Volume 20, Number 4 Article by Madhuri Saripalle December, 2008
The Indian Auto Component Industry: Competing through Costs or Capabilities? :
The Indian auto component industry has witnessed high rates of growth since the early 1990s facilitated by the economic reforms,availability of cheap and skilled labour and organisational responsiveness. Against the background of the increasing export intensity of the auto component sector,this paper analyses the composition and the determinants of export competitiveness using a Tobit model. Data from the Capitaline database covering 179 exporting and non-exporting firms from the automobile component industry, for the year 2003 to 04, was used. The sample was further classified by ownership domestic, multinationals and joint ventures. This is supported by a qualitative case study of organisational capabilities of the auto component industry.
A central argument of the paper is that export competitiveness on the basis of low labour cost alone does not give any comparative cost advantage to the firms unless the productivity of that labour is enhanced. While wage intensity is intended to capture the comparative advantage of firms with respect to cheap labour, more data on man hours is required to analyse productivity. Other variables such as import intensity and distribution expenses are used to capture the role of deregulation in the policy framework and the growing logistics capability of auto component firms. The study finds that while cheap labour is an important factor influencing the export competitiveness of multinational firms, distribution intensity is an important factor driving the exports of domestic firms. The case study analysis of the domestic auto component sector finds that faced with low volume constraint which prohibits capital deepening investments, companies are investing in soft skills to improve their production and organisational capabilities. These companies are moving up the value chain through low cost automation, better work practices, backward integration and transfer of best practices.
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