TRAVERSE CITY, MI – An industry cost-cutting strategy for years, outsourcing to low-wage countries may have met its match in the recent run-up in fuel prices.
“The export-driven model made sense when transportation costs were free,” Milton Roye, vice president-sales and business development forAutomotive Components Ltd. (Tata Autocomp), says Monday at the Management Briefing Seminars here.
But the costs to transport goods are “not free anymore, (and) you’ve got the exchange rate going the wrong way.”
Roye says there are some components that just cannot be produced in a country such as India and shipped to Western markets such as the U.S. – no matter how low the labor costs.
“We make radiators,” Roye says in an interview. “We’re one of the large Indian manufacturers. Radiators are big and they’re heavy. We’d love to sell more in the United States, (but) we just haven’t quite made that model work yet.”
A formerCorp. executive, Roye marvels at GM’s move to ship windshields to the U.S. from China, saying the auto maker probably is “pushing the envelope the most” when it comes to outsourcing.
With the cost savings from producing a part in a low-wage country quickly vanishing, Roye saysAutocomp is exploring localizing some manufacturing by building greenfield plants or acquiring existing assets in the U.S.
“So that’s the big step in our evolution, localizing production,” he says.
“We’re not there yet, but we’ve been looking, trying to find the right thing, the right situation, the right company, the right management team,” he adds, referring to potential acquisitions.
“We’re not sure quite how to do it yet – that’s part of my task,” Roye says, alluding to the possibility Tata Autocomp could opt for new-plant construction.
For now, plastic parts, such as interior trim pieces, “are small and cost-effective” to ship, Roye says. Related to that, Tata Autocomp is supplying some interior trim pieces for the new ’09 Dodge Ram fullsize pickup truck launching soon.
Roye cites Tata Autocomp’s key businesses as interior, exterior, powertrain, ride control and electrical/electronics.
Tata Group has transitioned from a local to a global company in a remarkably short time, he adds. Five years ago, 76% of group sales were made in India. Last year, the mix was reversed, with 70% of group revenues derived outside the country.