Chennai: At a time when global auto makers are scrambling to set up operations in India, Hyundai Motor India Ltd, the country’s third largest car maker, says it has been forced to bring in more South Korean suppliers to replace some local vendors in order to arrest falling “global quality” standards here.
Only Maruti Udyog Ltd and Tata Motors Ltd are ahead of Hyundai, based on overall 2006-07 sales, though Hyundai is second only to Maruti in terms of just cars.
The maker of the popular Santro car and a subsidiary of Korean car maker Hyundai Motor Co., Hyundai India started with 17 Korean vendors when it set up its first plant here in 1996. However, it has brought in 23 more suppliers from Korea for reasons of quality, cost and new technologies, said company officials.
“I cannot give you the names, but some of the component makers do not match international quality standards,” said Heung Soo Lheem, managing director and chief executive officer of Hyundai India, in a recent interview with Mint. “We had no other choice (to replace India vendors with Korean ones). We had so, so many... discussions with them to improve the quality, they did not show any willingness.” Details of vendors replaced and the parts they manufactured were not disclosed by Hyundai India.
It is unclear if this is a relatively new problem or whether the problem is unique to just Hyundai’s domestic suppliers, but comes even as the car giant is scaling its production operations in India.
Hyundai has chalked out ambitious plans to more than double its exports from India to a quarter million units by 2009, and to export to 100 countries. It is also planning to start the exports of completely knocked down (CKD) kits to countries where there is lower taxation on such knocked down cars.
Auto component suppliers seemed unware of Hyundai’s complaints or its plans.
“We have no information regarding this” plan to bring in overseas vendors to replace Indian counterparts, maintained V. Ramachandran, southern regional chairperson of Automotive Component Manufacturers Association of India (ACMA). “As far as auto components are concerned, we are nearly the global standards.”
Ramachandran, who is also vice-chairman and managing director of Bangalore-based Kar Mobile Ltd, said Indian auto component makers have invested in manufacturing technologies a few years back and are investing to develop more sophisticated products, and newer products may be available in five years.
The Indian auto component industry has grown at an annual rate of 15% plus over the past four years to around $10 billion now driven by domestic demand and exports. Overseas sales of Indian parts makers have grown at double-digit rates in the past five years to $2.2 billion in 2005-06 (the last year for which data is available) as companies such as General Motors Corp. and Volkswagen AG set up purchasing offices to source more parts from India.
Auto companies usually bring in suppliers from their home country for protection of technology and control. Honda Motor Co., for instance, is bringing in eight parts makers from Japan to Rajasthan, where it is building a factory to make small cars.
One of the reasons cited by Hyundai’s Lheem for bringing in Korean vendors is better technology, in addition to cost and quality. As an added incentive, Hyundai India is rolling out a global purchasing order for vendors who will locate here. As part of the incentive, Lheem said it will give a chance to vendors in India to produce components for other Hyundai factories in Korea, China and other places.
According to information provided by Hyundai India, new vendors will collectively invest $222 million (Rs1,021 crore), towards the car maker’s second plant, which will have manufacturing capacity of 300,000 cars per annum. This is in addition to $340 million to be invested by existing vendors. The total investments by Hyundai Motor India in the second plant is projected at Rs4,191 crore.