Gabriel India Auto Component Exports Report

GIP REPORT-GABRIEL PAGE 1
Visit to Gabriel Plant / Head office – Pune
Meeting with Senior Management / Head of Exports
Collaborative working with Gabriel Team on field work data collection
We would like to express our deepest appreciation to all those who provided us the opportunity to
complete this report. A special gratitude we would like to give to our mentors from Gabriel,
Mr. Rajesh Kale - Head of Exports & Mr. Vikash Verma - Sr. Engineer Exports for their
coaching, guidance and setting a direction towards this project
Mr. Umesh Shah - COO & VP Strategy, for inspirational interaction to connect us to the
immersion project in heart and mind
Mr. Rajendra Abhange – Chief Technology Officer, foresight in giving us insights and
challenging our endeavor
Whose suggestions and encouragement helped us to coordinate our project especially in
completing our field work & review.

Growth Moderated
▪ Consumption upgrade favored segments: middle sized and large car, SUV will enjoy higher
growth
▪ Government backed NEV sector will continue hyper growth in short term, however
with a clear schedule of exist of policy stimulus, sector growth remains uncertainty
Consolidation Expected
▪ At present, this industry suffers from excess capacity, especially in large state owned
enterprises and small and medium sized companies
▪ Since automobile industry will be integrated, it will be hard to survive for some weak
and small medium sized automobile companies
▪ The efficiency of automobile industry could be raised by eliminating excess capacity and
effective integration
After Market to Take off
▪ The Chinese market begins to reflect some dynamics in matured market, take off of
aftermarket, opportunities will appear in fields such as second-hand car, maintenance
▪ Further development of aftermarket requires a set of optimizing mechanism for the whole
industry

China has taken several initiatives in restructuring of its policies that aims at increasing domestic
auto and auto-parts manufacturing with foreign partners, enabling technology transfer and
creating an auto-parts supply base for exports. The Chinese government has offered market
access to foreign auto companies in return for technology; both soft and hard technology
acquisition, which has motivated China’s opening of its auto industry to foreign direct investment.
However, there have been significant macro-economic developments in China and India which
have narrowed the competitive edge which China traditionally enjoyed over India, says ACMA.
Rising labor costs in China and the relative movements of the currencies of the two countries vs.
the USD – the depreciation of the Indian Rupee and simultaneous appreciation of the Chinese
RMB, and withdrawal of various export benefits have been the key factors responsible for this.
“This has also prompted some of the Indian companies that were earlier importing from China to
switch to local suppliers in India,” says ACMA. The ACMA study has also identified that Chinese
automobile companies such as Lifan (two-wheelers), Foton (commercial vehicles), SAIC
(passenger cars), and Changan and engine manufacturers such as Weichai are now setting up
facilities in India to serve the local market. Hence, this seems to be an appropriate opportunity
for India to explore the possibility of increasing their exports of auto components to China possibly
to narrow the trade deficit. Moreover, policy changes in India are also likely to boost auto
components exports in future

China’s domestic component manufacturers must continue to develop their capabilities
to effectively compete globally
Industry experts believe most domestic manufacturers will continue to struggle to
increase their competitiveness in the near term

 Many smaller domestic component manufacturers focus on the after sales market which
is becoming increasingly competitive
 Export of low-value components will remain strong. Continued appreciation of the
Chinese Yuan will make exporting to price sensitive regions increasingly challenging
M&A strategies remain a hot topic; however, managing an acquisition and
subsequent integration is a daunting task for most domestic firms

 Overall M&A activity in China is expected to remain at current levels. However, only a
few large-scale private domestic and state-owned enterprises will be actively pursuing
M&A strategies
 Foreign companies are expected to continue looking for M&A opportunities to expand
their capabilities within the Chinese market
 For many small-scale domestic component manufacturers, M&A is considered at best a
very difficult if not unrealistic process to develop core technologies and become more
competitive

Few other global suppliers’ presence in China
Linamar Automotive Systems (WUXI) Co. Ltd.
(Cylinder block, head, camshaft)
Denso (China) Investment Co., Ltd
(Cooling system)
Faurecia (Shanghai) Automotive Systems Co.Ltd

