Indian players like Tata and Mahindra have low R&D spends (1 per cent and 1.5 per cent of sales respectively) as compared to the global players (about 4 per cent of sales), AT Kearney's 10th Townsend report said.
"Locally developed products currently lack global competitiveness with quality, functional and technology content lagging (behind) global standards by 3-5 years," Manish Mathur, principal and leader automotive practice, AT Kearney India said.
"Meeting global safety and environment norms are key challenges for Indian OEMs," he added. On the contrary, the report said Indian auto component manufacturers are becoming increasingly competitive in the global environment.
"The automotive component market in India has grown at 26 per cent CAGR (2002-06) and exports have grown at 34 per cent CAGR (2002-06)," it said.
North American companies have been increasing their sourcing from low-cost countries, including India, since Indian suppliers have capabilities to deliver world-class quality in certain segments, it added.
The AT Kearney report also pointed out that most global Tier-I auto component suppliers have established their presence in India to leverage on the country's growth and competitive advantage.
At the same time, Indian companies are rapidly scaling up by aggressively expanding their global footprint through mergers and acquisitions internationally, it added.
Commenting further on the Indian auto manufacturers, the report said that India is utilising its excess capacity to export to various destinations such as Mexico, East and Western European countries, Middle East and Africa.
AT Kearney's 10th Townsend report had found that Asian OEMs continued their strong performance in the US, while the next threat to the big three - Toyota, Honda and Nissan -could come from Chinese players.