strategic mgt. (indian automobile industry)

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1 AN ANALYSIS OF THE INDIAN AUTOMOBILE INDUSTRY SUBJECT STRATEGIC MANAGEMENT Submitted by: - Umar Faruque – Roll – 11 Amrita Hazarika – Roll – 30 Pratiksha Goswami – Roll – 42

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Page 1: Strategic Mgt. (Indian Automobile Industry)

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An Analysis Of The Indian Automobile Industry Subject – Strategic Management

Submitted by: -

Umar Faruque – Roll – 11

Amrita Hazarika – Roll – 30

Pratiksha Goswami – Roll – 42

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INTRODUCTION: -

Indian automobile industry has grown leaps and bounds since 1898, a time when a car had touched the Indian streets for the first time. At present it holds a promising tenth position in the entire world with being # 1 in Two Wheelers and # 4 in commercial vehicles. Withstanding a growth rate of 18% per annum and an annual production of more than 2 million units, it may not be an exaggeration to say that this industry in the coming years will soon touch a figure of 10 million units per year. The automobile industry in India — the ninth largest in the world with an annual production of over 2.3 million units in 2008 — is expected to become one of the major global automotive industries in the coming years.As of 2009, India is home to 40 million passenger vehicles and more than 1.5 million cars were sold in India in 2009 (an increase of 26%), making the country the second fastest growing automobile market in the world. By 2050, the country is expected to top the world in car volumes with approximately 611 million vehicles on the nation's roads. A major chunk of India's car manufacturing industry is based in and around the city of Chennai (also known as "Detroit of India"), with the Indian city accounting for 60 per cent of the country's automotive exports. Chakan corridor near Pune, Maharashtra is another prominent vehicular production hub with General Motors, Volkswagen/ Skoda, Mahindra and Mahindra in the process of setting up or already set up facilities. Halol in Gujarat, Gurgaon neighboring New Delhi, Aurangabad in Maharastra , Kolkatta in West Bengal are some of the other automotive manufacturing regions around the country.

In this project we have undergone a detailed analysis of India automobile industry by using Fundamental and Technical tools.

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Production StatisticsThe production of automobiles has greatly increased in the last decade. It passed the 1 million mark during 2003-2004 and has more than doubled since.

Year Car Production

% Change Commercial Vehicles

% Change

2009 2,166,238 17.34 466,456 -4.08

2008 1,846,051 7.74 486,277 -9.99

2007 1,713,479 16.33 540,250 -1.2

2006 1,473,000 16.53 546,808 50.74

2005 1,264,000 7.27 362, 755 9

2004 1,178,354 29.78 332,803 31.25

2003 907,968 28.98 253,555 32.86

2002 703,948 7.55 190,848 19.24

2001 654,557 26.37 160,054 -43.52

2000 517,957 -2.85 283,403 -0.58

1999 533,149   285,044  

Genre of Indian Automotive Industry: -

The above diagram shows the current genre of the Indian Automobile Industry.

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Gross Turnover: -

The Indian automobile industry has seen a steady increase of its total turnover over the years. As of the last Financial Year 2008-09, the figure has been 38, 238 million dollars. Below is a table depicting the Gross Turnover of the Indian Automobile Industry in the past five years.

1 Dollar = Rs. 40/-

Current Market Share of the Indian Automobile Industry: -

Domestic Market Share for 2009-10 (%)

Passenger Vehicles 15.86

Commercial Vehicles 4.32

Three Wheelers 3.58

Two Wheelers 76.23

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GROSS TURNOVER OF THE AUTOMOBILE INDUSTRY IN

INDIAYear (IN USD MILLION)

2004-05 20,8962005-06 27,0112006-07 34,2852007-08 36,6122008-09 38,238

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Current Market Share

Source: SIAM

ExportSociety of Indian Automobile Manufacturers (SIAM), automobile sales (including passenger vehicles, commercial vehicles, two-wheelers and three-wheelers) in the overseas markets increased to 1.53 million units in 2008-09 from 1.23 million units in 2007-08. Export of passenger vehicles increased from 218,401 in 2007-08 to 335,739 units in 2008-09.

