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Bearings, Gears, and Driving Elements in India: ISIC 2913
BEARINGS, GEARS, AND DRIVING ELEMENTS
- The Indian bearings, gears, and driving elements industry has come a long way from a quiet supplier of low-value components to the domestic aftermarket, to a global hub for sourcing a range of high-value and critical automobile components with turnover of INR386 billion in 2010.
- Local producers’ revenue grew by an annual 20% since 2000, and the industry is now one of India’s front runners for grasping the auto components outsourcing market. Rising manufacturing costs in the West, coupled with availability of cheap labour, raw materials and technically-skilled manpower in India attracted a number of foreign manufacturers to the country. Automobile makers such as Volkswagen and Renault, which had no manufacturing plants in India, also started sourcing components from India. Global auto component makers such as Delphi (an offshoot of GM), and Visteon (an offshoot of Ford) started their offices in India to source components for their global operations.
- International competition, however, remained fierce, and India continued to lose against main rivals such as China and Mexico, mostly because of its poor infrastructure, high power costs, low capital base and highly fragmented industry.
- The local industry is dominated by SMEs, with 500-600 organised players adding 77% of the total turnover. Meanwhile, according to estimates of the industry association ACMA, there are more than 6,000 unorganised players, mainly operating in the replacement market.
- Average employment size of suppliers in the organised sector, which mainly includes T1&T2 suppliers, is 1,000 employees. However, a company operating in the unorganised sector, which includes T2&T3 suppliers, has around 100 employees on average.
- India’s auto component manufacturing is clustered in Indore in Central India; Jamshedpur-Kolkata in the East; Puneinthe in West; Manesarand Kanpurinthe in North and Chennaiin in South India.
- Over the review period of 2000 and 2010, a number of Indian manufacturers of bearings, gears, and driving elements upgraded themselves to meet the technical standards of global automotive manufacturers and introduced ISO 9000 or ISO 14001 to their organisations. Many players, however, remained reluctant to upgrade themselves.
- Apart from the growing demand from the global markets, sales of bearings, gears and driving elements in India were boosted by the strong local automobile industry, which ordered auto components to serve the tremendous increase in domestic demand over the review period. Indian automobile producers’ manufactured over 14 million vehicles in 2009, which led the local components’ industry to be one of the fastest-growing manufacturing segments, both forward and backward integrated with other engineering and manufacturing divisions in the country.
- In the early part of the review period, some of the local manufacturers, having established themselves firmly domestically, started to make a global footprint. Manufacturers such as Bharat Forge and Sundram Fasteners began scouting for foreign companies, to move closer to global automobile manufacturers. Some of the other reasons for focussing on acquiring foreign firms were excessive regulations and poor infrastructure (roads and ports in India) which delayed the export process. Many Indian companies also felt that having manufacturing facilities under a foreign brand would bring credibility and respect along with access to new technologies.
- Bharat Forge’s acquisition of German company Carl Dan Peddinghaus (CDP) in 2003 brought it closer to the top European car manufacturers such as Volvo, BMW, Volkswagen, and Audi. Other Indian acquisitions since 2000 include Mahindra&Mahindra buying a controlling stake in Chinese Jiangling Motor Company, Sona Koyo acquiring French Fuji Autotech and Amtek Auto acquiring the Germany-based Zelter GmbH for the cost of INR1.9 billion (EUR 30 million).
- The Indian government played its role in industry growth by allowing100% foreign equity investments, but some of the recent decisions were arguably in favour of local auto component manufacturers. For example, the government reduced the peak import duty from 15% in 2005 to 12.5% in 2006. This was positive news for domestic auto makers as they could then purchase imported production more cheaply, but not so for local component manufacturers, who then had to compete with stronger influx of imports from China. The share of Chinese imports grew from 5% of total import value in 2004, to 9% in 2006.
- While the import duty could have been retained until some more internal reforms took place, the government reduced it further in 2007. Because Indian driving elements industry is facing an 18-20% cost disadvantage in the form of increasing raw material costs, power costs, higher taxation and infrastructure costs when compared to China, the share of Chinese imports continued to grow and reached 19% of all import value in 2010.
- India, which currently accounts for around 1% of the global auto components sourcing market, is expected to garner up to 3-4% by 2015. Turnover of bearings, gears and driving elements’ manufacturing is projected to grow by 14% per annum in the next five years, to INR862 billion in 2016, along with India emerging as one of the fastest-growing automobile markets in the world. Companies across the automotive value chain will require significant additional investments in capital to add to their capacity, as well as to enhance their capabilities to produce parts for and service a wider variety and complexity of vehicles. Indian component manufacturers are now looking at ASEAN countries to invest and expand their operations, while Japan is interested in investing in India.
- However, as well as helping Indian manufacturers develop and expand partnerships with other Asian countries are also seen among the issues that could hamper the pace of the industry’s growth. The FTAs (Free Trade Agreements) and RTAs (Regional Trade Agreements) signed with China and ASEAN countries are arguably in favour of Indian producers. Trade agreements signed with countries such as Thailand and China which already offer a number of incentives to their domestic players, are perceived to be a threat to India. The agreements are seen as one of the reasons for India losing out to these countries in gaining green field investments and it is feared that this could severely dent India’s competitive advantage in the future.
Chart 1 Hierarchical Position of Bearings, Gears, and Driving Elements Industry
Source: Euromonitor International
- Category: D – Manufacturing
- Division: 29 – Machinery & equipment n.e.c.
- Group: 291 – General-purpose machinery
- Class: 2913 – Bearings, gears, and driving elements
This class includes:
Ball or roller bearings:
- ball bearings
- tapered roller bearings (including cone and tapered roller assemblies)
- spherical roller bearings
- cylindrical roller bearings
- needle roller bearings
- roller bearings (including combined ball/roller bearings)
Gears, gearing and other driving elements:
- articulated link chain, of iron or steel
- transmission shafts (including cam and crank shafts) and cranks
- bearing housings and plain shaft bearings
- gears and gearing; ball or roller screws; gear boxes and other speed changers
- flywheels and pulleys including pulley blocks
- clutches and shaft couplings including universal joints
- balls, needles and rollers; parts of ball or roller bearings
- parts of articulated link chain of iron or steel
- parts of bearing and driving elements n.e.c.
Exclusions: other chain; electromagnetic clutches; sub-assemblies of power transmission equipment identifiable as parts of vehicles or aircraft.
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