

legal documentation requirements keeping the law of the land of the

country where they want to do business.

Market Exposure

Inspite of having improved the product quality standards closer to

global standards, many of these companies in SME sector have not

been able to bag substantial orders from OEMs abroad.

Awareness about Indian auto component companies.

The small and medium companies in auto component sector do not

have enough resources to create awareness about their companies

and products in even key markets and among potential customers.

Buyer-seller meets and events

Small players in auto-component manufacturers neither have the

information about buyer seller meets and events nor resources to

attend such meets.

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Exhibition in foreign markets

The fund provided by the Government for participating in foreign

exhibitions is too meagre and hence is not of much use.

Senior government officials opine that SME engineering exporters must

do their research/ homework properly to fully benefit from participation

in any international event.

Upgrade component manufacturers‟ facilities

A number of SME sector auto component companies have not been

able to upgrade technology due to various reasons. In the highly

competitive markets, this has started impacting their business

adversely and becoming a hindrance for their exports.

Manpower/ Human resource related issues

A large chunk of available manpower from the automotive industry is

going to either the service industry or to the new manufacturing units

that have come in recent past.

Retention of skilled manpower is proving to be a challenge. If

companies do not plan ahead, there may be disruptions in production.

The quality requirements from the industry are changing with the global

requirements and achieving skill development for a new set of

employees on a regular basis is a challenge.

For improving productivity, need for skill development and attitudinal

training of work force is being increasingly felt by the industry.

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Production heads of auto component manufactures feel that job

security has vitiated the work culture at the lower level. The workforce

at lower level spends time less productively during working hours.

Some experts have also echoed similar views.

Rising wage cost

Minimum wages in several states has gone up by over thirty percent in

the last six months. This has severe implications on the profitability of

the companies employing low wage earning workers. The implications

are equally relevant for automated manufacturing systems because of

the cascading effect of minimum wages among the middle level and

senior level employees.

Labour laws

SMEs in auto-component sector feel that the current labour laws have

resulted in poor productivity in India. These companies expect

productivity friendly labour laws. The general feeling is that Chapter 5B

of the industrial dispute act should be done away with. Under

provisions of this act, companies cannot retrench more than 100

workers without prior permission from the Government even if the

company does not have enough work for them. At few places, the

Government is pressurizing companies to make the contract labour

permanent, which the companies cannot afford. The Government of

India is already working on a policy to mitigate the situation.

SEZ policy.

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The inability of existing SMEs to operate in SEZs where tax benefits

are available will make small and medium enterprises in the auto

component sector unviable. The SME component manufacturers are

wary of benefits extended to companies located in these zones. The

benefits to SEZ based manufactures are putting others at a competitive

disadvantage

Exorbitant cost of land and long gestation period of Greenfield projects.

The acquisition of land for a Greenfield venture is perceived to be

another major problem with prohibitive rates and bureaucratic

procedures. Land prices in most of the industrial hubs have become

prohibitively high, creating barriers for expansion for the small and

medium enterprises.

Even the expansion procedures are cumbersome with clearances

required from a number of bodies/ boards.

Since built-in premises are available on lease in China and the

companies only need to bring in the machinery to start the production.

The time lag for setting up new production line is much shorter in

China. High cost of land and time required to develop infrastructure is

impacting competitiveness of Indian companies.

The procedures for advance licenses for import are cumbersome, time

consuming and difficult to implement. The license for duty free import is

issued only in Delhi and the committee for this meets once in 6 months.

The bond received from the import is given to customs and the bond

redemption process is very cumbersome. It takes 1-3 months for the

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same. Coordination with multiple offices like any other SME sector

manufacturer, auto component manufactures need to submit several

documents related to taxes, labour laws, duty drawbacks etc. at

different places. This is time consuming and impacts productivity and

increases the non-tariff cost of production.

Basic Infrastructure

Poor basic infrastructure like power, port facilities and transport/

logistics issues are major causes of worry for the small and medium

enterprises located across the country. The component manufacturers

in remote locations face the challenge of instilling confidence of their

prospective joint venture or exports partner in the overall conditions

prevailing in the industrial area (sewage, roads, power supply, etc).

Poor infrastructure also leads to higher manufacturing cost, apart from

erosion of confidence amongst the customers.

Power

Power shortage is the main issue with many companies located in

several industrial belts across the country. Lack of adequate power

supply leads to the usage of more resources, thereby increasing the

operational cost and finally increases the cost of the end product,

which leading to lowering of competitiveness in global market. The

companies need to pay a minimum amount for sanctioned load; power

supply for shorter duration pushes up the actual cost of electricity.

Logistics/ transport

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Logistics/ transport along with the poor condition of roads and

seemingly cartelization of transporters is also a major concern. This

increases the overall logistics cost, which adds to the final delivery

price to the customers, making them less competitive in global market.

The cost of logistics amounts to a significant portion of the overall

transportation cost. This is also a major factor affecting the exports and

the competitiveness of the Indian products in the global market.

Port facilities

The prominent ports in India are congested and as a result there are

delays in shipment of consignments. The non-availability of ports leads

to longer lead-time for export causing delay in delivery of

consignments. These delays in turn lead to delay in receiving of

payments, affecting the finances.

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CHAPTER 3 : TRADE AGREEMENTS

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CHAPTER 3

TRADE AGREEMENTS

3.1 Introduction

There are a few issues which restrain India from attaining the status of

other global players. Despite being around 60 years old, the domestic

auto industry lags behind other countries like South Korea, Brazil and

Mexico in terms of production and sales. This makes it difficult for

companies to invest extensively in R&D, a key competitive tool in the

global market.

Countries like China and Thailand might put a spanner in the domestic

industry's wheels as they are capable of beating India at its own game,

that of low cost. The growing number of FTAs (Free Trade

Agreements) that are being signed by India with countries like

Thailand, Singapore, China etc is likely to hurt the domestic players as

they pay a relatively higher duty of around 25% as compared to 1%-

10% being paid by its Asian counterparts. Other reasons include higher

tariffs and resistance to IT.

3.2 GOVERNMENT INITIATIVES IN SELECTED COUNTRIES

According to the IDC report on defining the role of the government in

the transnationalisation efforts of the Indian SMEs in the Auto

components sector following are few trade agreements of selected

countries.

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3.2.1 THE ASEAN FREE TRADE AREA (AFTA)

Most of the South East Asian region are free trade area. Accounting for

over 96 percent of all ASEAN trade, the first six signatories of the

Common Effective Preferential Tariff scheme for the ASEAN Free

Trade Area have reduced their tariffs on intra-regional trade to no more

than five percent for almost all products in the Inclusion List or removed

them altogether. The ASEAN Free Trade Area was established in

January 1992 to eliminate tariff barriers among the South East Asian

countries with a view to integrating the ASEAN economies into a single

production base and creating a regional market of 50 Crore people.

The agreement on the Common Effective Preferential Tariff (CEPT)

Scheme for the ASEAN Free Trade Area requires that tariff rates levied

on a wide range of products traded within the region should be reduced

by more than five percent. Quantitative restrictions and other non-tariff

barriers should be eliminated.

3.2.1.1 Indonesia

Due to the regional economic crisis of 1997 and 1998 Indonesia

liberalize its domestic market based on the International Monetary

Fund (IMF) led restructuring and reforms program. The automotive

policy in Indonesia was modified and revised during the process of

liberalization of domestic market. The revised automotive policy of

1999 consists of the following:

- Withdrawal of incentives for local content usage

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- Lower import tariffs for completely knocked down (CKD) and

completely built unit (CBU) vehicle units

- Removal of restrictions on importing CBU vehicles

The policy liberalization changed the automotive industry and permitted

local assemblers to import components from competitive suppliers

outside the country. This enabled automotive components suppliers to

become efficient and competitive. The revised policy brought in

competition from the imported vehicle segment creating a more

competitive vehicle industry in Indonesia.

AFTA

Indonesia implemented the AFTA in 2002. Implementation of AFTA

had a high impact on the Indonesian automobile industry.

Manufacturers have been able to bring down their costs through the

ASEAN Industrial Cooperation Scheme (AICO) scheme, in which

traded automotive components within ASEAN are subjected to a

maximum tax of 5.0 percent. The AICO was a prelude to the formation

of the AFTA. The trading countries however, need to have at least 30

percent local interest or equity. Participating companies must also fulfil

40 percent local content requirement. Tariff rates for components to be

reduced to 0-5 percent under the Common Effective Preferential Tariff

(CEPT) agreement, an AFTA mechanism. Both these arrangements

reduced the cost of production and led to lower vehicle prices in

Indonesia.

94

Based on the new automotive policy formulated in accordance with the

WTO and the AFTA regulations, there was no restrictions on importing

new automobiles and their components to Indonesia. Used

automobiles and components were however, prohibited from being

imported to the country.

Indonesia was one of the first ASEAN countries to liberalize its

automotive components market. It had introduced the automotive

policy in 1999 and implemented the ASEAN Free Trade Area (AFTA) in

2002. Market liberalization has expected to create a stronger

automotive industry apart from increasing growth in the automotive

component market. The 1999 policy deregulation had abolished

incentives granted to vehicle assemblers for using locally manufactured

components. No tax concessions are available for use of imported

components based on the degree of local content achieved. Import

tariffs had been reduced across the board for the completely knocked

down (CKD) kits and other components.

The new tariffs for other components for vehicle assembly were a

standard 15 percent. In addition to the 1999 policy, Indonesia actively

promoted trade among the ASEAN countries. It used the ASEAN

Industrial Cooperation (AICO) scheme, in which traded automotive

components within ASEAN were subjected to a tax ceiling of 5 percent.

The trading countries however, required to have at least 30 percent

local interest or equity. Indonesia advanced its AFTA compliance

schedule from 2003 to 2002. Tariff rates for components imported from

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the ASEAN countries were reduced to 0 to 5 percent under the

Common Effective Preferential Tariff (CEPT) agreement, an AFTA

mechanism.

Liberalization increased competition in the OEM and aftermarket.

Assemblers were not forced to use local content and are free to obtain

cheaper components elsewhere. Accession of imported components

from China, Taiwan, Thailand, and Malaysia increased and the

aftermarket segment become more attractive. The inefficient domestic

manufacturers were facing attrition and a more competitive and

efficient components industry emerged in Indonesia.

3.2.1.2 Malaysia

The implementation of the AFTA in 2005 removed all non-tariff trade

barriers in Malaysia. While high import duties remained, preferential

treatment to national vehicle manufacturers was withdrawn. In this

scenario, international vehicle manufacturers gained market share.

These manufacturers had higher percentage of imported components.

As a result, the domestic component manufacturers lost their market

share to imports. Increase in CBU imports had a negative impact on

component sales in Malaysia. In the wake of the market liberalization,

automotive component manufacturers are diversifying into non-

automotive related activities to reduce the impact of the intense

competition expected. Automotive component manufacturers are taking

the diversification path to reduce their exposure to the volatile

automotive market. Increasing competition expected from market

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liberalization has encouraged components manufacturers to enter into

other businesses. The automotive component manufacturers are also

upgrading their technological capabilities to enhance their ability to

compete with the global manufacturers. Malaysia has abolished its

Mandatory Deleted List from January 1, 2004 to adhere to the AFTA

and the WTO principles.

National Automotive Trade Policy of Malaysia (NAPF)

To spur further growth of the Malaysian automotive sector NAPF has

set major objectives, as follows:

1. To promote a competitive and viable automotive sector, in particular

national car Manufacturers.

2. To become a regional hub for manufacturing, assembly and

distribution for automotive vehicles.

3. To enhance value added and local capabilities in the automotive

sector.

4. To promote export-oriented Malaysian manufacturers as well as

component and components vendors.

5. To promote competitive and broad-based Bumiputera participation in

vehicle manufacturing, distribution and importation as well as in

component and components manufacturing.

In order to support the objectives of the automotive sector, the

following measures are being implemented.

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- Establishment of an Industrial Adjustment Fund.

- Provision of incentives to component manufacturers.

- Cooperation projects.

- Support for the Global Supply Program.

- Provision of training grants.

- Provision of R&D grants.

- Designating production centres for the automotive sector.

- Ensuring standards conformity and technical compliance.

- Extension of Technology Acquisition Fund.

- Provision of market development grants.

- Provision of customized incentives.

- Amendments to Approved Permit (AP).

- To freeze issuance of franchise APs for import of new vehicle

brands.

- To discontinue franchise APs awarded for importation of ‗tuned-

up‘ vehicles, with effect from 1 January 2006.

- To allow Bumiputera-controlled Public Limited Companies

(PLCs) to apply directly for APs.

- To limit the importation of used vehicles through Open APs to

that between the ages of 1 to 5 years only

3.2.1.4 Thailand

The Thai Automotive Policy underlines the export expansion policy of

the Thai automotive industry. In line with the export expansion plan,

Thailand has signed FTAs with Australia, New Zealand and China in

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2005, with India in 2006 and with Japan in 2007. The Free Trade Area

(FTA) agreement with Japan was perceived to be a threat for the

automotive components industry in Thailand. Contrary to popular

assessment that this agreement will reduce the demand for the locally

manufactured components, it has enabled Thailand emerge as the

manufacturing base for Japanese OEMs.

The automotive components market in Thailand has developed as a

key competitor in the global automotive components industry. It now

boasts of almost all global tier-I and tier-II component suppliers

operating in its market. Thailand has complied with the WTO and the

AFTA regulations by liberalizing its automotive market completely. In

accordance to the WTO principles, the Government abolished the local

content program in 2000, and has lowered its taxes and tariffs as per

the AFTA requirements as early as 2002. The implementation of the

AFTA opened up the Thai automotive components market to global

participants, and this in turn led to the industry becoming more efficient

and competitive. Many foreign multinational automotive vehicles and

components manufacturers have invested in the domestic market in

Thailand and have transferred funds and technology into the industry.

These factors have benefited the component manufacturing industry in

Thailand in terms of having access to the latest manufacturing

technology and the opportunity to supply to the global manufacturers.

Historically the development of Thai automotive industry has been

based on import substitution policies. In the present scenario, the

interest has shifted towards more liberalized policies to correspond with

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the current global trend. These include loosening tariff barriers,

abolishing local content measures, promoting investments and exports,

and also cooperating with international communities, such as ASEAN,

APEC, and WTO. Trade liberalization through the agreements of AFTA

(ASEAN Free Trade Area) has cut import tariffs to 0-5 percent since

2003 and as a result, been expanding the market for Thailand's car

manufacturing industry. Within the ASEAN region, Thailand remains

the leading exporter of auto components to Japan, accounting for

nearly half of all exports from ASEAN, followed by Indonesia and the

Philippines, whose respective shares each account for almost a quarter

of total exports.

India-Thailand FTA

India had signed a Framework Agreement for a Free Trade Area with

Thailand and this has resulted in sizeable apprehensions as well as

trade on both sides. Initially driven by an Early Harvest Scheme

comprising 82 items, including a few automotive components such as

lighting equipment, suspension and transmission components, these

items have been moved on a tariff reduction in three blocks beginning

March 1 2004 and ended on March 1 2006, ranging from 50 to 75 to

100% reduction in tariffs.

Under this agreement,

- Most of the components including engines are in the sensitive

list

- Goods negotiation will continue for auto components

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AFTA/ CEPT Policy

- 80% import duty on goods to be eliminated by 2007

- All import duties to be eliminated by 2010

- Automotive products shall be eliminated in line with the

framework

3.2.1.5 Vietnam

As a participant in the ASEAN Free Trade Area (AFTA) and Common

Effective Preferential Tariff (CEPT) agreements, Vietnam can become

a hub for auto components supply in the ASEAN region by utilizing its

competitive advantages. Vietnam joined ASEAN in 1995 and has

participated in AFTA since 1996. In 1998, it became a member of Asia-

Pacific Economic Cooperation and gained WTO membership in 2007.

Vietnam currently provides 6 percent of the total auto components

exports from ASEAN to Japan. Global Japanese components suppliers

that have established low-cost operations for the purpose of exporting

back to Japan produce most exported components.

Taxes

Taxes applicable to the automotive and auto components industry are

designed to encourage exports and protect local production. This policy

is supported by significant corporate tax incentives available to newly

established companies, particularly to companies located in investment

zones or operating in encouraged sectors. Automotive and auto

components are not included in the list of encouraged investment

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sectors, but investment projects in the automotive industry may be

entitled to tax incentives based on other criteria. Encouraged

investment projects are also entitled to import duty exemptions with

regard to the import of fixed assets. Auto components imported from

ASEAN countries into Vietnam or exported from Vietnam to other

ASEAN countries are subject to an import duty of up to 5 percent if

they satisfy ASEAN content requirements.

Import duty refunds are available for raw materials used for producing

goods for export. An extension of import duty payment is also available

to reduce working capital requirements. Beginning in 2007, import

duties based on the CKD scheme have been completely removed.

Import duties for disassembled components will apply.

Within seven years of accession to the WTO, import duties applicable

to completely built units (CBUs) and components was reduced. Import

duties on CBUs would be reduced up to 50 percent. New incentives

based on other criteria would apply.

One of the positive impacts of Vietnam‘s WTO membership on foreign

direct investment is Duty reductions. Import duties are considerably

reduced for goods used as inputs for domestic production as well as

private and Government consumption. In many cases, import tariff

rates on inputs for producing exports and other goods such as

machinery and equipment have been significantly reduced during the

WTO negotiation process. Moreover, exporters are refunded import

duties on inputs used for producing exports.

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Vietnam is actually engaged in a multitude of trade covenants. Vietnam

is a member of AFTA, the ASEAN-China Free Trade Association, and

the ASEAN-Korea Free Trade Association and is in the process of

negotiating free trade agreements with Japan, India, Australia and New

Zealand.

3.2.1.6 Australia

The Australian automotive component market has already made

inroads into the global arena. To continue the strong export

performance requires the Government to support the development of

new export markets. Currently, China is Australia‘s third largest trading

partner and there is enormous potential for further growth. The

expected FTA between Australia and China is likely to further bind this

relationship as improved access is secured through trade agreements.

The Chinese market presents a significant opportunity to Australia with

its emergence as the third largest automotive vehicle market in the

world and the pace of recent expansion is set to continue.

Global integration has led to rationalisation of production in Australia

and increased trade and global mobility of production factors. The

investment decisions have been based on increasing investment in

growth markets and manufacturing of consumer driven products and

investment in innovation. During the period 1988 to 2005, Australia

lifted quotas and local content requirements, termination of export

assistance, passenger motor vehicle (PMV) tariff phased down to 10%

and there was transitional assistance to facilitate adjustment to lower

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tariff. Since 2006 onwards, the PMV tariff has been reduced to 5% till

2010 and the structural adjustment assistance will be phased out by

2015.

Australia has the following Free Trade Agreements

Australia has FTAs with New Zealand, Singapore, Thailand and the

United States. Currently FTA negotiations are on with China, ASEAN/

New Zealand and Malaysia. Preliminary discussions are on with the

Gulf Cooperation Council, Japan, Korea and Chile

3.2.1.7 Korea

Korea has signed the FTA with the U.S. and ASEAN in 2007. The FTA

between the Republic of Korea and Singapore was signed in 2005. The

FTA between the Republic of Korea and the member countries of the

Association of the South East Asian Nations was signed in 2007. As a

major auto and auto component exporter, Korea is on an all out

offensive to negotiate FTAs and is now targeting Europe as well as

ASEAN, South Africa and Australia.

SELECTED FEATURES OF SOUTH KOREA‘S AUTOMOTIVE

POLICY

WTO DDA (Doha Development Agenda) Negotiation

In case the WTO DDA comes to an agreement, significant tariff cut is

expected for the automotive sector. For South Korea‘s auto industry,

which is, export driven this will be a positive factor for future growth.

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Remanufacturing is defined as restoring the original function of a

product that has been used through the process of dismantling,

cleansing, repairing and reassembling.

This policy applies to automotive components, electric goods and

appliances and related components, effective from December 2006.

The Ministry of Industry, Commerce and Energy has specified which

products and components will be relevant to this policy. This policy

increased the demand for auto components in Korea.

Trade and Investment Policy

In South Korea, trade policy formulation and implementation is

primarily the responsibility of the Ministry of Foreign Affairs and Trade

(MOFAT). The Ministry of Commerce, Industry, and Energy (MOCIE)

regulates imports and exports. The South Korean Government has

brought in a paradigm shift in its trade policy and there has been an

increasing willingness to negotiate regional FTAs and Preferential

Trade Agreements (PTAs). The Asian financial crisis seems to be an

important factor in altering South Korea‘s past opposition to preferential

trade agreements.

3.2.1.8 China

The Chinese Government has identified the automotive sector as a

priority industry. The Government introduced the Automotive Industry

Development Policy to strengthen the sector‘s international

competitiveness. The policy was aimed at introducing market

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competition to help strengthen domestic capabilities, with a focus on

brand, quality and technology, rather than just price. The policy also

encouraged local auto enterprises to draw on existing competitive

advantages to target international markets.

China‘s Revised Automotive Policy

China‘s State Development and Reform Commission (SDRC) unveiled

a revised automotive policy, which came into effect on June 2, 2004.

The object of the revised version was to bring the automotive policy in

line with China‘s World Trade Organization (WTO) membership

commitments and to design the blueprint for the automotive industry‘s

comprehensive development. The revised automotive policy clearly

suggests that the Government‘s systemic intervention was aimed at

consolidating the industry through weeding out the inefficient auto

manufacturers from the industry, preventing the industry from

overheating investment and over capacity, and encouraging mergers

and acquisitions in the industry. The revised policy also aimed to foster

a united and open national auto market that is mainly dependent on

private consumption. In addition to this, all local Governments are likely

to be forbidden from taking discriminatory action on vehicles produced

in other regions.

New Import Rules for Automotive Components

The General Administration of Customs (GAC) has announced a new

set of import rules for automotive components and accessories for the

assembly of complete vehicles. The new regulation as per Decree

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#125 seeks to impose the same tariff rates that are applicable for the

import of "complete vehicle". This would include all the imported

automotive components and accessories that are CKD or SKD. Except

the automotive components that are treated as "complete vehicle",

other automotive components will continue to be eligible for a much

lower tariff of between 13 percent and 17 percent.

The higher tariff rule would be extended to any imports of automotive

components or accessories valued at 60 percent or more of the total

price of a complete vehicle and the rule is effective from July 1, 2006.

The following forms of key component imports to assemble vehicles in

China are expected to be treated as completed automobile imports:

- Engines and auto bodies

- Engines and any three or more of a combination of

transmissions, driving axles, driven axles, chassis, steering

systems, braking systems, and air conditioning systems.

- Auto bodies and any three or more of a combination of

transmissions, driving axles, driven axles, chassis, steering

systems, braking systems and air conditioning systems

Recent Developments in China‘s Trade Policy

China expects to engage in a great deal of trade negotiations and

agreements. Tariff reductions and other trade distortion measures are

rapidly getting eliminated with every successive trade policy

development in China.

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FTA between ASEAN and China

The Economic Cooperation Framework Agreement that came into

existence in November 2002 laid the foundation for the establishment

of a free trade area between China and the six original members of

ASEAN by 2010 and between China and the less developed ASEAN

members by 2015. Implications of WTO on Chinese Automotive

Industry China‘s accession to the WTO toward the end of 2001 had

resulted in widespread changes in the system of tariffs, regulations,

and quotas in the country. Consequently, tariff rates constantly varied

depending on the specific tariff codes with the sole aim of achieving the

requirements of free trade stipulated under the WTO Agreement.

China is likely to undergo major policy changes on importing

automotive products. Abolition of import licenses and quotas for all

automobiles had come into effect on January 1 2005. The base level

quota is expected to be INR 240,000 Crores and increase at a rate of

15 percent annually. Import tariff is slashed to 30 percent as a part of

the WTO commitment. With the automatic import license for

automotive products in place, only those firms that have obtained the

foreign auto manufacturer‘s authorization are qualified to import and

sell imported automobiles.

3.2.1.9 Japan

Changing automotive component procurement structure, increasing

modularization, global components procurement strategy, and

consolidation of the domestic industry are some key trends. Growing

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cost pressure in the vehicle-manufacturing category is expected to

result in lower purchase orders from the suppliers in the future and this

is expected to have a negative impact on the future prospects of the

Japanese automotive OE Suppliers.

Automotive Trade Agreements

Japan has entered into a series of economic partnership agreements

(EPAs) with Mexico, Thailand, Indonesia, the Philippines and Malaysia.

The policy dialogues have been formulated for similar agreements with

South Korea, India and ASEAN+3. All these economic partnerships are

highly significant and hold great promise for the Japanese automotive

industry. Interestingly, the recent EPAs have been targeted mostly at

the emerging automotive markets of the world.

India

India easily is the second most attractive market for Japan in Asia after

China. A strong ancillary and auto components manufacturing segment

in India and the establishment of production facilities by the global

automakers catering to both domestic as well as international markets

have contributed to the growth.

3.3 Intra-APEC free-trade agreements

The range of preferential rules of origin is found in 21 intra-APEC free-

trade agreements. Its aim is to assist discussions within APEC on the

scope of rationalising preferential rules of origin. This is confined to

headings 4011 (tyres), 7007 (safety glass), 7009 (mirrors), 8407

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(engines), 8408 (diesel engines), 8409 (components of engines), 8512

(electrical lighting or signalling equipment), 8701 (tractors), 8702

(motor vehicles for more than ten persons), 8703 (passenger motor

vehicles), 8704 (goods vehicles), 8705 (special purpose vehicles),

8706 (chassis fitted with engines), 8707 (bodies) and 8708

(components and accessories).

3.4 MERCOSUR – India Preferential Trade Agreement

The PTA was signed between India and MERCOSUR in 2004

Implications for the Indian Auto Components Industry:

The auto components industry in MERCOSUR enjoys significant

economies of scale in comparison to India. Both the imports and

exports of components are significant in MERCOSUR vis-à-vis India.

The component market in MERCOSUR is mainly Brazil and Argentina.

The auto component industry of Brazil is three times that of India and

that of Argentina is marginally less than India.

Global tier-I suppliers have followed their OEMs into Brazil and have

set up significant capacities. The Brazilian auto component industry is

very competitive but is not profitable at the moment and most local tier-

II/ tier-III manufacturers are getting out of the business. Brazil imports

stamping components, engines, gearboxes and other sub-assembly

(e.g. steering column). Brazil is a highly protected market and is

expected to remain so. The Argentina auto component industry lacks

economies of scale but component manufacturing is profitable. Imports

account for 50 percent of the turnover of the component industry.

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Argentina imports electrical motors and systems, differentials,

transmission systems, body components and interiors. Argentina is

competitive in stampings, seats, glass, plastics, panels and tyres where

logistics cost is high and natural protection is thus ensured. Argentina

is a highly protected market and is expected to remain so. Importing

components by OEMs in MERCOSUR is mainly a strategic issue.

India – EU FTA

- The EU expected to complete elimination of duties on all

industrial goods including auto sector.

- The India-EU summit agreed to finalize a trade deal by 2008

end.