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Industry Analysis: -

Industrial Analysis of any industry can be done based on the following headings:1. Five Forces Model2. BCG Matrix3. Industrial Life Cycle4. SWOT Analysis5. PESTEL Analysis

Five Forces Model

Michael Porter identifies five forces that influence an industry. These forces are

Degree of Rivalry

Despite the high concentration ratio seen in the automotive sector, rivalry in the Indian auto sector is intense due to the entry of foreign companies in the market. The industry rivalry is extremely high with any being product being matched in a few months by the competitors. This instinct of the industry is primarily driven by technical capabilities acquired over years of gestation under the technical collaboration with international players.

Threat of Substitutes

The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of transportation are available, but none offer the utility, convenience, independence and

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value offered by automobiles. The switching cost associated with using a different mode of transportation, may be high in terms of personal time, convenience and utility.

Barriers to entry

The barriers to enter automotive industry are substantial. For a new company, the startup capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. Although the barriers to new companies are substantial, establishing companies are entering the new markets through strategic partnerships or through buying out or merging with other companies. However, a domestic company, with local knowledge and expertise, has the potential to compete its home market against the global firms who are not well established there.

Supplier’s Power

In the relationship between the industry and its suppliers, the power axis is tipped in industry’s favor. The industry is comprised of powerful buyers who are generally able to dictate their terms to the suppliers.

Buyers’ Power

In the relationship between the automotive industry and its ultimate consumers, the power axis is tipped in the consumers’ favor. This is due to the fairly standardized nature and the low switching costs associated with selecting from among competing brands.

BCG Matrix In an economy, different industries are present and different industries have different growth rate as compared to the growth of the economy. In an economy, there are a number of major industries and they all occupy different positions in the BCG matrix according to their growth and contribution towards the economy. In the Indian economy, some of the major sectors are FMCG, automobiles, banking and insurance, steel, telecom, software, pharmacology and retail sectors and these can be placed in the different positions in the matrix as shown below:

7Star Question Mark

Banking & Finance Telecom

Automobile Retail

Software

Market G

rowth

High

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BCG matrix is used to determine the relative position of the companies of an industry or different SBU’s of any institution, in terms of the market growth rate and the market share of the company in the industry. In the Indian automobile sector, the major players are Maruti Suzuki Limited, General motors, Mahindra and Mahindra, Tata Motors, Hero Honda and Bajaj auto. In the BCG matrix, the companies are placed in one of the following four categories: Star, Cash Cows, Dogs and Question marks. In the Stars we place the companies with high market growth and high market share, cash cows are the companies who have low market growth rate and high relative market share, the category of the question marks include the companies with low relative market share and high market growth rate and dogs include the companies who have low relative market share and low market growth rate.

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Star Question Mark

Banking & Finance Telecom

Automobile Retail

Software

Market G

rowth

High Low

Star Question Mark

Mahindra & Mahindra TVS

Hero Honda General Motors

Bajaj

Cash Cow Dog

Maruti Suzuki

Tata Motors

High Low

Market G

rowth

High

Low

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Fig: - Company BCG Matrix

Industrial Life Cycle The industrial life cycle is a term used for classifying industry vitality over time. Industry life cycle classification generally groups industries into one of four stages: pioneer, growth, maturity and decline.In the pioneer phase, the product has not been widely accepted or adopted. Business strategies are developing, and there is high risk of failure. However, successful companies can grow at extraordinary rates. The Indian automobile sector has passed this stage quite successfully.In the growth phase, the product market has been established and there is at least some historical guide to ground demand estimates. The industry is growing rapidly, often at an accelerating rate of sales and earnings growth. Indian Automotive Industry is booming with a growth rate of around 15 % annually. The cumulative growth of the Passenger Vehicles segment during April 2007 – March 2008 was 12.17 percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by 10.57 percent and Multi Purpose Vehicles by 21.39 percent in this period. The Commercial Vehicles segment grew marginally at 4.07 percent. While Medium & Heavy Commercial Vehicles declined by 1.66 percent, Light Commercial Vehicles recorded a growth of 12.29 percent. Three Wheelers sales fell by 9.71 percent with sales of Goods Carriers declining drastically by 20.49 percent and Passenger Carriers declined by 2.13 percent during April- March 2008 compared to the last year. Two Wheelers registered a negative growth rate of 7.92 % during this period, with motorcycles and electric two wheelers segments declining by 11.90 percent and 44.93% respect. However, Scooters and Mopeds segment grew by 11.64% and 16.63% respect. The growth rate of the automobile industry in India is

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Relative Market

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greater than the GDP growth rate of the economy, so the automobile sector can be very well be said to be in the growth phase. As the product matures, growth slows as penetration reaches practical limits. Companies began to focus on market share rather than growth. Industry demand tends to follow the overall economy, but the scope of growth of the automobile sector is very much possible in India due to the increasing income of the middle class and their income as well as standard of living.