Minda Success story
Minda Corporation LTD: Mr. Ashok Minda, GCEO, Spark Minda Group has annual revenue of
1,664.26 Cr for year 2017. Minda Corporation Limited is one of the largest suppliers of Electronic
& Mechanical Security System to 2 wheelers, 3 wheelers and Off-Road vehicles. It is a diversified
company with a product portfolio encompassing from Mechanical & Electronic Security System
and Electronic Controllers for Electric Vehicles for Auto OEMs across the Globe. The company
exports about 20% of its products to USA, UK, Europe & South-East Asia and ASEAN countries.
Minda Corporation Limited, a leading automotive component and flagship company of Spark
Minda, Ashok Minda Group, has signed a 50:50 joint venture with Shandong Beiqi Hai Hua
Automobile Parts Co., Ltd, China (a BAIC group subsidiary) through its 100% subsidiary Minda
KTSN. This joint venture shall initially focus on producing and selling products such as ‘Plastic Oil
Pans and Cylinder Head’ along with other plastic under-bonnet / interior parts. It shall also have
the rights for production and marketing of Minda KTSN products within china. The new joint
venture shall be known as ‘Minda China Plastic Solutions Ltd’ and the start of production is
expected in next 12 to 15 months. The JV shall be targeting global orders of major OEMs (such as
VW, BMW and Daimler) having their manufacturing plants in China.
The total investment amount of the JV shall be USD 12,500,000. The total registered capital of the
JV would be USD 5,000,000, of which, Minda KTSN and SBHAP shall contribute for 50 % of the
equity interest in the JV from both parties.
SBHAP is in Boshan District of Zibo City, Shandong Province. BAIC Group is a leading automotive
parts manufacturer in China in Interior and Exterior systems. BAIC Group (founded in 1958) has
realized vehicle sales of 2.49 million and operating revenue of RMB 345.22 billion, ranking 5th in
vehicle sales and revenue in China automotive industry in 2015. It also ranks 207th in the
Fortune 500, and 16th in the global automotive industry.

Essel Propack Success Story
Essel Propack, part of the USD 4.2 billion Essel Group, with FY17 turnover of over USD 368 million,
is the largest specialty packaging global company, manufacturing laminated plastic tubes catering
to the FMCG and Pharma space. Holding Oral Care market share of 36% in volume terms globally,
Essel Propack is the world’s largest manufacturer with units operating across countries such as
USA, Mexico, Colombia, Poland, Germany, Egypt, Russia, China, Philippines and India. These
facilities cater to diverse categories that include brands in Beauty & Cosmetics, Pharma & Health,
Food, Oral and Home, offering customized solutions through continuously pioneering first-in-class
innovations in materials, technology and processes.
Essel Propack Guangzhou Ltd (EPGL), China-based subsidiary of Essel Propack has inaugurated
its fourth new plant at Guangzhou province in the People’s Republic of China to produce 45
million square meters of special laminates and 550 million laminated tubes annually.
EPGL China at present enjoys over 70 per cent of the Chinese market share in laminated tubes.
Sundram Fasteners (Zhejiang) Ltd.
Sundram Fasteners (Zhejiang) Limited engages in the production and sale of high-tensile
automobile fasteners and other automobile spare parts. It exports its products to customers in
Europe and the United States. The company was incorporated in 2003 and is based in Jiaxing,
China. Sundram Fasteners (Zhejiang) Limited is a subsidiary of Sundram Fasteners Investments
Limited.

Motherson Sumi Systems Limited
Motherson Sumi Systems Ltd. acquires Finnish auto component giant PKC Group Plc. for Euro 571
million in March 2017
Highlights of the acquisition
 MSSL poised to become a globally preferred solutions provider to the transportation industry
 This acquisition makes MSSL a market leader in wiring harness business for heavy duty
commercial vehicles in the North American and European market with major growth plans in
China.
 There is a great synergy between MSSL & PKC and a complementary geographical presence to
serve the customers in all regions
MSSL will continue to keep its focus on providing full system solutions to its customers globally.
With the operational expertise of MSSL and technical know-how of PKC, the company will add
more value to its customers and suppliers. MSSL’s success in managing its wiring harness business
with a focus on training its’ people, managing multiple plants with high degree of vertical
integration from design to modules will help unlock the full potential of PKC.
Suggestion No 1: Gabriel to conduct a study to identify all key such instances which could
be leveraged upon.

