Indian Auto-Component Supply Chain at the Crossroads

We trace the evolution of the auto component supply chain in India (following the opening of the Indian economy in 1990) using a combination of data on firm and sectoral performance, customer satisfaction surveys and interviews with experts. During the last decade, the industry has made remarkable progress on multiple fronts. This is particularly true with regard to quality ten firms in this industry have won the coveted Deming award during the last six years. We first observe that, surprisingly, the financial performance of the Deming firms show no clear-cut differences from the rest of the industry. We then analyze the productivity growth at the firm level across two five-year intervals using a total factor productivity model. Our results suggest that productivity has improved much more in the second period, which is the interval in which most of the firms won the Deming award. We then analyze the impact on profitability and suggest that new firms were able to grow faster in the growing business environment. To“externally” validate our findings, we compare the auto sector in India with that in China. . Despite a ten-year disadvantage in start-up and costs that are beyond the control of the firm, the auto sector in India seems to be competitive with China on all firm specific factors. In summary, we suggest that firms in this sector have taken the first step by becoming competitive on the cost and quality dimensions. We suggest that they are now at a crossroads, and have to make several choices in order to leverage these quality gains into a profitable global supply chain strategy.