Gazing through a crystal ball – A look at the Indian Automotive Component Manufacturing Industry
I had written 2 stories looking at the post COVID future of Malls and IT work force. There were many friends who wanted me to look at specific industries. Here I have looked at the automotive industry.
First, a brief on the approach I have taken. The strategic outlook for an industry is developed based on two factors;
1) Known certainties that are important and impact them
2) Uncertain factors which are important due the impact on the industry
These are identified using the PESTLED analysis. These factors are then prioritized and the uncertainty associated with them is explored using a structured process.
The first set of certain factors demand a careful set of strategic initiatives that typically will impact their existing and in some cases the growth business. While the second set of uncertain factors demand detailed scenario planning, out of which will emerge strategic initiatives that will focus on the organization's future.
A powerful way of depicting these initiatives is the horizon model shown above. In the case of known certainties, the resulting initiatives will be those that impact horizon 1 and in some instances horizon 2. Here we are expecting the organization to be leveraging at least one of the two drivers; markets and capabilities. While Horizon 1 initiatives will encompass existing markets and capabilities, Horizon 2 may extend either existing capabilities to new markets or bring new capabilities to existing markets. Horizon 3 on the other hand often brings new competencies, new business models, and markets into play.
Here is a summary of the impact on the Auto Component Industry in India
Certain factors that will impact the Industry
Out of the various factors identified using the PESTLED analysis, the following are quite certain and will significantly impact the industry
1. The Worsening of India China relationship will have a significant impact on the supply chain of the automotive industry. Many of the tier 1 and tier 2 manufacturers source components from China and they will be under pressure to source them locally now. This represents a huge opportunity for the industry as well as create supply bottlenecks.
2. Atma Nirbhar program will provide incentives and impetus for local manufacturing of items that are currently being imported. Coupled with the impact caused by the India China situation, this is a clear positive.
3. The labor dislocation caused by COVID is unlikely to be fully recovered. This will have an impact on the availability of migrant labor and a consequent increase in cost
Uncertain factors that will require Scenario Planning at the individual organization level
There are a number of factors were there is significant uncertainty and which we believe have a significant impact on the industry's future.
1. The extent of the impact on long term demand is quite uncertain. We believe multiple factors are at play here;
Short term focus on personal mobility and avoidance of public transport. This will drive demand for 2 and 3 wheelers in the short and medium-term
Increased demand for spare parts arising from the postponement of purchasing decisions
Reduced demand for commercial vehicles.
The type of economic recovery; will it be a slow recovery or a sharp V-shaped recovery
2. The electric vehicle trend. We believe that while the expected EV pick up in cars could be delayed, the EV trend in 2W will be pronounced
3. EV technology could spur micro-mobility disruptions over a much shorter period
Scenario planning for uncertainties
Organizations that are looking at the future must now initiate detailed scenario planning for the uncertainties. This should focus on the following
Impact of the various scenarios on their business. There would be plenty of opportunities to grow
Develop multiple scenarios that are likely to impact your business, usually 2 to 3 scenarios
Keep track of events that impact the scenarios and update them.
Key focus areas for the Auto Component Industry
We believe that the auto component industry should focus on the following
Horizon 1: Core Business - Exploit and optimize existing business
Companies should continue to focus on the following areas, as they have been doing prior to COVID
Localize parts and develop local suppliers. This will call for significant supplier development efforts
Invest on operations excellence both in their own operations as well as supplier operations
Focus on quality improvement, design optimization, and robustness of product
Horizon 2: Growth Business - Expanding existing and building new business
1. Organizations should focus on the certain to occur factors; increased shifting of manufacturing to India by domestic companies (Atma Nirbhar and China impact) as well as International companies (a global supply chain trend)
Identify new product categories where existing capabilities can be utilized
Identify adjacencies to existing market especially opportunities to serve OEM’s and tier 1 suppliers impacted by supply chain dislocation
2. Organizations should focus on automation and digital strategies to reduce migrant labor dependencies. This challenge is going to get bigger and bigger and the time for action is now.
3. The scenario planning exercise should indicate strategic initiatives for growth in adjacencies. For example
How might we take advantage of increased demand in the aftermarket segment
Horizon 3: Future Business - Explore options, place small bets on emerging opportunities, radical innovation
These initiatives will arise from the scenario planning exercise. We recommend that organizations should deep dive into finding what is the impact of micro-mobility and EV trends on their business. Use this to identify new growth opportunities that these scenarios may offer.
Krishnan is a leading innovation consultant and focuses on helping people and organizations innovate and build capabilities for innovation. He brings over 25 years of experience in the industry and consulting. You can reach him by phone / WhatsApp: +919791033967 or email: firstname.lastname@example.org