Post Graduate Program in ManagementTerm III, 2009-2010

Strategic Management Report

On

Bosch India

Instructor: Prof. Neeraj Dwivedi

Submitted by –

Group 9, Section D

Jaspreet SinghRohit Raj

Santosh Kumar GuptaUbainthran A

V Arun Kumar

Table of Contents

Executive Summary.....................................................................................................................................21. Introduction.............................................................................................................................................32. Environment Analysis..............................................................................................................................4

2.1 General External Environment...........................................................................................................42.2 Competitive Environment..................................................................................................................52.3 Opportunities and Threats.................................................................................................................7

3. Internal Analysis......................................................................................................................................83.1 Strengths and Weaknesses................................................................................................................83.2 Core Competencies............................................................................................................................93.3 Sources of Competitive Advantage....................................................................................................9

4. Strategy.................................................................................................................................................104.1 Corporate Strategy..........................................................................................................................104.2 Two-pronged Business Strategy......................................................................................................104.3 Business Divisions............................................................................................................................104.4 Globalisation....................................................................................................................................11

5. Future....................................................................................................................................................115.1 Challenges.......................................................................................................................................115.2 Alternative Strategies......................................................................................................................12

7. Exhibits..................................................................................................................................................158. References.............................................................................................................................................19

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Executive Summary

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1. Introduction1.1 HistoryRobert Bosch GmbH is a technology-based corporation which was founded by Robert Bosch in Stuttgart, Germany in 1886. Bosch’s first plant opened in Stuttgart in 1901. Over the years, Bosch has been credited with many innovations such as Diesel Fuel Injection, Anti-Lock Braking System and the first electronic engine management system.

Robert Bosch GmbH is the world's largest supplier of automobile components, and has business relationships with virtually every automobile company in the world. The headquarters of Bosch is in Gerlingen, near Stuttgart. Franz Fehrenbach became chairman on 1 July 2003. The Bosch Group comprises more than 275 subsidiary companies.

In India, Bosch set up its manufacturing operations in 1953, and has grown over the years to 14 manufacturing sites and 3 development centers. Bosch employs about 18,030 associates in India, and in business year 2008 achieved total consolidated revenue of over Rs. 6400 crores.

1.2 OwnershipRobert Bosch GmbH, including its wholly owned subsidiaries such as Robert Bosch LLC in North America, is unusual in that it is an extremely large, privately owned corporation that is almost entirely (92%) owned by a charitable foundation. Thus, while most of the profits are ploughed back into the corporation to build for the future and sustain growth, nearly all of the profits distributed to shareholders are devoted to humanitarian causes.

In India, Bosch is listed on the BSE as three separate entities, Bosch Ltd., Bosch Chassis Systems India Ltd. and Bosch Rexroth India Ltd.

1.3 Geographical SpreadBosch is truly a worldwide company, employing over 281,717 people in more than 50 countries, supplying a complex distribution network of new products and parts. Outside of Germany and North America, Bosch’s greatest workforce is located in India (18,450).

1.4 Businesses

It deals in the following businesses -Automotive technology - Diesel Systems, Gasoline Systems, Chassis Brakes, Automotive Accessories, Car multimedia, Starters and Generators, Energy and Body Systems, Electrical Drives, Spark Plugs and Glow Plugs. Industrial technology - Automation technology, Packaging Machines, Special Purpose Machines.Consumer goods and building technology - Power Tools, Security SystemsEngineering and IT Services

In India, the Bosch Group operates through the following companies - Bosch Ltd. Bosch Chassis Systems India Ltd. Bosch Rexroth India Ltd. Robert Bosch Engineering and Business Solutions Ltd.

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Bosch Automotive Electronics India Private Ltd. Bosch Electrical Drives India Private Ltd.

2. Environment Analysis

2.1 General External Environment

The Indian Auto components industry consists of over 500 companies in the organized sector and about 10,000 firms in the unorganized sector. Exhibit 1 displays the product range of Indian auto component manufacturers. The general external environment can be analysed by breaking it into the following heads.

EconomicThe Indian economy grew at 6.7% during the year 2008-09. Various forecasts predict the growth rate during 2009-10 to be between 5.8 and 6.1%. Although the growth has slowed down considerably from the last few years, India would still retain its status of the 2nd fastest growing major economy after China.

