Core business risks
Meanwhile, what happens in the core business that has been fuelling this diversification? If the core business fails to invest and keep up, its product portfolio will age. But markets will not stop evolving. And at the end of the day, the consumer's need will be met.

The Indian consumer is definitely not going back to an era where people booked a car and waited 7 years for delivery. So, if existing auto component manufacturers are not in a position to meet market needs, either in terms of capacity or capability (more likely), there is likely to be a surge in imports or new entrants. Free trade agreements will expand and imports will rise. In the last 5 years, against an 11.1 percent growth in sales, imports have grown at 18.2 percent. This will accelerate.

If not imports, then new entrants can be expected. To capture share, they will enter with higher technological capabilities and establish themselves in this growth market. Since they will offer the higher end components to OEMs, it is likely that they will capture a disproportionate share of the industry profit pool. This will leave companies who have not upgraded their capabilities and focused elsewhere to continue making lower end products that generate revenues without profits.

That's what lies beneath
So, it seems that Mr Suzuki's warning is a timely one and should not be viewed as a simple recommendation. This is an industry that will change rapidly and requires a strong focus on quality standards. It also requires management teams to focus on staying ahead of the curve, if not at least on it.

This will require an investment of time and money. Distractions at this time can be dangerous. It is quite possible that the future of the automotive industry in India depends on sticking to the knitting.

The author is Partner & Managing Director, CGN Global - India
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