BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE

PILANI

ACADEMIC SESSION

Aug’2014 – Dec’ 2014

AUTOMOBILE SECTOR IN INDIA

MBA C424 INTERNATIONAL BUSINESS

Submitted to:

Dr. Leela Rani

Submitted by:

Mansi Saini

Dipesh Joshi

Sachin Soni

Rahul Tiwari

FRAMEWORK

Indian automobile industry embarked on a new journey in 1991 with delicensing of the sector and subsequent opening up for 100 percent FDI through automatic route. In view of this, the study attempts to estimate the following aspects of Indian automobile industry:

1. Automobile Industry Introduction History Major Players- Indigenous and International Economic Statistics Export- import statistics

2. Automobile Business Major imports- Trade relations with countries Major exports- Trade relations with countries Business Model- Joint ventures, FDI, Mergers and Acquisitions, Subsidiaries Factors affecting the industry- Fuel prices, Steel growth

3. Manufacturing Units Major cities and their location benefits Cultural environment State government rules and regulations

4. Marketing and Distribution Strategies5. Future growth prospects and challenges

1. INTRODUCTIONHISTORY

The Indian Automotive Industry after de-licensing in July, 1991 has grown at a spectacular rate of 17% on an average for last few years. The industry has now attained a turnover of Rs. 1, 65, 000 crores (34 billion USD) and an investment of Rs. 50,000 crores. Over of Rs. 35,000 crores of investment is in pipeline. The industry is providing direct and indirect employment to 1.31 crore people. It is also making a contribution of 17% to the kitty of indirect taxes. The export in automotive sector has grown on an average CAGR of 30% per year for the last five years. The export earnings from this sector are 4.08 billion USD out of which the share of auto component sector 1.8 billion USD. Even with this rapid growth, the Indian Automotive Industry’s contribution in global terms is very low. This is evident from the fact that even though passenger and commercial vehicles have crossed the production figure of 1.5 million in the year 2005-06, yet India’s share is about 2.37 percent of world production as the total number of passenger and commercial vehicles being manufactured in the world are 66.46 million against the installed capacity of 85 million units. Similarly, export constitutes only about 0.3% of global trade. It is a well-accepted fact that the automotive industry is a volume driven industry and a certain critical mass is a pre-requisite for attracting the much needed investment in Research and Development and New Product Design and Development. R&D investment is needed for innovations which is the life-line for achieving and retaining the competitiveness in the industry. This competitiveness in turn depends on the capacity and the speed of the industry to innovate and upgrade. No nation on its own can make its industries competitive but it is the companies which make the industry competitive. The most important indices of competitiveness are the productivity both of labor and capital.

MAJOR AUTOMOBILE PLAYERS:

ECONOMIC ASPECTS:

2. AUTOMOBILE BUSINESS

INDIA’S MAJOR EXPORT MARKET AND TRADE/EXPORTThe top ten Indian export markets include UAE, USA, China, Singapore, Hong Kong, UK, Netherlands, Germany, Indonesia and Belgium. And the export trade basket consists of Petroleum products, Gems and jewelry, Pharmacy products, Transport Equipment, Readymade Garments, Machinery & Equipment, Manufactures of Metals, Electronic Goods, Rubber, glass and products and Cotton yarn & Fabrics.

INDIA’S MAJOR IMPORT SOURCES AND TRADE/IMPORT BASKET The top ten Indian import sources markets include China, UAE, Switzerland, Saudi Arabia, USA, Iraq, Kuwait, Germany, Indonesia and Australia. And the import trade basket consists of Crude petroleum, Gold and Silver, Electronic Goods, Pearls and precious stones, Non-Electrical Machinery, Organic and Inorganic chemicals, Coal and Briquettes, Transport Equipment, Metaliferous ores and Products and Iron and Steel.

INDIA’S TRADE IN AUTOMOBILEThe Indian automotive industry has emerged as a 'sunrise sector' in the Indian economy. India is being deemed as one of the world's fastest growing passenger car markets and second largest two wheeler manufacturer. It is also home for the largest motor cycle manufacturer and the fifth largest commercial vehicle manufacturer. India is the largest base to export compact cars to Europe. Moreover, hybrid and electronic vehicles are new developments on the automobile canvas and India is one of the key markets for them. Global and Indian manufacturers are focusing their efforts to develop innovative products, technologies and supply chains. Some interesting Facts about Indian Automobile Industry1. 2nd largest two wheeler manufacturer in the world.2. 2nd largest tractor and three wheeler manufacturers in the world.3. 4th largest Commercial vehicle market in the world.4. Eleventh largest passenger car market in the world.5. Contributes about 4 per cent in India's Gross Domestic Product (GDP).6. 5 percent in India's industrial production.7. Generated about 4.5 lakh of direct employment.8. About one crore of indirect employment.9. Establishment of competitive Auto Ancillary Industry, automobile testing and R&D centers.10. First car ran on India's roads in 1897.11. Till 1930s, cars were imported directly.12. 9th largest automobile industry.13. Annual production of over 2.3 million units.14. Monthly sales of passenger cars in India exceed 100,000 units.15. Mahindra is 3rd largest tractor manufacturer in the world.Source: Indian Brand Equity Foundation (Ibef Export Composition, Share and Destinations)In 2011-12, the total value of Automobile Export was estimated at 7.06 Billion US $(ACMA).In two-wheeler category, Bajaj Auto has (59%) and TVS has (17%) of share. In three-wheelers Bajaj is market leader with (97%) of shares. In commercial vehicles category, Tata has (67%) and Ashok Leyland (12%). In passenger vehicles, Maruti (66%) and Hyundai (24%).The major export destinations in order of value exported are USA, Italy, Sri Lanka, South Africa, United Kingdom, United Arab Emirates, Algeria, Bangladesh, Egypt and Germany.1. Proven Product Development Capabilities. There are more than 500 R&D centers in India.

