In many ways, the auto component industry is a good example of the kind of pressures that globalisation is imposing on domestic businesses and how companies are reacting to the challenge. It s not just the threat of foreign competition per se that is imposing the urgency for change. Globalisation is also prompting a structural realignment within the business and could change the nature of competition in this Rs 18,000-crore industry that has flourished on the back of tariff protection for decades. Globally, the auto component industry operates on what is known as a tiered structure. This structure, which has evolved over decades in the West, is mutually beneficial to both parties.
Vendors get the cost benefits that accrue from greater economies of scale.
Car manufacturers save time, energy and, most importantly, money spent on enforcing standardised norms across large numbers of vendors. This allows them to focus on customer-led improvements and design. That puts pressures on vendors lower down to adjust to the demands of the tier-one suppliers. Tierisation has allowed auto makers to place the responsibility of any snag on the tier-one supplier, rather than hunting for who they should hold accountable, says Anil Verma, managing director, Delphi Auto Systems, which entered India as part of the General Motors supply chain. For instance, General Motors and Ford produce roughly nine and six million cars, respectively, in some 65 to 70 countries.