India's automotive push lures suppliers.

NEW DELHI, India -- A hefty injection of foreign capital and know-how is rejuvenating India's parts and components industry -- and heating up the rivalry with China for export markets.

The primary emphasis these days naturally is on serving domestic automakers whose ranks are rapidly swelling in the wake of the economic "liberalization" and reforms introduced in mid-1991 after India and its policies were nearly bankrupt.

At least eight foreign vehicle producers including General Motors Corp. and Ford Motor Co. are moving in, attracted by potential demand in this nation of 900 million. Production and sales of cars and light trucks totaled just under 300,000 units in 1994 and are forecast by industry watchers to grow to 370,000 this year, 455,000 in 1996 and to 540,000 by 1997.

European and U.S. parts and components manufacturers, eyeing India's domestic-market vehicle growth and export potential, are rushing in to organize joint ventures or whollyowned subsidiaries.

"Capitalization, technology and quality have improved dramatically in the past four years," says Vishnu Mathur, executive director of the Automotive Components Manufacturers Association of India (ACMA) based here.

Five years ago, for example, only two Indian partsmakers met ISO 9000 quality specifications. Today, 49 have achieved this international rating, and the remaining 271 ACMA members are now aiming at the mark.

Outsiders are providing a good deal of the impetus. No up-to-date tally is available, but at last count in 1993 there were more than 200 "collaborations," and at least 104 European, 54 Japanese and 29 U.S. companies had technical or financial tie-ups of some kind or another with Indian suppliers.

Today, an estimated 300 "collaborations" are in effect. Those already present read like a Who's Who of the auto world and include Aisin Seiki, Allied Signal, Asahi Glass, Bendix, Bosch, Bundy, Federal Mogul, Goodyear, Lucas, Nippondenso, Purolator, Rockwell, SKF, Textron and Timken. And five of GM's six Delphi divisions are on their way in as well.

In what amounts to a complete reversal of India's investment climate, foreign investors now are warmly welcomed rather than coldly snubbed. "Government licensing has been almost completely abolished, and free enterprise is in full bloom," says Mr. Mathur, adding that import duties are being lowered progressively from the unreal heights of 100% and 200% in the past.

Although most of the current attention focuses on domestic automakers, ACMA members increasingly are tantalized by export possibilities as well. "Over half of ACMA's members have begun exporting. It's becoming an epidemic," reports N. Srinivasan, senior director of the Confederation of Indian Industry in New Delhi.

The latest figures lag badly, but in the five years ending March 31, 1993, exports of automotive components were up nearly four-fold to $365 million. That may prove to be only a small start. ACMA delegations visited the U.S. and Canada this January, and 15 chief executive officers of the leading Indian partsmakers were in Tokyo in April for a two day buyer-seller meeting to identify who in India can do what for whom in Japan.

"The North American market has huge potential," says Mr. Mathur. So does Japan, where the emphasis is on India's advantages -- mainly price -- as a sourcing point over South Korea, Taiwan and China.

"The blunt truth is that India and China will compete internationally in CBU's (completely built-up units) and parts. This is a given," says Mr. Srinivasan. "And the question is no longer India or China, but India and China, because both countries offer huge markets."

The rivalry with China has become explicit. Boosters feel India offers a clear edge to foreign buyers or investors, beginning with language: All educated Indians speak English. Indian officials frequently quip that India has the largest number of English-speaking people in the world.

What's more, India, unlike China, has a sound legal system, independent judiciary and familiar financial institutions. And that's not all. "We have trained managers and technical personnel. Foreign companies don't have to send in a complete team as they do in China," explains Mr. Mathur.

A broad variety of parts and components are available here, too. Maruti Udyog, India's biggest carmaker, can source 95% of its needs locally and only imports gears from Japan.

"India may become a major supplier of original equipment components to Japan, the U.S. and Europe at much lower costs," predicts Maruti Chairman R.C. Bhargava. Federal Mogul Corp., based in Southfield, MI, for example, reportedly plans global sourcing from its joint venture here.

"Everyone is looking to cut costs, and we can supply components designed to their specifications at competitive prices," says Mr. Mathur. He notes that four delegations from GM's Motor Trading Corp. have visited 40 Indian suppliers in the last 15 months, and four Indian companies are or will be supplying such items as headlamps, radiator caps and water pumps.

But there's still room for improvement. For example, reforms have not yet touched labor law; the rupee is only partially convertible; and quality standards, excepting ISO 9000-certified suppliers, are not always met.

"Volkswagen does not believe India can make engines and transmissions. And inconsistent quality is a problem," says Eicher Motors Chairman Subodh Bhargava headquartered here. "India's foundry and forging skills are world-class, but delivery can be erratic," adds a U.S. trade representative in New Delhi.

Still the basic outlook is upbeat. Beginning in 1996, for example, every Tata truck built in India will be powered by a Cummins diesel. Assembly of 60,000 engines a year initially will be followed later by domestic production.

And within a year or so, most of the new automakers are scheduled to be in production here, some assembling kits but all anxious to reduce costs by sourcing locally wherever possible.

"We will train suppliers to meet Opel (Adam Opel AG, GM's European subsidiary) requirements," says Ronald Nardi, president of GM India in Halol, explaining that the target for the company's 50/50 joint venture plant with Birla Companies (owner of Hindustan Motors) is 44% local content at start-up in January 1996 and 70% by the end of the third production year. The Halol plant currently is being fitted to assemble the latest model of the 1.6L Opel Astra 4 door Notchback, with initial annual volume set at 25,000 on two shifts. Initial investment is pegged at $100 million.

Ford, which edged out Chrysler Corp. in negotiations with Mahindra & Mahindra Ltd. (M&M) to form a 50/50 joint venture last October, plans on making European Escorts and Fiestas at M&M's Nasik plant. Escort production is slated to begin next May. Output is targeted at about 8,000 the first year and 20,000 in each of the following two years. In the second phase of the program, $500 million to $700 million will be invested in a new plant to be built on a yet-unchosen site. Both Escort and 1.1L Fiesta production should begin by autumn 1998, with as much as 60% local content. The new facility will be able to build 25,000 Escorts and 75,000 Fiestas annually.

An Auto Expo scheduled for India next February is expected to speed interest of both foreign buyers and investors. Growth of 20% to 25% is foreseen in India's parts and components industry in each of the next three years. And with more foreign companies due, some $300 to $400 million in new investment is likely over the next five years.

"Other foreign partsmakers don't want to lose business and are interested in setting up shop here," says Mr. Mathur. "Parts supply has become a critical area," adds Eicher Motors' Mr. Bhargava. "There is a parts and components bottleneck in India. You can't get machine tools for 18 months, and first tier suppliers are all talking about 50% or more expansion."