Exhibit 2 displays the performance of the Auto Component Sector in terms of turnover, export and investment over the last 5 years.The business situation in India at economic front is:

1. The auto ancillary industry has been one of the fastest growing sectors in the Indian economy. It has a CAGR of 24% over the last 5 years. It had a sales turnover of Rs. 76,230 crores in the year 2008-09. However the growth last year was only 6%. This is largely due to slowdown of automobile industry in India and worldwide. In FY 09, the demand for Medium & Heavy Commercial Vehicles and Light Commercial Vehicles decreased by 35% and 12% respectively.

2. Capacity utilisation rates of the auto ancillary sector as a whole decreased significantly in light of reduced exports and slowdown in the domestic markets, especially in the second half of FY09.

3. The industry players had to grapple with the twin issues of extreme volatility in rupee and input costs and as a consequence, tremendous pressure was witnessed on margins.

4. In terms of International Trade, the auto components industry grew rapidly in both exports and imports over last 5 years.

5. However, India has become a net importer of auto components as imports are growing at a much faster rate than exports.

The investment spending on capacity creation is estimated to be US$ 1.5 billion annually.

PoliticalThe government has taken many initiatives to promote foreign direct investment (FDI) in the industry.

Automatic approval for foreign equity investment up to 100 per cent of manufacture of automobiles and components is permitted.

The automobile industry has been de-licensed. There are no restraints on import of components.

The Auto Ancillary industry comes under the purview of the Department of Heavy Industries (DHI) in the Ministry of Heavy Industries and Public Enterprises. The department’s vision under its Auto Policy for the decade 2006 - 16 is:“To emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$ 145 billion accounting for more than 10% of the GDP and providing additional employment to 25 million people by 2016.”

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To identify the necessary activities, the DHI has set up the Development Council for Automotive and Allied Industries (DCAAI).

The Government’s infrastructure initiatives such as the Golden Quadrilateral project and NHDP (National Highway Development Programme) also have an indirect favourable effect on the industry.Recent initiatives pertaining to the Union Budget are covered in a later section.

TechnologicalThe auto components industry is a very technology-intensive industry. Historically, India's strength in exports has lied in forgings, castings and plastics. But this is changing with more component manufactures investing in upgradation of technology in recent years.

The organized sector has increased focus on quality and has been resorting to increased automation to reduce the defect levels.

The Planning Commission has recommended setting up of an auto design centre at National Institute of Design (NID), Ahmedabad. The DHI has recommended the creation of a Rs. 1000 crore modernization / automotive development fund. ACMA has also spoken about a similar fund.

GlobalThe World economy slowed down by 2.2% during 2008-09. The economy is expected to recover back slowly and growth in 2009-10 is expected to be around 2.7%.

To combat recession by reducing costs, automobile majors are looking at outsourcing components from India and other low cost areas. For instance, the Fiat Purchasing Group announced that it targets to source $1 billion of parts or 5% of its global sourcing from India in 2010. This is an increase from its plan of $400 to $500 million in 2009.

WP-29 is the Working Party 29 of the WTO that aims at harmonizing the automotive standards globally so that the Technical barriers to trade in the automotive industry could be neutralized. The standards being formulated at WP-29 pertain to all type of components. This promotes freer global trade in the industry and at the same time lays down common standards at a global level.

SocialSocial environment is intrinsically linked with automobile sector and has changed the demand to the tune of preferences of customers in major way:

1. Business is booming as the Indian middle class is increasing its consumption.2. Also, more and more companies are getting ISO 14001 certification (Environment Management

Systems). 3. The increased focus on environment sector has also resulted in companies researching in

developing parts to use energy efficiently and reduce carbon emissions. 4. Entry of global players in Asian countries such as India and China has also necessitated a change

in their organisation culture.

2.2 Competitive EnvironmentThe fortunes of the auto ancillary sector are closely linked to those of the auto sector. Demand swings in any of the segments (cars, two-wheelers, commercial vehicles) have an impact on auto ancillary demand.

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Lower labour costs give the Indian auto ancillary companies an absolute cost advantage. To put things in perspective, ACMA numbers suggest that wage cost equal for 3% to 15% of revenues for Indian manufacturers as compared to 20% to 40% for US players.

Porter’s Five Forces Analysis

Let us look at Porter’s 5 forces and analyze the competitive environment in this sector:

Threat of new entrants (Moderate)1. De-licensing has opened the market new entrants. 2. However, there are still many barriers to entry for the auto components market. Initial capital is

very huge in the organised market restricting smaller players. 3. Technology and quality demands are very stringent. 4. As OEMs constitute the largest customer segment, component manufacturers get into strategic

long term relationships, esp. for high value items. 5. Other advantages to existing players include customer service and distribution network.

We can conclude that threat of new entrants is moderate.