2. Proximity to markets in India and proximity to other Asian economies.3. Shipment to Europe is cheaper than those from Brazil and Thailand.4. Availability of Manpower. 4 lakh Engineering graduates every year and 70 lakh people enter workforce every year.5. High quality standards.11 Indian component manufacturers have won the “Deming Award” for quality. And most leading component manufacturers are QS and ISO certified.6. Demand growth of 14% CAGR makes India one of the fastest growing Markets.7. Skill labor costs amongst the lowest in India

The Indian Automobile Industry is manufacturing over 11 million vehicles and exporting about 1.5 million every year. The dominant products of the industry are two wheelers with a market share of over 75% and passenger cars with a market share of about 16%. Commercial vehicles and three wheelers share about 9% of the market between them.

MERGERS AND ACQUISITIONS:

In 2008, Indian automobile industry has witnessed one of the biggest merger and acquisition so far. The luxury vehicle brands Jaguar and Land Rover were acquired by the prestigious Tata motors. There were many theories about the venture but a concrete set of perceptions and anticipations by the Tatas which can be regarded as the set of rules for M&A in automotive sector in India is described below: 1. Long term strategic commitment to automotive sector2. Opportunity to participate in two fast growing auto segments (premium and small cars) and to build a comprehensive product portfolio with a global footprint.3. Increased business diversity across markets and product segments4. Unique opportunity to move into premium segment5. Both Jaguar and Land rover provided a best fit to TML's portfolio6. Sharing of best practices between Jaguar, Land Rover and Tata Motors in the future7. Long term benefits from component sourcing, low cost engineering and design services

(Source: Tata Motors)

FOREIGN DIRECT INVESTMENTS IN AUTOMOBILE SECTOR IN INDIA:

Indian Automobile Industry is globally one of the largest industries and a key sector of the Economy. Indian Government policies resulting in the Foreign Direct Investment (FDI) infusion in Auto Sector has had a significant impact on job creation. It is therefore most important to see how various policies enunciated at various times have created employment opportunities directly and indirectly in this fast changing Automobile sector. This research paper attempts to understand the inventory of policy responses of the government especially related to FDI in automobile sector. Foreign Direct Investment (FDI) has been considered as a major catalyst in promoting sustainable development in developing countries. FDI has the potential to generate employment, raise productivity, transfer skills and technology, increase incomes, enhance exports and contributes to the long-term economic development of the world’s developing countries. Evidence presented in the form of (available) empirical data with its interpretation suggests there has been significant impact of FDI in Auto Sector in Employment Generation – both in quantity and quality. It can be construed that with further infusion of FDI in this sector as envisaged in Automotive Mission Plan (2006-16) and 12th five year plan (2012-17) of the Government of India; the potential for employment generation is expected to show the same CARG estimated for the Automobile Industry – Automobile manufacturers (OEMs), Auto Component sector and in related enabling services. (Source: isca.in)Following are the visualization of the current scenario of Indian automotive sector and the projected impact of FDI on it:

(Source: isca.in)

FACTORS AFFECTING AUTOMOBILE SECTOR:

Following are the factors which directly or indirectly affect the growth of automobile sector in India:

1. Fuel prices2. Globalization3. FDI4. Government5. Demand6. Workforce7. Raw materials8. Competition9. Technology10. Mergers and Acquisitions11. Steel growth12. Market scenario13. Import-Export14. Currency factor15. Environment

However, AT Kearney has devised seven moves to boost up the competitive advantage of the Indian automotive sector which can be anticipated to benefit in the coming times:

3. MANUFACTURING

1. Sales could grow but margins to remain under pressure

The Society of Indian Automobile Manufacturers (SIAM) expects total sales of all vehicles in the country during FY2014 to grow by 6-8 percent, with contributions from almost all market segments. This growth will be driven primarily by utility-vehicle sales, which will likely increase by 11-13 percent in FY2014.24 However, a slowdown in sales paired with capacity underutilization by automotive companies will keep pressure on margins in 2014. According to the financial solutions services provider Resurgent India Ltd., capacity utilization in the Indian automobile industry has declined by about 50 percent in the passenger-vehicle segment, putting further pressure on auto companies’ margins.