SWOT Analysis

A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. SWOT analysis of the Indian automobile sector gives the following points:

Strengths Large domestic market Sustainable labor cost advantage Competitive auto component vendor base Government incentives for manufacturing plants Strong engineering skills in design etc

Weaknesses Low labor productivity High interest costs and high overheads make the production uncompetitive Various forms of taxes push up the cost of production Low investment in Research and Development Infrastructure bottleneck

Opportunities Commercial vehicles: SC ban on overloading Heavy thrust on mining and construction activity Increase in the income level Cut in excise duties Rising rural demand

Threats

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Rising input costs Rising interest rates Cut throat competition

PESTEL : -

Political Environment: -

Indian government auto policy aimed at promoting an integrated, phased and conducive growth of the Indian automotive industry.

Allowing automatic approval for foreign equity investment up to 100 per cent, with no minimum investment criteria.

Establish an international hub for manufacturing small, affordable passenger cars as well as tractors and two wheelers.

Ensure a balanced transition to open trade at minimal risk to the Indian economy and local industry.

Assist development of vehicles propelled by alternate energy sources.

Laying emphasis on R&D activities carried out by companies in India by giving a weighted tax deduction of up to 150 per cent for in-house research and R&D activities.

Plan to have a terminal life policy for CV along with incentives for replacement for such vehicles.

Promoting multi-modal transportation and the implementation of mass rapid transport systems.

Economic Environment: -

The Indian economy has grown at 8.5 per cent per annum.

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The manufacturing sector has grown at 8–10 per cent per annum in the last few years.

More than 90 per cent of the CV purchase is on credit.

Finance availability to CV buyers has grown in scope during the last few years.

The increased enforcement of overloading restrictions has also contributed to an increase in the number of CVs plying on Indian roads.

Several Indian firms have partnered with global players. While some have formed joint ventures with equity participation, others have entered into technology tie-ups.

Establishment of India as a Manufacturing hub, for mini, compact cars, OEMs, and for auto components.

Social Environment: -

Growth in urbanization, 4th largest economy by PPP index.

Upward migration of household income levels.

Increase in PPP, led to the increase in market share of compact cars.

85% of Cars are financed in India (15% in China).

Cars priced below USD 12000 accounts for nearly 80% of the market.

Vehicles priced between USD 7000 –12000 form the largest segment in the passenger car market.

Indian customers are highly discerning, educated and well informed. They are price sensitive and put a lot of emphasis on value for money.

Preference for small and compact cars. They are socially acceptable, even amongst the well-off.

Preference for fuel efficient cars with low running costs. The Tata Indica has the lowest running cost at US 8.5 cents per mile.

Technological Environment: -

With the entry of global companies into the Indian market, advanced technologies ,both in product and production processes have developed.

With the development or evolution of alternate fuels, hybrid cars have made entry into the market.

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Few global companies have setup their R&D centers in India.

Major global players like Audi, BMW, Hyundai, etc have setup their manufacturing units in India.

Government initiatives regarding tax rebates has led to global players setting up their R&D centers in India.

Govt. initiatives in establishing National Automotive Testing and R&D Infrastructure Project (NATRIP) network across the country will further lead to enhancing R&D and technological advancements.

Environmental Scenario: -

Source: - SIAM (Society of Indian Automobile Manufacturers)

Emission Compliance: -

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The automobile industry has to address the following issues at all the stages of vehicle manufacture:

Environmental Imperatives Safety Requirements Competitive Pressures and Customer Expectations

There is a strong interlinking amongst all these forces of change, influencing the automobile industry. These have to be addressed consistently and strategically to ensure competitiveness.

Since pollution is caused by various sources, it requires an integrated, multidisciplinary approach. The different sources of pollution have to be addressed simultaneously in order to stall widespread damage.

THE PARAMETERS DETERMINING EMISSION FROM VEHICLES

Vehicular Technology Fuel Quality Inspection & Maintenance of In-Use Vehicles

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Road and Traffic Management

While each one of the four factors mentioned above have direct environmental implications, the vehicle and fuel systems have to be addressed as a whole and jointly optimized in order to achieve significant reduction in emission.