Bargaining power of suppliers ()1. Raw material cost comes to 50-60% of the total production cost. 2. Suppliers to the auto component sector include companies from the electronics, fabrication,

plastic and rubber, casting/forging, machine tools industries. 3. Bargaining power is low for high technology products. 4. Unorganized sector dominates the domestic component market due to excise benefits.

Generally, excess supply persists.

Bargaining power of customers (High)Bargaining power of customers is very high. The demand for auto ancillary products in linked to automobile demand. Demand is derived from -

OEMs Low Margin Largest Demand, Stringent RequirementsReplacement Market High Margin Presence of Small competitors with cheaper pricesExports High Margin Increasing Demand, Focus on Quality

which means:1. The OEM market is very competitive and component manufacturers have to compromise on

margins to bag bulk orders. 2. Moreover, delivery schedules and quality standards have to be adhered to very strictly.

Similar to the global economy, the Indian automobile industry was also witness to a huge slowdown in the second half of FY09. Consequently, the passenger car and CV segment witnessed a decline of 3% combined for the full year as opposed to a growth of 10% in the first half of the fiscal.

Companies operating in the export market face competition at a global level. Export demand is linked to the increasing acceptance towards outsourcing. In light of increased competition in the global market and oversupply situation, large auto manufacturers faced significant pressure on margins. Moreover, the imperative to invest in new product development increased. This resulted in global majors increasing budget for outsourcing of components in order to save cost.

Threat of Substitutes (Low)

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The only substitutes to auto component manufacturers are organised component players working closely with R&D teams of OEMs. However, this threat is very low. The unorganised components market faces a greater threat as replacement market consumers are shifting to genuine components.

Rivalry among Competitors (Moderate)

Competition is moderate. At the domestic level, market structure is fragmented for a large number of ancillary products. Most companies adopt low cost and differentiation strategies. In some products (like batteries), only two or three companies control over 80% of the market. Exhibits 4 and 5 provide details on the major competitors within each segment and product.

Competition in coming period is expected to intensify, as global players enter the market leading to consolidation. The dereservation of Small Scale Industries will result in access to capital and technology.

2.3 Opportunities and ThreatsBased on the above analysis of the external and competitive environment, we can identify the opportunities and threats as follows.

Opportunities1. Domestic Investments and Growth

a. The size of the Indian automotive industry is expected to grow at 13 per cent per annum to reach around US$ 130 billion to US$ 150 billion by 2016.

b. The demand growth at 14% CAGR makes India one of the fastest growing markets. c. Though India's auto component industry has conventionally relied on exports for its profits, the

domestic market itself is ripe with rapidly growing opportunities.d. Industry experts are hopeful that the country will be able to offset China and other Southeast

Asian countries' traditional manufacturing advantage in the coming years, facilitating the industry's achievement of its targeted market value of US$ 40 billion by 2014.

e. During the quarter ended June 2009, all costs as a percentage of sales have seen a decline except for power, oil and fuel costs. Raw material costs have contributed the maximum to improvement in margins as these costs have come down from 63.3 per cent in March 2008 to 57 per cent in June 2009.

f. The relaxation of FDI norms for the small-scale sector could emerge as one of the key growth drivers in the long run.

g. With investments around US$ 15 billion slated for the sector over the next few years, the prospects for India's auto market look very bright indeed.

2. Huge Labour Forcea. With 400,000 engineering graduates every year, out of which 7 million enter the workforce,

there is a huge supply of labour force (Exhibit 4). b. Skilled labour costs in India are also among the lowest in the world.

3. Linked to Automobile SectorThe opportunities for the industry are also tied to the fortunes of the automobile industry. As the Porter’s Five Forces Analysis showed above, auto manufacturers hold the greatest influence.

a. The automobile sector is cyclical and dependent on the growth of the economy and improvement in infrastructure. Factors like increased public spending, favorable interest rates

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and general improvement in per capita income point towards higher demand for automobiles in the future.

b. There has been a conscious effort by auto manufacturers to improve productivity of their suppliers (i.e., component providers) in the past few years. Though the number of active vendors has declined significantly for auto manufacturers, technology transfer and fresh fund infusions have resulted in improved productivity in the remaining ones.

c. Also, government's initiatives in the infrastructure sector are likely to give boost to four-wheeler sales especially CVs. The CV segment is expected to grow by 7% to 8%, 2-wheeler demand to increase by around 12% to 15% and passenger car sales growth at 10% to 12% over the medium to long term. This is a positive for auto ancillary manufacturers.

d. The growing Chinese automotive market also presents attractive business opportunities for automotive component manufacturers for exports.