3.5 India-ASEAN and India-South Korea Free Trade Agreement

(FTA)

India-ASEAN and India-South Korea Free Trade Agreement (FTA) and

forthcoming India-EU and India-Japan FTA the share of imports in

domestic auto market is likely to be 50 per cent by 2013-14. Custom

duty on auto parts like pistons, piston rings, bumpers, gear boxes,

radiators etc, for example, would be zero by 2013 under India-ASEAN

FTA. Similarly, custom duty on motorcycle parts, parts of engine, piston

etc would also come down to five per cent level or zero under India-

South Korea FTA. ―This could affect our plans to achieve the targeted

size of $40 billion-$45 billion of auto component industry by 2016 under

the Automotive Mission Plan announced in 2006,‖ the study noted.

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India continues to be a net importer of auto components, despite being

a favourable destination for small cars. India‘s trade deficit in auto

components has ballooned from $371 million in 2004-05 to $2.8 billion

in 2008-09. While our auto parts imports increased by an annual

average rate of 30 per cent during this period but our exports grew by

17 per cent (much below the imports) for the same period.

Free trade agreement (FTA) between India and the EU

Significantly, a free trade agreement (FTA) between India and the EU

is also on the cards and is expected to be concluded by the end of this

year. The signing of the FTA augurs well for Indian SMEs because it is

likely to ease the trade movement in both goods and services sectors

and remove trade barriers in investments too. Therefore, more Indian

SMEs are expected to consider the EU as a lucrative investment and

business expansion destination after the signing of the FTA.

India is currently negotiating FTAs/PTAs with several regions and

countries like ASEAN / Thailand / Singapore / Malaysia, China / Korea /

Japan / BIMSTEC / Bangkok Agreement, SAFTA / Sri Lanka /

Mauritius, MERCOSUR / Chile, SACU / Egypt / Gulf Cooperation

Council. While negotiating the agreements, care would be exercised in

deciding which tariff lines would be included.

In agreements such as SAFTA and PTAs with countries like Chile,

GCC, etc., the attempt would be to include automotive tariff lines. At

the same time for FTAs with Thailand, BIMSTEC, ASEAN, China,

Korea, Japan, etc., the industry has identified automobile and engine

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product lines and auto-component lines for inclusion in the negative

list. Need to keep these 84 items in the negative list for FTAs with

Thailand, BIMSTEC, ASEAN, China, EU, Korea, Japan, etc., for which

no duty concession should be extended has been focused. In the case

of the auto-component industry, the negative list could vary depending

on the country/trading block. Any trade negotiation will take into

account these sensitive items which are outside the purview of the

concessions.

A clear definition of Rules of Origin for FTAs/PTAs is to be attempted to

put in place in a manner to prevent:

- Pass through imports from non-participating economies

- Trade deflection that may result from differential duty structures

As such it is felt that the automotive sector needs a robust definition of

Rules of Origin, which may be defined in terms of the following:

• Change of Custom tariff classification at the 4 digit level (from import

to export)

• Value Addition (Transaction Value Build Down method) Minimum at

50%, (including value of sub-component import of parent assemblies)

• Minimum operation at country of origin (weld + paint + assembly)

• Non-qualifying processes: Packaging, Re-packaging Polishing,

finishing, mere assembly or disassembly, Inspection, Internal

Transport, freight, anti-rust applications, oiling etc., or a combination of

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the above Rules of Origin should be certified only by Government

Authorities of partner countries only.

3.6 Indian Automotive Mission Plan 2006-2016

On top of these, an Automotive Mission Plan 2006-2016 is also being

drafted to develop the domestic sector, as well as the export market. It

aims to develop India into a premier automotive hub. Moving forward,

India targets to become one of the top 5 automotive economies by

2025.

Also global auto companies are increasingly sourcing components and

vehicles from low cost countries. In order to incentivize globalization

and exports the following issues as demanded by Industry will be taken

up for examination :

(i) Maintain a three-tier tariff structure for raw materials, intermediate

products and finished products. In the short term, apply tariffs that

would counterbalance this disadvantage.

(ii) Proceed on internal reforms at an accelerated pace by bringing in

full country-wide VAT, and at the same time withdrawing all other

central and state taxes and levies on manufacturing.

(iii) Implement a comprehensive GST and reduction of tariffs on raw

materials, before further reduction in the automotive tariffs are done.

Creation of Special Auto-Component Parks (SAPs) is recommended

for promoting export in the auto component sector. The need for such

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Auto Component Parks has assumed significance in the context of

negotiation of Free Trade & Multilateral Trade Agreements with various

countries. Issues like extension of Customs Duty exemption on inputs,

exemption from sales tax & excise duty for supplies to units in the SEZ

will be suitably addressed.

In order to accommodate the existing units, Government would

examine creation of virtual SEZs in the automotive sector.

Government would consider revamping of export promotion schemes

including DEPB, EOU and EPCG schemes, which would be WTO

compatible.

Currently, the EPCG Scheme permits import of capital goods at

reduced

Customs Duty of 5% is imposed against an export obligation. With the

gradual reduction of MFN rates of duty to a peak of 12.5%, the duty

exemption of 10% points under export obligation lose attractiveness.

This issue will be addressed. Industry and the government will

endeavor together to explore new markets. Government would

encourage all automobile manufacturers based in India to export.

Specific initiatives would be encouraged under the Market Access

Initiative (MAI) schemes. The proposal to extend product and market

focus schemes to the automobile sector would be considered.

Competitiveness in manufacturing and technology development would

be enhanced through several initiatives. Government will ensure time

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bound implementation and support NATRIP to set up Centers of

Excellence in the following areas in the second phase to be completed

by 2011.

NATRIP can, therefore play a coordinating role for all activities

requiring road data collection; fatigue data etc., and make it accessible

to the agencies carrying out research. NATRIP could look into the

following issues:

i. Mechanisms by which the Centres of Excellence could be promoted

and networked with industry.

ii. Creation of data base.

Government will encourage collaboration of Industry with research and

academic institutions like CSIR, IIT, and machine tool industry for the

development of appropriate technology and creation of IPR to meet

more stringent regulations as well as to develop relevant machine tools

and equipment that improve manufacturing processes and quality of

the vehicles and components produced by the industry. The interface

with the Core Group on Automotive Research (CAR) would be

strengthened.

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CHAPTER 4 : NEED FOR STRATEGY DEVELOPMENT

FOR ENHANCING COMPETITIVENESS AND EXPORT

GROWTH

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CHAPTER 4

NEED FOR STRATEGY DEVELOPMENT FOR

ENHANCING COMPETITIVENESS AND EXPORT

GROWTH

4.1 Introduction

A firm‘s competitiveness can be determined on factors such as (i) its

own resources (ii) its market power; (iii) its behavior toward rivals and

other economic agents; (iv) its capability to adapt to changing

circumstances; (v) its capability to create new markets; and (vi) the

institutional environment, largely provided by the government, including

physical infrastructure and the quality of government policies.

Auto components exports from India form a small percentage of the

global exports market. India is not alone in developing its auto

component industry to take advantage of growing exports business.

The Indian auto component industry is targeting a bigger share of the

export market and is in the process of ramping up its manufacturing

capabilities to meet the capacity and quality requirements. The Indian

auto component industry is poised for robust growth till 2010. There is

a perceptive exuberance in the industry and growth estimates indicate

a booming industry.

There are a few issues which restrain India from attaining the status of

other global players. Despite being around 60 years old, the domestic

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auto industry lags behind other countries like South Korea, Brazil and

Mexico in terms of production and sales. This makes it difficult for

companies to invest extensively in R&D, a key competitive tool in the

global market.

India‘s competitiveness lies in casting and forging and components

that are labor intensive. Other product categories that offer Indian auto

component manufacturers export opportunities include electrical

components such as alternators, starters, horns, electric bulbs, rubber

components, instrument clusters, and plastic molded products

Countries like China and Thailand might put a spanner in the domestic

industry's wheels as they are capable of beating India at its own game,

that of low cost. The growing number of FTAs (Free Trade

Agreements) that are being signed by India with countries like

Thailand, Singapore, China etc is likely to hurt the domestic players as

they pay a relatively higher duty of around 25% as compared to 1%-

10% being paid by its Asian counterparts. Other reasons include higher

tariffs and resistance to IT.

4.1 Competitiveness

The concept of competitiveness can be defined and analysed in

different ways or at different levels. Some of those different ways are:

a.1) the level of the ‗entities‘ (single firm/plant; cluster of firms, i.e. an

industry, a sector, local productive system etc.; territorial context, i.e. a

country or a region);

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a.2) the ―dimension‖ of competitiveness: international, national and

local competitiveness;

a.3) according to the key variables affecting competitiveness as well as

the ways to measure them: macro level (territorial:

international/national); meso level (cluster: sectoral/industry/district)

and micro level (plant/firm).

Competitiveness is a concept that has no single meaning implying the

need for the use of different indicators depending on the concept

chosen. The impact of a policy on competitiveness will usually differ

between these different levels/dimensions.

4.3 Competitiveness and Exports

Exports have a dual role in this framework; they (and a number of

others with the same quality, including imports, FDI, and investment)

are intermediate indicators and enablers of competitiveness.

They are signs of underlying competitiveness – the more productive

you are, the more you will be able to sell, all else equal. But they are

also contributors to competitiveness – the more you export, the more

you are exposed to foreign competition and ideas which in turn will

improve your capabilities and push you to make better use of the

capabilities you already have.

For auto component manufacturers during 1985-86 to 1987-88,

Chugan (1998) finds that among large/ medium units a higher

profitability, R&D and technology import seem to lead to a greater

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inward orientation. Among small (SSI) units, the bigger, more profitable

and higher R&D intensity firms have a better export performance.

According to the global competitiveness index, 12 factors of

competitiveness have been identified. They have classified the factors

for different types of economies. The economies identified are factor

driven economy, efficiency driven economy and innovation driven

economy. It has identified different factors for different economy.

The 12 pillars of competitiveness (Figure 4.1)

Source : (The Global Competitiveness Index 2009–2010)

4.4 Competitiveness strategy

Competitiveness strategies are broadly based, recognizing the need to

upgrade performance across the entire economy, not just the export-

oriented sectors. Export-oriented sectors are like the engine of an

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economy. They are critical but without an efficient transmission system

of local industries, their value generation does not translate into a high

standard of living for the broader population. While both parts of the

economy are important, they do face different dynamics.

In export-oriented sectors companies compete directly with foreign

peers, implicitly pitting different business environments against each

other, not just firms. In the local sectors, the competition is only

between firms that are all exposed to the same business environment

conditions. For policy makers, this implies that a competitiveness

strategy needs to cover both export-oriented and local industries. And it

needs to take into account that in the export-oriented sector policy

choices have to be made with a much stronger view on policies in

places in other locations.

Competitiveness strategies are squarely oriented towards reaching

higher productivity. Attracting FDI, generating jobs, and growing

exports are positive implications of higher productivity. But the ultimate

test of whether policies are effective is their impact on prosperity. And

here productivity is a much better long-term target then intermediate

outcomes like exports that can also be driven up by policies that do not

raise productivity or long-term prosperity. For policy makers, this

suggests that each individual measure under consideration needs to be

tested as to whether it improves productivity or only improves

intermediate outcomes by raising the private profitability of activities.

This is not only an absolute benchmark to decide whether an individual

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measure should be introduced but can also be used to compare

different policy instruments. Wage-restraint, for example, has mainly an

impact on private profitability but could of course also lead to long-term

productivity improvements if it leads companies to come and

investment in a more advanced capital stock.

Government efforts that directly improve productivity through upgrading

workforce skills or subsidizing companies more specifically for

upgrading technology is, however, likely to provide a much better

balance between productivity improvements and private profitability

gains.

One of the classic models for developing strategy, known as the SWOT

(Strengths, Weaknesses, Opportunities, and Threats) analysis and

called the ―Design School Model‖ by Mintzberg et al. (1998), emerged

from early writings by Philip Selznick (1957), Alfred Chandler (1962),

and a group at the Harvard Business School (Learned et al. 19653),

among others. As shown in Figure, this model requires that upper

management conduct an internal appraisal (to understand the

organization‘s competencies, strengths, and weaknesses) and an

assessment of the external environment (to determine threats and

opportunities based on competitive, economic, market, societal,

governmental changes), then deliberately choose a tailored, unique

course of action based on sound reasoning and firm-specific

conditions. The beliefs and preferences of the leaders of the

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organization and ethical considerations, also shown in Figure, often

influence the choice of strategic direction.

Strategy Formation (Figure 4.2)

Source: Strategy formation Mintzberg (1979)

Importantly in the current context, policy interventions that raise

productivity do not create macroeconomic imbalances. Policy

interventions that interfere in market prices without raising productivity,

i.e. artificially low exchange rates, export subsidies, etc., might have

that effect if compensating changes in other prices, for example relative

wages, do not occur.

Competitiveness strategies are highly country-specific, targeting the

specific barriers for growth a country is facing at a given point in time.

124

While the general principles apply across all countries, the key barriers

for growth differ dramatically depending on the local circumstances.

The competitiveness framework provides an analytical way to identify

these key barriers based on an in-depth analysis of country-specific

data, including the export profile.

While the export-oriented growth model provides a recipe to be used

pretty much the same way across different countries, the

competitiveness approach suggests a conceptual algorithm for how

each country can find its appropriate policy mix to raise productivity

(this is similar to the logic in Rodrik, 2007 and

Hausmann/Hwang/Rodrik, 2005).

4.5 Factors Driving Competitiveness of Indian Auto Component

Manufacturers

Figure 4.3

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From the above figure we can see that factors like access to new

technologies, investments in R & D, availability of trained human

resources and cost competitiveness are more critical factors for both

automobile and auto component sector. Other factors are stated below:

4.5.1 Global exports from India

Indian auto component companies have a direct export potential in

volume markets such as the U.S, Europe and Japan. Europe is

particularly lucrative on account of low duties, open market economy

and minimum import restriction. The U.S. and EU already have very

low tariffs on auto component (0-2%) and FTAs are not essential to

boost exports to these developed markets. Indian auto component

companies can also look at other low volume markets such as ASEAN,

MERCOSUR, Russia, Iran, and China.

4.5.2 Quality certification

Certifications adopted by a large number of companies are ISO 9000,

ISO 140001 and OHSAS. This shows that Indian SME auto component

companies are increasingly integrating with global quality standards.

4.5.3 Indian companies recognized as a quality supplier

Indian companies are increasingly recognized as major suppliers by

leading companies across the globe both in the OE and aftermarket

and this has led the growth in domestic sales as well as the export

sales. Growth in exports is expected from increased procurement of

126

components by tier-I manufacturers, global vehicle makers and direct

exports by Indian companies to the aftermarket.

4.5.4 Cost key competitive advantage

Competitive wage costs and talent availability would help to drive

strong growth for the Indian auto component manufacturers. But India‘s

cost advantage is eroding fast. India‘s fragmented component industry

needs to do more to consolidate in order to achieve critical mass.

India‘s primary cost advantage is in low labour costs coupled with good

availability of trained workers. Duties and Taxes, Labour, Operating

cost and Infrastructure cost are the major cost driving factors.

Figure 4.4

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Indian auto component makers will increasingly grow by international

acquisitions. Continued international mergers and acquisitions would

support increasing international sales. Through acquisition India‘s

component makers could break free from the limitations of small scale

and local customer bases. This facilitates access to advance

technology and new markets/ customers.

4.5.5 Other factors

- Lower manufacturing costs in India offer an advantage to international

OEMs and tier-I suppliers.

- India has an automobile industry in an advanced stage of

development. The significant volumes of the industry ensure that the

top fifty suppliers have the base to grow their export businesses.

- Due to the cost advantage, Indian companies have a stronger

position in supplying semi finished and labour intensive components

like ferrous castings and forgings, heavy-duty crankshafts and semi-

finished components.

- Indian suppliers are ambitious and at the same time respect IPR laws,

so it is 'safer' to manufacture in India than other markets like China.

Competitiveness strategies combine efforts to upgrade general

conditions in an economy with efforts that are targeted at the specific

conditions affecting individual groups of activities. These groups of

activities, covering industries related to each other in the value creation

process, tend to geographically co-locate in clusters.

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The competitiveness approach argues that to be effective, measures to

upgrade productivity need to be at least in part cluster-specific. If

government only addresses challenges affecting all companies, a large

part of what matters to companies in a modern company remains left

out.

This approach is fundamentally different from the old industrial policies

that targeted industries by tilting the competitive environment on

markets in their favour. Instead, it focuses on upgrading productivity

and is principally open to all industries that are willing to engage in

collaborative efforts to upgrade competitiveness (Ketels, 2010).

Competitiveness processes are those processes, which help identify

the importance and current performance of core processes such as

strategic management processes, human resources processes,

operations management processes and technology management

processes.

The competitiveness process can be viewed as a balancing process

that complements traditional functional processes such as operations

management and human resources management.

It enhances the ability of an organisation to compete more effectively.

Sources of competitiveness are those assets and processes within an

organisation that provide competitive advantage. These sources can

be tangibles or intangibles.

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Another important factor behind high competitiveness in the recently

industrialised countries is education. That means availability of well

qualified labour at lower costs than in the western countries attract

investments both domestic and foreign.

4.6 Exports strategy

Chenery and Srinivasen (1988) maintain that exports are viewed as

generating greater growth of productivity as a result of:

• Greater capacity utilization;

• Greater horizontal specialization as firms concentrate on a narrower

range of products;

• Increasing familiarity with new technologies;

• Greater learning-by-doing; and

• The simulative effect of the need to achieve greater internationally

acceptable quality standards.

However, considerable dissension has been witnessed in the field with

respect to the nature and significance of many variables as

determinants of export behaviour and performance (Aaby and Slater,

1989; Cavusgil and Zou, 1994; Dominguez and Sequeira, 1993;

Walters and Samiee, 1990).

This implies that it may be difficult to suggest universally valid

prescriptions for export success, and that situation-specific elements

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are recognized and emphasized in the process of designing and

implementing effective models of export marketing behaviour (Walters

and Samiee, 1990).much of the knowledge about successful export

activity is fragmented, and the tradition of building on previous findings

is not well-established in the export marketing field (Aaby and Slater,

1989; Cavusgil and Zou, 1994).

Model for assessing export performance (Figure 4.5)

Source:

Many studies have been conducted in isolation by focusing mainly on

single factors affecting export behaviour. Attention has been given to

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such areas as: export motivation; export problems; firm size and export

performance; and management's personal characteristics. There have

been few efforts to develop and test models that incorporate a

relatively wide range of relevant factors. Notable exceptions are the

studies by Cavusgil and Nevin (1981), Cavusgil and Zou (1994) and

Cooper and Kleinschmidt (1985). The vast majority of exporting studies

have primarily examined independently the univariate effect of each

variable on export behaviour, without analysing the effects of these

independent variables together (Moon and Lee, 1990).

However, it is clear, particularly in the various literature review efforts,

that multiple factors play an important role in firms' export behaviour at

the same time. It is thus essential that account be taken of the

interaction among those independent variables considered in the

determination of export performance.

4.6 Firms strategy

Other researchers have looked at the firm's strategy regarding its

marketing mix in an effort to determine the firm's commitment to export.

Jain (1989) emphasized that it is necessary to modify a product in

order to sell it successfully overseas. Cavusgil and Kaynak (1982)

suggested that strategies "suitable for modification" included extension

of credit, promotion directed at distributors or end-users, and channels

of distribution. Finally, Weinrauch and Rao (1974) found that over half

of the exporters they surveyed indicated a need to modify marketing

mix, with pricing being the most important modification.

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Bilkey (1978) was the first to link motivation to initiation of export sales.

His research found that the key motivations for managers to export

were long-term profitability secured through diversification and long-

term growth. Rabino (1980) also provided support for this position by

suggesting that managers consider diversification of markets to be an

important advantage of exporting. Hirsch and Lev (1971) suggested

that firms are motivated to export in order to make their sales volumes

more stable via diversification. Brooks and Rosson (1982)

Exports are an important diagnostic tool that can help signal whether

more fundamental conditions in the economy are right. The overall

success on global export markets as well as the particular pattern of

industries that successfully export provides valuable ―revealed‖

information on underlying competitiveness conditions. Low levels of

exports are an indication that there are weaknesses that either limit the

productivity of companies or negatively affect their ability to project

their capabilities on global markets. Exports in particular sectors give

an indication that the location has a particular set of strengths in its

competitiveness fundamentals that are conducive to their success.

Together with additional information on these competitiveness

fundamentals and ultimate economic outcomes in terms of productivity

and prosperity exports are thus and important element to identify the

key policy priorities for a particular country or region. Export-oriented

policies also have their place in an overall competitiveness-oriented

growth agenda.

133

Government policy to achieve export-led growth is essentially about

findings ways to increase the ability to sell domestically produced

goods and services on global markets. This ability to export is what has

often been understood as ―export competitiveness‖.

While economic revival, lower interest rates and better road

infrastructure are driving domestic demand for automobiles and,

therefore, components, increasing outsourcing by global automobile

majors is creating a huge export opportunity for Indian component

manufacturers.

According to the reports for auto component industry, exports

increased by 28% in 2005-06 to US$1.8 billion from the previous year

with Europe and North America respectively accounting for 36% and

26% of the total auto components exports from India. The industry

accounts for only 0.4% of the US$1.2 trillion global components

industry as against competitors like China (1.2%) and Mexico (5.9%).

It is up against challenges such as lack of good infrastructure,

increasing input costs, etc. which could impede its growth.

4.7 Factors influencing export competitiveness

4.7.1 Firm size

Firm size could positively influence export competitiveness because of

economies of scale, ability to take risks and utilization of slack

resources in big organizations, to quote some of the reasons. Cavusgil

and Naor (1987) and Christensen et al. (1987) concluded that the

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larger the company the more likely it is to export. Reid (1983) found

that size has a significant effect on the decision to enter new export

markets, while Czinkota and Johnston (1983) suggested that company

size does not affect export activities. By contrast, Gripsrud (1990)

revealed a negative relationship between firm size and the attitude

towards future exports. Concerning the relationship between size and

export intensity, Culpan (1989) established a positive relationship,

Diamantopoulos and Inglis (1988) found no relationship, while Cooper

and Kleinschmidt (1985) concluded a negative relationship.

However, empirical findings on the relationship between size and

export competitiveness have been mixed (Wagner, 1995, Patibandla

1995). In the context of the Indian automobile Industry, Narayana

(1998) finds an inverse relationship between size and export intensity

in the post de-regulation period.

The auto component industry has undergone major transformation with

the entry of multinationals and restructuring of existing suppliers that

have opened newer plants with fewer and flexible employees. Since

size may have different impact on multinationals and domestic firms,

the sign on this coefficient is assumed to be ambiguous.

4.7.2 Labor productivity

Exports from developing countries are restricted to low/medium

technology segments and products that involve labor- intensive

processes. Thus, low labor cost is an important factor in influencing

export competitiveness. Although it is productivity of labor that

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ultimately results in competitiveness; to some extent cheap labor would

prove to be a comparative advantage for countries with abundant labor.

However, in a capital-intensive, medium/high- technology industry,

where material costs form the greatest proportion of total costs, it is

labor costs in relation to productivity of that labor that should lead to

increased competitiveness (Tendulkar and Bhavani, 2003). That is, it is

not just cheap labor in terms of low wage rate per worker that leads to

comparative cost advantage but low wage in relation to productivity of

that labor. Given the high material intensity in the industry, lower the

wage share lower is the wage rate in relation to labor productivity and

higher is its competitiveness. Thus, wage share is expected to have a

negative relationship with export intensity.

4.7.3 Multinational affiliation

Another important factor influencing export competitiveness is the

presence of FDI, which leads to spillover of best practices and

improved efficiency. While some studies argue that FDI in developing

countries leads to technology transfer in an open economy regime,

which encourages competition, other studies have pointed out to the

contrary. MNEs now are locating different stages of production in

different countries according to factor costs and capabilities or

distributing similar production activities across their affiliates in various

countries with similar capabilities to reap economies of scale. These

strategies have shifted from market seeking to efficiency seeking

export oriented production.

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While some studies argue that multinational affiliates perform better

than domestic firms in exports because of a better marketing network,

studies in the Indian context in the pre-1990 period have shown that

MNEs have the same and in some cases lower export intensities than

domestic firms. Kumar and Agarwal (2000) distinguish between two

types of ownership: significant foreign equity ownership versus foreign

affiliation.

4.7.4 Import Intensity

Import liberalization is an important policy variable that can affect the

export competitiveness of the industry. Earlier studies (Narayana,

1998) have shown that in a liberalized policy regime import of capital

goods positively influenced the growth of the automobile industry in the

latter half of nineties. Similarly, import of raw materials (Lal 1985;

Kumar and Agarwal, 2000) also has a positive impact on the export

intensity of the industry because of availability of higher quality inputs,

which would enable the firm to compete on the basis of superior quality

in markets where consumers are quality conscious. Relaxing of internal

supply constraints should result in increased profitability as well as

improved marketing ability. To capture the influence of a liberalized

policy regime, import of raw materials as a proportion of total value of

sales is used as a proxy for import intensity as another explanatory

factor.

Reduction of import duties and pressure from multinationals to source

raw material from abroad can have the effect of increasing the import

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intensity of firms. Sourcing raw materials in bulk and lower duties

should make the cost of raw material cheaper as well, with a positive

influence on export intensity.

4.7.5 Royalty and technical fees

Other important variables that have been discussed in the literature

include Royalty and advertising expenditures as proportion of sales

value. Royalty and technical licensing as a percentage of sales has

been used as an indicator of disembodied technology transfer.

According to Narayana (2001), they influence exports positively by

enabling technology transfer. However, they could also have a

negative influence on profitability and thus the ability to export

profitably.

4.7.6 Advertisement and Distribution expenses

Advertisement and distribution expenses intensity assume importance

in industry studies with monopolistic competition. In the case of Indian

automobile industry, with the entry of numerous multinationals focusing

on the domestic market, advertisement expenditures may be negatively

related to export intensity.

However, distribution expenses may be positively related to export

intensity because of the growing logistics capability of the domestic

firms. Industry characteristics include industrial organization variables

that reflect product differentiation strategies like

advertisement/distribution intensity.

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Firm specific variables include size, nature of ownership, efficiency of

input use; a technology transfer variable is reflected in the royalty paid

by firms for the use of technology; and policy variables include the

import of raw materials, which reflects the extent of import

liberalization.

4.7.7 Export experience.

It has been found that a firm's exporting experience has a positive

effect on export performance (Madsen, 1989), the degree of

internationalization (Dominguez and Sequeira, 1993), and attitudes

towards future exports (Gripsrud, 1990). Nevertheless, other empirical

evidence is inconsistent with these findings (Cavusgil, 1984;

Diamantopoulos and Inglis, 1988; Moon and Lee, 1990).

4.7.8 Production technology.

Most findings indicate that perceived technological strengths are

positively related to propensity to export (Aaby and Slater, 1989).

4.7.9 Price.

It has been shown that competitive export price levels are positively

related to export performance (Kirpalani and MacIntosh, 1980;

Madsen, 1989) and export stage development (Moon and Lee, 1990).

However, differential price advantage was not found to be significant in

discriminating between systematic and non-systematic exporters

(Bourandas and Halikias, 1991). Dominguez and Sequeira (1993) also

139

reported that the importance of price as a competitive tool for LDC

exports diminishes as firm‘s progress along the export development.

