Why localisation looks different for Tier-2 and Tier-3 automotive suppliers
Last week, I spoke with a specialised firm that helps international automotive suppliers enter new markets. They work with highly specialised, technology-driven companies.
They have an impressive client base, and testimonials highlighted successful engagements. However, what stayed with me more was how they spoke about market entry.
Not in terms of factories or public announcements, but in terms of relationships, technical integration and slow entry into unfamiliar ecosystems.
India is an important market for global automotive suppliers due to rapid growth in EVs, electronics, safety systems and advanced materials. While most localisation discussions focus on OEMs and Tier-1 suppliers, Tier-2 and Tier-3 suppliers operate under very different conditions and constraints.
This post attempts to understand how localisation works for them and why their approach needs to be different.
How Tier-2 and Tier-3 suppliers operate
Tier-2 and Tier-3 suppliers typically work deep inside the automotive value chain. They supply components, materials or sub-systems that feed into larger assemblies. Many are highly specialised and technology-driven.
Unlike large OEMs, they usually face limited expansion budgets, smaller global teams, fewer parallel market entry options, and higher risk exposure for each new market they enter.
For them, entering India is not just a growth opportunity but a strategic decision about where to allocate scarce resources.
Why localisation often starts late
Many foreign suppliers connect localisation mainly with manufacturing. That means setting up production facilities, increasing local sourcing and reducing import dependence However, in practice, effective localisation should start much earlier.
Before manufacturing decisions, suppliers need to understand:
- How Indian OEMs evaluate suppliers
- How decisions move across engineering, sourcing and program teams
- The structure of Indian Tier-1 and Tier-2 supply networks
- Price sensitivity and cost benchmarks
- Speed of product development cycles
By the time manufacturing discussions begin, competitors with a local presence often already have an advantage in relationships, trust and responsiveness.
What localisation actually looks like for Tier-2 and Tier-3 suppliers
For specialised suppliers, localisation is usually a step-by-step process, not a single investment decision.
A typical progression looks like this:
- Local technical and sales interface
Engineers or technical sales people on the ground who can engage with customer teams. - Local project support
Support during product development, validation, testing and trials. - Local logistics and inventory
Regional warehousing to reduce lead times and ensure supply continuity. - Local service and application support
Technical problem-solving and after-sales support close to customers. - Local manufacturing
Production facilities once demand stabilises and volume justifies the investment.
For Tier-2 and Tier-3 suppliers, steps 1 to 4 are often more critical than step 5 in the initial years.
Why Indian OEMs push for localisation
Localisation pressure from Indian OEMs is driven by government policy and, importantly, by operational requirements.
Vehicle development cycles are becoming shorter, especially in emerging areas like electric mobility and automotive electronics, which increases the need for faster and more continuous technical interaction. Engineering teams often require real-time support during design, validation and testing phases, which is difficult to manage from overseas. At the same time, recent global disruptions have highlighted the risks of long and complex supply chains, prompting OEMs to favour suppliers with some level of local or regional presence.
Faster problem resolution during trials, launch stages and production issues also becomes critical, as physical proximity allows quicker response and coordination. For most OEMs, localisation is therefore less a symbolic or policy-driven expectation and more a practical necessity to manage development speed, quality control and operational risk.
Areas where localisation demand is growing
India’s shift towards more technology-intensive automotive production is creating increased demand for specialised suppliers in areas such as electric drivetrains, including battery packs, battery management systems, motors, and inverters; automotive electronics like sensors, ECUs, power electronics, and embedded systems; safety systems such as braking technologies and structural safety components; and lightweight materials, including composites, advanced polymers, and special alloys.
India’s automotive component industry is expected to cross USD 200 billion in the coming years, with a growing share coming from electronics and advanced components. This creates meaningful opportunities for global Tier-2 and Tier-3 suppliers with strong technological capabilities.
Why a different localisation strategy is necessary
Large OEMs have scale and the ability to absorb risk. Tier-2 and Tier-3 suppliers usually do not.
For them, incorrect market timing can drain resources, overinvestment too early can strain operations, and under-presence can lead to missed opportunities. A phased localisation model allows them to build relationships before committing significant capital, learn local dynamics before scaling, and manage risk while staying close to customers.
This approach prioritises integration into the ecosystem rather than rapid physical expansion.
Final view
For Tier-2 and Tier-3 suppliers, localisation in India is less about building factories and more about building relevance within the ecosystem.
The most effective localisation strategies typically begin with proximity, technical engagement, and operational support, and only move towards manufacturing once a strong foundation has been established.
This approach reduces risk, strengthens long-term positioning, and improves the chances of building a sustainable presence in a complex but high-growth market.
If you are considering India as a potential market and would like an objective, on-the-ground perspective on entry and localisation strategies, I’d be happy to exchange views over a brief call.
