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US auto giants eye India for outsourcing

New Delhi, Oct. 3: North American auto manufacturers who plan to shift non-manufacturing business processes to low-cost offshore locations, place India as their most favoured destination over China, according to a study by AT Kearney.

The study, conducted by the global management consulting major, said a large number of North American auto manufacturers and suppliers intend to move business processes to low-cost countries like India and China.

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

“India is a choice destination for business processing services across all industries,” said Nagi Palle, a principal at AT Kearney.

“There are thousands of well-educated, English-speaking and highly motivated engineering, IT and accounting professionals in India with the skills and capabilities that auto manufacturers and suppliers need for outsourcing,” says the report, giving reasons why India has scored over China as the most preferred destination.

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

The AT Kearney report also said a survey showed that the country had emerged as the most preferred destination for outsourcing with 24 per cent of the survey respondents saying they were planning to migrate some business process activities to India.

China ranked second in the list of preferred destinations with 15 per cent automobile executives voting for it followed by Mexico and Brazil, said the report.

“Offshoring for select engineering, information technology and other support functions to India, for instance, can reduce automakers’ and suppliers’ costs by around 50 per cent,” said Richard Spitzer, vice-president (global automotive practice) of AT Kearney.

“Our research indicates quality is as good or better when transitioned to this particular region. The cost-quality dynamic is making offshore initiatives attractive for auto suppliers and manufacturers,” he added.

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

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