4.7.10 Domestic market orientation.

Findings suggest that domestic market orientation is a major obstacle

to a firm's export involvement and commitment (Karafakioglu, 1986;

Kaynak and Kothari, 1984). Moreover, a negative relationship has been

reported between the attractiveness of the domestic market and export

growth (Madsen, 1989). Contrary to this stream of findings, Cooper and

Kleinschmidt (1985) revealed that export intensity was positively

correlated with both domestic market potential and domestic market

growth.

4.7.11 Contextual environmental factors.

Trade barriers, cultural differences and physical distance to export

markets have been found to play an inhibitory role in export

development and success (Cavusgil, 1984; Kaynak and Erol, 1989).

Nevertheless, some empirical efforts run counter to the general pattern

and revealed that these factors did not have a significant effect on

export attitudes, behaviour and performance (Gripsrud, 1990; Madsen,

1989).

4.7.12 Labour or manpower factor

A skilled and educated work force enhances the absorptive capability

of a firm (Cohen and Levinthal 1989). This is because the endowment

140

of human and knowledge capital within a firm determines the firm‘s

overall ability to assess technological opportunities in (or around) its

fields of activity. The endowment of human capital can be proxy by the

percentage of technical and managerial staff among the employees.

The higher the proportion of trained technical/ managerial employees,

the greater is their ability to absorb the knowledge around them within

and outside the firm. Therefore this variable is expected to be positively

related to adoption. Another crucial dimension of absorptive capacity is

R&D. Investment in R&D directly contributes to the absorptive

capability of the firm, which increases the likelihood of adoption of

advanced process technologies.

A potential factor that can affect the innovation/ adoption behaviour of

the firms is related to the (product) market conditions under which the

firms are operating. The Schumpeterian tradition of innovation asserts

the positive effects of market concentration on innovation of firms.

The total factor competitive analysis is given below. From the analysis

we can see that where India does stands in respect of factors of

competitiveness as compared to other countries. We can say that

India is having a good position in respect to manpower cost, supplier‘s

base followed by domestic demand and manufacturing cost. In case of

infrastructure and commercial environment the other countries are in

much better position than India. Even in design and engineering skills

India is not competitive.

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Competitiveness of Indian auto components (Figure 4.6)

Source : Pricewaterhousecoopers (2008)

4.8 Firms manufacturing strategy development

While the competitiveness-oriented approach provides a fundamental

different perspective on how a growth strategy should be designed, it

does not ignore the important role that exports play in the growth

process. And there is also a significant overlap in terms of the

individual policies that are suggested. Strategic Development

integrates awareness and analysis with strategic planning, leadership

development, employee development, and results management

systems. When integrated, these best practices create an ongoing

process within the organization that leads to enhanced performance.

Manufacturing strategy describes the way a firm plans to deploy its

manufacturing resources and to use its manufacturing capability to

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achieve its goals. The quest for clarity in defining and enhancing the

strategic role of manufacturing has been a source of research

motivation for many years (Skinner 1969, 1996; Hayes and

Wheelwright, 1984; Hill, 1994, 1989; Swamidass and Newell, 1987;

Melnyk, Stewart and Swink, 2004). Manufacturing strategy is viewed as

the effective use of manufacturing capabilities for the achievement of

business and corporate goals. Companies adopt various manufacturing

strategies to improve their competitiveness or to explore evolving

business opportunities.

Past research in the area of manufacturing strategy has focused on

specific relationships between strategy constructs, typically based on

the competitive priority concept (Kathuria, 2000; Bozarth and

McDermott, 1998). The definition of a manufacturing strategy includes

two core elements: the "task" of manufacturing and the pattern of

manufacturing choices that the manufacturing function makes over

time (Miller and Roth 1994). The manufacturing task identifies the

purpose or mission of manufacturing and includes the objectives that

must be accomplished by manufacturing (Skinner, 1978).

4.8.1. Competitive advantage

The key to any successful manufacturing strategy is the ability to

transform the manufacturing practices into sources of competitive

advantage (Hayes and Pisano, 1994). Kathuria (2000) developed

taxonomy of small manufacturers based on their emphasis on several

competitive priorities. Swamidass and Newell (1987) extended the

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existing manufacturing strategy knowledge by developing a generic

manufacturing strategy. This strategy is based on Porter's (1980) work

on business strategy where the dimensions are identified as cost

efficiency and differentiation. Cost efficiency is the degree to which cost

per unit of output is low and differentiation is the degree to which the

product and its enhancements are perceived as unique (Porter, 1980).

Wickham Skinner, the pioneer manufacturing strategy researcher, has

consistently emphasized that factories are managed 'wrong' (Skinner

1969, 1996; Hill 1994, 1989). This he explained to mean that decision-

making in the manufacturing function is often at odds or at best

independent of corporate- and business-level strategies. For instance,

Wheelwright and Hayes (1985) noted the observed inconsistent pattern

of decision-making in the manufacturing function, with emphasis on

structural decisions (Wheelwright and Hayes, 1985). Porter (1991)

labels these the cross-sectional and longitudinal problems,

respectively, maintaining that the two are intimately related. The

ultimate objective of manufacturing strategy should be to enable the

manufacturing firm achieve its corporate goals and become more

competitive.

4.8.2 Performance metrics

Performance metrics provide essential links between strategy,

execution, and ultimate value creation (Melnyk, Stewart and Swink,

2004). To keep the company focused, organisations translate their

organization's mission into a set of goals and performance measures

144

that make success concrete for everyone. The quote from Magretta

and Stone (2002) suggests that metrics and performance

measurement are the critical elements in translating an organization's

mission, or strategy, into reality. Performance metrics and strategy are

tightly and inevitably linked to each other. Strategy without

performance metrics is useless; metrics without a strategy are

meaningless (Melnyk, Stewart and Swink, 2004). Hence, a

performance metric could be viewed as a verifiable measure, stated in

either quantitative or qualitative terms and defined with respect to a

reference point. Ideally, metrics are consistent with how the operation

delivers value to its customers as stated in meaningful terms (Melnyk,

Stewart and Swink, 2004).

Usually, the manufacturing strategy process begins with the explication

of goals, starting with those highest in the strategy hierarchy (Hill,

1994, 1989). In evolving the goals, traditional performance metrics

have focused on financial, market and operational performance

measures as the primary measures of economic performance (Ketokivi

and Heikkila, 2003).

As described by Ketokivi and Heikkila (2003), financial measures are

based on the corporate performance measurement system and

typically involve income statement and balance sheet figures or

derivatives thereof (e.g. sales, return on investment, and economic

value added). Market measures, on the other hand, are those metrics

that are directly linked to customer satisfaction. This category of

145

measures could include price, quality, delivery and flexibility (Hayes

and Wheelwright 1984; Gerwin, 1993). The key issue here is that they

focus on measures that the customer emphasizes. Finally, operational

measures are those metrics that are directly linked to the

manufacturing function in that operative management has at least

some degree of control over them.

4.8.3 Other strategies

The auto component companies are adopting different strategies to

increase their product range, get access to improved technology, to

acquire proximity with their customers and to expand operations in

lucrative markets. Companies are expanding operations through

Brownfield and Greenfield projects and through mergers and

acquisitions and are attaining operational and manufacturing

excellence by improving their supply chain mechanism and

technological competence. Realising the importance of tapping the

export market, players are increasing their expenditure on R&D and

enhancing their engineering skills. All these strategic moves are aimed

at de-risking the business.

Due to rising competition and growth potential, the auto component

industry has been exposed to many risks of varying intensity. For

instance, the Indian auto components industry is vulnerable to changes

in technology and availability and prices of key raw materials. Similarly,

the current state of competition also increases risks due to competitive

forces. However, the industry foresees low risks arising out of

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macroeconomic conditions, changes in government‘s investment

policies, demand and excess capacity, dependency on export turnover

and changes in infrastructure. The Rs120bn Auto-components industry

in India is a highly fragmented industry with large number of small

players dependent entirely on the automobile industry for their survival.

By this very dependence the component making companies tend to be

exploited by the automobile sector thereby making it vulnerable to

pricing pressures while insisting for just-in-time deliveries.

Severe competition has led to reduced pricing flexibility and profitability

of auto component companies. The auto component industry in India is

going through a revolution with several structural changes happening

within the industry thereby throwing exciting investment opportunities

for the investor.

Although exports of auto components from India account for only

0.25% of the global automotive component industry, exports account

for approximately 10% of the total sales of auto components in India.

Export opportunities for auto component manufacturers is expected to

increase significantly due to the continuous search for low-cost

manufacturing bases by global vehicle manufacturers for sourcing

equipments and parts for vehicles.

The outsourcing in the auto-ancillary sector offers great potential when

one considers the fact that there are companies who have the

technology and capacities to offer this facility to global automobile

companies by virtue of being the largest in the country and by having a

147

proven history of supplying to reputed global automobile giants.

Increased competition has re-defined the ancillary sector with cost

reductions, exports and new product development gaining ground over

issues like managing supplies with transferred technology.

4.9 Determinants of Export performance for India

There are various demand and supply factors affecting export

performance in the developing countries. Some of the important

variables discussed in this paper include size, labor productivity, import

intensity, royalty intensity and advertisement and distribution expenses

intensity.

Consistent good quality, meeting delivery commitments and price

competitiveness are the most critical operative factors. Krueger(1975)

refers to the problems in obtaining necessary imports, especially by

rapidly expanding auto component firms; also the choice of export

markets for components was largely confined to those having similar

outdated vehicle models as in India then.

For auto component manufacturers during 1985-86 to 1987-88,

Chugan(1998) finds that among large/ medium units a higher

profitability, R&D and technology import seem to lead to a greater

inward orientation.

Among small (SSI) units, the bigger, more profitable and higher R&D

intensity firms have a better export performance.

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India‘s comparative disadvantage in electronic and plastic intensive

components is due to lower manufacturing scale and higher raw

material costs than in other low cost countries. India needs to diversify

its component offering in the export basket to include items that have

been reporting a brisk growth rate (drive, transmission and steering

components). Also since our major export items like castings and

forgings have some environmental repercussions for our nation, the

diversification is desirable.

4.10 Export Prospects: McKinsey (2004) predicts auto component

exports of US $20-25 billion by 2015. Overall, the picture of component

exports from India seems bright. Of late, India is emerging as a

sourcing hub for global automotive majors. Indian vendors have to

measure up to the global standards of quality, cost and service, and

need to integrate into global supply chains.

4.11 Outsourcing from India - India offers a good mix of low-cost and

high technology engineering skills. Global tier-1 suppliers like Visteon,

Mico Bosch, Cummins, Delphi, Denso and Koyo Seiko are rapidly

increasing their exports from India; some have set up International

Procurement Offices in India. The prominent global OEMs outsourcing

from India include GM, DaimlerChrysler, Toyota, Ford, Arvin,

Volkswagen, Renault and a few Chinese truck OEMs. Indian auto

component producers are slowly gaining global recognition and the

large

149

According to the ACMA officials, this body feels concerned about the

DEPB rates and income tax rebate for exports having fallen since

earlier times, inadequate market access funds for small firms and

complex documentation (now made easier with Electronic Data

Interchange and digital signature, avoiding direct interface with custom

officials). ACMA has also suggested setting up of special auto compo

zones and parks. For FTAs, we do not have a level playing field still;

the rules of origin should be in place. Two major non-tariff barriers to

exports are:

The buyer‘s stipulation that the product is to be tested at specific

laboratories that may be costly. There is non-uniformity of

standards across countries, and absence of mutual recognition.

Product liability can be huge in case of vehicle/ product recall by

a foreign OEM who may try to pass on this liability partly to their

Indian vendors (no known case till date) through various

clauses; so vigilance is required to avoid arm-twisting contracts.

Some auto component firms have taken product liability

insurance; besides being expensive, few insurers provide it.

4.12 Export Performance: Till the 1980s the auto component exports

from India were quite small - approx. Rs. 140 crores and Rs. 178

crores during 1981- 82 and 1989-90 (estimated from Narayana and

Joseph, 1993: M-14) - and catered mainly to the aftermarket. In the

early 1990s a number of global auto majors made arrangements to

source components from India, also through buyback agreements in

150

new collaborations (Chaudhuri, 1995). Shridharan (1999) finds India‘s

share in world exports for 1993 for all components and parts together

to be 0.25, up from 0.17 in 1988. The quality levels have improved

considerably after the entry of international OEMs in India.

However, only for the last 5-7 years have the auto component firms

started exporting to OEMs in a significant way. Domestic slow-down in

the automobile industry in the late 1990s also made them look for

exports. The global trade in components is over US $ 300 billion

annually (ET, 1/6/2004: 5); thus the Indian exports at $1 billion during

2003-04 constitute roughly a marginal 0.3% share. At present the sales

to OEMs and tier-1 suppliers account for 55% of all auto component

exports by India, up from about 20% a decade ago (Hindu, 12/5/2004:

12).

4.13 Quality and R&D - Sourcing from India means at least 15% cost

benefit for global auto firms; however, it is the consistency in delivery

and quality that makes them come back to India.18 GM and Ford are

prime examples of quality seekers. Lead-time (final order to delivery)

and on-time delivery logistic capabilities are also considered.

Many Indian firms have received the quality/ best supplier award from

global OEMs, greatly improving their brand equity, especially for export

orders. India has endorsed the report on global harmonization of

technical standards relating to safety and emission norms. The Indian

auto components industry shall not find it hard to implement these

standards since it already has the highest number of ISO-9000 and

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QS-9000 certified companies among the domestic industrial sectors

(ICRA, 2003a: 34).

The average quality of automotive components produce in India has

improved particularly during the past few years; both the average end

of the line rejection rates (by the component producer) and the

customer level rejection rates have come down significantly (ICRA,

2003a: 55-56).

However, the spending on R&D has to be scaled up significantly to

compete seriously in the global market. Technical collaborations alone

would not suffice. There is a need to enhance the design and

engineering capabilities. The R&D spending has been small - 0.3%

average R&D intensity during 2001-02 and 200203 for auto component

units in our sample. Most large firms have realized the importance of

intellectual property. Also in recent years in India the return of

expatriate engineers from US and Europe would strengthen this

industry (ET, 1/6/2004: 5).

4.14 Global presence - Closeness to assembly plants is essential for

just-in-time delivery of modules. Many assemblies/ sub-assemblies of

components are difficult to ship out over long distances. So

regionalized manufacturing may be a solution. Also, many countries

(e.g. in E. Europe and Northern Africa) offer numerous fiscal

concessions to auto component enterprises (ICRA, 2003a).

Therefore, global presence - through setting up of manufacturing/

distribution units or via strategic alliances - may be important for

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serving overseas markets. It facilitates reliability and timeliness in

dealing with global players, better dynamics of foreign markets.

4.15 Externalities from vehicle exports - The policy makers and the

industry need to realize fully that the vehicle and auto component

exports are complementary. The export success of indigenously

developed vehicles like Indica, Scorpio and TVS Victor has also

somewhat changed the world attitudes towards the Indian component

makers who developed their components and systems; it reflects the

maturity of vendor base of these ―Made in India‖ vehicles (ET,

1/6/2004: 5). Further the expected increase in vehicle exports from

India will boost component exports for the aftermarket over a period of

time. In short, component exports from India are poised for a big leap.

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CHAPTER 5 : ORGANISATIONS AND INITIATIVES TO

PROMOTE THE GROWTH OF INDIAN AUTO

COMPONENT INDUSTRY

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CHAPTER 5

ORGANISATIONS AND INITIATIVES TO PROMOTE THE

GROWTH OF INDIAN AUTO COMPONENT INDUSTRY

5.1 ACMA

The Automotive Component Manufacturers Association of India

(ACMA) is the nodal agency for the Indian auto Component Industry.

It's active involvement in trade promotion, technology up-gradation,

quality enhancement and collection and dissemination of information

has made it a vital catalyst for this industry's development. It's other

activities include participation in international trade fairs, sending trade

delegations overseas and bringing out publications on various subjects

related to the automotive industry. ACMA is represented on a number

of panels, committees and councils of the Government of India through

which it helps in the formulation of policies pertaining to the Indian

automotive industry. For exchange of information and especially for co-

operation in trade matters, ACMA has signed Memoranda of

Understanding with its counterparts in USA, Canada, UK, France, Italy,

Spain, Japan, South Korea, Malaysia, Uzbekistan, Pakistan, Australia,

Egypt, Iran, Tunisia, South Africa. Thailand & Scandinavia. ACMA

represents over 500 companies, whose production forms a majority of

the total auto component output in the organised sector. In the

domestic market, they supply components to vehicle manufacturers,

Tier-1 suppliers, to state transport undertakings, defence

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establishments, railways and even to the replacement market. A variety

of components are being exported to OEMs and aftermarkets

worldwide.

According to ACMA automobile component industry has been

exporting around 15% of its output and growing at the rate of 30%.

Principal export items include replacement parts, tractor parts,

motorcycle parts, piston rings, gaskets, engine valves, fuel pump

nozzles, fuel injection parts, filter & filter elements, radiators, gears, leaf

springs, brake assemblies & bearings, clutch facings, head lamps, auto

bulbs & halogen bulbs, spark plugs and body parts. ACMA has been

closely involved in the formulation of NATRIP. ACMA is represented by

the President in the Governing Council of NATIS.

5.2 SIAM

Society of Indian Automobile Manufacturers (SIAM) is the apex

Industry body representing 38 leading vehicle and vehicular engine

manufacturers in India. SIAM is an important channel of

communication for the Automobile Industry with the Government,

National and International organisations. The Society works closely

withy all the concerned stake holders and actively participates in

formulation of rules, regulations and policies related to the Automobile

Industry.

SIAM provides a window to the Indian Automobile industry and aims to

enhance exchanges and communication, expand economics, trade and

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technical cooperation between the Automotive Industry and its

international counterparts. With its regular and continuous interaction

with international bodies and organizations it aims to facilitate up

gradation of technical capabilities of the Indian Industry to match the

best practice worldwide.

SIAM also interacts with worldwide experts to assess the global trends

and developments shaping the Automotive Industry. It has been

actively pursuing issues like Frontier Technologies viz. Telematics:

Promotion of Alternative Fuels including Hydrogen Energy for

automotive use through cell vehicles and Harmonisation of Safety and

Emission Standards etc. Dissemination of information is an integral

part of SIAM'S activities, which it does through various publications,

reports, seminars and conferences. SIAM organizes the biennial Auto

Expo series of trade fairs in co-operation with Confederation of Indian

Industry (CII) and Automotive Component Manufacturers Association

of India (ACMA).

SIAM has been striving to keep pace with the socio-economic and

technological changes shaping the Automobile Industry and endeavour

to be a catalyst in the development of a stronger Automobile Industry in

India. The first Perspective Plan for NATRiP was presented to

MoHI&PE by SIAM in April 2002. SIAM has played an active role in

further development of NATRiP roadmap. SIAM is represented by its

President in the Governing Council of NATIS.

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5.3 National Automotive Testing and R & D Infrastructure Project

(NATRiP)

National Automotive Testing and R&D Infrastructure Project (NATRIP),

the largest and one of the most significant initiatives in Automotive

sector in India, represents a unique joining of hands between the

Government of India, a number of State Governments and Indian

Automotive Industry to create a state of the art Testing, Validation and

R&D infrastructure in the country. The Project aims at creating core

global competencies in Automotive sector in India and facilitate

seamless integration of Indian Automotive industry with the world,

besides, positioning the country prominently on the global automotive

map.

The most critical intervention of the Government thus far in the

automotive sector has come in the form of an ambitious project on

setting up world-class automotive testing and R&D infrastructure in the

country to deepen manufacturing, encourage localized R&D, boost

exports, converge India‘s unparalleled strengths in IT and electronics

with automotive engineering sectors to firmly place India in USD 6

trillion global automotive business. NATRIP aims at facilitating

introduction of world-class automotive safety, emission and

performance standards in India and also to ensure seamless

integration of Indian automotive industry with the global industry.

The project aims at addressing one of the most critical handicaps in the

overall growth of automotive industry today, i.e. major shortfall of

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testing and pre-competitive common R&D infrastructure. National

Automotive Testing and R&D Infrastructure Project envisage setting up

of the following facilities:-

(a) A full-fledged testing, certification and homologation centre within

the northern hub of automotive industry at Manesar in the State of

Haryana;

(b) A full-fledged testing, certification and homologation centre within

the southern hub of automotive industry at a location near Chennai in

the State of Tamil Nadu;

(c) Up-gradation of existing testing, certification and homologation

facilities at Automotive Research Association of India (ARAI), Pune and

at Vehicle Research and Development Establishment (VRDE),

Ahmednagar;

(d) World-class proving grounds or testing tracks on around 4,000

acres of land at Pithampur in Madhya Pradesh;

(e) National Centre for Testing of Tractors and Off-Road Vehicles

together with national facility for accident data analysis and specialized

driving training at Rae Bareilly in the State of Uttar Pradesh; and

(f) National Specialized Hill Area Driving Training Centre as also

Regional In-Use vehicle management Centre at Dholchora (Silchar) in

the State of Assam.

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In order to facilitate requisite flexibility, expediency as well as

involvement of all key stakeholders in the implementation process,

Government of India and Automotive Industry have joined hands to set

up an independent registered Society, namely, NATRiP

Implementation Society (NATIS). This is the apex body for

implementation of NATRiP. The Governing Council of NATIS is headed

by Secretary to Government of India, Ministry of Heavy Industries and

Public Enterprises and has representatives of various stakeholders in

its fold.

The Presidents/Representatives of Society of Indian Automobile

Manufacturers (SIAM), Automotive Component Manufacturers

Association of India (ACMA), Tractor Manufacturers Association (TMA)

and Automotive Tyre Manufacturers Association (ATMA). Automotive

Research Association of India (ARAI) is also a key implementation

partner and is represented in the Governing Council by its President.

Leading and distinguished Automotive industry professionals are also

part of the Governing Council

The primary functions of NATIS involve:

Overall supervision of planning, implementation and

commissioning of NATRiP as well as laying down the policy

framework for the same.

Approve, modify, rectify, augment, contract and redraft the

scope and constituent activities of NATRiP subject to any

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stipulations that the government may make while approving

the project.

Supervise working of the PIU. The PIB shall take a final

decision on the advice granted by the global consultants

wherever the PIU is not in a position to agree with the same.

Approve capital and revenue budgets as submitted by PIU,

authorizing expenditure in terms of approved delegation of

financial powers in furtherance of the objectives of NATRiP.

Approve, frame, and notify rules and regulations, procedures

and arrangements for conduct of business at PIU.

Oversee the fund flow and fund utilization and cause the

accounts of NATIS to be submitted to the Government / any

other agency required by the Government.

Be the nodal authority for regulating, fixing, modifying,

extending and suitably altering the service conditions,

remuneration, discipline and control of all the employees of

PIU from the date of setting up of PIB as notified by the

Government.

Be the nodal authority for fixing honorarium to

experts/personnel whose services are availed in

implementation of NATRiP either under PIU or in any other

location/assignment.

Maintain liaison with other national and international

agencies, as may be required for smooth implementation of

the Project.

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Constitute such committees and fix their terms of reference

and scope of activities as needed for smooth conduct of its

business or for assisting the PIU.

Periodically review implementation of the Project

5.4 Automotive Research Association of India (ARAI)

It is a co-operative industrial Research organization formed by the

Indian Automotive Industry and is affiliated to Ministry of Heavy

Industries and Public Enterprises. ARAI has been authorized by the

Government of India as a certification agency for automobiles and

components. Most of the certification activity in the country is

performed at ARAI. It helps Government of India in formulating the

automotive standards and in providing technical support on various

issues/projects. ARAI carries out sponsored research for the

automotive industry in the area of engine, emission, structural

dynamics, NVH, electronics etc. ARAI is providing technical support to

NATIS for implementation of NATRiP. Upgradation of test facilities at

ARAI forms part of NATRiP. ARAI is represented by its President in the

Governing Council of NATIS.

Through the changing years of the auto industry in India, one institution

has played an important role. It is the Automotive Research

Association of India (ARAI). 'Progress through Research', ARAI is

committed to provide its expert assistance to Indian and overseas

automobile companies and put India on a pivotal position in the global

automotive scenario.

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ARAI was established in 1966 as a co-operative industrial research

organization by the Indian automotive industry with the Ministry of

Industries, Government of India. Located at Pune, ARAI is spread over

an area of 263 acres with a built up area of approximately 15000 sq.

mtrs. for various laboratories and test facilities. An ISO 9001:2000, ISO

14001:2004 and OHSAS 18001:1999 certified organisation, ARAI is

accredited by National Accreditation Board for Testing & Calibration

Laboratories (NABL), for its certification & calibration facilities.

Initially, ARAI was concerned with roadworthiness of the vehicles. After

the promulgation of the Central Motor Vehicles Act in 1988 and the

Central Motor Vehicles Rules in 1989, the emphasis shifted to

certification of 'emission' and 'safety'. With the globalisation of the

economy and the need of the automobile industry, to keep itself

abreast with the international developments, emphasis shifted further

to 'homologation and certification', and ARAI emerged as a major

competence for the Indian industry. Since its establishment, ARAI has

achieved several milestones.

ARAI offers comprehensive R & D services in the fields of engine

development, alternate fuels, NVH (Noise, Vibration & Harshness),

computer-aided-engineering, structural dynamics, automotive

electronics and materials. ARAI offers expert services in testing,

certification and homologation of complete vehicles, engines, systems

and components. It covers the areas of vehicle evaluation, emission,

safety, materials, EMI / EMC, etc. The state-of-the-art labs of ARAI are

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well equipped with most advanced facilities in the areas of emission

evaluation; NVH; computer aided engineering (CAE); safety and

homologation; engine development; structural dynamics; vehicle

evaluation; material evaluation; calibration and automotive electronics.

Even as sources close to ARAI claim that an experienced and well-

trained human resource of four hundred plus is ARAI's main strength,

most of the engineers have been trained overseas in various fields of

advanced automotive technology. The Engine Development Laboratory

(EDL) is one of the major R& D divisions of ARAI. It provides

comprehensive engine design, emission control and testing expertise

for diesel, gasoline, CNG, LPG, bio-diesel and ethanol fueled engines.

EDL undertakes projects for enhancing the power density and fuel

economy and reducing emissions from engines used in 2 and 3

wheelers, cars, LCVs and HCVs, tractors, off-highway applications.

Offering services in the areas of concept design and detailed

engineering, computational simulation based on advanced software,

combustion optimization, port development and matching, emission

reduction to meet Euro, EPA and Indian norms, mechanical design of

components, dynamic analysis of power train and valve train system,

conversion of diesel and gasoline engines to CNG and LPG fuels,

feasibility study, durability testing, localization programmes, etc., EDL

is equipped with facilities like CFD software packages - FIRE, SWIFT,

FLUENT, Design & Analysis software, - Excite Designer, Tycon, Glide,

Hydsim, GT-Crank, GT-Vtrain, GT-Fuel, GT-Cool, Performance and

emission simulation software - Boost, Cruise, GT-Power, GT-Drive,

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Transient engine test beds, raw and dilute emission system with

integrated FTIR facility to measure unregulated gaseous species,

partial flow measurement of diesel particulate, full flow dilution tunnel

with CVS for heavy duty engine emission and particulate

measurement, swirl and flow test rig, high speed data acquisition for

combustion and injection line pressures, injector lift, valve motion,

torsional vibration, etc.

