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April 15, 2007

The China Impact

Business Today has an article on how competition - unfair or otherwise - from China is affecting various segments of Indian industry.

Sanjay Labroo, Managing Director, Asahi India Glass, and Vice President of the Automotive Component Manufacturers Association of India (ACMA) gets uncharacteristically animated when you bring up the topic of China. "I don't understand China," he says, before holding out a chart showing how much Chinese component imports into India have increased over the past five years. In 2002-03, India was a net exporter of automotive components to China-importing a paltry Rs 47.4 crore, while exports totalled Rs 69.3 crore. ACMA predicts that by the close of 2006-07, if the current growth rate is kept up, Chinese component imports will touch a massive Rs 1,117.6 crore.

"The problem is not that we are uncompetitive," says Labroo. "In the last 10 years, the Indian component industry has developed into a quality supplier of components, but sometimes we find ourselves competing with guys who are selling below raw material cost," he says. Labroo isn't the only one complaining. "I know what steel costs, I know what it costs to produce welded sheet metal parts," says S.K. Arya, Managing Director, Jay Bharat Group. "I know what black magic they use, but when you hear quotes below the price of the steel going into the component, how can you compete?" he asks.

Labroo says that ACMA has conducted studies in China and found that the country does have some inherent advantages such as good infrastructure ranging from logistics to electricity, besides cheaper labour. But there's no way, he says, that Chinese auto-part manufacturers can sell at the prices they do. "All our calculations at ACMA have led us to conclude that, at best, China can offer an 18 per cent cost advantage. But our members are regularly outbid by 30-40 per cent. In a recent case, a supplier was outbid by 55 per cent," says Labroo in consternation.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.