Emission Norms List: -

Petrol VehiclesThree - Wheelers(g/km)

Year CO HC HC+Nox1991 12 - 30 8 - 12 - - 1996 6.75 - 5.40 - 2000 4.00 - 2.00 -

2005(BS II) 2.25 - 2.00 (DF =1.2)Two - Wheelers(g/km)

Year CO HC HC+Nox1991 12 - 30 8 - 12 - -1996 4.50 - 3.60 -2000 2.00 - 2.00 -

2005(BS II) 1.50 - 1.50 (DF =1.2)Car(g/km)

Year CO HC Nox HC+Nox

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1991 14.3 - 27.1 2.0-2.9 1996 8.68 - 12.4 3.00 - 4.36

1998* 4.34 - 6.20 1.50 - 2.182000 2.78 0.97B.S II 2.2 0.5B.S II 2.2 - 5.0 0.5 - 0.7B.S III 2.30 0.2 0.15B.S III 2.3 - 5.22 0.20 - 0.29 0.15 - 0.21

* For Catalytic Converter Fitted vehiclesup to 6 seaters (A) & GVW up to 2.5 tons More than 6 seaters (B) & GVW up to 3.5

tons(A)(B)

Diesel Vehicles

Diesel Vehicles (GVM Upto 3.5 Tons)

(g/km) Engine Dynamometer Year CO HC Nox HC+Nox PM1992 14.0 3.5 18 1996 11.20 2.40 14.4

2000 4.5 1.1 8.0 0.36/ 0.61 #

B.S II 4.0 1.1 7.0 0.15For Four Wheelers only

Or

(g/km) Chassis Dynamometer Year CO HC Nox HC+Nox PM

1992 17.3 - 32.6 2.7 - 3.7 Light Duty Vehicles

1996 5.0 - 9.0 2.0 - 4.0

2000 2.72 - 6.90 0.97 - 1.70

0.14 - 0.25

B.S II 1.0 - 1.5 0.7 - 1.20.08 -

0.17

For Four Wheelers only

B.S II(2005) 1.00 0.85 0.10

For 2 & 3 Wheelers, Appropriate DF

B.S III 0.64 - 0.95 0.50 -0.78

0.56 - 0.86

0.05 - 0.10

Cars(g/km) Chassis Dynamometer B.S II 1.0 0.7 0.8 (A)B.S II 1.0 - 1.5 0.7 - 1.2 0.8 - 0.17 (B)B.S III 0.64 0.50 0.56 0.05 (A)

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B.S III 0.64 - 0.95 0.50 -0.78

0.56 - 0.86

0.05 - 0.10

(B)

Diesel Vehicles (GVM > 3.5 Tons)(g/kwh)

Year CO HC Nox HC+Nox PM$ Smoke (m-1) $

1992 14.0 3.5 18 1996 11.20 2.40 14.4

2000 4.5 1.1 8.0 0.36/ 0.36 #

B.S II 4.0 1.1 7.0 0.15 B.S III 2.1 0.7 5.0 0.10/0.13 0.8

# For Engines with Power exceeding 85 kw/ For engines with power upto 85 kw

* For engines having swept volume < 0.75 l per cylinder & rated power speed > 3000 rpm

$ For Diesel Vehicles Only

BS III Norms w.e.f. 1st April '05 in 11 Cities

For CNG Vehicles HC to be replaced by NMHC NMHC = HC X (1-K/100) K - % Methane Content in NGFor LPG Vehicles HC to be replaced by RHC RHC = 0.5 X HC

(Source: - Society of Indian Automobile Manufacturers)

Key Success Factors & Key Market Trends: -

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Growth Forecasts and Recommendations: -

The size of the Indian automotive industry is expected to grow at a rate of 13% per annum over the next decade to reach around 31.96 Million in 2016 from 14Million in 2009.

The total investments required to support the estimated growth are around US$ 120-159 billion by 2016.

Recommendations: -

Manufacture and export of small cars, Multi Utility Vehicles (MUV), two & three wheelers, tractors, components should be further promoted in lieu of the current export trends.

Appropriate Tariff Policy should be followed to attract further investments in the Automobile Sector.

Measures should be taken to expand the domestic market. Exports should be more encouraged. Policy initiatives for competitiveness and development of technology should be

taken. Infrastructure development around identified automotive clusters should be

undertaken.

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Emphasis should be on more product innovation and Value added services as the current customer demands better products and services aggressively.

A road map for Auto Fuel Policy beyond 2010 should be considered. Setting up of virtual SEZ and Auto Parks for auto component industry should be

considered.

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