The NVH and CAE divisions at the other end, with advanced

experimental and computational test facilities, provide end-to-end

solutions to the auto sector. Major facilities in NVH are hemi-anechoic

chamber with engine and chassis dynamometers, reverberation rooms,

60 channels data acquisition system with analysis software, scanning

laser vibrometer and torsional vibration measurement system.

Customer-oriented, time-bound solutions are provided to meet the

evolving stringent legislative and competitive requirements in the areas

of structural integrity, durability, occupant safety and NVH. The

Structural Dynamics Laboratory (SDL) is engaged in R&D in fatigue,

structural integrity, durability and reliability of automotive vehicles,

systems and components. Fatigue testing, design optimisation and

correlation exercise of laboratory and service conditions are some of

the major projects carried out. The facilities include experimental stress

analysis, service load data acquisition and analysis, servo-hydraulic

actuators of various capacities, multi-axial test set up, four poster and

SLED. SDL has extensive experience in carrying out fatigue evaluation

of components such as shock absorbers, chassis frames, brackets,

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crank shafts, connecting rods, cylinder blocks, axle housing etc.,

systems such as steering, suspension, etc. and complete vehicles.

The Safety & Homologation lab provides services like full frontal crash,

air bag deployment, side door intrusion, head restraint impact, helmet

impact, safety glass impact, steering impact, mirrors, lighting and

signaling devices, windscreen/wiper systems, automotive bulbs, speed

limiting devices, wheel rims, horns, CNG/LPG components and brake

hoses. In the area of emission, ARAI is engaged in emission testing of

2/3 wheelers, passenger cars, LCVs & HCVs, export homologation,

engine certification for commercial vehicles, tractors, construction

equipment and gensets, particulate size measurement including nano-

particles, after-treatment device evaluation, mileage accumulation,

special projects like ambient air quality, emission inventory, source

apportionment, etc. and evaporative emission measurement. In the

area of automotive electronics, ARAI undertakes activities like

EMI/EMC testing and certification of automotive electronic components

and systems, development of test equipment, chassis dynamometer

controller, driver's aid, exhaust gas sample handling system, etc.

Activities undertaken by the Automotive Materials lab include chemical

analysis of materials, testing of fuels/oils/fluids/engine coolant, vehicle

exhaust/air quality analysis, physical and mechanical properties,

metallurgical failure analysis, electrical and thermal properties.

The Calibration section provides services in the areas of pressure,

temperature, electrical parameters, weight and electronic balances.

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There are numerous other services offered by ARAI like technology

demonstration projects, turnkey consultancy, calibration and

specialized training programmes. ARAI also assists the Government of

India in formulation of automotive standards and acts as the secretariat

for WP-29 activities.

The established R & D and testing facilities at ARAI are increasingly

used for sponsored projects as well as for homologation activities.

Some of the major activities of ARAI include sponsored as well as

research and development projects with the industry/government of

India /national and international agencies.

ARAI also does certification/homologation test on behalf of the Ministry

of Shipping, Road Transport and Highways, for the Indian Automotive

and Component Industry, formation of automotive standards on

performance/safety/emission, ensuring compliance of vehicles and

their aggregates to Central Motor Vehicle Rules (CMVR). ARAI has

been playing the role of a nodal agency in testing and evaluation. It has

also participated in national/international forums in the automotive

technology and related fields in addition to participating in forward

looking research and development projects in the field of advanced

automotive technology in emissions/ safety/ inspection certification/

automotive electronics/ engines/ ambient air quality monitoring/ fuel

and lubricants/ vehicle dynamics.

ARAI provides special services to international clients, namely

elaborations of Indian regulations and requirements for certification,

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product design and development to meet Indian safety and emission

regulations, assessment of their vehicles for Indian environmental and

road conditions and usage pattern regional bodies that look after the

needs of the industry in their own way.

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CHAPTER 6 : INDUSTRIAL CLUSTER

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CHAPTER 6

INDUSTRIAL CLUSTER

6.1 Introduction

UNIDO cluster definition: ―Cluster can be defined as concentration of

micro, small and medium enterprises in a given geographical location

producing same or a similar type of products or services and these

enterprises face similar type of opportunities and threats‖. The cluster

is known by the name of the product being produced by principal firms

and the place they are located in. The auto industry domain has

expanded rapidly over the years it accommodated over 10,000 players;

all this factors have lent support to the highly fragmented structure of

the industry, with no company enjoying a major market share.

Another notable feature of this industry is cluster formation whereby

manufacturers base themselves in proximity to OEMs for assured

business. Even the government has been fostering development of

such clusters apart from promoting SEZs. Porter (1998) explained that

the success of industries in a country does not belong to them, but it

belongs to a group of industries and institutions which support each

other‘s. Therefore, the Porter theory of competitive advantage

attributes a fundamental role to industrial clusters which is defined as

―Geographically proximate groups of interconnected companies and

associated institutions in a particular field linked by commonalities and

complementarities ―(Porter, 1998). Clusters encompass an array of

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linked industries and other entities important to competition: supplying

firms, knowledge production agents (universities, research institutes),

intermediary institutions (correctors, consultants) and consumers,

connected one to another in a value production chain.

Solvell (2008) enhanced the definition of Porter and defined the

clusters as follows: ―Clusters provide an environment that is conducive

to innovation and knowledge creation. Regions with strong cluster

portfolios are innovative leaders…. Globalization has increased the

need to combine strong internal dynamics within clusters with solid

linkages to clusters and markets located elsewhere‖. Consequently,

cluster based regional economies generate better outcomes due to

higher productivity, better equipment to deal with external shocks and

ease of trade-offs between specialization and diversification.

Enright (1996) defined a cluster as a group of business enterprises and

non-business organizations whose membership within a group is an

important element of each member firm‘s individual competitiveness.

Binding the cluster together are ―buyer-seller relationships, or common

technologies, common buyers or distribution channels, or common

labor pools‖ (Enright 1996:191).

The definitions of cluster followed by the Ministries/Departments for

their cluster related schemes are given below:

MINISTRY OF MSME

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(i) Micro and Small Enterprises - Cluster Development Programme

(MSECDP)

A cluster is a group of enterprises located within an identifiable and as

far as practicable, contiguous area and producing same/similar

products/services.

(ii) Scheme of Fund for Regeneration of Traditional Industries

(SFURTI)

Definition of Traditional Industry Cluster‖, in the context of SFURTI,

refers to a geographical concentration of around 500 beneficiary

families of artisans/ micro enterprises, suppliers of raw materials,

traders, service providers, etc., located within one or two revenue sub-

divisions in one or more contiguous District(s).

(iii) Industrial Infrastructure Upgradation Scheme (IIUS)

There is no specific definition of cluster in the Industrial Infrastructure

Upgradation Scheme (IIUS). A number of existing industrial units

operating in a particular area are taken as a cluster for the purpose of

IIUS.

(iv) Cluster Development Programme of SIDBI

Under Promotional & Developmental initiatives SIDBI adopts clusters

having homogenous production activities complementary with each

other, spread over generally, contiguous urban/ semi- urban/ rural

areas for cluster development.

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6.2 Industrial Competitiveness of the Industry Cluster

The related enterprises live together, competing and cooperating

mutually, which has a strong promoting function on raising the

industrial competitiveness. Porter thinks that the industries gathering

together can bring out extensive and aggressive influences on the

competitive advantage of the industry. The model of cluster

development illustrates the cluster as a pyramid. The top tier of the

pyramid represents the ―core cluster firms‖ that export goods or

services to other states, regions, or countries.

Cluster pyramid is illustrated below. (Figure 6.1)

The pyramid model of regional competitiveness

(Based on: Lengyel (2003), Begg (1999), EC (1999), Jensen-Butler (1996))

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The second tier of the pyramid represents ―supplier firms‖ or those

firms that provide inputs to the core cluster firms and are an essential

part of the value chain.

The bottom tier of the pyramid represents the ―foundation factors‖ that

provide the building blocks of the cluster.

However, perhaps the most important dimension of the model is the

arrow that surrounds the pyramid -- in other words, the synergies and

dynamism that result when all three layers of the pyramid are engaged

and working toward a common goal.

The influence of industry cluster on industrial competitiveness is mainly

embodied as followings:

6.2.1 Industry cluster and competitiveness of the industry

The cluster strengthens the competition, and competition is the

important impetus that the industry acquires the core competitive

ability. Firstly, the competition in the industry forces each enterprise to

reduce the cost continuously, improve its products and services, and

chase the wave tides of the technique transformation. Because

enterprises live together, and the rival is close at hand, enterprises can

never satisfy and it must be the continuous creation of each enterprises

inside the industry that can improve the competitiveness of the whole

industry; Secondly, the competition inside the industry can make other

business enterprises acquire the better position in the competition.

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It manifests as follows: the rival can absorb the periodic demand

undulation, which can make enterprises use the production ability more

adequately; The rival is as the comparative standard of enterprises

product value, which can improve the innovation ability of the business

enterprise; the rival optimizes the structure of the whole industry, for

example, adding the need of the industry, raising the popularity of the

product; providing the second or the party sources; thirdly, enterprises

approach to the employees and components.

Enterprises located in the industry cluster, provide more chances to

approach to the best professional components of excellence and low

cost, including zero parts, machines, the services of enterprises and

human resources. So when the competition of the native suppliers is

vehement, industry cluster represents a kind of organized form of

inborn validity and more efficient resources allotment; fourth, each

enterprise inside the industry can develop the market cooperatively in

creating new products or the burgeoning industries.

6.2.2 Industry cluster strengthens cooperation

The professional division of labour and cooperation formed inside the

industry reduce the bargaining cost and create the exterior economy

and collective efficiency. Firstly, looking for the resources (the regional

purchase) toward internal members of the industry is much lower than

buying far away. Purchasing in the cluster can make communication

more convenient, and it can also reduce the cost of modification and

make the cooperation more easy; Reducing the cost of the component

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in long-distance, the supplier can provide the better price and

manufacturer can also use the way to deliver goods more efficiently;

Secondly, the cooperation is raised in the cluster.

People find that many workers only gather together, and their work can

complete well.

In the process of the creative technique appearing continuously, there

are no companies which can complete the research and development

of a product independently; at the same time, enterprises in order to

cope with the exterior environment changing quickly, they also must

establish the network with other business enterprises and solve the

problems together. Exchanging and cooperation with the competitive

industry of the same profession and sharing the knowledge and

information altogether are not only possible but also necessary.

6.2.3 Industry cluster and creative ability of the districts and

enterprises

Firstly, enterprises inside industry cluster can usually become aware of

the new customer's demand more clearly and quickly. Because

enterprises benefit from customers‘ knowledge and relation of the

same profession living together, enterprises of paralleling development

in the related industry, and specialization of information organization,

and the shrewd customers. Enterprises in the cluster can recognize the

requests and wishes of the customers more quickly than the rivals of

fighting independently.

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Secondly, in the aspects of new science and technology, management,

industry cluster has the advantages. The members of industry cluster

will learn the relevant development technique, the equipments of

machine, the concepts of services and marketing etc., and the

persistent relations with other entities inside the cluster, visiting with

each other conveniently, usually getting in touch with face to face, all

contribute to this kind of learning process;

Thirdly, the industry clusters have latent advantages of satisfying

creative demands and the opportunities. The local supplier and

colleague can cooperate closely in creative process, which can ensure

the material fulfil the demand of enterprises; fourth, the competitive

pressures urge enterprises to create continuously. The creative

pressure is higher and higher in industry cluster, and the individual

enterprises is very difficult to keep ahead over a long period of time,

but many business enterprises comparing with those in other locations

make progress much sooner.

6.2.4 Industry cluster resource-sharing effect

Industry cluster has the characteristic of geography gathering;

therefore, the related industry and its supporting enterprises or

organization, such as local government, profession association,

financial department and educational and training organization, is a

kind of flexibility that produces synthesizes on the space of cluster, it

often represents key competitiveness of the area. In addition, the

forming of cluster makes the government willing to invest in such public

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utilities as relevant education, training, examining and determining;

meanwhile, the establishment of these facilities has obviously

promoted the development of enterprise in cluster.

Sharing public goods makes resources have higher application

efficiency in industry cluster, and the regional brand greatly

strengthened enterprises‘ relative competence. It is worth pointing out:

The prerequisite that the cluster bringing out effect is that it has formed

the organic division of labour and cooperation relation around the

related industry and industry chain in the cluster, and this is exactly the

place where industry cluster development should be highly paid

attention to.

6.3 Importance of automotive cluster in Maharashtra‟s Economy

The automotive cluster in the Maharashtra is one of the largest and

promising clusters in the State. For example, in terms of the share in

India, the cluster accounts for 50.9% in net added value, and 35.1% in

output, which are higher than any other clusters in Maharashtra. The

cluster also contributes to 10.4% of total employment in the State,

making it one of the largest contributors in employment (the top being

basic metal industry at 13.7%). It is also one of the fastest growing

clusters at CAGR 3.2% during 1991-2007, following wood related

cluster (6.79%) and other manufacturing (6.42%). (Maharashtra State

Government, 2009)

6.3.1 History and Evolution of Maharashtra Automotive Cluster

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The origin of the cluster date back to as early as 1940s. Many of the

major domestic automakers, such as Tata Motors, Bajaj Motors, Force

Motors were established in the State (Mahindra & Mahindra was

originally founded in Punjab, but later moved to the State).

6.3.2 Cluster Performance & Relative Positioning

(1) Competitive Advantage in Domestic Market

The automotive cluster in Maharashtra (the West cluster) is the

strongest in many aspects in comparison with other automotive

clusters in India, i.e., the North cluster (around Delhi) and the South

cluster (around Chennai).

For instance, in terms of the all segments combined, the West cluster

(around Maharashtra) enjoys a lions‟ share of for 43.6 % of gross

turnover, 81 % of R&D expenditure, and 53% of cumulative investment

in 2008-09. The cluster is especially strong in the 4 wheel vehicles

segment (including passenger vehicles and commercial vehicles), with

46.6% of gross turnover, 46% of installed capacity, 84% of R&D

expenditure and 53.2% of investment. In contrast, the North cluster has

strength in motorcycles (2 & 3 wheelers) segment, while the South

cluster is the third position in total as well as in the two segments.

(2) Competitive Advantage in International Market

Since Maharashtra is the leading cluster in Indian automotive cluster,

the advantage and challenges are basically the same with the

international comparison with Brazil, China and Thailand in the

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previous section: taxation and power costs. As a peculiar condition to

Maharashtra, regional octroi tax can become additional disadvantage.

However, the higher percentage of R&D expenditure concentrated on

this cluster can give the cluster advantages of higher productivity, lower

costs, and advanced technology.

Role of National and State Government

(1) Role of National Government

Following the rapid development of the cluster subsequent to

introduction of the liberalization policy, Indian government formulated

―Auto Policy 2002‖ in order to accelerate the growth by providing higher

fiscal incentives for R&D, and automatically approving 100 % FDI. This

policy promoted technological advancement of domestic automakers,

as well as rush of major international automakers to Indian automotive

market.

(2) Role of Maharashtra State Government

Proactive industrial policy of State Government has set the foundation of

automotive cluster development in the state. Specific to the cluster,

―Industrial, Investment & Infrastructure Policy of Maharashtra 2006‖

specified the automotive cluster as one of the target policy areas, and has

been providing incentives (industry promotion subsidy) to eligible

companies.

6.4 Cluster Diamond Analysis

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(1) Factor Conditions:

According to Michal porters report, this cluster enjoys certain inherent

advantages (infrastructure, finance, human resources, and labour

conditions) which bestow a natural edge for all industries in this state.

Specific to the automobile sector also, this sector has some

advantages. this cluster had the presence of the two big industrial

houses of India- the House of Tatas, and the Bajaj group, who made

an early start (in 1940s, as compared to the later start of the northern

auto cluster in 1980s, and of the southern cluster in 1990s), and

diversification of operations by them, which accelerated in the 1990s

and led to influx of tier I and tier II industries. Thirdly, the setting up of

the premier automobile testing, research and homologation facility-the

―Automobile Research Association of India‖ in Pune in the 60s

conferred an advantage to automobile manufacturers setting up

facilities in the state.

But there remain some constraints in factor conditions, primarily in the

area of infrastructure (roads) and taxes. Another constraint is the cost

disadvantage of Maharashtra-based industries on account of additional

taxes (octroi and an electricity tax) (Narayanan et al. 2008) There are

district specific clusters developed for auto component manufacturers.

Pune, Aurangabad and Nasik have recently developed to support and

upgrade the facilities for auto component manufacturers.

(2) Related and Support Industries: There has been a robust growth

of tier-I, tier-II and tier-III industries in the state. Because this industry

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has a high requirement of customized technological integration,

suppliers in entire value chain have set up manufacturing and business

facilities in Maharashtra, so as to have assured sales to OEMs through

long-term relationships. Proximity to the OEMs helps the

manufacturers of parts/ components (plastic moulded parts, steering

systems, electronic systems etc) and accessories (air-conditioning

units, audio/video systems). However, because of the inability of

domestic manufacturers to achieve economies of scale and

technological innovation commensurate with rapid entry and scaling up

of manufacturers in the region, part of the supply chain is still met

through imports (ACMA). The region has also seen a proliferation of

support industries- automobile finance and insurance companies, and

auto dealerships, due to the synergistic dependence with the OEMs.

There are no significant cluster-specific institutes for collaboration, but

the OEMs as well as auto-component manufacturers collaborate

through two pan-India institutes of collaboration namely, the ―Society of

Indian Automobile Manufacturers (SIAM)‖, and the ―Auto Component

Manufacturers Association of India (ACMA)‖.

These organizations serve as umbrella bodies with almost complete

representation from major OEM and component manufacturers

respectively. They organize training and support programs for their

members, organize annual promotional events (AUTO-EXPO), and

have also developed considerable persuasion with policy makers in the

central and state Governments.

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(3) Context for Firm Strategy & Rivalry: This has been guided by

the all-India policy and industry environment, since firms located here

(OEMs and component manufacturers) compete across clusters, in the

competing market segment. As regards policy environment, Indian

passenger car and two-wheeler manufacturers enjoy protection of high

tariffs. Though this inhibited innovation till 1990s, with lowering of tariffs

on ―completely knocked down‖ imports in the 90s, foreign

manufacturers, who wanted to gain access to the large Indian market,

started setting up manufacturing facilities in India. This instilled rivalry,

and forced local OEMs to diversify their product range.

Government‘s policy also imposed aggressive indigenization targets for

entering firms. Increased and sophisticated demand for parts/

components resulted in rapid growth of ancillary industries in each

cluster.

Maharashtra was among the first states to seize the opportunity

provided by the policies of central government, and provided conducive

business environment facilitating entry of foreign OEMs and


Thus, entry of foreign firms enhanced cluster externalities and

productivity, and their activities contributed directly to generation of

local employment and investment. Simultaneously, competition shifted

from imitation to innovation and from low investment to high

investment. But competition is yet to transition to intangibles such as

skills and technology enhancement.

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(4) Demand Conditions: The western region in India accounts for a

robust demand, about 32 % of the total all-India sales

Domestic Vehicle Sales by Regions (Figure 6.2 ).

Source: SIAM 2009b

In all-India sales figures, Maharashtra ranks 1st in the passenger

vehicles segment, and 2nd in the commercial vehicles, three wheelers

and two wheelers segments.

6.5 The way forward: Challenges for Maharashtra Auto Cluster

There is generally an element of chance in the origin of a particular

geographical cluster of firms (Rauch 1993). Clusters may originate

from one successful start-up, giving rise to a pattern of spin-offs

(Maarten de Vet and Scott 1992), or as suppliers to a successful

dominant firm, or in response to other opportunities or initiatives. In

some cases, the clusters may evolve into a more pronounced vertical

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logic over time with tiers of suppliers serving the final market, as when

groups of tier 1, tier 2, and tier 3 automotive suppliers of materials,

parts, and services cluster around a large automobile manufacturing

facility. In other case, clusters form because of (1) a tie to a physical

resource found in a particular region, such as coal fields and steel mills

in Pennsylvania; (2) labor with a unique skill or experience set, as in

the historical clustering of immigrant furniture craftsmen in Grand

Rapids, Michigan (Carron 1998); (3) abundant, low-cost labor and

lumber resources for furniture manufacturing in western North Carolina

(Rosenfeld 1997); (4) favorable climatic and soil conditions for grape

growing in the Napa Valley region of California (porter 1998); (5)

telemarketing firms‘ exploitation of preexisting fiber-optic

telecommunications cables used to support the Strategic Air command

in Omaha, Nebraska (porter 1998); and (6) coastal Connecticut‘s

cluster of maritime firms in proximity to three deepwater ports

(Connecticut Maritime Coalition 2000). Clusters that form around key

geographically restricted resources often result in several like-

competitors grouping in the same region to access the resources.

A cluster has both industrial and geographical dimensions too,

therefore some of the localized economic effects are the result of

industry growth and profit characteristics, which tend to track an

industry life cycle (Sternberg 1996). As industries evolve from early-

growth phases to maturity, innovative activity tends to shift from

product innovations that fuel growth to process innovations that

improve efficiencies (Abernathy and Utterback 1978).

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The Cluster analysis shows that the development of this cluster was a

result of robust development of various parts of the diamond in a self-

reinforcing manner. We believe that, in line with Prof. Porter‘s concept,

it is now crucial to recognize this cluster‘s potential to upgrade by

identifying and removing the obstacles, constraints and inefficiencies

that impede productivity and innovation. We also believe that there is

an opportunity for the Indian automotive cluster, as a whole, to emerge

as a globally competitive cluster, by overcoming the sources of

competitive disadvantage (such as higher tax incidence, infrastructure,

and regulation) over competing locations. This brings us to what we

believe are some key issues facing this cluster and the automobile

industry in India.

6.6 Key Issues Facing the Cluster

(1) State Level

(i) Infrastructure Bottlenecks: Though Maharashtra had an edge in

attracting new investments in the automobile cluster earlier, recently,

because of its inability to overcome its infrastructure bottlenecks (land,

with good road connectivity and adequate/ cheap power), it is rapidly

losing the edge it provided to incoming automobile manufacturers, to

other clusters- mainly the southern states of Tamilnadu and Karnataka.

(ii) Tax Incentives in Other Regions: There is increased diversion of

investment to new regions in India because of tax and other incentives.

In recent years, Government of India has pursued a policy of

incentivizing development of regional tax-free zones, primarily to

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promote industrial development in remote and backward regions. While

this had a positive result in these areas by way of new investment,

industrial development and employment generation, it also caused a

shift in investment from existing clusters in states such as Maharashtra

and Tamilnadu.

(iii) Law and Order: Since 2008, there have been incidents of violence

between the migrant population, and a section of the local people of

Maharashtra, who feel that employment opportunities and civic

amenities available to them are constrained on account of increased

population influx.

(2) National Level

At the national level, the inconsistent policy environment is a major

issue, primarily in two areas- tax incidence on automobiles, and

environmental/emission regulations:-

(i) Inconsistent Tax Policy: In 2006, Government of India announced

a policy of making the country a manufacturing and export hub for

small, fuel-efficient cars. In pursuance of this policy, a differential

excise duty rate was introduced in favour of small cars. Following this,

OEMs made investments in launching small cars in the domestic

market. However, since 2008, the excise duty rates on small as well as

large cars have been modified frequently. Such frequent changes in tax

incidence influence buying decisions of customers, and consequently

distort the cost calculations and investment decisions of OEMs.

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(ii) Inconsistent Environmental/Emission Regulations: India

resorted to implementation of emission regulations in a phased manner

in different regions, due to the non-availability of compatible fuel which

meets the prescribed standards. This poses a problem to OEMs and

their suppliers in anticipating demand.

(3) Industry and Firm Level

(i) Investment in R&D for Product and Process innovation:

Investment in R&D for technology development will be one of the most

important aspects of future strength of this industry. Given India‘s

strength in the skills set required for technological development, the

industry needs to invest in research and development to increase

innovative breakthroughs for vehicle design as well as in manufacturing

technology.

(ii) Promoting exports: Indian companies have gained strength in the

small car segment, which is already being leveraged by OEMs like

Hyundai, Suzuki and Tata Motors, and component manufacturers. But

there is tremendous opportunity for capture of market share in other

categories such as multi-utility vehicles, two-wheelers, hybrid vehicles

and electric cars. This will need to be driven by strategies of individual

companies, and policy support from government (R&D and export

incentives), but also by encouraging competitiveness of tier-I suppliers,

and establishing a ‗made-in-India‘ brand.

(iii) Development of auto component industry: Indian auto

component manufacturing is currently constrained by lack of large

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capacities. Greater variety in vehicle launches by OEMs in recent years

and increased export demand are offering newer challenges to

manufacturing capabilities and economies of scale of component

manufacturers. The component industry needs to increasingly maintain

lean and efficient manufacturing systems to be ahead of cheaper

imports from countries such as Thailand (under the Indo-Thai FTA).

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CHAPTER 7: REVIEW OF LITERATURE

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CHAPTER 7

REVIEW OF LITERATURE

Strategy development

Although formulating a consistent strategy is a difficult task for any

management team, making that strategy work – implementing it

throughout the organization – is even more difficult (Hrebiniak, 2006). A

myriad of factors can potentially affect the process by which strategic

plans are turned into organizational action. Unlike strategy formulation,

strategy implementation is often seen as something of a craft, rather

than a science, and its research history has previously been described

as fragmented and eclectic (Noble, 1999b). The best-formulated

strategies may fail to produce superior performance for the firm if they

are not successfully implemented, as Noble (1999b) notes.

Hrebiniak (2006) notes for example: ―Formulating strategy is difficult.

Making strategy work – executing or implementing it throughout the

organization – is even more difficult‖. Thompson & Strickland (2003)

have stressed that the strategy-implementing / strategy-executing task

is the most complicated and time-consuming part of strategic

management (cited in Schaap, 2006).

Gray (2005) defines strategy as ‗the process of trying to understand

what a business is about in its close environment‘, and goes on to state

that it is ‗a continual reviewing and revisiting of the assumptions that

are made within the organisation about its purposes and functions‘.

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Nadler (2004) offers a breakdown of four different types of strategic

activity:

1. strategic thinking, which involves ‗the collection, analysis, and

discussion about the environment of the firm, the nature of competition,

and business design alternatives‘

2. strategic decision-making, which ‗requires a set of core directional

decisions‘. There ‗are fundamental choices concerning the business

portfolio and the business design, which serve as the platform for the

future allocation of limited resources and activities‘

3. strategic planning, which ‗typically results in a plan and a set of

budgets‘

4. strategic execution, focusing on ‗implementation, monitoring results,

and appropriate corrective action‘ and often involving funds allocation.

7.1 Competitiveness

According to Porter‘s competitiveness framework (Porter, 1990; Porter,

1998), competitiveness essentially means productivity. Productivity is

at the heart of the framework, because it is seen as the critical driver of

long-term sustainable prosperity, the outcome that is seen as the

relevant ultimate objective of economic policy.

More specifically, competitiveness means the level of productivity that

companies can achieve in a location given the full breadth of conditions

that affect their activities there. It is the structured approach towards

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organizing these conditions and the systemic relationships between

them that is at the heart of the competitiveness framework (Porter et

al., 2008). Empirical work has confirmed the high correlation between

strong performance on these conditions and prosperity levels across

countries (Porter et al., 2008).

