Localization: Automotive MENA Opportunity for Indian Engineering Services Providers

Localization is a megatrend that accelerated in the last couple of years due to supply chain disruption during the pandemic, geopolitics, and efforts by many countries and regions to increase manufacturing investments. Localization is impacting manufacturing investments in different industries and different regions in different ways, and some of these investments are creating engineering service opportunities.

One such emerging localization opportunity for automotive is in Middle East North Africa (MENA) region.

What is happening in automotive in MENA?

There are many activities going on in automotive in MENA. Some of them are listed in the chart below. Few trends we see here:

•  Automotive manufacturing investments are growing across MENA countries. These investments are mostly in greenfield projects either by new OEMs or by established OEMs in partnership with local players. These investments are across different types of vehicles, either cars or commercial vehicles. Most of these investments are for electric vehicles. In other news reports, it is mentioned that auto tier-1s are also making manufacturing investments. So slowly whole automotive manufacturing supply chain will emerge in MENA.
• New product development initiatives are also visible. Though many manufacturing investments could be producing existing products in the region, few investments are for new product development (NPD) also. If these NPD programs meet commercial success, more firms will go for NPD specifically for the MENA region.
• Engineering services deals are also awarded. There is one public example of NABCO and FEV. When manufacturing investment is there, R&D requirements and engineering service deals will also follow.
• Delivery centers for engineering services in the MENA region are an attractive proposition. Earlier, these centers, especially in Morocco and Tunisia, were mainly nearshore delivery centers for the European automotive industry. Now some of these earlier centers, along with new delivery centers, will have dual roles of both local delivery and nearshore delivery. Some governments are encouraging talent development in partnership with engineering service providers.
• European engineering service providers are active in the MENA region. Earlier European service providers were using the MENA region for nearshore delivery for European OEMs and tier-1s. There was some local manufacturing earlier also, which was supported by these European engineering service providers. Now when automotive manufacturing investments are increasing in MENA, these European engineering service providers are at the forefront and benefiting from this localization trend in MENA.

Why should Indian automotive engineering service providers look at MENA strategically?

• Greenfield opportunities to compete and win automotive engineering business. At a time when Indian automotive engineering service providers are giving competition to European engineering service providers and winning deals against them in many geographies, they are leaving MENA opportunity on the table.
• Location proximity to MENA from India with ease of staffing and managing engagements. It could have a multiplier effect on other engineering services activities in the MENA region.
• Strengthening relationships with global auto OEMs and tier-1s by supporting them in the MENA region. It will help Indian engineering service providers to get more share of the wallet and position themselves as more strategic and global partners. Its benefit could be beyond the MENA region.
• Delivery centers can act as nearshore centers and strengthen the global delivery capabilities of Indian engineering service providers.

Bottom Line: MENA automotive opportunity should be on the radar of Indian engineering service providers. They should be making investments in delivery centers, local partnerships, government partnerships, and skill development in the MENA region. This will position them favorably with auto OEMs and tier-1s that have an interest in MENA. Success occurs when opportunity meets preparation.