Apart from the AEC, the Government of Viet Nam has completed several FTAs in recent years.
In general, it can be stated that the country pursues an active trade policy to promote
economic development. In total, Viet Nam has eight active FTAs, three which are signed, but
not yet in effect, and four which are currently under negotiation or in the process of
ratification at the time of writing (Table 2).
 Even more uncertain is the status of the Regional Comprehensive Economic Partnership
(RCEP) between ASEAN, Australia, China, India, Japan, New Zealand, and Korea. As all
these countries already have FTAs with ASEAN, the goal is to replace the multitude of
agreements and their differing regulations through a more streamlined, simplified

agreement. The main issue for the realization’ of RCEP is the tension between various
parties, notably China and India. This is embodied by an Indian proposal to reduce tariff
barriers on 80% of tariff lines for ASEAN and 65% of tariff lines towards Japan and Korea
as well as to only grant improved access to 42.5% of tariff lines for Australia, China, and
New Zealand. Thus, it appears entirely possible that RCEP will result either in a
compromise on the lowest common denominator, or in negotiations continuing beyond
the scheduled deadline, or even in failure. While it may be assumed that RCEP would
allow Viet Nam to benefit from improved market access, especially to India, due to the
uncertain nature of the agreement, it will not be discussed further.
 All discussed agreements except EAEUVFTA will simultaneously lower or eliminate tariff
barriers for Vietnamese vehicles and auto parts.20 While a dramatic increase in vehicle
production may not occur in the short to medium term, the country could become a
strategic production location for automotive components that can be exported to some
major vehicle manufacturing nations and regions. Due to its various FTAs, Viet Nam may
attract automotive parts suppliers interested in utilizing it as a strategic production and
export base
 All in all, the latest FTAs demonstrate that Viet Nam is increasingly opening its economy.
Viet Nam has remarkably opened its market to major automobile-producing regions or
countries including ASEAN, the EU, and Korea.

Vietnam Auto Market Analysis
Regarding auto components trade, Viet Nam has recently alternated between being a net
importer or a net exporter (Figure 3).
While the parts and components trade balance recently turned negative again, the gap
between import and export values seems to have narrowed during the recent years due
to increased exports. This suggests that the growing number of automotive components
suppliers in Viet Nam use the country as an export base.
The picture changes if one includes motorcycle and motorcycle parts trade (Figures 4 &
5). This is mainly since Viet Nam has become the world’s fourth-largest motorcycle
manufacturer. While the country is unable to rival leading producers such as China (21.2
million units in 2014), India (18.4 million), and Indonesia (7.9 million), Viet Nam (2.9
million) produces more units than competitors such as Thailand (1.8 million), Taiwan (1.1
million), the Philippines (0.7 million), and Japan (0.6 million).

Vietnam’s Motorcycle Trade, 2009–2014

Country of Origin
Turning to the actual companies, the majority are Japanese (44%), followed by Vietnamese (33%),
and an even smaller group of Taiwanese enterprises (14%). These are followed by Korea,
Malaysia, the USA, and Germany, but the total number of automotive investors from these
countries is low. Moreover, there are a few firms from Thailand, China, India, Indonesia, the
Netherlands, and Singapore actively manufacturing automotive parts in Viet Nam. Refer Table 6
Suggestion No 2: 1. While China is our ultimate objective, an entry through Vietnam
could be a strategic opportunity where we enter Vietnam, make our presence felt and
once we have established ourselves in Vietnam use that base to diversify in China
2. We have identified Vietnam basis our study and data gathering however if Gabriel
feels that data they have some other country which presents an equal or better
opportunity we could do a comparative study and recommend the final country

 The average age of vehicles in China is expected to reach 5.0 years by 2018. As in
developed countries, the Chinese automotive aftermarket will experience a boom once
average vehicle age exceeds 5 years
 Repair and maintenance, as one of the most mature segments in the aftermarket, is
seeing high revenue and profits due to its large customer base. Leading value chain
players, especially spare parts manufacturers and repair service providers, will obtain
lucrative business opportunities
 Limited service range and poor repair quality are two key pain points that independent /
chain stores currently experience. Efficient training and technical support from parts
manufacturers / OEMs are considered necessary
Key implications for parts manufacturers seeking opportunities in China’s
Automotive Aftermarket

By 2020 the value of the aftermarket segment is estimated to reach USD
214 billion, driven mainly by repair and maintenance services
Due to strong growth in car sales over the past years there are currently
over 90 million out of warranty vehicles on the road today

 Compared to mature markets, vehicles in China are still young; in 2015, passenger
vehicles aged over 6 years accounted for just 31% of the total PV population in China
 The average warranty period for vehicles in China is typically 2 years. Usage ages
exceeding 5 years tend to dramatically drive auto aftermarket demand, according to the
aftermarket evolution path seen in developed countries
Suggestion 3:
1. Considering that average warranty period for vehicles in China is 2 years, there would
be more opportunities for usage of aftermarket products. To tap this opportunity Gabriel
could consider tie opportunities for local suppliers for providing technology which could
give them an entry into China.
2. We should consider setting up a full time research desk in China to study the market
identify or zero down on the opportunities
Suggestion 4: Amongst innovation there are 2 things which could be explored by Gabriel
for further study and development if feasible
1. eROT
2. Electric vehicles
 In the mobility of the future, the recuperation of energy plays an increasingly important
role, including in a car’s suspension. Gabriel may develop a prototype,” in which
electromechanical rotary dampers replace the hydraulic dampers used today for an even
more comfortable ride.