Competitiveness is a multidimensional concept. It can be looked at

from three different levels: country, industry, and firm level.

Competitiveness originated from the Latin word, competer, which

means involvement in a business rivalry for markets. It has become

common to describe economic strength of an entity with respect to its

competitors in the global market economy in which goods, services,

people, skills, and ideas move freely across geographical borders

(Murths, 1998).

According to Porter (1990, 1998), international competitiveness of

countries is often described in the following way: (1) macroeconomic

phenomena, like exchange rates, interest rates, government deficits,

etc., (2) cheap and abundant labour, (3) bountiful natural resources, (4)

different management practices, (5) low unit labour costs, (6) a positive

balance of trade, and (7) probably most important: high and rising

productivity.

The World Economic Forum (WEF) has constructed two indices: the

Global Competitiveness Index (GCI), and the Business

Competitiveness Index (BCI) (WEF, 2007; Schuller, 2008).

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According to the WEF (2002), a competitive country is able......‖to

provide its citizens with high and rising standards of living‖ (WEF, 2002,

p.2). Countries are ranked according to GCI, BCI and standards of

living.

Company competitiveness is defined as "the ability to design, produce

and/or market products superior to those offered by competitors,

considering the price and non-price qualities" (WCR, 1991, p 8).

7.1.1 Firm-Level Competitiveness

Firm level competitiveness can be defined as the ability of firm to

design, produce and or market products superior to those offered by

competitors, considering the price and non-price qualities (D'Cruz,

1992).

Firm-level competitiveness is of great interest among practitioners.

Nations can compete only if their firms can compete, argues

Christensen of Harvard Business School.

According to Porter "it is the firms, not nations, which compete in

international markets", (Porter, 1998). The environmental factors are

more or less uniform for all competing firms. Other pro-firm views

(Bartlett and Ghoshal, 1989; Prahalad and Doz, and 1987; Prahalad

and Hamel, 1990) focus on individual firm and their strategies for global

operations, and resource positions to identify the real sources of their

competitiveness.

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Competitiveness can be treated as a dependent or independent

variable, depending on the perspectives from which one approaches

the issue. Berkely et al (1988) has suggested a framework that has

three folds: the competitiveness performance, competitiveness

potential, and the management processes. A similar framework can be

found in the World Competitive Yearbook (WCY, 2002). In the WCY

formula, "world competitiveness" is a combination of assets that are

inherent and created as well as processes that transfer assets into

economic results (Man, 1998).

Firm‘s competencies and resources are actual source of sustainable

and long-term competitive advantage (Hamel and Parahald 1990).

Customer needs change much more rapidly than firm‘s competencies.

It is therefore preferable that the strategy process starts from the firm‘s

competencies and searches for new applications of these

competencies and/or renewing the competencies themselves (Chiesa

2001). The basic concept of resource-based approach is therefore to

understand how a firm can create, protect and exploit her unique

competencies or technologies.

Competitiveness involves "a combination of assets and processes,

where assets are inherited (natural resources) or created

(infrastructure) and processes transform assets to achieve economic

gains from sales to customers" (DC, 2001). Outcomes can be achieved

through competitive potentials through the competitiveness process

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(Berkely et al, 1988), similar to the Asset-Process-Performance (APP)

framework (Momaya, 2000).

Some authors view competitiveness with the competency approach.

They emphasise the role of factors internal to the firms such as firm

strategy, structures, competencies, capabilities to innovate, and other

tangible and intangible resources for their competitive success (Bartlett

and Ghoshal, 1989; Doz and Prahalad, 1987; Hamel and Prahalad,

1989, 1990). This view is particularly among the resource-based

approach towards competitiveness (Prahalad and Hamel, 1990; Grant,

1991; Barney 2001, 1991; Peteraf, 1993; Ulrich, 1993). Ability to

develop and deploy capabilities and talents far more effectively than

competitors can help in achieving world-class competitiveness (Smith,

1995). The generic strategies given by Porter also emphasises these

criteria (Porter, 1990). It has been said the company, industry, or nation

with the highest productivity could be seen as the most competitive

(McKee and Sessions-Robinson, 1989).

In today's turbulent business environment, dynamic capabilities,

flexibility, agility, speed, and adaptability are becoming more important

sources of competitiveness (Barney, 2001; Sushil, 2000). O'Farell et al

(1992, 1989, 1988) have conducted a number of studies on the

relationship between sources of competitiveness and firm performance,

with focus on price, quality, design, marketing, flexibility, and

management. The importance of firm-level competitiveness is

confirmed by a large number of studies discussed above. Recognising

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the dynamic role processes play in enhancing competitiveness, the role

of processes in firm-level competitiveness need to be examined.

Superior manufacturing performance leads to competitiveness

Leachman et al. (2005). Firm‘s competitiveness is dependent on its

ability to provide goods and services more efficiently than others

involved in the market place Ajitabh and Momaya (2004).

Competitiveness comes through a process by which one entity strives

to outperform another through the use of various resources and

capabilities Hitt et al. (2001).

Competitiveness is a concept comprising of the potential, the process

and the performance Economic Times (2001). Competitiveness is a

combination of assets and processes, where assets are inherited or

created and processes transform assets to achieve economic gains

from sales to customers DISR et al. (2001). To be competitive, several

factors must exist: the desire to win, commitment or perseverance and

the availability of certain resources Khalil (2000).

Competitiveness is defined in terms of ―helping business to win‖,

―price‖, product range and quality and ―distribution and marketing‖ Dou

and Hardwick (1998). Competitiveness refers to the relative position of

an organization against its competitors Cho and Moon (1998).

Competitiveness involves different attributes like comparative

advantage and/price competitiveness perspective, strategic and

management perspective, as well as historical and socio-cultural

perspectives Waheeduzzaman and Ryans (1996).

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Competitiveness is the ability of the organization to stay in business

and to protect the organization‘s investments, to earn a return on those

investments and to ensure jobs for the future Pace and Stephan

(1996). Competitiveness is the ability to increase market share, profit

and growth in value added and to stay competitive for a long duration

Ramasamy (1995). Competitiveness is the ability to persuade

customers to choose their offering over alternatives and ability to

improve cost process capabilities. Chaharbaghi and Feurer (1994).

Competitiveness arises or results from firm-specific initiatives like:

better management, leveraging and stretching of resources Hamel and

Prahalad (1993).

Competitive priorities can be used as measures of competitiveness

(external) and competence (internal). Both are considered two sides of

same coin Corbett and Wassenhove (1993). Ability to design, produce

and /or market products or services superior to those offered by

competitors, considering the price and non-price qualities Cruz (1992).

Competitiveness is synonymous with productivity and is assumed to

capture quality feature as well as efficiency feature Porter (1990).

Competitiveness is the ability to raise income as rapidly as competitors

and to make investments necessary to keep up with them in the future

Scott (1989).

Competitiveness is a function of the firm‘s industry mastery, its cost

superiority, and the political-economic environment around it, implying

a need for both external and internal considerations of competitiveness

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Oral (1986). Competitiveness is performance relative to competitors in

terms of dimensions such as quality, speed, delivery, responsiveness

and prices Turnbull and Cunningham (1981).

According to Ajitabh and Momaya (2004), firm‘s competitiveness is

dependent on its ability to provide goods and services more efficiently

than others involved in the market place competitiveness. The industry

and country are facilitators in providing the necessary infrastructure

and support to the firms.

In most of the studies, competitiveness of an organisation is analysed

in terms of certain financial parameters but according to Man et al.

(2002), Competitiveness of small and medium enterprises (SMEs)

should comprise the four major constructs relating to the firm‘s internal

factors, external environment, influences of the entrepreneur and the

firm‘s long-term performance. Singh et al. (2005) specified these four

factors for the purpose of measuring competitiveness index of an

organisation as assets, pressures, constraints, strategy development,

competitive priorities, processes and performance in their framework.

7.1.2 Industry level

Research into issues of industry-level competitiveness confirmed

importance of processes in enhancing competitiveness (Momaya,

1998).The new competition is in terms of reduced cost, improved

quality, products with higher performance, a wider range of products

and better service, and all delivered simultaneously (Dangayach and

Deshmukh, 2001).

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Competitive priorities represent a holistic set of tasks, which should be

performed by the manufacturing function in order to support the

business strategy.

7.1.3 Nation level

The literature generally (Nelson, 1995; United Nations, 1995; Selber,

1983; Erzan and Yeats, 1992) confirms that among the main factors

constraining competitiveness in the globalised economy is the ―country

cost‖. This is a set of inhibitors which cancel out competitive

advantages of the country‘s production. Typical examples are archaic

tax systems, high domestic interest rates, poor transport and

communication infrastructures.

7.2 Competitiveness and strategy development

Williams et al. (1995) identified significant relationship between

manufacturing strategy and firm performance.

In particular, the manufacturing function‘s quality assurance process

and its ability to deliver a quality product/service were found to

correlate significantly with firm performance. Based on these strategies

competitive priorities will be decided. Based on competitive priorities,

various processes for improving product quality, machine utilisation,

customer satisfaction, supplier development and cost reduction will be

undertaken by organisation. Intensity and effectiveness of these

processes will determine the performance of organisation. For

measuring performance, quantitative and qualitative factors, such as

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market share, return on investment, profit after tax, export, customer

satisfaction and employee satisfaction etc should be considered.

Competitiveness Index of organisation can help it to compare with

competitors in the market. Competitiveness of an organisation can be

derived through diverse sources. The tangible and intangible assets

and processes within an organisation that provide competitive

advantage can be termed as sources of competitiveness (Momaya,

2000).

Competitiveness is often derived from basic factors such as natural

endowments. In recent years, many large organisations all over the

world have been focusing on their core business, downsizing and

outsourcing. This trend has given many opportunities for SMEs to work

in partnership with them. To grab these opportunities, SMEs in all

sectors need to develop effective strategies for providing higher added

values to customers in terms of cost, quality and services at shortest

possible time. If an organisation wants to make a difference as a

leader, it has to give time for developing strategies.

According to Voss (2005) managers of SMEs have poor skills in

reflecting upon their companies strategically. These limited skills make

organisations in a sense out of control. In sustaining their

competitiveness, SMEs face many problems due to shortage of

finance, skilled manpower and advance technology. Therefore strategy

should match the organisation‘s resources (e.g. financial,

manufacturing, marketing, technological, and work force) to its

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changing environment and in particular its markets and customers in

the pursuit of its goals and objectives. In such a dynamic environment,

organisations that are able to continually build new strategic assets

faster and cheaper than those of their competitors will create long-term

competitive advantage.

The new competition is in terms of reduced cost, improved quality,

products with higher performance, a wider range of products and better

service, and all delivered simultaneously (Dangayach and Deshmukh,

2001).

7.2.1 Competitive Strategy

Competitive strategy is about being different. It means deliberately

choosing to perform activities differently or to perform different activities

than rivals to deliver a unique mix of value. (Michael E. Porter)

The essence of strategy lies in creating tomorrow's competitive

advantages faster than competitors mimic the ones you possess today.

(Gary Hamel & C. K. Prahalad)

This intent of strategy emanates quite explicitly from the definition

given by Chandler (1962): "Strategy is the determination of the basic

long-term goals of an enterprise, and the adoption of courses of actions

and the allocation of resources necessary to carry out these goals."

According to Schendel and Hatten's definition, (1972): "Strategy is the

basic goals and objectives of the organization, the major programs of

action chosen to reach these goals and objectives, and the major

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pattern of resource allocation used to relate the organization to its

environment."

According to Guth (1965): "Strategy is the pattern of objectives,

purposes or goals and major policies and plans for achieving these

goals, stated in such a way as to define what businesses the company

is in or is to be in and the kind of company it is or is to be."

This notion is advanced by Glueck (1976):

"Strategy is a unified, comprehensive, and integrative plan designed to

assure that the basic objectives of the enterprise are achieved."

According to this perspective, strategy is principally viewed as

responding to external and internal forces which impact the

organization.

Argyris (1985) reflects this point of view in his definition of strategy:

"Strategy formulation and implementation include identifying

opportunities and threats in the organization's environment, evaluating

the strengths and weaknesses of the organization, designing

structures, defining roles, hiring appropriate people, and developing

appropriate rewards to keep those people motivated to make

contributions."

Similarly, Steiner and Meiner (1977) state: "Strategy is the forging of

company missions, setting objectives for the organization in light of

external and internal forces, formulating specific policies and strategies

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to achieve objectives, and ensuring their proper implementation so that

the basic purposes and objectives of the organization will be achieved."

There are some authors who tend to emphasize more strongly the

need for organizations to obtain a viable match with its environment. In

this case, the central role of strategy is not only viewed as passively

responding to the opportunities and threats presented by the external

environment, but also as continuously and actively adapting the

organization to meet the demands of a changing environment.

A principal proponent of this view has been Mintzberg (1979): "Strategy

is a mediating force between the organization and its environment:

consistent patterns of streams of organizational decisions to deal with

the environment."

Michael Porter has been the champion of making explicit the quest for

competitive advantage as the central thrust in strategy. In his first book

(Porter, 1980), he defines a framework to assess the attractiveness of

an industry, and discusses generic strategies for an effective

positioning of a firm within that industry. In his second book (Porter,

1985), he defines competitive strategy as: "The search for a favourable

competitive position in an industry, the fundamental arena in which

competition occurs. Competitive strategy aims to establish a profitable

and sustainable position against the forces that determine industry

competition."

The positioning approach focuses on the external environment. In this

approach, the starting point is the industry where a firm is competing or

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will compete (Chiesa 2001). Chiesa (2001) also argues that the unit of

analysis is the technology embodied in the company‘s products or

processes.

The basic concept of positioning approach is therefore to understand

how strategic decisions affect or are affected by changes in

technology, how to embody technology in the strategy formulation

process, how a technology program can support a given strategy and,

ultimately, on how to gain competitive advantage through changing the

technological solution for a certain product. And finally, competition is

seen as ―positioning‖ the firm in a given competitive area and

technology as a support to a decided competitive strategy.

Prominence of internationalisation phenomenon has captured interests

of researchers in strategic management, entrepreneurship and

international business (McDougall and Oviatt, 1996; Lu and Beamish,

2001; Burgelman, 1983; Coviello and McAulry, 1999). SMEs

internationalise businesses by either exporting or extending FDIs. Lu

and Beamish establish the best strategy to combat deficiency of

international resources to SMEs as seeking alliance with domestic

firms, those with local knowledge; this necessitating SMEs‘

configuration of their international settings.

According to Zahra, Ireland and Hitt (2000), broadening customer base

by extension to foreign markets is among the strategies SMEs use to

achieve their growth. Geographic expansion to leveraging resources in

different markets is done by taking advantages of market imperfections

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in other areas. Among the challenges in extending to foreign markets is

a need for development of new strategies to fit in the new markets

especially where the target markets are dissimilar to original ones.

Strategic competitiveness is at the centre of economic development.

Hitt, Ireland and Hoskisson (2003), claim that strategic competitiveness

is achieved when a firm formulates and successfully implements a

value-creating strategy. Amit (1986) maintains that the most important

component of strategy is competitive advantage, which is defined as

the unique positions an organization develops over competitors

through a pattern of resource deployment and/or scope decisions. A

firm‘s unique resources and capabilities are a critical link to

competitiveness, as maintained by Hitt, et al. (2003).

Firms must be able to adapt quickly to changes in their competitive

landscape. Such adaptation requires that a firm develop strategic

flexibility. This, according to Hitt, et al. (2003), is a set of capabilities

used to respond to various demands and opportunities in a dynamic

and uncertain competitive environment. They also argue that the

external environment is the primary determinant of a firm‘s actions.

Organizations should develop strategic flexibility in all areas of their

operations. Firms should accordingly develop organizational slack,

which allows them some flexibility to respond to environmental

changes.

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Strategic intent is the leveraging of resources, capabilities and core

competencies to accomplish the firm‘s goals in a competitive

environment (Hitt, et al., 2003).

According to Porter (in Wright, 1987), cost leadership emphasizes the

production of a standardized product at a low cost. Hitt, et al., (2003)

maintain that a cost leadership strategy is an integrated set of actions

designed to produce a product with features that are acceptable to

customers at the lowest cost, relative to that of the competition. Cost

leaders therefore concentrate on finding ways to lower their cost base

by constantly thinking of completing primary and support value chain

activities at the lowest possible cost. Porter (in Jones and Butler, 1988)

maintains that cost leadership requires aggressive managerial action

that is directed towards controlling and minimizing costs. Porter argues

further that having a low cost position, yields above average returns to

the firm.

Tain-Jy and De-piao (1990) have stressed the significance between

productivity growth and export expansion. At a theoretical level; there

are at least two interpretations of the correlation between productivity

growth and export expansion: one stresses the economies of scale; the

other competitive forces. The economies‘ of scale emphasizes the

benefits that can be derived by means of expanding the scale of

operations. Economies of scale tend to occur in industries with high

capital costs in which those costs can be distributed across a large

number of units of production. The most obvious method therefore to

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improve productivity would be increased automation, which minimizes

the task that employees must perform (Unknown 1, 2005).

Tain-Jy and De-piao (1990) argue similarly that more efficient

operations lead to higher productivity.

Wright (1987) has found that larger firms with greater access to

resources, particularly the ones subject to capital-intensive

technologies, are capable of producing at lower costs per unit. He

maintains that the cumulative volume of production allows lower per-

unit cost through a combination of economies of scale; the possibility of

capital-labour substitution; and an incrementally increasing learning

curve.

An import substitution strategy seeks to learn from and gain new skills

from developed countries and, at the same time, try to protect the

domestic economy (Chenery and Srinivasen, 1989). The principal

mechanism of an import substitution strategy is the erection of

protective tariffs (taxes on imports) or quotas (limits on the quantity of

imports).

The benefits of an import substitution strategy lie in the ability to

manufacture goods subject to economies of scale; lower labour costs;

and through learning by doing and hence by becoming competitive.

With enough time and sufficient protection, the infant industry will

eventually mature and become competitive internationally (Todaro,

1997).

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7.2.2 International Competitiveness

According to Buckley et al. (1988), ―a firm is competitive if it can

produce products and services of superior quality and at lower costs

than its domestic and international competitors. Competitiveness is

synonymous with a firm's long-run profit performance and its ability to

compensate its employees and provide superior returns to its owners‖.

Of the micro indicators assessing the multi-dimensionality of the

concept of competitiveness, the best known attempt was made by

Porter (1990) in his Diamond Framework. He identified four main

determinants of competitiveness of enterprises as their strategy,

structure and rivalry, the demand conditions they face, the factor

supply conditions they encounter, and the conditions of related

industries. Although there are a multitude of factors that influence the

competitiveness of firms, Porter classified those under four above-

mentioned facets only.

Gelei (2003) has used the definition of firm competitiveness as the

basic capability of perceiving changes in both the external and internal

environment and the capability of adapting to these changes in a way

that the profit flow generated guarantees the long term operation of the

firm. As to him, firm competitiveness is basically a function of two

factors. First, it is determined by the extent a company can identify

those value dimensions that are important for their customers. These

are the main features of the firm‘s complex product and service

package a customer expects. The second factor of firm

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competitiveness is the sum of resources and capabilities that make a

firm capable to create and deliver the identified important value

dimensions for the customer. Prahalad and Hamel (1990) call these

core competences.

A White Paper on competitiveness by the UK Government (Department

of Trade and Industry 1994) offers a multi-notion definition at the

company level, which says, for a firm, competitiveness is the ability to

produce the right goods and services of the right quality, at the right

price, at the right time. It means meeting customer‘s needs more

efficiently and more effectively than other firms‖.

Another significant discussion on the concept of competitiveness of

firms was published by ADB (2003). It states that competitiveness can

be defined as a firm‟s ability to survive under competition and being

competitive implies succeeding in an environment where firms try to

stay ahead of each other by reducing prices, by increasing the quality

of their current products and services, and by creating new ones.

7.3 Export competitiveness

The competitiveness framework developed by Porter (1990, 1998)

suggests that there is an alternative way to look at the relationship

between exports, competitiveness, and growth. The exports has led to

the advantages of economies of scale, increased capacity utilization,

technology transfer etc.

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Export growth helps in better utilization of the resources leading to total

increase in factor productivity. Authors like Balassa (1978 and 1985),

Jung and Marshall (1985), Ram (1985 and 1987), Chow (1987), Shan

and Sun (1988), Bahmani-Oskoee, Mohtadi and Shabsigh (1991),

Bahmani-Oskoee and Alse (1993), Jin (1995), Levin and Raut (1997),

and Khalifa Al-Youssif (1997) have focused on export led hypothesis

and their contribution to economic growth. The exports has led to the

advantages of economies of scale, increased capacity utilization,

technology transfer etc.

There have been on-going debates on the direction of causality

between trade and productivity. In theory, the causal relationship

between them is two way, but export-led growth theorists generally

contend that export enhance productivity growth (Haddad et al, 1996,

Weinhold and Rauch, 1997 and Sjoeholin, 1999). These theorists

argue that firms tend to learn advanced technologies through exports

and must adopt them to compete in the foreign market place (Balassa,

2001; Kruegar and Truncer, 2002; Nishimizu and Robinson, 1994).

―In the new global economy, there is no place for companies to hide

from foreign competitors - all companies need to plan for growth and

survival in a world of global competition‖ (Root, 1994:21). Despite the

importance of SMEs to international marketing, little is known about

how they prosper under globalization or about globalization‘s

moderating role on entrepreneurship and marketing strategy –

according to Knight (2000), most SMEs are disadvantaged in an

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increasingly global environment because they lack the resources of

large multinationals.

Factors in export competitiveness: Consistent good quality, meeting

delivery commitments and price competitiveness are the most critical

operative factors. Krueger (1975) refers to the problems in obtaining

necessary imports, especially by rapidly expanding auto component

firms; also the choice of export markets for components was largely

confined to those having similar outdated vehicle models as in India

then.

Aaby and Slater's (1989) review of the export marketing literature

suggests that researchers have followed two fundamental approaches.

One stream of research pursues the distinction between exporting and

non-exporting firms (e.g. Cavusgil and Naor, 1987; Cavusgil and Nevin,

1981; Yaprak, 1985). This approach is based on the implicit

assumption that exporting per se attaches an element of success to the

firm. Despite the importance of this set of studies, one innate deficiency

in this approach is that no account is taken of potentially significant

differences between different exporter groups in terms of export

performance (Aaby and Slater, 1989).

The other approach focuses on exporting companies and measures

export performance according to some criterion pertaining to the export

position of the firm. The most commonly used criteria are: export-to-

total sales ratio (Beamish and Munro, 1986; Dominguez and Sequeira,

1993); export sales volume (Czinkota and Johnston, 1983; Madsen,

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1989); export sales growth (Cooper and Kleinschmidt, 1985; Madsen,

1989); and export profitability (Bilkey, 1978; Dominguez and Sequeira,

1993).

Importantly, there appears to be considerable consensus, especially

among recent studies, on the use of multi-measure approaches (e.g.

Beamish and Munro, 1987; Craig and Beamish, 1989; Dominguez and

Sequeira, 1993; Samiee and Walters, 1990). This tendency is

grounded in that export performance evaluation on the basis of a single

indicator is likely to capture only a particular aspect of the construct

(Dominguez and Sequeira, 1993). Nevertheless, there has been

serious concern about the use of the operational measures

predominantly employed in the literature as appropriate export

performance indicators (Aaby and Slater, 1989). This leads us to more

closely scrutinize the issue of export performance assessment.

A systematic review of the literature in these areas reveals two major

issues that are critical in the evaluation of firm performance in export

markets. These refer to the mode of performance assessment (Dess

and Robinson, 1984; Venkatraman and Ramanujam, 1987) and the

choice of performance dimensions that should be measured

(Deshpande et)

Academic research has identified several aspects of the firm which

influence export strategy. According to Bilkey (1978), Miesenbock

(1988), and Aaby and Slater (1989), the majority of the research has

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been focused on internal and external influences on the export decision

process.

Internal influences to export strategy are characterized by variables

over which the firm has control. Many studies have examined the

impact of internal influences on the export behaviour of firms.

Examples include Bilkey (1978), Cavusgil and Nevin (1981), Cavusgil

(1984), and Cavusgil and Naor (1987). The latter study examined

constructs such as the organization's commitment to exporting,

motivation of the firm to export, management capabilities and

perceptions of exporting, firm size, and product advantages. We

examine each of these constructs in turn.

7.3.1 Export Strategy

Strategy is the way firms link their unique competencies/technologies

to the marketplace opportunities.

According to Bradley (1995), there are basically two dimensions, which

represent the key strategic decisions in connection with a firm‘s

internationalization, (1) international market selection, and (2) choice of

entry mode.

Bloodgood, Sapienza & Almeida (1996), argue that new ventures will

seek an international presence for two reasons: industry conditions

(e.g. increased globalization) may require an international presence for

the company to be competitive and secondly, a venture may seek a

global presence to capitalize on its unique set of resources (e.g.

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management team‘s experience in global markets, new technologies or

innovations, etc.).

International experience has traditionally been measured at firm level

as for instance, geographic scope of a firm‘s experience (number of

different countries a firm is active in) and length of experience (number

of years a firm has been active on the international arena) Erramilli

(1991).

Strategies should be framed to overcome on weak areas and take

leverage on strong areas for improving competitiveness. International

trade has often been referred to as the ―engine of growth‖, as

maintained by Hultman (1967).

Exports are important as they enable the importation of capital goods

necessary for investment and prevent balance of payment problems,

which seems to plague many developing countries (Todaro, 2000).

Expanding export markets provide an additional stimulus to growing

local demand. Hultman (1967) argues that export growth is seen as a

determinant of import capacity which, in turn, is a determinant of the

level of domestic economic activity.

Exporting has been traditionally regarded as the first step to entering

international markets, serving as a platform for future international

expansions (Kogut & Chang, 1996). It is considered to be the most

used strategy for SMEs because of the lack of resources (Dalli, 1995)

and certain degree of market knowledge and experience (Root, 1994).

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Hill (2007, p. 487) explains both advantages and disadvantages of

exporting.

After distinguishing three indicators, i.e. export share, export growth,

and export profit, Gemünden finds that ―There is neither a positive

relationship between intensity and growth, nor between intensity and

profit.‖

Notwithstanding, the review establishes four prominent export success

factors that have been researched rather frequently, namely ‗firm size‘,

‗information activities‘, ‗R&D intensity‘, and ‗export-oriented product

adaptations and services‘. ―All four factors show a positive influence on

export share of total sales, but only export oriented information activity

also shows a stronger positive influence on growth and profitability of

export.‖ information activity is positively related to all three measures of

export success.

Zou & Stan‘s (1998) motivation is to improve the work by Aaby & Slater

(1989), and by Chetty & Hamilton (1993), by first adding the external

environment, and, secondly, by updating this review. The determinants

are classified into internal (―justified by the resource-based theory‖)

versus external (―supported by the industrial organization theory‖), and

into controllable versus non-controllable determinants.

Here, four export performance measures are distinguished, i.e. ‗export

profitability‘, ‗relative export profitability‘, ‗export contribution to total

profit‘, and ‗export intensity‘. Louter, Ouwerkerk & Bakker (1991) builds

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one model, but uses these four as four different dependent variables,

with even linkages between the performance measures.

