Detroit's Next Big Threat

By Sebastian Mallaby: "India's economy has grown at more than 6 percent per year since market reforms began in 1991. But it has scrambled the classic transition from agriculture to manufacturing and then eventually to services. Indian agriculture has indeed shrunk from 30 percent of output to 22 percent since the reforms began. But manufacturing has not increased its share. The entire shift has been to services.

Ningbo, a medium-size coastal Chinese city I visited six months ago, where the roads, airport and docks are all new and shiny. In the just-in-time manufacturing culture, delays mean money down the drain. That's why China is the manufacturing platform for the world -- and why India, so far, isn't.

Jayalalithaa, the authoritarian former actress who leads the state government of Tamil Nadu, has thrown money at the infrastructure deficit. When government workers went on strike, Jayalalithaa turned a bit Chinese and arrested thousands of them. (Although her Bollywood career was based on eye-fluttering and dance, she makes California's governator look like, well, a girlie man.) Chennai is also proud of its new Special Economic Zones, modeled on China's tax-free export hubs.

The TVS Group, the largest of India's auto-components firms, now exports around a third of its output -- proof that it meets international standards. The rival Rane Group reports that it has reduced defects from 10,000 parts per million to 250 and that 28 percent of its engine valves are now exported. One of the TVS companies, Sundram Fasteners, has won a General Motors "Supplier of the Year" award five times, and it supplies 100 percent of GM's radiator caps.

The same story is playing itself out in India's two other automotive hubs, around Delhi and Mumbai, and to an even larger extent in Mexico, Thailand and (yes) China. The McKinsey consultancy projects that the outsourcing of car parts, relatively limited until now, will sextuple from $65 billion in 2002 to $375 billion in 2015, with India's share soaring from around $1 billion to $25 billion. If you think Detroit is ailing now, wait until you see what's coming."