North American automotive executives have picked India over China as the most popular offshore destination for the migration of business processing activities, according to a new survey.
Nine out of ten executives, surveyed by A T Kearney, a global management consulting firm, said they intend to move certain non-manufacturing business processes to low-cost offshore locations.
"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 of 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 offshore business processing," he said.
A T Kearney estimates that the North American automotive industry, including manufacturers and suppliers, spends approximately $9 billion annually on business processes with the potential to be offshored, representing an enormous opportunity for cost reduction and profitability improvement.
Drivers for the growing momentum in this migration of labour include fierce competition in domestic and foreign markets, continuing cost reduction pressures and an industry-wide strategy calling for local presence by automakers seeking growth in emerging markets, such as Asia and South America, and by suppliers in support of their customers.
Shifting manufacturing to markets with lower wage and benefits requirements has been fairly widespread in the auto industry for several decades.
Moving business processes to offshore locations, however, was a much more recent development across industries, said Richard Spitzer, vice president in A T Kearney's global automotive practice and co-author of the study.
The automotive industry is not the leader at this point, said Spitzer, but interest is clearly quite high.
"Done right, offshoring for select engineering, IT and other support functions to India, for instance, can reduce automakers' and suppliers' costs by nearly 50 per cent compared with doing the same functions in the US," said Spitzer.
"In addition, our research indicates quality is as good or better when transitioned to these particular regions," Spitzer said.
"These cost-quality dynamic is making offshore initiatives extremely attractive for auto suppliers and manufacturers."
Engineering and IT were the predominant functions being sourced to offshore labour pools, Spitzer said.
Additionally, certain financial and accounting services and call centre activities also are well-suited for offshoring.
While nearly all companies surveyed indicated some level of participation in offshoring, the relative size of offshore operations for automotive manufacturers and suppliers was still small compared to other industries, such as high tech manufacturing and services, Palle added.
"We are still early in this process," he said.
Forty senior automotive executives were interviewed for the survey conducted by the Global Automotive Practice of A T Kearney.