Conceptualizing Export Performance and its Determinants export

profitability‘ (Koh & Robicheaux 1988; Koh 1991), or satisfaction

variables as used by Bijmolt & Zwart (1994), Shoham (1996; 1999;

2000), and Shoham & Kropp (1998). Shoham (2000) also introduces

another interesting measure: the disconfirmation of expectations.

7.4 Clusters

Solvell (2008) enhanced the definition of Porter and defined the

clusters as follows: ―Clusters provide an environment that is conducive

to innovation and knowledge creation. Regions with strong cluster

portfolios are innovative leaders…. Globalization has increased the

need to combine strong internal dynamics within clusters with solid

linkages to clusters and markets located elsewhere.‖ Consequently,

cluster based regional economies generate better outcomes due to

higher productivity, better equipment to deal with external shocks and

ease of trade-offs between specialization and diversification.

Porter (1998:15) defined a cluster as ―an array of linked industries and

other entities important to competition.‖ Porter‘s main point on what

differentiates clusters from historical intellectual antecedents and more

recent theories of agglomeration is that clusters comprise a multi-

organisational firm that play a key role in competition and have a strong

influence on market economies. The preceding definitions of clusters

are general, with several types of potential relationships among firms

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(e.g., buyer-seller, direct competitor, indirect competitor, and affiliated

firms), all of which contribute to some of the conceptual confusion with

the cluster construct.

There is generally an element of chance in the origin of a particular

geographical cluster of firms (Rauch 1993). Clusters may originate

from one successful start-up, giving rise to a pattern of spin-offs

(Maarten de Vet and Scott 1992), or as suppliers to a successful

dominant firm, or in response to other opportunities or initiatives. In

some cases, the clustering of firms in a particular location is a function

of proximity to an original large customer or large market, a focal entity

(Jacobs and de Man 1996). In some cases, the clusters may evolve

into a more pronounced vertical logic over time with tiers of suppliers

serving the final market, as when groups of tier 1, tier 2, and tier 3

automotive suppliers of materials, parts, and services cluster around a

large automobile manufacturing facility. In other case, clusters form

because of (1) a tie to a physical resource found in a particular region,

(2) labour with a unique skill or experience set, Michigan (Carron

1998); (3) abundant, low-cost labour and lumber resources (Rosenfeld

1997); Clusters that form around key geographically restricted

resources often result in several like-competitors grouping in the same

region to access the resources.

A cluster has both industrial and geographical dimensions too,

therefore some of the localized economic effects are the result of

industry growth and profit characteristics, which tend to track an

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industry life cycle (Sternberg 1996). As industries evolve from early-

growth phases to maturity, innovative activity tends to shift from

product innovations that fuel growth to process innovations that

improve efficiencies (Abernathy and Utterback 1978).

7.5 Sustainable Competitive Advantage

Sustainability is a business strategy that drives long-term corporate

growth and profitability by mandating the inclusion of environmental

and social issues in the business model.

According to Alderson (1965) firms should strive for unique

characteristics in order to distinguish themselves from competitors in

the eyes of the consumer for a long period of time (that is, sustainable

competitive advantage). Thus, sustainable competitive advantage is

the ability to offer superior customer value on an enduring or consistent

basis, a situation in which competitors are unable to easily imitate the

firm‘s capacity for value creation (Collis and Montgomery, 1995).

According to Barney (1991), sustainable competitive advantage arises

when the firm‘s resources are valuable (the resources help the firm

create valuable products and services), rare (competitors do not have

access to them), inimitable (competitors cannot easily replicate them)

and appropriate (the firm owns them and can exploit them at will).

Acquiring and preserving sustainable competitive advantage and

superior performance are a function of the resources and capabilities

brought to the competition (Aaker, 1989; Barney, 1995). These

knowledge resources and capabilities, resulting from learning

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processes implies an improvement in response capacity through a

broader understanding of the environment (Dodgson, 1993; Sinkula,

1994).

It is a valuable source of competitive advantage because of its

complexity, usefulness and difficulty to imitate (Day, 1994; Slater and

Naver, 1995). Hitt, Hoskisson and Ireland (1990) conclude in their

empirical study that the source of distinctive competencies are internal

rather than external and are derived from the way an enterprise uses

its resources relative to its competition. In agreement with these

considerations, learning through better understanding facilitates

behaviour change that leads to improved performance.

The resource-based theory (Barney, 1991; Prahalad and Hamel, 1990;

Wernerfelt, 1984), complementing the traditional Porter‘s (1985) model

of competitive advantage stresses the importance of the intangible

resources and capabilities of the firm in the context of the competitive

environment (Collis and Montgomery, 1995).

In this way, the firms that devote their internal forces to exploit the

opportunities of the environment and to neutralize threats while

avoiding weak points are most likely to obtain competitive advantages

than those that do not do the same (Barney, 1995) and they are able to

build a good reputation.

According to Dr.R.Gopal (2006) the central theme to any competitive

strategy would be the attractiveness of the market and relative

competitive position of the firm's products not with respect to the

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marginal firms but with respect to the No.1s and No. 2s. Both these

themes are highly dynamic in nature. The key to competitive strategy is

the competitive advantage nay-sustainable competitive advantage.

These advantages stem from the various subgroups of a firm's

processes, the skills and resources at its disposal as well as its

innovative strategies and finally how are these advantages

implemented in the market place. In the ultimate analysis these

advantages must contribute to the Top Management's Objective viz.

the Return on Investment.

According to Barney (1991) a firm is said to have a sustainable

competitive advantage when it is implementing a value creating

strategy not simultaneously being implemented by any current or

potential competitors and when these other firms are unable to

duplicate the benefits of this strategy. Thus sustained competitive

advantage exists only after efforts to replicate that advantage have

failed. It is for this reason that organizations are focusing on methods

and strategies that are difficult to imitate. One of such methods and

strategies is organizational learning through which an organization is

capable of developing intellectual capital (human capital, social capital

and organizational capabilities) that is rare and difficult to imitate.

Ollila (c.f. Harung & Gustavsson, 1994) underscored the role of

organizational learning in achieving sustainable competitive advantage

by stating that the rate at which an organization learns may become

the only sustainable source of competitive advantage. This was also

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emphasized by Goh (2003) who noted that to remain competitive;

many organizations are adopting a strategy of continuous learning.

They encourage employees to learn new skills continually to be

innovative and to try new processes and work methods in order to

achieve the strategic business objectives of the organization.

While there is little opposition to the premise that organizational

learning is a competence that all organizations should develop in fast-

changing and competitive environments (Prahald and Hamel, 1994;

Senge, 1990; Nonaka, 1991; Garvin, 1993), most literary works have

not clearly linked organizational learning with sustainable competitive

advantage, as is the case with intellectual capital (knowledge-based

resources) using resource-based view of the firm. However, resource-

based theory puts more emphasis on the linkage of resources and

capabilities to sustainable competitive advantage and a firm‘s

performance than on the development of these resources and

capabilities.

7.6 Research gap

Most companies are organised on functional lines such as marketing,

finance, operations, and have narrow views about their contribution to

the competitiveness of the whole organization and the country‘s

economy. Competitiveness comes through an integrated effort across

different functions and hence, has close linkage with strategy process.

Competitiveness strategies are broadly based, recognizing the need to

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upgrade performance across the entire economy, not just the export-

oriented sectors

Lack of proper infrastructure and insufficient IT-enabled units are

hampering the growth of the sector. Intense competition has gripped

the industry in recent years with major world players entering the

market bringing better technology and experience. Therefore the study

on competitiveness of firms in the industry in domestic market, in the

present state is important.

Researchers of competitiveness often consider manufacturing or high-

tech export industries. The shrinking domestic market, failure to

capture a reasonable share of the international market, high

unemployment of capable workers as well as young graduates, and

high rate of business failure are symptoms of the bigger problem of

declining competitiveness. The link between competitiveness and the

problems of the industry and firm are poorly understood.

There were some studies and research conducted on auto component

industry.

A study by John Humphrey, (1999) was conducted on

Globalisation and Supply Chain Networks: the Auto Industry in

Brazil and India. It was a broad study on the auto industry of

Brazil and India with related to the supply chain aspect of the

industry.

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A research was conducted by Rajesh K. Singh, Suresh K. Garg

and S.G. Deshmukh, on Strategy development for

competitiveness: a study on Indian auto component sector. In

their research paper they studied the auto component sector of

India.

In their research paper Vipan Kumar, Sandhya Wakdikar,

Rammi Kapoor (2007) on Globalization and Competitiveness of

Indian Auto Component Industry SMEs and globalization: A

Delhi Automotive Study, focus was made on the SME‘s of Delhi

region.

Michael porter (1997), How competitive force shape strategy,

Harvard Business Review, linked competitiveness with strategy

development.

Heri Bezic, Katija Vojvodic and Nelojsa Stojcic (2010) ―Export

competitiveness, firm behaviour and obstacles for doing

business‖. The regulatory context, firm behaviour and the

intensity of competition are among the factors that have an

impact on a country‘s export competitiveness. The objective of

this paper is to emphasis the relationship between different

factors affecting the export competitiveness.

Thus, after understanding and analysing the gap based on the current

literature a study on strategy development for export growth and

competitiveness in Indian auto component manufacturers with

reference to auto component units in Aurangabad, Nasik and Pune is

undertaken to understand the aspects.

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CHAPTER 8 : OBJECTIVES OF THE RESEARCH

225

CHAPTER 8

OBJECTIVES OF THE RESEARCH

8.1 The purpose of this study is to analyse different aspects of

sustainable competitiveness relating to the Indian auto component

sector, set within a globalised economy.

It examines the strategies adopted for quality improvement, cost

reduction, investment and competency development. The data for the

research was collected from three auto component clusters. They are

Pune, Aurangabad and Nasik.

8.2 Statement of Objectives

To study the major areas of strategy development by auto

component manufacturers for improving competitiveness in

globalised market.

To study the strategies to enhance export growth in auto


To study the key factors of strategy development for auto

component manufacturers export competitiveness.

To study the relationship between strategies and the different

factors of competitiveness and export growth wrt auto


Based on the above objectives the following hypothesis were

formulated.

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8.3 Hypothesis

H01 : There is no association between size of the company and export

strategy.

H11 : There is association between size of the company and export

strategy.

H02 : There is no association between period of establishment of the

firm and export strategy.

H12 : There is association between period of establishment of the firm

and export strategy.

H03 : There is no association between ownership pattern and export

strategy.

H13 : There is association between ownership pattern and export

strategy.

H04 : There is no association between number of employees and export

strategy.

H14 : There is association between number of employees and export

strategy.

H05 : There is no effect of strategy development for internal factors for

enhancing competitiveness with respect to productivity and exports.

H15 : There is an effect of strategy development for internal factors for

enhancing competitiveness with respect to productivity and exports.

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H06 : There is no effect of external factors on strategy development for

productivity and exports.

H16 : There is an effect of external factors on strategy development for

productivity and exports.

H07 : There is no association between strategy development for

investment priorities and export competency.

H17 : There is association between strategy development for


H08 : There is no association between competency index and export

competency.

H18 : There is association between competency index and export

competency.

H09 : There is no effect of strategy development for present cost

strategy on export competency.

H19 : There is an effect of strategy development for present cost


H010 : There is no effect of strategy development for present quality


H110 : There is an effect of strategy development for present quality


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H011: There is no association between strategy development for

competitiveness and export competency.

H111 : There is an association between strategy development for


229

CHAPTER 9 : RESEARCH METHODOLOGY

230

CHAPTER 9

RESEARCH METHODOLOGY

Research methodology defines what the activity of research is, how to

proceed, how to measure progress, and what constitutes success. This

research intends to find out the relation between strategy development

at firm level and its output towards competitiveness and export growth.

9.1 Data collection

9.1.1 Secondary research

Secondary data is very important for a start of any research. With the

help of secondary data a researcher can start framing the structure of

the research. Various websites, e-journals and database like EBSCO,

CMIE and Proquest were used to collect secondary data. Various

factors are enlisted based on the primary source findings.

9.1.2 Pilot study

Interviews of 25 auto component manufacturers were conducted as a

pilot study to actually understand the relevance of the secondary data

analysis. In the interview detailed information of the auto component

industry was collected to understand their strengths and problems.

9.2 Primary Research

A detailed questionnaire was prepared to collect the information from

the targeted companies. Data was collected from three different auto

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clusters. Appointments were taken and discussions were made

regarding the expected information. Then questionnaires were filled

immediately.

Competitiveness of an organisation can be influenced by external as

well as internal factors. Internal factors are material and energy prices,

quality of manpower, R&D and technical capabilities, logistic

management and other processes whereas external factors are

potential new entrants, substitute product, bargaining power of the

buyers and bargaining power of suppliers (Porter, 1998). In addition to

this, other factors may be government policies, capital resources,

availability of technical manpower and infrastructure of roads,

communication and energy.

The questionnaire was framed in the following manner:

Initial part of the questionnaire had questions on the company related

information and demographic information.

The second part of the questionnaire had questions regarding focus on

following main groups. Questions were framed in a structured manner

and expected answers were collected based on the opinions of the

respondent on the 5 point Likert scale. Points were given as follows:

1 – Very low,

2 – Low,

3 – Medium,

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4 – High,

5 – Very high.

Group 1

The question was framed to understand the effect of various

constraints related to internal factors for strategy development on

productivity and export growth. For this purpose internal factors

considered were as below:

Training and development activities

Capacity utilization

Quality consciousness

Financial position

Internal growth conducive environment

Group 2

The question was framed to understand the effect of various

constrains related to external factors for strategy development on

productivity and exports. For this purpose external factors

considered were as below:

Supply of sufficient funds

Availability of technical manpower

Support from the customers

Government support

Vendor development

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Group 3

The question was framed to study the strategy development for

the effect of Investment priorities on export competency.

The investment priorities considered for export competency are as

below:

R & D

Automation process

Training of employees

Welfare of employees

Market research activities

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Group 4

The question was framed to understand different variables of

strategy development for the effect of Competency index on

export competency. The factors for competitive index considered are

as below:

R & D

Changing in Target market

Adoption of technology

Marketing budget

Strategic alliance

Employee stability

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Group 5

The question was framed to understand the effect of Present cost

strategy on export competency. The cost strategies considered are

as below:

Reduction of inventory level

Rejection rate (parts per million)

Automation

Vendor development

Group 6

The question was framed to understand the effect of Present

quality strategy on export competency. The strategies for quality

considered are as below:

Maintenance

Improve product design

R & D

Employees training

Group 7

The question was framed to study the areas of strategy

development for Competitiveness on export competency. The

areas of competency development considered are as below:

Identify niche markets

New product development

235

Optimum utilization of resources

Introduce new development

Use information to optimize decision making

Identify market changes

Sample is selected on the basis of concentration of auto component

industries mainly in Pune, Nasik and Aurangabad in the western region

of the country. These areas have district level clusters. Questionnaires

were filled in by the companies in these clusters. Given below is the

detail of number of companies from whom the questionnaire was duly

filled for the research.

Table 9.1

Sample size

Area covered No. of respondents covered

Pune 250

Aurangabad 150

Nasik 50

Total 450

9.3 Data analysis

Data was analysed with the help of SPSS software. Data was analysed

on the basis of clusters.

236

The statistical tools were applies on all the three clusters separately.

Statistical tools like frequency distribution, mean values,

standard deviation are used to describe the profile of the

responding companies like:

- Cluster,

- Size of the company,

- Nature of ownership of the company

- Number of employees in the company

- Export level of the company, etc

Statistical Tools like Chi-square test and ANOVA were used to

test the hypothesis. With the help of Chi square test the relation

of variables to other determined variables of the hypothesis was

tested. If in this test the results rejected the null hypothesis then

ANOVA was used to test the hypothesis further. ‗t‘ test was also

used to compare the performance of the three clusters with each

other.

9.4 Limitations of the study

- The data didn‘t consider the large scale auto component industry so

researchers have a scope to study in that area.

- The area covered in the research is concentrated to Pune, Aurangabad

and Nasik cluster. Further research can be done on various other

regional clusters.

237

CHAPTER 10 : DATA ANALYSIS AND FINDINGS

238

CHAPTER 10

DATA ANALYSIS AND FINDINGS

10.1 Selection of sample

Auto component manufacturers are in different regions of India in

clusters. It can be classified as Northern cluster, Eastern cluster,

Southern cluster and Western cluster.

Figure 10.1

239

For the purpose of the research the Western auto cluster is considered.

In Western zone the auto component manufacturers are mainly located

in Pune, Aurangabad and Nasik. So, on this basis these areas are

selected for data collection.

Figure 10.2

Source : ACMA

10.1.1 Pune Cluster

Pune‘s development lies mainly in the city‘s auto sector. Auto sectors

and auto component sectors gather around 50% of the total

investments coming into this region. In the Pune auto cluster, presently

there are around 500 Small and Medium Enterprises (SMEs) that

produce auto components. The yearly turnover of this cluster is

approximately Rs 10,000 crores (excluding automobile majors like

Kinetic Engineering, Bajaj Tempo, Bajaj Auto & Tata Motors).

240

The major products from the Pune cluster are clutch components, gear

components, brake components, shafts, axles, valves, engine

components, electrical components, etc. The cluster uses raw

materials like rubber, plastic and metals. There are many support

institutions for the cluster from educational sector, research sector, IT

sector and more.

In an initiative under the IIUS scheme for the Auto Cluster in Pune,

there are some support facilities that are planned. These are the Auto

Electronics Center, that will have an R&D lab and a common testing

facility; CAD\CAM Center which will have a rapid prototyping facility, a

common facility center, power back up facility and CNC machining

center and new infrastructure facilities like fiber optic connectivity, solid

waste disposal, CETP, wireless communication facility and market

development facility.

All the auto components manufacturers including rubber and polymer

associations have joined hands in the promotion and development of

this cluster.

10.1.2 Aurangabad cluster

There are 650 Nos units engaged in manufacturing auto component.

These units are further classified in different tier and according to

manufacturing process.

241

Auto Component manufactures in this area exhibit their potential, skill

& competence, knowledge, experience to meet the requirement of

OEM‘s.

Also based on potential and strength this cluster could bring attention

of big Automobile giants in the world to start venture. Some of the

advantages this region had in attracting auto component industry are:

Aurangabad has been producing a large pool of intellectual work force

& trained hard working industrial labour. State Govt. policies have

emphasis towards this region as industrial up-coming area and Socio-

cultural environment, Very strong base of Technocrats & workforce as

first generation entrepreneurs. As Aurangabad City is 230 Kms away

from Pune, which is a Hub of Automobile manufacturer has very good

access to MIDC Pune, Ranjangaon Chakan, Talegaon etc., good road

infrastructure between two cities making transportation and

conveyance widely available.

Several successful Industrial homes like Bajaj Auto Ltd., CEAT Tyres,

Garware Polymers, Videcon appliances, Colgate, Siemens, Crompton

Greaves has their existence since last 20 years. Skoda INDIA, (Skoda,

Czechoslovakia) auto giant has their assembly plant in five star

Shendra MIDC area, and Skoda India is likely to expand their base in

this area to introduce other car models (D Segment Cars) and have

already acquired land for the same project.

10.1.3 Nasik cluster

242

Nasik is one of the fastest growing cities of India and has even been

identified as a tier-2metro. The city‘s economy is driven chiefly by the

engineering and manufacturing industry (which has been around since

the seventies). Auto majors such as Mahindra & Mahindra, BOSCH

and Original Equipment Manufacturers (OEMs) etc have their plants

here and have spawned a huge network of auto component suppliers

and engineering ancillary services.

The concept of industrial cluster has recently taken roots in Nashik.

After Crompton Greaves and Confederation of Indian Industry (CII) this

is the third cluster of SMEs in the Nashik industrial area. The Nashik

Industries and Manufacturers‘ Association (Nima) decided to form an

auto cluster of small & medium enterprises (SMEs) in the Nashik

region to make the local auto industry competitive globally.

Auto majors such as Mahindra and Mahindra have supported the

initiative. The cluster helps local auto ancillary manufacturers to

standardise manufacturing norms and processes, minimise production

costs and to make their business competitive.

The cluster is formed under Industrial Infrastructure Upgradation

Scheme (IIUS) of the central government he said. Under the scheme,

the government gives 75 per cent financial assistance of the total

project cost, subject to a ceiling of Rs 50 crore.

Fifteen per cent of the total project cost is financed by the stake-

holders of the related cluster, while the rest amount (10 per cent) is

contributed by the local authority.

243

10.2.1 Data collection (Pune Cluster)

The data for the research was collected from three auto component

clusters. They are Pune, Aurangabad and Nasik. The data was

collected from auto component manufacturers mainly from Tier l,Tier Il

& Tier IIl.

The hypothesis are tested with Pearson Chi-square test and ANOVA

wherever applicable.

Pune cluster forms a major portion followed by Aurangabad and Nasik.

The data was collected with a questionnaire designed to draw proper

statistical inferences. For the research data was collected from 250

companies. The information of companies selected from Pune clusters

profile is as below:

Companies having ISO certification were 180, companies with TS

certification and companies having other certifications were 33.

From 250 companies there were 90 companies who didn‘t export any

of their products, 74 companies had low export activities (Table

10.1.1.a) i.e. exports below 25% of their turnover, 59 companies had

medium export activities i.e. exports between 25% to 45% of their

turnover and 27 companies had exports of above 45% of their turnover.

Other data is grouped according to the impact factor created on the key

variables. The SPSS results are enclosed in annexure.

244

H01 : There is no association between size of the company and

export strategy.

Companies considered for the research are of 2 types. Size of the

company is classified as Small and medium Enterprise (SME) and

Medium enterprise (ME). This hypothesis is framed to find out that

does the size or scale of the company one of the factor which supports

exports. The hypothesis is tested against the size of the company and

its association with the export activity.

To test the above hypothesis Pearson chi-square test is applied and

the result of the test is as follows:

Calculated Chi-square value : .101

Degree of Freedom : 3

Table Value : 7.82

Result of Test : Accepted

The Chi-square calculated value is (.101) is less than the table value

(7.82) (Table 10.1.1.b). This indicates that the Null Hypothesis (H01) is

accepted that is: There is no association between size of the

company and export strategy.

H02 : There is no association between period of establishment of

the firm and export strategy.

245

This hypothesis considers the association of the period in which the

companies are established with exports. This hypothesis was frames to

analyse the association of the age of the firm and the export activity.

The period of establishment is grouped as companies established

before 1990, companies established in the period of 1990 – 2000 and

companies established after 2000. To test the above hypothesis chi-

square test is applied and the result of the test is as follows:

Calculated Chi-square value : 9.198


Table Value : 12.59


The Chi-square calculated value is (9.198) is less than the table value


accepted that is: There is no association between year of

establishment of the company and export strategy.

H03 : There is no association between ownership pattern and

export strategy.

This hypothesis considers the association of ownership pattern with

exports. The ownership pattern is classified as Proprietary, Partnership

and Private limited companies. This hypothesis is framed to analysis

whether nature of ownership is a determinant for exports

246

To test the above hypothesis chi-square test is applied and the result of

the test is as follows:



Table Value : 12.59

Result of Test : Rejected

The Chi-square calculated value is (32.465) is more than the table

value (12.59) (Table 10.1.3.b). This indicates that the Null Hypothesis

(H03) is rejected that is: There is an association between ownership

pattern and export strategy.

Anova

As the above Null Hypothesis got rejected, the study was set to have

ANOVA table and F- test in order to ascertain the Score of association

between the ownership pattern and export strategy.

Null Hypothesis H03 : There is no association between ownership


For testing the above Null Hypothesis ownership distribution were

tested by ANOVA technique the result are shown in the table below:

Calculated Value of F-test : 4.994

Table Value of F-test at 3% l.o.c. : 3.00

247


The above table indicates that the calculated F-value (4.994) is more

than table value (3.00) at 5% level of significance (Table 10.1.3.c). This

indicates that Null Hypothesis (H03) is rejected that is: There is an

association between the ownership pattern and export strategy.

H04 : There is no association between number of employees and

export strategy.

This hypothesis considers the association of number of employees in

the companies established with exports. The hypothesis is framed to

study the effect of number of employees at different level on the export

activity. The number of employees is catagorised as companies having

employees below 100, companies having employees between 101 to

200, companies having employees between 201 to 300 and companies

having employees above 301. To test the above hypothesis chi-square

test is applied and the result of the test is as follows:



Table Value : 12.59




248

(H04) is rejected that is: There is an association between the number

of employees and export strategy.

Anova



between the number of employees and export strategy.

Null Hypothesis H04 : There is no association between number of

employees and export strategy.

For testing the above Null Hypothesis employees distribution were








association between the number of employees and export

strategy.

H05 : There is no effect of strategy development for internal factors

for enhancing competitiveness w.r.t productivity and export.

249

The internal factors considered as factors for productivity and exports

are as below:

Constraints




Financial position






Table Value : 12.59




(H0) is rejected that is: There is an effect of strategy development

for internal factors for enhancing competitiveness w.r.t

productivity and export.

250

Anova



between internal factors on productivity and exports.

Null Hypothesis H05 : There is no effect of internal factors on

productivity and export strategy development.







than table value (3.00) at 5% level of significance. This indicates that

Null Hypothesis (H05) is rejected that is: There is an effect of strategy

development for internal factors for enhancing competitiveness

w.r.t productivity and export. Internal factors like training and

development activities, capacity utilization, quality consciousness,

financial position and internal environment do affect productivity and

exports.

H06 : There is no effect of external factors on strategy

development for productivity and export.

251

The external factors considered are as below:

Constraints




Government support

Vendor development





Table Value : 12.59




(H06) is rejected that is: There is an effect of external factors on

strategy development for productivity and export.

Anova

252



between the external factors on productivity and export strategy

development.

For testing the above Null Hypothesis external factors were tested by

ANOVA technique the result are shown in the table below:







effect of external factors on strategy development for productivity

and export. External factors like supply of sufficient funds, availability

of technical manpower, support from the customers, government

support and vendor development does affect productivity and export

strategy development.



The investment priorities considered are as below:

Constraints

253

R & D

Automation process




Advertisement





Table Value : 12.59




accepted that is: There is no association between strategy

development for investment priorities and export competency.

H08 : There is no association between competency index and

export competency

254

The factors for competitive index considered are as below:

Factors for competitive index

R & D



Marketing budget

Strategic alliance

Employee stability





Table Value : 12.59




accepted that is: There is no association between competency

index and export competency

255



The factors for cost strategy considered are as below:

Cost strategy



Automation

Vendor development





Table Value : 12.59





for present cost strategy on export competency.

256

Anova



between present cost strategy on export competency.

Null Hypothesis H09 : There is no effect of strategy development


For testing the above Null Hypothesis cost strategies were tested by








effect of strategy development for present cost strategy on export

competency. The factors like reduction of inventory level, rejection

rate, automation and vendor development do contribute to export

competency.

H010 : There is no effect of strategy development for present

quality strategy on export competency.

The strategies for quality considered are as below:

257

Strategies

Maintenance


R & D

Employees training





Table Value : 12.59



(12.59) (Table 10.1.10.b). This indicates that the Null Hypothesis (H010)

is accepted that is: There is no effect of strategy development for

present quality strategy on export competency.


competitiveness and export competency

The areas of competency development considered are as below:

258

Areas











Table Value : 12.59




(H011) is rejected that is: There is an association between strategy

development for competitiveness and export competency.