Threats1. Lower Margins

a. Highly competitive: Margins are likely to come under pressure in the long term because as competition increases, auto manufacturers will find it difficult to increase prices and will try to cut costs. The burden will eventually fall on auto ancillary players.

b. Consolidation: As manufacturers sourcing components are keen to get components from fewer sources in future, this will lead to consolidation in the sector. Companies will have to focus on quality and abide by delivery schedules if they want to survive.

2. Trade AgreementsThe growing number of Free and Preferential trade agreements being signed by India with countries like Thailand, Singapore and other ASEAN countries will hurt the cost competitiveness of Indian companies as Indian players play significantly higher duties than their Asian counterparts. Therefore, Indian companies might lose out on big orders if the duty structure is not rationalised.

3. Internal Analysis

3.1 Strengths and Weaknesses

StrengthsAt the Strategic Level:

1. The hierarchical, centralised structure and the authoritarian leadership style facilitate easy control over the company’s worldwide activities and employees.

2. Competences as well as responsibilities and decision taking are clearly defined. Bosch’s business model enables it to provide innovative products and services.

None of the other companies have utilised this strategy in their mass production activities. Bosch was able to build a name in the market solely by developing parts solely based on the requirements of customers.

3. Bosch’s level of globalisation, (presence of numerous agencies and production sites all over the world) helps it reach new markets and react very quickly to changes in the external environment.

4. Apart from being the biggest independent automotive supplier, a broad product range in sectors such as electronics, household appliances, security systems and many more minimises the business risk of a decreasing market in one sector.

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At the Operational Level, the company has streamlined both procurement and inventory by redesigning computers so that different models utilize as many of the same components as possible. Through this process, the complexity of managing its procurement and inventory parts was minimized.

A significant strength of Bosch is its very good overall reputation in terms of quality, punctuality and reliability. This is ensured in different ways.

i. Building strategic networks of reliable suppliers selling quality computer parts at wholesale price.

ii. Organized assembly line to achieve efficiency to maximize output while minimizing the wastage of time and resources.

iii. Coordinating the delivery of computer components to customers without letting the products pass through different middlemen.

Weaknesses1. Bosch’s strength in its hierarchical, centralised structure sometimes acts as a weakness as well.

Being a German company, the leadership style has developed in a typical way, where leaders enjoy a high degree of authority and respect. With this culture being exported in foreign countries which have different acceptances of leadership, unavoidable personal conflicts arise especially on an inter-human level.

2. As Bosch works in different industrial sectors with a broad product range, the level of complexity is very high. A high level of bureaucracy and formalisation slows down procedures leading to additional costs.

3. Especially because of the strict hierarchies and bureaucratic workflow, Bosch is far away from the so called modern leadership. Due to the fact that employees are highly controlled and responsibility diminishes considerably further down on the hierarchical pyramid conflicts in human relations and a lack of motivation can easily arise. On the other hand if the decision making process is faulty, the employee will not be corrected or will not get any feedback, which may have negative consequences.

4. Another weakness might be the level of centralisation. As Bosch strongly centralises its business, the adaptation may fail and foreign subsidiaries often face the conflict of adapting their business according to the market, hence opposing the instructions of the headquarters.

5. Regarding the product range, weaknesses can be determined in the Industrial Technology Sector which shows losses of 221 million Euros due to strong competition from low-wage countries. Bosch’s manufacturing sites in high-wage countries in Western Europe and especially in Germany have caused very high production costs.

6. The company also holds the risk of losing its fast paced growth due to the lack of network with resellers and delivery firms in the international market.

The goal of the company to sell directly to customers to minimize cost also plays against it sometimes. The company has to consider that it may not be able to meet demand in the international market the same way it did in the US. There are only a number of assembly plants around the world targeting millions of customers. Thus the company may need external channels of distribution in the future. This constitutes a weakness in instances where its suppliers would incur problems in their operations resulting to their inability to provide the bulk of orders for the company.

3.2 Core Competencies

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Bosch core competency revolves around developing high class innovative products and achieving cost leadership. For that it invests heavily in R&D and focus on a lean efficient system in highly competitive environment of auto component sector.With investments in R&D, Bosch is able to focus more on cleaner and economical product. Also with economies of scale and skilled, educated workforce of India, it is able to reduce cost.

1. High Market Share: With a market share of almost 95%, it has a virtual monopoly in the Diesel Fuel Injection Equipment.

