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AUTOMOTIVE           POWER-TRAINFeb 2012   Analysis of Opportunities           Identification of export markets for automo...
Automotive Power-trainAutomotive Power-trainTABLE OF CONTENTSSection                                                      ...
Automotive Power-trainAutomotive Power-trainINTRODUCTION The Indian Automobile Industry, along with the manufacture of com...
Automotive Power-traincost solutions. Furthermore with stagnant markets in Triad (North America, Europe and Japan) markets...
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Automotive Powertrain 2


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Research on Automotive Power-train : Export Opportunities of Automotive Engines

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Automotive Powertrain 2

  1. 1. AUTOMOTIVE POWER-TRAINFeb 2012 Analysis of Opportunities Identification of export markets for automobile engine systems and a pre-liminary study of attractiveness of India as an international sourcing destination for design, development & manufacture of engines for global passenger car industry. Author: Pallav Vikash Chatterjee, E-MBA (2012-13), Indian Institute of Foreign Trade, New Delhi, India
  2. 2. Automotive Power-trainAutomotive Power-trainTABLE OF CONTENTSSection PageIntroduction 2Global Automotive Industry : Trends 4Trade in Power-train: Car Engines 13 Engine Components 13 Product Classification (HS 1988) 14 Trade Analysis (World Bank, WITS database) 15Competitive Advantage (India) 22Conclusions: Key Success Factors 30Conclusions: Impact of Preferential Trade Agreements 34 Page 1
  3. 3. Automotive Power-trainAutomotive Power-trainINTRODUCTION The Indian Automobile Industry, along with the manufacture of components provides employment to550,000 employees directly and indirectly to around 13 million people in the country. The industry sincede-licensing since 1991, as on 2006 the time when the Automotive Mission Plan 2006-16 was gettingdrafted by Society of Indian Automotive Manufacturers (SIAM), has witnessed growth of 17% and acombined turnover of over $34 Billion and investments of over $11 Billion and another $761 millioninvestments in pipeline. The industry at the time of forming of the policy was contributing to 17% to therevenues of indirect taxes to the government exchequer. On the exports side, the industry had beenwitnessing a CAGR of 30% since opening of the market in 1991 with exports revenue reaching to alevel of $4.08 billion out of which $1.8 billion (2005-06) coming from auto components alone. Sinceautomobile industry has deep forward and backward linkages to the overall economic activities in thecountry, the mission that SIAM aims through its Automotive Mission Plan 2016 to doubling thecontribution of automotive sector in GDP by taking the turnover to $145 billion in 2016, with specialemphasis on small cars & MUVs, the Government policies are also aligned with encouraging theindustry to reach the goal. (SIAM, Automotive Mission Plan 2006-16)Powertrain forms 40% by value of the basicex-works value of a passenger car and ischaracterized by high technology content. Theglobal power-train market is all poised to cross$598 billion. As the McKinsey & Co. predicts,there will be dramatic shifts in the value chainof automotive power-train and it is going toevolve into a portfolio game, where carmakers, suppliers and new entrants will orientthemselves to leverage their strengths in thisportfolio game to create new opportunities andmanage potential risks. (Transforming thepower-train value chain – a portfoliochallenge, Mckinsey & Co.). At the same time,the report also deliberates on the risks and discontinuities in the power-train industry landscape, it pointsout about shifting production bases to BRIC nations (Brazil, Russian Federation, India and China) whileon the other hand, there is overcapacity in other nations. On the regulatory side, there are wide variancesacross the regions resulting into wider discontinuities in the industry. In addition to these, there areemerging trends in consumer perspective with the younger generation now looking at cars more as amobility solution than as a “status symbol” and preferring more fuel efficient, eco-friendly and ultra-low Page 2
  4. 4. Automotive Power-traincost solutions. Furthermore with stagnant markets in Triad (North America, Europe and Japan) markets,emerging markets specially China, India and Thailand provides opportunities of business growth to theglobal majors. Precisely is the reason why we witness rapid influx of FDI in automotive sector and newentrants in the industry in these economies. Therefore this evidences right time to initiate policy movesby the Government of India to encourage the emergence of India as a source of power-train and itscomponents in the global value chain and also at the same time it is opportune moment for the players tostart investing and initiate business development activities in this direction.India enjoys certain advantages with regard to the automotive industry, namely – rapidly growingmiddle class (over 450 million in 2007 as per NCAER report), market oriented stable economy,availability of skilled manpower and low labour costs and reasonably well-developed banking and creditfinancing resources. These advantages do certainly help the industry, however it is pertinent questionthat will these advantages offer long term sustainability of the competitive advantage and help theplayers in the industry develop themselves into globally competitive players. Towards long termcompetitive sustenance in the globally connectedmarketplace, it is an undebatable fact thatIndian Industry needs to integrate itself into theglobal production network “By 2020 oil will be at a different level, and supply-chains,move its activities up into Players with the best technology around the value chain andbreed innovations. In power train will call the shots. “ Automotive Industryalso these basic essentials of competitiveadvantage holds merit. Partner, Booze & Company .ET (10th February 2011) There are clearlydistinct trend in technology which is evidenced inglobal automotive space, namely stricteremission norms raising contribution of costs of power-train in the vehicle, emergence of newalternatives to the traditional fossil fuel based ICE (Internal Combustion Engine) like optimized ICE,Hybrid electric vehicle (HEV), Range Extended Electric Vehicle (REEV), Battery Electric Vehicle(BEV) and Fuel Cell Electric Vehicle (FCEV). A strong power-train development and integrating it withthe global production base is in the right direction towards moving up in the automotive value chain. Inorder to ensure continuity in the growth momentum and reach nearer to the mission of contributing $145billion of revenues to GDP therefore, it is required to not only move-up in production standards in termsof quality and cost but also in terms of playing a role in global innovation chain in development of thesenew technologies. In order to study the opportunities existing for power-train trade for an Indianmanufacturer, first we need to study the emerging long and medium term patterns that are evolving inthe global automotive landscape. The study involves, studying the regional trends, key players in globalautomotive value-chain and the mega trends that are driving the evolution of global automotive industry.The study of the industry therefore would throw light on the success factors required for a global playerto be successful. Subsequently, we would analyze the trade in automobile engines and the key marketswhere Indian makers can have some sort of influence. In the subsequent section we are going to studywhether the current PTAs / FTAs that India has entered into or planning to enter promises someopportunities for development of the opportunity for the Indian players to exploit. Page 3