The Automotive Sector Can Transform South Asia Economically

So concludes a new World Bank study that examines a range of factors affecting South Asia’s competitiveness in the automotive sector. The study appears in a new report, “South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse,” which notes that the region has the potential for greater global competitiveness in many different sectors but must pursue multiple policies to perform as well as other comparable regions, such as East Asia.

With more than 19 million jobs connected directly and indirectly to the automotive sector, India is the South Asian leader in that industry. (Pakistan follows with 2.5 million automotive-related jobs.) India-based auto parts manufacturers have acquired the technical and managerial skills from leading original equipment manufacturers (OEMs) established in India and a growing ability to meet the needs of disparate and discerning customers in competitive export markets. Increased opportunity to co-locate with their global customers for the right reasons will deepen these skills.

A few leading global automotive parts manufacturers have already moved their research and development (R&D) centers to India – such as Bosch, which conducts most of its global R&D with 15,000 workers in Bangalore. Others – including BMW, Mercedes, Renault‐Nissan, Volvo, GM, Ford and Honda – are gaining the confidence to do the same soon. As they do, there is likely to be further growth and sophistication in the country’s related electronics, machining and tooling sectors, as well.

Still, says Priyam Saraf, Lead Author of the automotive case study, “India has done very well in the past decade but has a distance to travel before it can fully contend with other major global exporters in the auto sector. It is the world’s sixth largest auto producer by volume, but it owns less than 1 percent of global export markets compared with more than 3 percent for China, 4.5 percent for Korea and 7 percent for Mexico. The average auto firm in India exported only 5 percent of its total sales, compared to 16 percent in China.”

Intra‐regional trade in South Asia is not significant, and the closest auto-making country, Pakistan, did not rank within the top 40 exporters in 2014.

Holding India – and South Asia – back is its comparatively low productivity in the automotive sector. The average labor productivity of 500 automotive firms surveyed in India by the World Bank was less than one‐third the level in China, with Pakistan further behind. Also, relatively few of India’s OEMs operate at the industry standard for efficiency of 100,000 units per model, which significantly trails levels in competitor countries.

Low productivity also reflects a higher skill gaps in the South Asian automotive sector than in other regions, says the report, both among production workers and their managers.  The automotive sector holds out the promise not just to improve South Asia’s global competitiveness, but also to create jobs and entrepreneurship opportunities in these countries in a sustainable and inclusive way.

The challenge for countries in South Asia would be to spread and democratize the excellence they have been able to achieve – in pockets – more broadly and consistently.