**Table 7. Leading car producers in India and China in 2001**

|**Indian producers**<br>**Market share**|**Chinese producers**|**Market share**|
|---|---|---|
|Maruti Udyog Ltd<br> <br>62.2%|SAIC-VW Joint Venture (JV)|32.7%|
|(JV with Suzuki)|FAW-VW JV|18.9%|
|Hyundai Motor India Ltd<br>16.5%|Dongfeng-Citroen JV|10.2%|
|Tata<br>Engineering<br>and<br> <br>11.5%|SAIC-GM JV|8.2%|
|Locomotive Co. Ltd|Guangzhou-Honda JV|7.2%|
|Hindustan Motors Ltd.<br>3.4%|Tianjin Xiali-Daihatsu JV|7.2%|
|Top 4:<br>93.6%|Top 6:|84.4%|
|(vehicles)<br>(529,947)|(vehicles)|(597,074)|

**Source:** Sutton (2007)

We now compare the local sourcing strategies and the development of local lead firms in both countries. As was already shown in Table 5, sourcing by Chinese lead firms is almost fully local. Chinese lead firms are piggybacking on the global supply chain that has emerged around the joint-venture car assemblers, on one hand, and are providing some local first-tier suppliers with important “learning” opportunities on the other. Currently, as we say in the Chery case in section 3, local lead firms contract out much of their design work (and even some of the engineering and testing) to vehicle engineering companies. The “integral” design architecture of motor vehicles highlights the fact that these firms will have to master design and development capabilities to be independently successful.

Firms such as Chery and Geely are providing domestic suppliers, as well as JV suppliers, important opportunities to upgrade their capabilities and to become more deeply involved in the design, prototype development, testing and mass production of important part and vehicle sub-systems.<sup>19</sup> Managers at a several major JV suppliers interviewed as part of our field research expressed similar sentiments about the emerging “learning” opportunities provided by local lead firms, and described how they hoped to build on them.<sup>20</sup> The process of capability building can be difficult and time consuming, and weaknesses in areas such as system integration on the part of domestic lead firms presents a set of issues for suppliers that are distinct from those faced when they serve customers with deeper competencies. However, the first-tier suppliers we interviewed were nearly universal in how impressed they were with the speed of learning at firms like Chery. The rapid proliferation of models sold by these firms is testimony to the opportunities being provided.

In addition, competition with the most advanced domestic firms — Chery, Geely and SAIC (Shanghai Automotive Industrial Corporation) — is proving to be a major stimulus for some foreign lead firms to pursue an aggressive localization strategy. Only by sourcing locally almost as much as Chinese lead firms, foreign automakers have been able to compete for the middle of the market—a segment which is growing especially strongly.

Statistics in Figure 1 illustrate the higher defect rates (in parts-per-thousands) for Indian versus Chinese suppliers. Because the foreign automakers invested more aggressively to build up a local supply chain in China than in India, it is not surprising that Indian suppliers were lagging Chinese suppliers in both productivity and quality both at the time of our initial field research (2004) and in a follow-up study by Sutton (2007). Furthermore, an update of the Chinese data in Brandt and Van Biesebroeck (2008) shows remarkable improvement that is unlikely to be matched by the Indian industry, which has been growing more slowly.

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