U.S. automakers eye outsourcing biz processes to India

Monday, 29 September 2003, 07:00 Hrs
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NEW DELHI: The study, conducted by global management consulting major A.T. Kearney and released Friday, says a large numbers of North American automotive manufacturers and suppliers intend to move business processes to low-cost countries like India and China.

According to A.T. Kearney estimates, the North American automotive industry, including manufacturers and suppliers, spends approximately $9 billion annually on business processes.

The potential to outsource non-manufacturing business activities represent an enormous opportunity for cost reduction and profitability improvement, the study says.

"Off-shoring for select engineering, IT and other support functions to India, for instance, can reduce automakers' and suppliers' costs by nearly 50 percent," said Richard Spitzer, vice president (global automotive practice) of A.T. Kearney.

"In addition, our research indicates quality is as good or better when transitioned to these particular region. The cost-quality dynamic is making offshore initiatives extremely attractive for auto suppliers and manufacturers," he added.

The report said the trigger for outsourcing included fierce competition in the U.S. market, continuing cost reduction pressures, and a strategy calling for local presence by automakers seeking growth in emerging markets such as Asia.

The survey showed India had emerged as the most preferred destination for outsourcing with 24 percent of the survey respondents saying they were planning to migrate some business process activities to Asia's third largest economy.

China ranked second in the list of preferred destinations with 15 percent automobile executive voting for it, followed by Mexico and Brazil, said the A.T. Kearney report.

"India is clearly the destination of choice for business processing services across all industries," said Nagi Palle, co-author of the research and a principal at A.T. Kearney.

"There are tens and thousands of well-educated, English-speaking and highly motivated engineering, IT and accounting professionals in India with the skills and capabilities auto manufacturers and suppliers need for outsourcing."

While most of the companies surveyed indicated some level of participation in offshoring, the relative size of offshore operations for automakers is small compared to other industries such as technology and services, said Palle.

India's vast pool of English-speaking and cheap manpower, educational system and training programmes have helped transform the country into a global outsourcing superpower.

The rapidly growing BPO industry has virtually turned the country into an electronic housekeeper to the world, taking care of a host of routine activities for multinational giants.

More than a quarter of Fortune 500 companies like General Electric, American Express, British Airways, HSBC and Citibank are shifting their back office operations to India.
Source: IANS
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