INDIA, THE EXPORT LAUNCHING PAD

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NEW DELHI -- Fresh from its success in the global software and information-technology markets, India is angling to become a manufacturing-outsource center for everything from cars and car components to steel and petrochemicals.

India's big advantage, business executives here say, is an army of skilled engineers and designers capable of creating low-cost, high-end products not often found in manufacturing centers in China or Southeast Asia.

"Multinationals first come here to establish their presence in our domestic market," says Amit Mitra, secretary-general of the Federation of Indian Chambers of Commerce and Industry. "And then they realize it's a cost-effective base for outsourcing manufactured products."

A rising number of Western and Asian multinational companies are setting up or expanding Indian production operations, both to cash in on the booming local economy, led by an estimated 250 million middle-class consumers, and to capitalize on an export platform with important potential. In 1998, for example, South Korean auto maker Hyundai Motor Co. placed a hefty bet on India by building a $614 million auto-assembly plant in the southern city of Chennai. At the time, many industry analysts didn't believe India's market was large enough to support such an investment, Hyundai officials say. Other skeptics warned of a creaky national infrastructure and parochial consumers who seemed indifferent to foreign goods.

But Hyundai has grabbed a 20% share of India's fast-growing passenger-car market, selling 120,000 units last year, up 21% from 2001. And company officials predict that rapid growth will continue, pointing to a 30% year-on-year expansion in India's car market during the first five months of this year. A confident Hyundai is investing an additional $200 million to increase its production capacity to 250,000 cars a year.

Perhaps more significantly, Hyundai has decided to use India as an export launching pad for its compact cars, which are increasingly popular in Eastern European and Latin American markets. The small cars were designed specifically for India by local engineers, and the company believes their affordability and efficiency will make them a hit in other emerging markets. Hyundai expects to export 30,000 compacts this year.

"India is becoming an extremely competitive manufacturing base," Hyundai Motor India President B.V.R. Subbu says. "They're already low-cost producers of satellites. Why not cars and components?"

Ford Motor Co. of Dearborn, Mich., and Suzuki Motor Corp. of Japan appear to feel the same way. They are already using their Indian operations to make compact cars for Latin America, Asia and Africa. Meanwhile, Tata Motors Ltd., India's second-largest auto company, has signed an exclusive deal with MG Rover Group Ltd. to supply 170,000 Indica compact cars to the British company over the next five years. The two are also in discussions for Rover to get diesel models from India.

Tata Motors executives say the new deals show that India's homegrown designs and models can be exported, even without a formal partnership with a foreign multinational. "These recent trends are very encouraging," says V. Sumantran, an executive director at Tata.

India is going global in other segments of the automotive sector, too. Hero Honda Ltd. -- a joint venture of Honda Motor Co. of Japan and Hero Group of India -- and Bajaj Auto Ltd. are now among the world's largest producers of two-wheel vehicles, on the back of Indian sales of three million units a year. Exports of everything from axles and compressors to shock absorbers have also jumped over the past two years. From exports of just $450 million during the 1999-2000 fiscal year, ending March 31, Indian auto-component exports are expected to reach as much as $1.5 billion this fiscal year.

Indian companies such as Bharat Forge Ltd., Sundaram Clayton Ltd. and Mico Ltd. say global car makers are looking for the cheapest, best-made input and increasingly are turning to India for its designing prowess and low costs. These Indian companies are now suppliers to almost all the major U.S. and Japanese auto makers, including Ford, General Motors Corp., and Toyota Motors Corp. And Indian officials predict that the component industry's total exports could reach $10 billion by 2010, making India one of the world's major suppliers.

India is estimated to have two million working engineers, with its elite technical schools producing 300,000 more each year. Indian executives say the salaries for engineering and information-technology professionals in their country are significantly lower than those of professionals with comparable skills in the U.S. and some other parts of Asia.

Entry-level salaries for engineering jobs, for example, are between $650 and $1,000 a month in India, compared with around $3,600 in the U.S., according to Omam Consultants in New Delhi. IT professionals in India, meanwhile, earn on average of $5,800 annually, compared with $6,000 in Russia and $8,900 in China, according to Nasscom, an organization representing Indian software and services companies.

Not everyone is so sanguine about India's manufacturing potential. The country's rickety infrastructure needs major overhauls, local and foreign executives here say, and the government's policies are still often hostile to big business. Critics cite, in particular, the country's multiple taxes at different levels of government and high tariffs on many imported products that can saddle Indian exporters with bloated costs. Businesspeople are also concerned that India's current economic upswing -- growth in gross domestic product is expected to be as high as 7.5% for the current fiscal year -- could fizzle.

"I'm still cautious of being overly exuberant," says Mr. Sumantran of Tata Motors. "People were predicting annual motor sales of one million" years ago. Last year, total car sales in India reached just over 700,000 units, he points out.

Still, many economists and business leaders believe that India's economic-growth rate is sustainable and that India will benefit from the growing economic might of China. Prime Minister Atal Bihari Vajpayee's June summit with Chinese leaders has warmed relations between the two former foes. And Indian steel, petrochemical and pharmaceutical companies are all reporting double-digit earnings growth this year, propelled in part by exports to China.

"Over the next five years, China will be consuming 200 million tons of steel per year, and India up to 60 million," says B. Muthuraman, managing director of Tata Iron & Steel Co., who notes that 15% of the company's earnings now come from exports, China being its largest market. "These will be the world's two fastest growth markets, and we're perfectly positioned in both."