Anova

259



between competitiveness and export competency

Null Hypothesis H011 : There is no association between strategy


For testing the above Null Hypothesis factors for competitiveness were

tested by ANOVA technique the result is shown in the table below:





than table value (3.00) at 5% level of significance (Table 10.1.11.c) .

This indicates that Null Hypothesis (H011) is rejected that is: There is

an association between strategy development for competitiveness

and export competency.

10.2.2 Aurangabad cluster

The hypothesis are tested with Pearson Chi-square test and ANOVA

wherever applicable.

The data was collected with a questionnaire designed to draw proper

statistical inferences.

260

For the research data was collected from 150 companies. The

information of companies selected from Pune clusters profile is as

below:

The information of companies selected from Aurangabad clusters

profile is as below:

Companies having ISO certification were 180, companies with TS

certification and companies having other certifications were 33.

From 150 companies there were 46 companies who didn‘t export any

of their products, 24 companies had low export activities i.e. exports

below 25% of their turnover, 64 companies had medium export

activities i.e. exports between 25% to 45% of their turnover and 16

companies had exports of above 45% of their turnover.


variables.


export strategy.

The hypothesis is tested against the size of the company and its

association with the export activity. Size of the company is classified as

Small and medium Enterprise (SME) and Medium enterprise (ME)




261


Table Value : 7.82



(7.82.) (Table 10.2.1.b). This indicates that the Null Hypothesis (H01) is

accepted that is: There is no association between size of the





companies are established with exports. The period of establishment is

grouped as companies established before 1990, companies

established in the period of 1990 – 2000 and companies established

after 2000. To test the above hypothesis chi-square test is applied and




Table Value : 12.59




262

(H02) is rejected that is: There is association between year of


Anova



between year of establishment and exports.

Null Hypothesis H02 : There is no association between year of


For testing the above Null Hypothesis year of establishment distribution

were tested by ANOVA technique the result are shown in the table

below:

Calculated Value of F-test : .004



The above table indicates that the calculated F-value (.004) is less than

table value (3.00) at 5% level of significance (Table 10.2.2.c). This

indicates that Null Hypothesis (H02) is accepted that is: There is no

association between year of establishment of the company and

export strategy.


export strategy.

263



and Private limited companies.





Table Value : 12.59






Anova



between the ownership pattern and exports.



For testing the above Null Hypothesis ownership pattern was tested by


264







association between ownership pattern and export strategy.


export strategy.


the companies established with exports. The number of employees is

catagorised as companies having employees below 100, companies

having employees between 101 to 200, companies having employees

between 201 to 300 and companies having employees above 301. To

test the above hypothesis chi-square test is applied and the result of




Table Value : 12.59


265



(H04) is rejected that is: There is an association between the number

of employees and export strategy.

Anova



between the number of employees and exports.

Null Hypothesis H04 : There is no association between number of










association between the number of employees and export

strategy.

266



The internal factors considered are as below:

Constraints




Financial position


These factors were measured on 5 point likert scale.





Table Value : 12.59




267

accepted that is: There is no effect of strategy development for

internal factors for enhancing competitiveness w.r.t productivity

and export.




Constraints




Government support

Vendor development





Table Value : 12.59


268





Anova


ANOVA table and F- test in order to ascertain the Score of effects of

external factors on productivity and exports

Null Hypothesis (H06): There is no effect of external factors on











and export.

269


investment priorities and export competency


Constraints

R & D

Automation process




Advertisement





Table Value : 12.59




270




export competency



R & D



Marketing budget

Strategic alliance

Employee stability





Table Value : 12.59


271


(12.59) (Table 10.2.8.b) . This indicates that the Null Hypothesis (H08)

is accepted that is: There is no association between competency

index and export competency.



The cost strategies considered are as below:

Cost strategy



Automation

Vendor development





Table Value : 12.59


272





Anova


ANOVA table and F- test in order to ascertain the Score of effects of

present cost strategy on and exports



For testing the above Null Hypothesis present cost strategies were








effect of strategy development for present cost strategy on export

competency.

273




Strategies

Maintenance


R & D

Employees training





Table Value : 12.59






274




Areas











Table Value : 12.59




275



Anova













indicates that Null Hypothesis (Ho) is accepted that is: There is no

association between strategy development for competitiveness

and export competency.

10.2.3 Nasik cluster

276

The information of companies selected from Nasik clusters profile is as

below:

From 50 companies there were 8 companies who didn‘t export any of

their products, 18 companies had low export activities i.e. exports

below 25% of their turnover, 18 companies had medium export

activities i.e. exports between 25% to 45% of their turnover and 6

companies had exports of above 45% of their turnover.


variables.


export strategy.

The hypothesis is tested against the size of the company and its

association with the export activity. Size of the company is classified as

Small and medium Enterprise (SME) and Medium enterprise (ME)





Table Value : 7.82


277


value (7.82.) (Table 10.3.1.b). This indicates that the Null Hypothesis

(H01) is rejected that is: There is an association between size of the


Anova



between size of the company and export strategy.

Null Hypothesis H01 : There is no association between the size of

the company and export strategy.

For testing the above Null Hypothesis size of the company were tested

by ANOVA technique the result are shown in the table below:







association between the size of the company and export strategy.



278


companies are established with exports. The period of establishment is

grouped as companies established before 1990, companies

established in the period of 1990 – 2000 and companies established

after 2000. To test the above hypothesis chi-square test is applied and




Table Value : 12.59




(H02) is rejected that is: There is association between year of

establishment of the company and export strategy

Anova



between the year of establishment and exports.

Null Hypothesis H02 : There is no association between year of


279

For testing the above Null Hypothesis year of establishment were





The above table indicates that the calculated F-value (2.840) is less



association between year of establishment of the company and

export strategy.


export strategy.



and Private limited companies.





Table Value : 12.59


280


value (12.59) (table 10.3.3.b). This indicates that the Null Hypothesis



Anova



between the ownership pattern and exports.



For testing the above Null Hypothesis ownership pattern was tested by








association between ownership pattern and export strategy.


export strategy.

281


the companies established with exports. The number of employees is

catagorised as companies having employees below 100, companies

having employees between 101 to 200, companies having employees

between 201 to 300 and companies having employees above 301. To

test the above hypothesis chi-square test is applied and the result of




Table Value : 12.59




accepted that is: There is no association between the number of




The internal factors considered are as below:

Constraints


282



Financial position






Table Value : 12.59







Anova



between the internal factors on productivity and exports.

283




For testing the above Null Hypothesis internal factors were tested by








effect of strategy development for internal factors for enhancing

competitiveness w.r.t productivity and export.




Constraints



284


Government support

Vendor development





Table Value : 12.59






Anova



between the external factors on productivity and exports.

Null Hypothesis H06 : There is no effect of external factors on


285










and export.




Constraints

R & D

Automation process




286

Advertisement





Table Value : 12.59







export competency



R & D



287

Marketing budget

Strategic alliance

Employee stability





Table Value : 12.59




accepted that is: There is no association between competency

index and export competency



The cost strategy considered is as below:

Cost strategy


288


Automation

Vendor development





Table Value : 12.59




accepted that is: There is no effect of strategy development for

present cost strategy on export competency.




Strategies

Maintenance

289


R & D

Employees training





Table Value : 12.59









Areas


290










Table Value : 12.59






Anova




291









than table value (3.00) at 5% level of significance (Table 10.3.11.c).

This indicates that Null Hypothesis (H011) is accepted that is: There is

no association between strategy development for


„T‟-test

Pune cluster and Nasik cluster (Table 10.4.1)

‗T‘-test was done to calculate whether there is a significant difference

between Pune cluster and Nasik cluster. The calculated value is 7.48

and table value is 1.65.

There is significant difference between mean export of Pune and Nasik

cluster. Mean export of Pune cluster is significantly greater than mean

export of Nasik cluster.

Pune and Aurangabad (Table 10.4.2)

292


between Pune cluster and Aurangabad cluster. The calculated value is

16.62 and table value is 1.65.

There is significant difference between mean export of Pune and

Aurangabad cluster. Mean export of Pune cluster is significantly

greater than mean export of Aurangabad cluster.

Nasik and Aurangabad (Table 10.4.3)


between Nasik cluster and Aurangabad cluster. The calculated value is

10.76 and table value is 1.65.

There is significant difference between mean export of Nasik and

Aurangabad cluster. Mean export of Nasik cluster is significantly

greater than mean export of Aurangabad cluster.

293

CHAPTER 11 : CONCLUSION

294

CHAPTER 11

CONCLUSIONS

After testing and analysing the data analysis we can say that for Pune

and Aurangabad the size of the company doesn‘t have any effect on

export strategy development. Companies in Nasik cluster shows that

there is an association between the size of the company and export

strategy development. Comparatively the medium enterprises were

more into export operations.

It is also concluded that there is no association between the year of

establishment of the company and export strategy development for any

of the above three clusters. The old as well as new companies were

into export operations.

There is no association between the ownership pattern and export

strategy for Aurangabad cluster. Pune cluster and Nasik cluster has an

association between the ownership pattern and export strategy.

Companies owned by partnership and private ltd were exporting more

than the companies owned by a proprietor.

There is an association between number of employees and export

strategy for Pune cluster. The units which were having more

employees were exporting more compared to units with less

manpower. For Aurangabad and Nasik there is no association between

number of employees and export strategy.

295

Internal factors like training and development activities, capacity

utilization, quality consciousness, financial position and internal

environment does affects productivity and exports for Pune and Nasik

cluster.

External factors like supply of sufficient funds, availability of technical

manpower, support from the customers, government support and

vendor development does affects productivity and export strategy

development for Pune and Nasik cluster.

There is no association between investment priorities and export

competency for any cluster.

There is no association between factors of competency index and

export competency.

The factors like reduction of inventory level, rejection rate, automation

and vendor development do contribute to export competency for Pune

cluster. For Aurangabad and Nasik cluster it has no effect.

For all the clusters there is no effect of strategy development for quality

related factors on export competency.

There is an association between the factors of strategy development

for competitiveness and export competency for Pune cluster.

Companies who consider the factors to develop competitiveness and

exports are more successful than those who don‘t consider the factors.

Same strategy development can be developed which can help in

competitiveness as well as generate growth in exports.

296

Other than the above conclusions it has been observed that Quality

and standards have positive significant impacts on competitiveness.

Hence, the government should encourage and facilitate the auto-

component firms in improving their quality and standards, by means of

training programmes. All firms covered in the study recognise the

importance of quality and standards in being competitive.

The Government should encourage and support schools and

universities to collaborate with the industry to come up with short and

industry relevant courses. This will help the industry meet the

requirements of technically qualified and trained manpower needed for

its ambitious growth and realization of the potential of the sector.

Auto-component firms need to be more proactive, by engaging

themselves in foreign collaborations and investments abroad. They

could even go for acquisitions abroad, as some firms, have done

successfully to enhance their brand image, technologies and market

access. For a firm, it is necessary that it defines competitiveness as per

its strategy. A systematic evaluation of competitiveness will be of great

help to firms.

297

CHAPTER 12 : RECOMMENDATION

298

CHAPTER 12

RECOMMENDATIONS

Recommendations for strategy development for enhancing

competitiveness

R&D expenditure should be more which is observed low in the

auto-component companies which were considered for the

study. Most of the small scale auto-component firms and a few

of the medium scale ones do not have an in-house R&D facility.

It is been observed that R & D is one of the major factor for

measuring competitiveness in auto component companies,

especially because of increase in competition and growing

needs of customers. It is also an important strategy which

improves quality. So companies need to focus for proper

strategy development of R & D activity. Companies can also set

up combined R & D department which can be product wise for

the clusters.

Majority of the companies in the research have the problem of

under utilisation of its production capacity which they have to do

to avoid breakdown. Many companies have same requirement

of machinery and technology. Strategy development for

resource sharing for costly machinery with companies in cluster

may also be considered. It will reduce the financial burden and

299

proper utilisation of unused resources will be done. They can

share it with other companies for optimum utilisation.

Benchmarking should be done with the companies having good

growth. This will motivate the companies and will keep them

competitive from time to time.

Smaller auto component firms covered in our study, reported

that the major constraint for them for growth is lack of credit

availability. Hence improving credit availability is critically

important for auto-components.

It has been observed that firms that produce more than one

product have significantly higher market share and are more

sustainable in market than those that produce just one product.

This is because the extra product acts as a buffer against any

problem. Hence, product diversification also enhances

competitiveness. So strategy development to increase the

number or products should be considered.

Use of latest technology machines helps to compete in the

global market. Strategy should be developed to upgrade the

technology from time to time to be competitive in the global

market.

There are many companies who rate the companies. There

should be awareness created among companies about the need

for getting credit worthiness rating done. It helps to prove the

companies superior then competitors. Hence, strategy

300

development to go in for rating should be done. It has a positive

factor for growth and competitiveness.

Venture Capital Limited can help Indian auto component

industry to acquire high-end technology and manufacturing

facilities outside India which will help the companies to compete

with the developed countries.

Expansion and diversification will help enter into new untapped

markets. It would be difficult for these SME‘s companies, which

are largely based on traditional management practices and

limited resources. The SMEs can exploit these opportunities by

developing strategies like joint ventures, collaboration and

technical tie ups.

Workforce need to change their attitude to increase productivity.

The companies should conduct motivational workshops for the

employees as they are the major factor of production.

Recommendations for strategy development for export growth

Companies must keep a track of technologies being used in the

international market. Use of latest technology is also an

important factor for competitiveness and export. To use latest

technology there are major two problems faced by the

component manufacturers. First problem is of upgradation with

latest technology. Usually latest technology needs to be

imported. It can be solved be having technical collaborations

301

with international technology leaders. Second problem is getting

skilled workforce to use the technology. It requires willingness

and money for training the workforce. It can be done by the

company by providing various resources in-house or by sharing

it with the cluster.

Focus on niche segments and niche export markets is an

innovative marketing strategy. The markets which are old are

saturated so there is a need to search for a new market. The

less developing markets can be a good option as not many local

competitors will be there. The companies can set up their own

manufacturing unit at a cheaper price.

Focus on increase of automotive vehicles is also requires. The

growth of auto component industry is directly dependent upon

the sale of automotives. This in return will be a market for the

auto components also.

Number of accredits such as ISO 9000 has a significant positive

effect on market share. It increases the quality of the product.

There is a sense of confidence developed which in turn

increases exports also.

Strategies should be developed to create awareness among the

smaller companies about the need for building currency

fluctuation clause in their medium and long-term contracts with

the customers.

302

The companies need to create awareness about the need to

diversify the client base and the need for doing business in

different and more stable currencies.

Companies should identify products where there is continued

aftermarket demand for older technologies, even though the

original equipment market has moved forward.

303

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343

ANNEXURES

344

Questionnaire

Q 1) Name of company :

Q 2) Name of cluster :

Q 3) Type of company

SME ME

Q 4) Compliance and Standard followed

- TS 16949

- ISO 9000

- Others

Q 5) Year of establishment

Q 6) Type of company

Partnership Private Ltd Public limited

Q 7) Details of employees in the company

Qualification

Employees

PhD/CA/MBA

Graduate Engineers

Diploma Engineers

ITI and Vocational courses

Graduate (BA/B.Com/B.Sc)

345

12th and Below

Total

Q 8) Does your company export any products?

Yes No

Q 9) What is the percentage of export to total production?

- 0% - Less than 25% - 25% to 50% - 50% to 75% - Above 75%

Q 10) Name the product which you are exporting.

Q 11) Countries to which exports are made?

Q 12) What are the various issues faced by Auto component

manufacturers in strategy development on productivity and export

growth.

Issues Very

Low

Low Moderate High Very

high

A Training and

development activities

B Capacity utilization

C Quality consciousness

D Financial position

E Internal growth

conducive environment

F Supply of sufficient

funds

346

G Availability of technical

manpower

H Support from the

customers

I Government support

J Vendor development

Q 13) What are the areas of strategy development w.r.t investment

priorities to enhance export competency?

Investment type Very

Low


high

A Research and

Development

B Automation of process

C Training of employees

D Welfare of employees

E Market Research activities

F Advertisement

Q 14) What are the variables of strategy development for enhancing

competitiveness?

Variables Very

Low


high

A Research and

development

B Changing in target

market

C Adoption in changes

347

D Marketing budget

E Strategic alliances

F Employee Stability

Q 15) What are the strategies related to cost and quality to enhance

export growth?

Strategies Very

Low


high

A Reduction of inventory

B Rejection/rework rate

(parts per million)

C Automation

D Vendor development

E Maintenance

F Improvement product

design

G Research and

Development

H Employee training

Q 16) Which are the areas of strategy development for competency

development on export growth?

Areas Very

Low


high

A Identify niches

B Develop new products

348

C Optimize work

environment

D Introduce new

technology

E Use information to

optimize decision

F Identify market

changes

Q 17) What are the other problems faced by your company?

Q 18) What strategies do you use other than the above mentioned

strategies for export competitiveness?

349

DATA ANALYSIS (SPSS TABLES)

350

Results of Pune Cluster

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Internal_support_score 250 30.00 80.00 51.5800 10.18915

External_support_score 250 33.33 76.67 54.7333 8.58820

Investment_priorities_score 250 30.00 143.33 53.1467 9.82492

Competency_development_score 250 30.00 73.33 50.1467 8.14997

Present_cost_strategy_score 250 40.00 85.00 63.4600 6.86417

Present_quality_strategy_score 250 20.00 50.00 35.6200 7.16386

Copititiveness_score 250 36.67 83.33 58.3467 9.21869

Valid N (listwise) 250



SME_group1 155 30.00 75.00 49.6129 9.64526

SME_group2 155 33.33 73.33 52.4943 8.59211

SME_group3 155 30.00 143.33 53.3114 10.79433

SME_group4 155 33.33 73.33 50.4086 8.43751

SME_group5 155 40.00 85.00 63.7097 7.27116

SME_group6 155 20.00 50.00 35.2258 6.86942

351

SME_group7 155 36.67 80.00 55.5915 9.02107

Valid N

(listwise)

155



ME_gorup1 95 35.00 80.00 54.7895 10.28622

ME_group2 95 40.00 76.67 58.3855 7.25882

ME_group3 95 33.33 73.33 52.8768 8.04290

ME_group4 95 30.00 70.00 49.7197 7.68247

ME_group5 95 45.00 75.00 63.0526 6.15814

ME_group6 95 20.00 50.00 36.2632 7.61327

ME_group7 95 50.00 83.33 62.8420 7.67192




Proprietory_group1 42 30.00 70.00 50.3571 9.58867





352






Partnership_group1 57 30.00 80.00 49.4737 10.16314










Private_ltd_group1 151 30.00 75.00 52.7152 10.25890




353





N

Minimum Maximum Mean Std. Deviation

Before_1990_group1 100 30.00 75.00 52.8000 9.27471

Before_1990_group2 100 33.33 73.33 56.4995 8.27938

Before_1990_group3 100 36.67 70.00 52.1665 7.80483

Before_1990_group4 100 33.33 66.67 49.3002 7.49567

Before_1990_group5 100 40.00 85.00 63.4500 7.61096

Before_1990_group6 100 25.00 50.00 35.9000 6.75622

Before_1990_group7 100 36.67 83.33 58.1001 9.20210




Between_1990_2000_group1 74 30.00 75.00 51.2162 10.87950

Between_1990_2000_group2 74 33.33 76.67 52.6119 9.41634

Between_1990_2000_group3 74 30.00 70.00 51.8011 7.92274

Between_1990_2000_group4 74 30.00 73.33 50.3153 9.18549

354

Between_1990_2000_group5 74 50.00 75.00 63.7162 5.55550

Between_1990_2000_group6 74 20.00 50.00 35.0676 6.10935

Between_1990_2000_group7 74 36.67 80.00 57.2972 9.34207




After_2000_group1 76 30.00 80.00 50.3289 10.59357

After_2000_group2 76 36.67 76.67 54.4737 7.70884

After_2000_group3 76 33.33 143.33 55.7453 13.00227

After_2000_group4 76 30.00 70.00 51.0967 7.89553

After_2000_group5 76 45.00 80.00 63.2237 7.05710

After_2000_group6 76 20.00 50.00 35.7895 8.56554

After_2000_group7 76 36.67 80.00 59.6930 9.07888




Very_less_emp_group1 170 30.00 80.00 51.0882 10.21186

355










Less_emp_group1 44 30.00 75.00 52.9545 11.27449

Less_emp_group2 44 43.33 76.67 58.1809 7.06094

Less_emp_group3 44 36.67 66.67 50.9848 8.15166

Less_emp_group4 44 33.33 66.67 49.6975 8.12794

Less_emp_group5 44 50.00 75.00 63.5227 5.76472

Less_emp_group6 44 20.00 50.00 36.0227 6.86917

356

Less_emp_group7 44 36.67 83.33 58.7882 9.43049




Medium_emp_group1 16 45.00 65.00 55.3125 7.18070

Medium_emp_group2 16 46.67 70.00 56.0419 6.80076

Medium_emp_group3 16 43.33 143.33 60.2094 23.01138

Medium_emp_group4 16 40.00 60.00 49.7919 5.76950

Medium_emp_group5 16 50.00 75.00 62.1875 7.73924

Medium_emp_group6 16 25.00 45.00 32.5000 6.32456

Medium_emp_group7 16 46.67 73.33 60.6250 8.45158




Large_emp_group1 20 35.00 65.00 49.7500 9.10104

Large_emp_group2 20 43.33 70.00 54.6660 7.75363

Large_emp_group3 20 33.33 66.67 51.9990 7.52443

Large_emp_group4 20 33.33 66.67 50.6670 10.95480

357

Large_emp_group5 20 55.00 85.00 65.2500 7.51752

Large_emp_group6 20 25.00 45.00 36.7500 7.12206

Large_emp_group7 20 40.00 70.00 53.3330 9.36548




No_export_group1 90 30.00 75.00 48.9444 9.31636

No_export_group2 90 36.67 73.33 55.1851 7.27746

No_export_group3 90 36.67 76.67 52.3703 8.32002

No_export_group4 90 30.00 70.00 48.5181 8.18175

No_export_group5 90 50.00 75.00 62.6667 6.49978

No_export_group6 90 20.00 50.00 35.7222 6.51537

No_export_group7 90 36.67 76.67 59.8148 7.63338




Low_export_group1 84 30.00 70.00 49.9405 9.61594

358

Low_export_group2 84 36.67 76.67 54.2063 8.51996

Low_export_group3 84 30.00 70.00 51.3490 7.71181

Low_export_group4 84 30.00 73.33 49.4845 8.68117

Low_export_group5 84 40.00 85.00 62.6786 7.46261

Low_export_group6 84 20.00 50.00 35.0000 6.49374

Low_export_group7 84 36.67 83.33 57.2223 10.11107




Medium_export_group1 82 30.00 80.00 53.2317 9.79329





medium_export_group6 82 20.00 50.00 35.9756 7.79518



359



High_export_group1 46 30.00 75.00 53.9130 11.29961








Crosstabs

Table 10.1.1.a (Size_of_company * Export_level)

Comparison of contribution made by different size of the

company towards exports

Export_level

High Low Medium No Total

Size_of_company ME 11 28 22 34 95

360

SME 16 46 37 56 155

Total 27 74 59 90 250

Table 10.1.1.b (Association between size of company and export

strategy)

Chi-Square Tests

Value Df

Pearson Chi-

Square

.101a 3

Table 10.1.2.a (Year_of_Estabishment * Export_level)

Association between year of establishment and its effect on

export level

Count

Export_level


Year_of_Estabishment 1990 - 2000 7 20 15 32 74

After 2000 8 18 17 33 76

Before 1990 12 36 27 25 100

Total 27 74 59 90 250

361

Table 10.1.2.b (Association between year of

establishment of the company and export strategy)

Chi-Square Tests

Value Df

Pearson Chi-

Square

9.198a 6

Table 10.1.3.a (Type_of_Company * Export_level)

Count

Export_level


Type_of_Compan

y

Partners 3 14 10 30 57

Private 22 51 44 34 151

Proprietary 2 9 5 26 42

Total 27 74 59 90 250

Table 10.1.3.b (Association of ownership pattern


Chi-Square Test

Value Df

362

Pearson Chi-

Square

32.465a 6

Table 10.1.4.a (Number_of_employees * Export_level)

Export_level


Number_of_employees 101 - 200 7 13 12 12 44

201 - 300 4 6 4 2 16

301 and above 5 8 5 2 20

Below 100 11 47 38 74 170

Total 27 74 59 90 250

Table 10.1.4.b (Association between number of


Chi-Square Test

Value df

Pearson Chi-Square 22.234a 9

N of Valid Cases 250

Crosstabs

363

Table 10.1.5.a (Group1_level * New_export_level)

New_export_level

Total High Low Medium No

Group1_level High 6 3 6 1 16

Low 6 42 11 19 78

Medium 34 39 65 18 156

Total 46 84 82 38 250

Table 10.1.5.b (Effect of internal factors on productivity

and exports)

Chi-Square Tests

Value Df



New_export_level



364

Low 6 15 11 11 43

Medium 26 59 61 24 170

Total 46 84 82 38 250

Table 10.1.6.b (Effect of external factors on strategy


Chi-Square Tests

Value Df



New_export_level



Low 7 18 16 8 49

Medium 32 58 51 23 164

Total 46 84 82 38 250

365

Table 10.1.7.b (Association between investment

priorities and export competency)

Chi-Square Tests

Value df



New_export_level



Low 5 18 12 6 41

Medium 34 53 56 27 170

Total 46 84 82 38 250

Table 10.1.8.b ( Association between competency index


Chi-Square Tests

Value Df


366

Table 10.1.8.b ( Association between competency index


Chi-Square Tests

Value Df



New_export_level



Low 3 21 13 11 48

Medium 35 59 63 26 183

Total 46 84 82 38 250

Table 10.1.9.b (Effect of present cost strategy on export

competency)

Chi-Square Tests

Value Df


367


New_export_level



Low 4 10 11 6 31

Medium 29 63 54 25 171

Total 46 84 82 38 250

Table 10.1.10.b (effect of present quality strategy on

export competency)

Chi-Square Tests

Value Df



New_export_level



Low 3 26 12 4 45

368

Medium 25 47 57 32 161

Total 46 84 82 38 250

Table 10.1.11.b (Association between competitiveness


Chi-Square Tests

Value df


Oneway

Table 10.1.3.c (ANOVA of Type of company)

Export_score

Sum of

Squares df Mean Square F Table Val

Between Groups 4916.955 2 2458.478 4.994 3.00

Within Groups 121591.221 247 492.272

Total 126508.176 249

Oneway

Table 10.1.4.c (ANOVA for number of employees)

Export_score

369

Sum of

Squares Df Mean Square F Table Val

Between Groups 4965.510 3 1655.170 3.350 3.00

Within Groups 121542.666 246 494.076

Total 126508.176 249

Oneway

Table 10.1.5.c (ANOVA for Group1 ( internal support))

Export_score

Sum of

Squares Df Mean Square F Table Val

Between Groups 12323.605 2 6161.803 13.329 3.00

Within Groups 114184.571 247 462.286

Total 126508.176 249

Oneway

Table 10.1.6.c (ANOVA for group2 ( external support))