2. Electric vehicles to get a push from subsidies

To provide a much-needed push to the slowing automobile industry, the Indian government plans to roll out subsidies for electric vehicles (EVs). For instance, the Ministry of Heavy Industries intends to initiate subsidiesor such vehicles under the National Electric Mobility Mission Plan by April 2014. The government expects to save US$6.4 billion worth of fuel if the EV market takes off. The ministry aims to get all cabinet approvals before April 1 so that the incentives can start flowing to EV makers as soon as possible.

3. Companies taking action to improve quality and efficiency

Automobile companies operating in India are taking advantage of the current downturn to improve the quality of their models. For instance, Volvo Car Corporation has signed an agreement with IT company Tech Mahindra, wherein the latter will provide Volvo with services for maintaining and developing a range of applications that can boost efficiency and reduce manufacturing costs. Meanwhile, Maruti Suzuki India is working on establishing an integrated R&D center in Roht. The test tracks at the center will be longer and more technologically sophisticated than the tracks at Suzuki Motor Corporation’s facility in Japan.

4. Automakers to expand presence in other emerging markets

Numerous Indian automobile companies are looking to expand their presence in other emerging markets to offset declining sales in India. Tata Motors, for instance, plans to expand its range of passenger-car vehicles in South Africa early in 2014.29 TVS Motor Company intends to set up a two-wheeler assembly line in Uganda and launch two motorcycle models there in the first half of 2014.

5. India to be a global production and export hub

Multinational automobile companies are actively working to make India their global production and export hub. Take Ford Motor Company, which has decided to make India its compact-car global production base with the founding of its Sanand plant in Gujarat in 2014. At the same time, German automobile giant Daimler is developing its Indian commercial-vehicle operation, Daimler India Commercial Vehicles, as an exports hub. This operation will export locally assembled trucks from the conglomerate’s Mitsubishi Fuso range to 15 markets in Asia and Africa, including Indonesia, Thailand, Malaysia, Tanzania, Malawi, Uganda, Zimbabwe, Mozambique, Mauritius and the Seychelles. (Source: Accenture)

4. MARKETING STRATEGIES

The marketing strategies followed by Indian automotive manufacturers is mostly aggressive and customer centric. The reason to adhere to such a strategy is because of high competition, more buyer options, and low switching costs of the buyer. Though globalization has opened the doors of opportunities for all, the market is still crowded with some unknown risks and lot of competition. Because of this competition, a marketing strategy must aim at being unique, differential-creating and advantage-creating. To obtain unique and differential advantage, an organization has to be creative in its marketing strategy. In early years the Indian automobile Industry faced several challenges and road blocks to growth because in those days automobile manufacturing was subject to restrictive tariff structure, strict licensing and limited avenues for expansion. Due to lack of competition initially the prices of cars were extremely high. And the customers had to wait for a long period of time for car. Before Independence India was considered as a market for imported vehicles. In the 1950s the arrival of Tata Motors, Mahindra & Mahindra & Bajaj Auto led to steadily increasing vehicle production in India. In 1953 the government of India and the private sector launched efforts to create an automotive component manufacturing industry to supply to the automobile industry. By the end of 1970s, significant changes in the automobile industry were witnessed. After 1970 the automobile industry started to grow, but that growth was mainly driven by scooters, tractors and commercial vehicles. In 1983, the government of India made a tie-up with Suzuki Motor Corporation of Japan to manufacture low-cost cars in India. The Maruti 800 which is still known rolled out the factory of Maruti Udyog Limited in December 1983 and changed not just India‘s automobile industry but also the way people commuted and travelled. In 1990s through liberalization initiatives India opened its gates for all the countries and in 1993, the government followed up its liberalization measures with noteworthy reductions in the import duty on automobile components. Today the Indian automobile market has a mix of large domestic automobile players like Tata Motors, Mahindra & Mahindra, Bajaj, Hero Motocorp, Ashok Leyland and major international giants including Suzuki, Honda, BMW, Audi, DaimlerChrysler, Volvo, Hyundai, Toyota, Nissan, General Motors, Ford etc.

Considering the case of Maruti Suzuki Industries Limited(MSIL), marketing strategies practiced in the automotive sector is analyzed. The core values of MSIL are:

Openness Learning Innovation Creativity Fast, Flexible and First mover Customer Obsession Networking PartnershipAutomobile market today is very dynamic & competitive with a range of players and products. There are many reasons for the impressive growth of the Indian passenger car Industry. Some of these are easy availability of vehicle finance, attractive rate of interest and convenient installments. In today‘s cutthroat competition it is very difficult to survive. Stiff competition has forced manufacturers to be innovative and responsive to customer demands and needs. Maruti Suzuki India Limited is a leading company in Indian Automobile sector which occupies prominent place due to its innovative strategic marketing, promotional, Brand positioning, advertising strategies. In today‘s scenario the success of company lies in structuring and restructuring the marketing strategies and continuous innovation of product and services. (Source: IJSSBT)

5. OPPORTUNITIES AND CHALLENGES

(Source: autofocusasia.com)