India's auto industry drives offshore.

CALCUTTA, India, Oct. 1 (UPI) -- There was an unmistakable zing in the air on a typical sunny day late in August. Arrayed at the seaport of the south Indian city Madras were 1500 factory-fresh Santro Xings -- a cute 1100cc compact car model -- headed for Europe, gleaming partly in the morning sun and partly in Hyundai's pride. That day was after all a big moment for Hyundai Motor India, the country's second largest car manufacturer and the Indian arm of the $47 billion Korean giant. With its plant humming non-stop and orders pouring in, the company is pumping in $200 million to enhance capacity and meet the demand surge.

Not too far away, history of another kind was being created at the Pune -- a West Indian city -- plant of India's oldest auto company Tata Motors. Indica, Tata Motor's compact car and India's truly indigenously developed car was making an international debut with a little help from the £1.4 billion MG Rover. Badged City Rover, the first Indica was all set to roar down British motorways.

Indeed, for India's auto industry, which, not long ago was ruled primarily by two laughing-stock car models: a 1950s Morris model called the Ambassador and a 1960s Suzuki-derived model called the Maruti 800, the gleaming cars at the Indian ports waiting to be shipped offshore, is "historic", as says Hormazd Sorabjee, editor, Autocar India.

But not just cars. Today, for instance, the Mumbai-based Dilip Chhabria Design Pvt Ltd is seeking to take on Pininfarina and Bertone, the Italian standard in international car design, by designing and building concept cars, prototypes and limited-production runs. "There can be few more improbable automotive stories than the yarn about the Indian designers creating bespoke concept and prototype cars," said United Kingdom's auto magazine Autocar in a recent issue. "Yet, the hottest ideas in car design are happening right now in the back streets of Mumbai."

Nor is DC Design alone. Take the instance of motorcycles. The two-wheeler segment is booming too with exports zooming from 100,004 units last year to 179,000 units in 2002-3. By 2005, the industry expects four hundred thousand two-wheelers on foreign shores.

Passenger car exports have nearly trebled in four years, from 28,122 units in 1998-99 to 71,653 vehicles in 2002-3. The industry expects this to gather steam further ahead because car exports in the first quarter of 2003-4 leaped by 87 percent over the same period in 2002-3.

And when cars and two wheeler exports are on the roll, can automobile components be far behind? Pushed to exports last year following a two-year slowdown, the auto component exported $850 million worth of the nuts and bolts that go into making an automobile in the year ended March 2003, which shot up from $578 million in March 2002.

According to a study by the consultancy firm AT Kearney, which sampled opinions from American auto executives, India emerged as the top outsourcing destination with 24 percent of the respondents giving it the thumbs up.

Auto hotspot China comes in second, with 15 percent of the votes, while older hubs like Mexico and Brazil manage 13 percent and 10 percent respectively. Even Asian big-wheel markets like Thailand and Australia cornered a mere 2 percent and 1 percent votes in the survey, while large supplier centers like Canada and Hungary were a shade better at 7 percent and 6 percent.

"The study reflects the auto outsourcing revolution happening in India, driven by its English language and engineering capability," said Nagi Palle, co-author of the research at AT Kearney. And, "Indian auto component makers now supply to virtually the best and the biggest in the world," said Suresh Krishna of Sundaram Fasteners, a leading auto component exporter adding that he expects the country to achieve the target of $2 billion in auto parts sales by 2006.

Already, 15 global car makers -- such as GM, Ford, DaimlerChrysler, Mercedes-Benz, Audi, Isuzu and Nissan -- have set up outsourcing offices in the country with a combined budget of approximately $1.5 billion, say industry sources. Leading component makers like Delphi, Visteon and Caterpillar too have found India their best bet.

Call it the next outsourcing wave or simply, smart marketing by the local industry, it is a fact that the global auto-makers are increasingly turning to India for sourcing a wide range of needs that even include designing models meant only for global markets.

"To begin with," says Deep Kapuria, of Automobile Components Manufacturers Association of India, "it's triggered by the overall economic slowdown and large-scale bankruptcies in the global auto sector and as global giants continue losing money, cost pressures are forcing them to opt for sourcing bases in developing countries."

But more important, according to industry analysts, the Indian auto industry has come of age finally, having invested in upgrading itself in the past few years to meet global standards.

Till the mid-1990s, the Indian auto sector was still a non-performer with just a handful of local players. However following the opening up of this sector to foreign direct investments in 1996, global major started coming in and by 2002, Hyundai, Honda, Toyota, GM, Ford and Mitsubishi had set up their manufacturing bases here.

"These companies first had to focus on issues like quality, vendors and marketing before they could think big," says Arindam Bhattacharya, vice-president, Boston Consulting Group. In the past four-five years thus, these companies had been able to not only fine-tune their operations but also force the rest of the industry to transform. "Consequently," adds Bhattacharya, "India has not only emerged as a low cost base but also a source for producing quality products."

The sector also got an unintended boost from the stringent auto-emission norms initiated by India in the past few years. This ensured that vehicles produced in India conformed to the standards of the developed world. It also drew technology infusion and investments.

"Not surprising then that India is also set to become a preferred Research and Development center," says Ravi Khanna, president and MD, Delphi India adding that its Indian facilities are, "an integral part of its worldwide engineering and technical footprint".

Nevertheless, according to Managing Director Jagdish Khattar of Maruti Udyog Ltd India's largest carmaker and a Suzuki joint venture, India still has a long way to go to become a global force to reckon with. "Indian companies first need to grow the Indian market to acquire economies of scale," he says. China, for instance, consumes four times India's 700,000 annual car sales. Moreover, if Indian companies hope to corner a big chunk of the global market they would need to ramp up their global presence considerably, say others.

Still, Surinder Kapur, chairman, Sona Koyo Steering, which exports car steering assemblies says, "car makers over the world have realized that India can design a car on its own and make it globally acceptable." For instance, the Indian made sports utility vehicle Scorpio has received a phenomenal response in Detroit early this year, not just for its design but also because of its cheaper price tag. Others like Ford's mid-sized car model Ikon, Maruti's Altos, and Toyota's Indian-made multi-utility vehicle have also found ready buyers in a number of American, European and neighboring countries. Moreover, India is only the ninth country in the world to design a vehicle on its own.

Small wonder then that Ravi Khanna of Delphi India is "convinced that with the increasing emphasis on quality, India is fast moving towards becoming a sourcing hub for global automobile makers."