Export_score

Sum of

Squares Df Mean Square F

Table

Value

Between Groups 5435.855 2 2717.927 5.545 3.00

370

Within Groups 121072.321 247 490.171

Total 126508.176 249

Oneway

Table 10.1.9.c (ANOVA for group5 ( present cost constraints))

Export_score

Sum of


Table

Value

Between Groups 5420.875 2 2710.438 5.529 3.00

Within Groups 121087.301 247 490.232

Total 126508.176 249

Oneway

Table 10.1.11.c (ANOVA for group7 competitiveness index)

Export_score

Sum of


Table

Value

Between Groups 7301.461 2 3650.731 7.564 3.00

Within Groups 119206.715 247 482.618

Total 126508.176 249

371

RESULTS FOR AURANGABAD

Frequency Table for Aurangabad Cluster

Size_of_company

Frequency Percent Valid Percent

Cumulative

Percent

Valid ME 43 28.7 28.7 28.7

SME 107 71.3 71.3 100.0

Total 150 100.0 100.0

Year_of_Establishment


Cumulative

Percent

Valid 1990-2000 72 48.0 48.0 48.0

After 2000 36 24.0 24.0 72.0

Before 1990 42 28.0 28.0 100.0

Total 150 100.0 100.0

Type_of_Company

372


Cumulative

Percent

Valid Partners 30 20.0 20.0 20.0

Private 48 32.0 32.0 52.0

Propriet 72 48.0 48.0 100.0

Total 150 100.0 100.0

Number_of_employees


Cumulative

Percent

Valid 101 - 200 13 8.7 8.7 8.7

201 - 300 38 25.3 25.3 34.0

301 and above 16 10.7 10.7 44.7

Below 100 83 55.3 55.3 100.0

Total 150 100.0 100.0

New_export_level


Cumulative

Percent

Valid High 16 10.7 10.7 10.7

Low 24 16.0 16.0 26.7

Medium 64 42.7 42.7 69.3

373

No 46 30.7 30.7 100.0

Total 150 100.0 100.0



Internal_support_score 150 25.00 70.00 47.4000 11.82535

External_support_score 150 33.33 70.00 49.2000 7.67226

Investment_priorities_score 150 30.00 73.33 53.9556 8.19584

Compitency_development_score 150 33.33 76.67 52.7778 8.82692

Present_cost_strategy_score 150 30.00 80.00 59.5000 11.99483

Present_quality_strategy_score 150 20.00 55.00 34.8667 9.62287

Copititiveness_score 150 33.33 73.33 55.2889 10.73153




SME_group1 107 25.00 65.00 44.2991 11.23187

SME_group2 107 33.33 63.33 47.0710 6.67815

SME_group3 107 30.00 66.67 51.5268 7.97449

SME_group4 107 33.33 66.67 50.9042 8.47470

374

SME_group5 107 30.00 80.00 58.0841 12.18267

SME_group6 107 20.00 50.00 30.8879 7.64215

SME_group7 107 33.33 73.33 52.3047 10.15003




ME_gorup1 43 40.00 70.00 55.1163 9.60459

ME_group2 43 40.00 70.00 54.4951 7.48530

ME_group3 43 43.33 73.33 60.0002 5.03984

ME_group4 43 33.33 76.67 57.4416 7.99725

ME_group5 43 45.00 80.00 63.0233 10.86385

ME_group6 43 35.00 55.00 44.7674 6.35774

ME_group7 43 33.33 73.33 62.7128 8.33374







375


















376











Before_1990_group1 60 25.00 60.00 48.4167 11.02738

Before_1990_group2 60 40.00 66.67 51.1660 8.09162

Before_1990_group3 60 40.00 66.67 55.7227 6.43984

Before_1990_group4 60 40.00 66.67 53.3330 7.26133

Before_1990_group5 60 40.00 80.00 60.0833 9.27415

Before_1990_group6 60 25.00 55.00 35.7500 9.01153

Before_1990_group7 60 33.33 73.33 56.2775 8.35018


377



Between_1990_2000_group1 42 30.00 70.00 45.2381 12.19518

Between_1990_2000_group2 42 33.33 70.00 49.5236 6.64998

Between_1990_2000_group3 42 30.00 66.67 49.9212 10.55478

Between_1990_2000_group4 42 33.33 66.67 50.7955 10.51078

Between_1990_2000_group5 42 40.00 80.00 63.0952 12.63717

Between_1990_2000_group6 42 20.00 55.00 37.2619 10.60386

Between_1990_2000_group7 42 33.33 70.00 52.2212 12.11224




After_2000_group1 48 30.00 70.00 48.0208 12.45159

After_2000_group2 48 36.67 63.33 46.4571 7.28988

After_2000_group3 48 43.33 73.33 55.2777 6.58930

After_2000_group4 48 33.33 76.67 53.8198 8.91326

After_2000_group5 48 30.00 75.00 55.6250 13.47279

After_2000_group6 48 20.00 50.00 31.6667 8.77214

After_2000_group7 48 40.00 73.33 56.7356 11.73926

378



After_2000_group1 48 30.00 70.00 48.0208 12.45159

After_2000_group2 48 36.67 63.33 46.4571 7.28988

After_2000_group3 48 43.33 73.33 55.2777 6.58930

After_2000_group4 48 33.33 76.67 53.8198 8.91326

After_2000_group5 48 30.00 75.00 55.6250 13.47279

After_2000_group6 48 20.00 50.00 31.6667 8.77214

After_2000_group7 48 40.00 73.33 56.7356 11.73926











379













Less_emp_group1 13 30.00 70.00 53.8462 9.60769

Less_emp_group2 13 43.33 70.00 51.0246 8.75541

Less_emp_group3 13 46.67 60.00 54.1038 4.93527

Less_emp_group4 13 36.67 60.00 49.7438 8.32740

Less_emp_group5 13 55.00 75.00 65.7692 5.71772

Less_emp_group6 13 25.00 55.00 38.4615 10.48503

Less_emp_group7 13 43.33 66.67 57.9500 7.76382

380



Less_emp_group1 13 30.00 70.00 53.8462 9.60769

Less_emp_group2 13 43.33 70.00 51.0246 8.75541

Less_emp_group3 13 46.67 60.00 54.1038 4.93527

Less_emp_group4 13 36.67 60.00 49.7438 8.32740

Less_emp_group5 13 55.00 75.00 65.7692 5.71772

Less_emp_group6 13 25.00 55.00 38.4615 10.48503

Less_emp_group7 13 43.33 66.67 57.9500 7.76382




Medium_emp_group1 38 30.00 65.00 48.8158 10.42568

Medium_emp_group2 38 43.33 60.00 52.3676 5.01711

Medium_emp_group3 38 43.33 63.33 55.0887 6.09012

Medium_emp_group4 38 46.67 60.00 51.9303 5.11781

Medium_emp_group5 38 40.00 75.00 61.9737 11.18273

Medium_emp_group6 38 25.00 50.00 35.3947 10.61498

Medium_emp_group7 38 43.33 70.00 60.5258 8.03600

381



Medium_emp_group1 38 30.00 65.00 48.8158 10.42568

Medium_emp_group2 38 43.33 60.00 52.3676 5.01711

Medium_emp_group3 38 43.33 63.33 55.0887 6.09012

Medium_emp_group4 38 46.67 60.00 51.9303 5.11781

Medium_emp_group5 38 40.00 75.00 61.9737 11.18273

Medium_emp_group6 38 25.00 50.00 35.3947 10.61498

Medium_emp_group7 38 43.33 70.00 60.5258 8.03600




Large_emp_group1 16 25.00 60.00 41.5625 15.35347

Large_emp_group2 16 33.33 66.67 48.5400 11.54574

Large_emp_group3 16 43.33 66.67 51.6656 6.77845

Large_emp_group4 16 36.67 60.00 53.1256 8.64681

Large_emp_group5 16 45.00 70.00 61.5625 8.31039

Large_emp_group6 16 25.00 50.00 33.1250 8.34166

Large_emp_group7 16 40.00 63.33 52.7075 8.53802

382



Large_emp_group1 16 25.00 60.00 41.5625 15.35347

Large_emp_group2 16 33.33 66.67 48.5400 11.54574

Large_emp_group3 16 43.33 66.67 51.6656 6.77845

Large_emp_group4 16 36.67 60.00 53.1256 8.64681

Large_emp_group5 16 45.00 70.00 61.5625 8.31039

Large_emp_group6 16 25.00 50.00 33.1250 8.34166

Large_emp_group7 16 40.00 63.33 52.7075 8.53802




No_export_group1 20 30.00 70.00 50.0000 11.23903

No_export_group2 20 40.00 70.00 48.8330 7.43646

No_export_group3 20 30.00 63.33 53.1670 8.47991

No_export_group4 20 46.67 66.67 54.6680 6.61284

No_export_group5 20 45.00 75.00 62.5000 9.93399

No_export_group6 20 25.00 50.00 35.5000 9.01753

No_export_group7 20 43.33 73.33 57.1660 7.59090

383



No_export_group1 20 30.00 70.00 50.0000 11.23903

No_export_group2 20 40.00 70.00 48.8330 7.43646

No_export_group3 20 30.00 63.33 53.1670 8.47991

No_export_group4 20 46.67 66.67 54.6680 6.61284

No_export_group5 20 45.00 75.00 62.5000 9.93399

No_export_group6 20 25.00 50.00 35.5000 9.01753

No_export_group7 20 43.33 73.33 57.1660 7.59090




Low_export_group1 35 25.00 70.00 45.0000 10.71008

Low_export_group2 35 33.33 66.67 46.0946 7.11642

Low_export_group3 35 43.33 66.67 54.3814 7.53171

Low_export_group4 35 33.33 66.67 48.3817 7.72820

Low_export_group5 35 30.00 80.00 58.7143 14.00330

Low_export_group6 35 20.00 55.00 33.2857 9.84758

384

Low_export_group7 35 33.33 73.33 55.7140 10.80325

















385






Crosstabs

Table 10.2.1.a (Size_of_company * New_export_level)

Crosstab

Count

New_export_level


Size_of_compan

y

ME 2 3 24 14 43

SME 14 21 40 32 107

Total 16 24 64 46 150

Table 10.2.1.b (Association between size of the

company and exports)

Chi-Square Tests

Value Df

Pearson Chi-

Square

7.625a 3

386

Table 10.2.2.a ( Year_of_Estabishment * New_export_level)

Crosstab

Count

New_export_level


Year_of_Estabishment 1990-2000 6 11 36 19 72

After 2000 0 5 19 12 36

Before 1990 10 8 9 15 42

Total 16 24 64 46 150

Table 10.2.2.b (Association between period of

establishment and export strategy)

Chi-Square Tests

Value Df

Pearson Chi-

Square

18.449a 6

Table 10.2.3.a (Type_of_Company * New_export_level)

387

Crosstab

Count

New_export_level


Type_of_Company Partners 0 3 19 8 30

Private 16 4 11 17 48

Propriet 0 17 34 21 72

Total 16 24 64 46 150

Table 10.2.3.b (Association between ownership pattern and export

strategy)

Chi-Square Tests

Value Df

Pearson Chi-

Square

47.349a 6

Table 10.2.4.a (Number_of_employees * New_export_level)

Crosstab

Count

New_export_level

388


Number_of_employees 101 - 200 3 0 8 2 13

201 - 300 5 9 6 18 38

301 and above 4 1 7 4 16

Below 100 4 14 43 22 83

Total 16 24 64 46 150

Table 10.2.4.b (association between number of


Chi-Square Tests

Value Df

Pearson Chi-

Square

26.544a 9


Crosstab

Count

New_export_level



Low 6 4 14 11 35

389

Medium 3 16 35 26 80

Total 16 24 64 46 150

Table 10.2.5.b (Effect of internal factors on

productivity and exports)

Chi-Square Tests

Value Df

Pearson Chi-

Square

9.992a 6


Crosstab

Count

New_export_level



Low 0 10 8 7 25

Medium 11 13 46 31 101

Total 16 24 64 46 150

390

Table 10.2.6.b (Effect of external factors on


Chi-Square Tests

Value Df

Pearson Chi-

Square

17.697a 6


Crosstab

Count

New_export_level



Low 2 5 9 8 24

Medium 13 16 45 30 104

Total 16 24 64 46 150



Chi-Square Tests

Value Df

391

Pearson Chi-

Square

2.275a 6


Crosstab

Count

New_export_level



Low 0 4 17 6 27

Medium 14 19 40 33 106

Total 16 24 64 46 150

Table 10.2.8.b (association between competency

index and export competency)

Chi-Square Tests

Value Df

Pearson Chi-

Square

9.365a 6

392


Crosstab

Count

New_export_level



Low 0 8 13 6 27

Medium 12 10 47 35 104

Total 16 24 64 46 150

Table 10.2.9.b (Effect of present cost strategy on

export competency)

Chi-Square Tests

Value Df

Pearson Chi-

Square

17.016a 6


Crosstab

Count

393

New_export_level



Low 3 5 20 8 36

Medium 12 16 36 28 92

Total 16 24 64 46 150

Table 10.2.10.b (effect of present quality strategy on

export competency)

Chi-Square Tests

Value Df

Pearson Chi-

Square

6.016a 6


Crosstab

Count

New_export_level



Low 4 1 20 11 36

394

Medium 12 19 31 24 86

Total 16 24 64 46 150

Table 10.2.11.b (Association for competitiveness


Chi-Square Tests

Value Df

Pearson Chi-

Square

13.115a 6

Oneway

Table 10.2.2.c (ANOVA for year of establishment)

Export_score

Sum of

Squares Df Mean Square F Sig.

Between

Groups

1.188 2 .594 .004 .996

Within Groups 24273.105 147 165.123

Total 24274.293 149

Table 10.2.3.c (ANOVA for type of company)

Export_score

395

Sum of


Between

Groups

237.448 2 118.724 .726 .486

Within Groups 24036.846 147 163.516

Total 24274.293 149

Oneway

Table 10.2.4.c (ANOVA for number of employees)

Export_score

Sum of


Between

Groups

635.906 2 317.953 1.977 .142

Within Groups 23638.387 147 160.805

Total 24274.293 149

Oneway

Table 10.2.6.c (ANOVA for group 2 (external factors))

Export_score

Sum of


Between

Groups

189.034 2 94.517 .577 .563

Within Groups 24085.260 147 163.845

396

Table 10.2.6.c (ANOVA for group 2 (external factors))

Export_score

Sum of


Between

Groups

189.034 2 94.517 .577 .563

Within Groups 24085.260 147 163.845

Total 24274.293 149

Oneway

Table 10.2.9.c (ANOVA for group 5 (cost strategy))

Export_score

Sum of


Between

Groups

37.152 2 18.576 .113 .894

Within Groups 24237.142 147 164.879

Total 24274.293 149

Oneway

Table 10.2.11.c (ANOVA for group (export competency))

Export_score

Sum of


Between

Groups

286.515 2 143.258 .878 .418

397

Within Groups 23987.778 147 163.182

Total 24274.293 149

Frequency Table of Nasik Cluster

Size_of_company


Cumulative

Percent

Valid ME 18 36.0 36.0 36.0

SME 32 64.0 64.0 100.0

Total 50 100.0 100.0

Year_of_Establishment


Cumulative

Percent

Valid 1990-2000 15 30.0 30.0 30.0

After 2000 15 30.0 30.0 60.0

Before 1990 20 40.0 40.0 100.0

Total 50 100.0 100.0

Type_of_Company

398


Cumulative

Percent

Valid Partners 11 22.0 22.0 22.0

Private 14 28.0 28.0 50.0

Propriet 25 50.0 50.0 100.0

Total 50 100.0 100.0

Number_of_employees


Cumulative

Percent

Valid 101 - 200 6 12.0 12.0 12.0

201 - 300 9 18.0 18.0 30.0

301 and above 5 10.0 10.0 40.0

Below 100 30 60.0 60.0 100.0

Total 50 100.0 100.0

New_export_level


Cumulative

Percent

Valid High 6 12.0 12.0 12.0

Low 18 36.0 36.0 48.0

Medium 18 36.0 36.0 84.0

No 8 16.0 16.0 100.0

399

New_export_level


Cumulative

Percent

Valid High 6 12.0 12.0 12.0

Low 18 36.0 36.0 48.0

Medium 18 36.0 36.0 84.0

No 8 16.0 16.0 100.0

Total 50 100.0 100.0



SME_group1 32 25.00 65.00 43.5938 11.16116

SME_group2 32 33.33 63.33 46.0409 6.90142

SME_group3 32 30.00 66.67 51.7709 7.66703

SME_group4 32 33.33 66.67 49.6881 9.05439

SME_group5 32 30.00 80.00 57.8125 11.35480

SME_group6 32 20.00 50.00 32.1875 7.61339

SME_group7 32 33.33 73.33 52.7075 10.28055


Descriptives


400

ME_gorup1 18 40.00 70.00 55.8333 10.18216

ME_group2 18 40.00 70.00 56.1100 8.10495

ME_group3 18 43.33 73.33 60.1856 6.71367

ME_group4 18 33.33 76.67 57.9628 10.10839

ME_group5 18 45.00 80.00 63.3333 10.71008

ME_group6 18 35.00 55.00 44.7222 6.52421

ME_group7 18 33.33 73.33 60.7406 9.93895


Descriptives










Descriptives



401








Descriptives












Before_1990_group1 20 25.00 60.00 47.0000 11.40175

402

Before_1990_group2 20 40.00 66.67 51.3330 8.94419

Before_1990_group3 20 40.00 66.67 55.5005 7.51506

Before_1990_group4 20 40.00 66.67 52.6660 7.91772

Before_1990_group5 20 40.00 80.00 60.0000 10.25978

Before_1990_group6 20 25.00 55.00 36.2500 8.71704

Before_1990_group7 20 33.33 73.33 56.4995 10.23066




Between_1990_2000_group1 15 30.00 70.00 48.3333 13.84437

Between_1990_2000_group2 15 33.33 70.00 49.7767 9.12630

Between_1990_2000_group3 15 30.00 66.67 51.7780 9.66791

Between_1990_2000_group4 15 33.33 66.67 50.0013 11.12740

Between_1990_2000_group5 15 40.00 80.00 62.3333 11.78175

Between_1990_2000_group6 15 20.00 55.00 39.3333 10.49943

Between_1990_2000_group7 15 33.33 70.00 53.1100 11.08899




After_2000_group1 15 30.00 70.00 49.0000 12.42118

After_2000_group2 15 36.67 63.33 47.3320 8.18411

403

After_2000_group3 15 43.33 73.33 56.8887 7.60813

After_2000_group4 15 33.33 76.67 55.3340 11.73945

After_2000_group5 15 30.00 75.00 57.0000 12.36354

After_2000_group6 15 20.00 50.00 34.6667 9.15475

After_2000_group7 15 40.00 73.33 56.8887 11.51023














Less_emp_group1 6 30.00 70.00 52.5000 13.69306

Less_emp_group2 6 43.33 70.00 52.2217 10.68131

Less_emp_group3 6 46.67 60.00 53.8900 4.90638

404

Less_emp_group4 6 36.67 60.00 48.3333 8.88019

Less_emp_group5 6 55.00 75.00 65.8333 7.35980

Less_emp_group6 6 25.00 55.00 37.5000 10.83974

Less_emp_group7 6 43.33 66.67 58.3333 8.36740




Medium_emp_group1 9 30.00 65.00 47.7778 11.48671

Medium_emp_group2 9 43.33 60.00 51.8511 5.55558

Medium_emp_group3 9 43.33 63.33 53.7044 6.76022

Medium_emp_group4 9 46.67 60.00 52.2222 4.99889

Medium_emp_group5 9 40.00 75.00 61.1111 12.69296

Medium_emp_group6 9 25.00 50.00 33.8889 9.93031

Medium_emp_group7 9 43.33 70.00 59.2589 9.82903




Large_emp_group1 5 25.00 60.00 37.0000 13.96424

Large_emp_group2 5 33.33 66.67 49.3320 14.79632

Large_emp_group3 5 43.33 66.67 52.6660 8.63031

Large_emp_group4 5 36.67 60.00 49.3340 10.38086

405

Large_emp_group5 5 45.00 70.00 59.0000 9.61769

Large_emp_group6 5 25.00 50.00 37.0000 10.36822

Large_emp_group7 5 40.00 63.33 52.6660 9.24866




No_export_group1 8 30.00 55.00 45.0000 8.45154

No_export_group2 8 36.67 56.67 43.7488 5.75695

No_export_group3 8 46.67 66.67 56.2513 6.53121

No_export_group4 8 33.33 66.67 51.2500 10.83007

No_export_group5 8 30.00 65.00 50.0000 10.00000

No_export_group6 8 20.00 50.00 33.1250 9.97765

No_export_group7 8 40.00 63.33 49.1663 8.30906




Low_export_group1 18 30.00 65.00 44.4444 11.23138

Low_export_group2 18 33.33 56.67 45.1850 6.07457

Low_export_group3 18 30.00 63.33 49.6289 8.15651

Low_export_group4 18 36.67 66.67 49.2606 8.97026

Low_export_group5 18 40.00 80.00 59.7222 11.69115

406

Low_export_group6 18 20.00 50.00 32.7778 7.51904

Low_export_group7 18 33.33 73.33 53.5172 11.34559












Descriptives







407





Table 10.3.1.a (Size_of_company * New_export_level)

Count

New_export_level


Size_of_compan

y

ME 3 0 15 0 18

SME 3 18 3 8 32

Total 6 18 18 8 50

Table 10.3.1.b (association between size of firm and exports)

Chi-Square Tests

Value df

Chi-Square

calculate

32.639a 3

Table 10.3.2.a (Year_of_Estabishment * New_export_level)

408

New_export_level


Year_of_Estabishme

nt

1990-2000 1 8 6 0 15

After 2000 0 2 5 8 15

Before 1990 5 8 7 0 20

Total 6 18 18 8 50

Table 10.3.2.b (Association between period of

establishment and export strategy)

Chi-Square Tests

Value df

Chi-Square

calculate

27.222a 6

Chi-square Table

Table 10.3.3.a (Type_of_Company * New_export_level)

New_export_level


Type_of_Compan

y

Partners 1 1 3 6 11

Private 5 4 5 0 14

Propriet 0 13 10 2 25

Total 6 18 18 8 50

409

Table 10.3.3.b (Association between ownership

pattern and export strategy)

Chi-Square Tests

Value Df

Pearson Chi-

Square

27.642a 6

Table 10.3.4.a (Number_of_employees * New_export_level)

New_export_level


Number_of_employee

s

101 - 200 1 2 3 0 6

201 - 300 3 4 1 1 9

301 and above 1 2 2 0 5

Below 100 1 10 12 7 30

Total 6 18 18 8 50

Table 10.3.4.b (Association between number of


Chi-Square Tests

Value Df

Pearson Chi-

Square

10.872a 9

410


New_export_level



Low 0 9 2 3 14

medium 1 6 12 5 24

Total 6 18 18 8 50

Table 10.3.5.b (Effect of internal factors on


Chi-Square Tests

Value df

Pearson Chi-

Square

21.722a 6


New_export_level

411


Group2_level 0 0 0 1 1

High 4 0 7 0 11

Low 0 7 1 2 10

Medium 2 11 10 5 28

Total 6 18 18 8 50

Table 10.3.6.b (Effect of external factors on


Chi-Square Tests

Value df

Pearson Chi-

Square

25.829a 9


New_export_level



Low 0 7 2 1 10

Medium 3 9 12 5 29

412

New_export_level



Low 0 7 2 1 10

Medium 3 9 12 5 29

Total 6 18 18 8 50



Chi-Square Tests

Value df

Pearson Chi-

Square

9.014a 6


New_export_level



Low 0 4 3 1 8

medium 5 13 11 6 35

413

New_export_level



Low 0 4 3 1 8

medium 5 13 11 6 35

Total 6 18 18 8 50

Table 10.3.8.b (Association between

competitiveness index and export competency)

Chi-Square Tests

Value df

Pearson Chi-

Square

3.688a 6


New_export_level



Low 0 3 2 2 7

Medium 4 13 13 6 36

414

New_export_level



Low 0 3 2 2 7

Medium 4 13 13 6 36

Total 6 18 18 8 50

Table 10.3.9.b (Effect of cost strategy on export

competency)

Chi-Square Tests

Value df

Pearson Chi-

Square

4.685a 6


New_export_level



Low 1 6 1 2 10

Medium 3 9 13 5 30

415

New_export_level



Low 1 6 1 2 10

Medium 3 9 13 5 30

Total 6 18 18 8 50

Table 10.3.10.b (Effect of present quality strategy on

export competency)

Chi-Square Tests

Value df

Pearson Chi-

Square

5.370a 6


New_export_level



Low 1 5 1 3 10

Medium 1 9 13 5 28

Total 6 18 18 8 50

416

Table 10.3.11.b (Association of competitiveness and

export competency)

Chi-Square Tests

Value Df

Pearson Chi-

Square

12.879a 6

Oneway

Table 10.3.1.c (ANOVA for size of company)

Export_score

Sum of


Between Groups 770.281 1 770.281 7.655 .008

Within Groups 4829.719 48 100.619

Total 5600.000 49

Oneway


Export_score

Sum of

Squares df Mean Square F Sig.

Between Groups 2350.846 2 1175.423 17.003 .000

Within Groups 3249.154 47 69.131

417


Export_score

Sum of


Between Groups 2350.846 2 1175.423 17.003 .000

Within Groups 3249.154 47 69.131

Total 5600.000 49

Oneway

Table 10.3.2.c (ANOVA for year of establishment)

Export_score

Sum of


Between Groups 603.717 2 301.858 2.840 .069

Within Groups 4996.283 47 106.304

Total 5600.000 49

Oneway

Table 10.3.5.c (ANOVA group1)

Export_score

Sum of


Between Groups 1896.726 2 948.363 12.036 .000

Within Groups 3703.274 47 78.793

Total 5600.000 49

418

Oneway

Table 10.3.6.c (ANOVA group2)

Export_score

Sum of


Between Groups 1911.994 2 955.997 11.925 .000

Within Groups 3687.639 46 80.166

Total 5599.633 48

Oneway

Table 10.3.11.c (ANOVA for group5)

Export_score

Sum of


Between Groups 480.302 2 240.151 2.205 .122

Within Groups 5119.698 47 108.930

Total 5600.000 49

419

„T‟ test

Table 10.4.1

ngabad cluster

Group

Number of

respondents

Mean

export

Standard

deviation

Difference

of mean

Standard

error of

diff of

mean

t-test

calculated

t-test table

Result

Pune

Nasik

250

50

43.54

35.6

22.54

10.69

7.94

2.08

7.48

1.65

Significant

Table 10.4.2

Group

Number of

respondents

Mean

export

Standard

deviation

Difference

of mean

Standard

error of

diff of

mean

t-test

calculated

t-test table

Result

Pune

Aurangabad

250

150

43.54

17.11

22.54

12.76

26.43

3.12

16.62

1.65

Significant

Table 10.4.3

Group

Number of

respondents

Mean

export

Standard

deviation

Difference

of mean

Standard

error of

diff of

mean

t-test

calculated

t-test table

Result

Nasik

Aurangabad

50

150

35.6

17.11

10.69

12.76

18.49

3.37

10.76

1.65

Significant