 The principle behind eROT is easily explained: “Every pothole, every bump, every curve
induces kinetic energy in the car. Today’s dampers absorb this energy, which is lost in the
form of heat,” “With the new electromechanical damper system in the 48-volt electrical
system, we put this energy to use. It also presents us and our customers with entirely new
possibilities for adjusting the suspension.”
 The eROT system responds quickly and with minimal inertia. As an actively controlled
suspension, it adapts ideally to irregularities in the road surface and the driver’s driving
style. A damper characteristic that is virtually freely definable via software increases
the functional scope. It eliminates the mutual dependence of the rebound and
compression strokes that limits conventional hydraulic dampers. The horizontally
arranged electric motors in the rear axle area replace the upright telescopic shock
absorbers, which allows for additional space in the luggage compartment.
ZF FRIEDRICHSHAFEN AG, the same company that supplies Ferrari dampers for their formula
one race car has partnered with Levant power corporation to build the world’s first regenerative
shock absorber system with energy recovery functions
The “GenShock” takes on a ground breaking approach to energy recovery through the use of an
active damper. The technology is contained in a device mounted to the outside of each shock
that regulates the flow of oil through the shock absorber. The device houses its own control
unit, an electric motor and an electro-hydraulic gear pump, and controls the flow of fluid in the
shocks to adjust the damping rate. The process is reversed when the shock is regenerating
energy

▪ Chinese government announced that new automakers who is expected to produce fuel
consumption vehicles will not be allowed to be founded in principle. It is good news for
development of alternative energy vehicles
▪ Separate NEV license plates are issued to stimulate the NEV growth, especially in
combustion plate restriction cities
▪ Policy in carbon emission restriction and carbon emission trading accelerate the process
for transformation for NEVs
▪ A large number of automakers are involved in the new energy subsidy which will affect
the policy and these subsidies will gradually phase down by 2021
▪ Battery technology including battery range, life and charging period still needs to be
improved progressively
▪ The establishment of charging station hasn’t been popularized yet which will affect
the customers’ confidence in purchasing NEVs
Overall the auto market is witnessing slower growth; however the market of NEV is
picking up the momentum gradually. Driven by the government push, the sales volume
for NEV has exploded. The sales volume increased by 180% to reach 330,000 units.

Gabriel to evaluate best possible way to exploit the NEV by using Top-Down Analysis
and Bottom up Analysis (see below image)
In addition we also recommend that Gabriel could consider the following 2 suggestions from our
project group for evaluation
Chinese auto major SAIC Motor Corporation has officially announced its plans to enter the
Indian automobile market. The company plans to set up a fully-owned car manufacturing facility
in the country.
The operations, which are expected to commence in 2019, will create sizeable employment
opportunities under the ‘Make in India’ and ‘Skill India’ initiatives and contribute to the
economic development of the region
The MG brand, which originated as an iconic British racing sports brand in 1924, has evolved
into a modern, innovative brand over the last 93 years. MG Motor India, a wholly-owned
subsidiary of China’s largest automaker SAIC Motor Corp that owns the brand, aims to launch its
first product in 2019. Manufacturing location is at Halol, Gujarat which was acquired from
General Motors. Planned production would be 80,000-85,000 units per annum
Suggestion No 5: SAIC has entered India. We could explore talks with SAIC to help them
establish their presence in India and in return SAIC helps Gabriel in our efforts to enter
China.

