Foreign carmakers spur sourcing hub

Global carmakers such as Volkswagen group, Fiat, Mercedes Benz and BMW are now focusing on India to make it their global sourcing hub for auto components. The interest in the Indian market is evident from the sourcing offices set up by these carmakers.

Volkswagen, through its main sourcing office, is aggressively building a large sourcing base for its vehicles to be rolled out of the Chakan plant — Polo hatchback and Skoda Fabia, to begin with. Mahesh Kodumudi, executive director (corporate purchasing), Volkswagen group, said, “We have a regional sourcing office that looks into exports for the Volkswagen group worldwide. In all we have 400 registered suppliers, of which 100 have good export potential. Until last year, we sourced components from India to the tune of €80 million, exceeding the target of €30 million. This year, too, the target will be more than €30 million.”

Kodumudi said going forward, the highest sourcing will be for Polo hatchback, followed by Passat and Jetta. “Similar targets are set for Fabia and other Skoda models. Audi, which is our group company, is also actively working with us to source components from Indian suppliers,” he said.

Volkswagen is looking at 50% localisation for Polo by the end of the year, which it will scale up to 75% in the next two years. Kodumudi said that this would bring the cost of production down by nearly 22%.

The supplier base for Polo alone is 80. This base takes care of the interiors of the car. Passat and Jetta come as complete knockdown (CKD) units and localisation for them will begin from mid-2009.

Currently, only tyres and glass for these two models are sourced locally. Volkswagen is sourcing smaller components with high pack density from India to save on logistics costs.

Fiat Group Purchasing, the sourcing arm of Fiat (India), has so far sourced components to the tune of €100 million and has a target of €250 million by 2010. Niraj Hans, chief operating officer, Fiat Group Purchasing, said, “India is already the global sourcing hub but only for mechanical and metallic components. It has a long way to go with respect to electrical, chemical and rubber components. Besides mechanical and metallic components, we are also focusing on electrical, plastic, rubber and glass parts and are on the verge of finalising suppliers for them.” Its supplier base is 60 now, with another 25 in the pipeline.

Both Kodumudi and Hans agree that sourcing from the country gives them a tremendous cost advantage. Kodumudi said, “We get a price advantage of 25% from Indian supplier compared with European ones. As the volume will be large when we include the group brands, we are expecting further reduction in cost.”

Hans said that 60% of the cost of components is labour and 40% material. This is where sourcing from India works as labour costs here are low.

Suhas Kadlaskar, director (corporate affairs and human resources), Mercedes Benz, is also banking on the country for sourcing. “We have a supplier base of 30 who export parts for our passenger cars and commercial vehicles. Also, Indian suppliers give us superior engineering skills, quality, good costs and lower delivery charges. Our sourcing from India, mainly for our German and US operations, is increasing every year.”

A BMW spokesperson said that the carmaker has set up a purchasing office in the country and by the end of the year, will start sourcing from here.