Chinese VMs have learnt some significant lessons from the first generation of Chinese
companies that expanded overseas. It’s worth pointing out that there is a major difference
between simply going overseas and truly going global; the latter is a more substantive shift away
from a largely domestic business. Companies such as Haier, a manufacturer of major appliances
and electronics; TCL, a consumer electronics company; and Lenovo, a manufacturer of personal
computers can offer examples for VMs of what to do as they expand, as well as some scenarios
to avoid.
Haier has taken a somewhat conservative approach to developing its business overseas. Upon
entering the U.S. market, Haier made a deliberate effort to build a local business, including
setting up plants and hiring locals in the United States. Notwithstanding its failed attempt at
acquiring Maytag, Haier has successfully grown its business in the United States one step at a
time.
TCL, by contrast, acquired the business of Schneider and Thomson in Europe. Unlike Haier, TCL
tried to succeed by applying its homegrown Chinese management model to a situation that
clearly required much more understanding of the European market, and one that required local
managers to navigate the nuances of dealing with a highly volatile market situation rather than
the Chinese managers that TCL put in place. TCL has not succeeded, and its European operations
have incurred significant losses.
Lenovo, which most recently made a bid for global expansion, attempted to develop a more
integrated organization and approach from Day One. With a Chinese chairman and an American
CEO, Lenovo maintains its main corporate headquarters in the United States, with another
headquarters in China. After its acquisition of IBM’s PC business, Lenovo clearly realized that to
maintain the confidence of global business customers, the company would have to retain the
best of IBM’s Western capabilities in order to deliver on the brand promise to customers—
which meant either retaining or acquiring and incorporating the international management and
operational capabilities. At the same time, capturing the synergies of the two would require
leveraging assets and capabilities from the former Legend, Lenovo’s Chinese predecessor, and
growing capabilities on the Chinese side over time.

In case of Chinese auto component suppliers, next door advantage plays a key role. One can
look to see their products and willingness to go out and build factories next to assembly plants
To supply a nearby GM plant, glassmaker Fuyao began making windshields at Ohio. Fuyao, one
of China’s largest auto-glass suppliers, also supplies Chinese joint ventures with Volkswagen and
sells to BMW AG and Porsche AG. Fuyao also has a car-glass production facility in countries such
as Russia. It acquired two Illinois production lines in August 2014. Fuyao directed inquiries to a
statement on its website saying the U.S. investment demonstrates its determination to become
an internationalized company
Some Chinese parts makers are expanding into higher tech, including Wanxiang Group Corp.,
China’s No. 1 car-parts company by some measures. It had already become a big supplier of
parts like universal joints, drive shafts and brake discs it makes in the U.S., and in 2013 it bought
Massachusetts auto-battery maker A123 Systems Inc. The Hangzhou Company last year paid
$149.2 million for plug-in-hybrid maker Fisker Automotive Inc.
One can look towards the expansion Yanfeng has achieved by entering U.S. and India to cater
General Motors, Volkswagen and others
Suggestion No 6: Try enrolling a local person to understand the market and survey it for
our benefit. Thus put a case for survey to do in China. We have already tried through
Gabriel partners. So we need to have a focused approach through local specialists. This
approach is usually incorporated by the Chinese whenever they want to enter in a
different region to understand the customer requirements, culture etc.

A NEW device that works like a car’s shock absorber could help thousands of people affected
by osteoarthritis. The spring-loaded implant is surgically attached to the bones above and
below the knee joint
As the foot hits the ground the device, called the KineSpring, soaks up much of the impact,
taking the load off damaged joints. This stops bones inside the knee grinding together and
causing severe pain. KineSpring is indicated for younger, more active osteoarthritis sufferers
who want to remain active before having to go through knee replacement surgery.
An estimated eight million people in Britain have some degree of osteoarthritis which destroys
cartilage, the body’s built-in shock absorber. As the body ages major joints such as the hips,
knees and wrists suffer wear and tear. Other risk factors include being overweight, having a
family history of the condition and suffering sports-related injuries.
Cartilage soaks up the impact from walking, running or lifting so that bones do not rub together
and disintegrate. However in osteoarthritis the cartilage starts to break down and as bones
come into contact, the friction makes joints swollen and extremely painful.
There are no drugs to cure it and many
sufferers rely on anti-inflammatory painkillers
to ease their suffering. About 60,000 people a
year in the UK need a knee replacement
because their joints are eroded. The new
device, developed by California-based firm
Moximed, is expected to benefit patients too
old or infirm to undergo major joint
replacement surgery. The operation to
implant the shock absorber is much less
invasive as the device is placed just beneath
the skin and alongside the knee joint.
Surgeons make two tiny incisions and insert the device, screwing it to the femur (thigh bone)
and the tibia, the bone below the knee. No bone, ligament or cartilage is removed.
Studies involving 100 patients who had the KineSpring device fitted show it reduced pain and
improved knee function by more than 80 per cent. Most patients spent only two days in hospital
after it was fitted and were walking within a fortnight.
Suggestion No 7: The above was an example from England. Considering the cultural and
living habits of Chinese people the research desk could do a study to suggest few
options which could be pursued by Gabriel for further development

Gabriel India Auto Component Exports Report

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