2. Technological competencies: a. Manufactures modern gasoline and diesel engine systems of high quality, cleaner and

economical.b. Diesel Fuel Injection Equipment (FIE) has been the core business of Bosch Ltd., right from

its inception in 1951.c. Today MICO (Motor Industries Co. Ltd., a Bosch company) continues to be a supplier of

FIE to a majority of Original Equipment Manufacturers (OEMs) with a market share of over 81%.

d. MICO has also earned a place for itself, in the Bosch world, where it has been identified as Center of Competence for Single Cylinder pumps, Multi-Cylinder Inline ('A' and ‘P” type) and Distributor pumps (Mechanical and Electronic type).

3. Alternative Energy : MICO Bosch is moving towards energies such as electricity while also improving existing power train technologies, including diesel systems, gasoline direct injection and hybrids to reduce the energy from conventional resources. It has also taken up bio diesel and CNG technologies to address energy challenges.

4. Service : In India 50 per cent of Bosch’s current business is accounted for by the diesel segment. Bosch positions itself as a one-stop shop for sales and service and to make available the entire range of products to those who come for service. Bosch is expanding the product range in this business by bringing some of its global technology products into India. It is also planning to manufacture some of these products in India. A CORE COMPETENCY CENTRE has been created in the country to manufacture these equipments in the MICO production complex.

5. Quality : MICO Bosch has ISO Certified Quality Management System. Certified Locations are MICO, Incorporated; MICO Europe ltd. and MICO Mexico.

VRIN Analysis of Strategic capabilities:Bosch capabilities satisfy the following 4 conditions -

1. Valuable - Bosch’s capability to manufacture high quality diesel and gasoline systems provide cleaner and economical alternatives, thus adding value for the customer.

2. Rare - Bosch has pioneered the R&D in these technologies, and remains highly innovative to differentiate its products. Most component manufacturers fall into Tier III and Tier IV. Bosch is one of the rare Tier I manufacturers.

3. Costly to Imitate - Bosch also has been building these capabilities over many years. Huge R&D investments prohibit others to imitate Bosch’s Technology.

4. Non-substitutable - In this technology-intensive industry, having high quality and efficient products is the only way to gain competitive advantage.

By satisfying the above 4 conditions, Bosch’s technological capabilities provide sustainable competitive advantage and thus form their strategic competencies.

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3.3 Sources of Competitive Advantage1. The company is highly centralised by the headquarters in Germany. The headquarters keeps

things firmly under control. Strategic departments such as Research and Development, Corporate Identity, Production, Purchase and External affairs are based in Stuttgart and dictated to the worldwide subsidiaries. Decentralised are only operational departments like Personnel, Sales or Accounting. Furthermore, decisions given to responsibility of subsidiaries are mostly of operative quality only.

2. Based on the business strategy that complies with the value chain and support activities, the company holds the competitive advantage of selling products at a price radically less than the offer of its competitors.

3. Global R&D hub: Over the years, focus on producing innovative products with continued R&D has lead to many firsts like ABS, EPS, PAS, FIE etc and thus has provided competitive edge in industry.

4. Large Contact Base: MICO has a large supplier and customer base and maintains a long term relationship with them.

Bosch Value Chain Analysis:

4. Strategy

4.1 Corporate StrategyBosch’s economic strategy corresponds to a common aim of the group for innovation , independence and integrity. The aim is to be among the world market leaders and to be a major player in all of the company’s business sectors. The strategy to achieve this goal is by strong marketing of new products and ongoing investment in Research and Development to innovate continuously. The emphasis on

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Infrastructure Centralized cost control

Human Resource Management Intensive training centres, stable job,encourage employees to look for newer ways

TechnologyHeavy investment in R&D, focus on quality and

cleaner products,learning and experience

Procurement Amplified purchasing in low cost locations

Primary Activities

Inbound Logistics Best quality products

from many suppliers

Operations

Focus on BPS (lean

manufacturing concept)

Outbound Logistics Direct

supply to customers

Marketing & Sales Marketing of new products

Service Efficient customer service

innovation is underlined by the huge number of associates, working in Research and Development departments, 21,250 world-wide.Efficient sales and customer service also play a key role in Bosch’s corporate strategy.

4.2 Two-pronged Business StrategyBosch has followed a two pronged strategy –

Innovation Leadership Cost Leadership

Bosch has invested heavily in R&D much above the industry average. This has resulted in Bosch pioneering many technological advances -

Anti-lock braking systems Electronic Stability Control High-pressure diesel injection Parking assist systems

Such systems account for more than 50 per cent of Bosch's business in automotive engineering. At the same time, Bosch realises that technical advances of cutting-edge innovation may melt away rapidly. This is why cost leadership is also part of Bosch’s strategy formulation.One way by which Bosch manages the balance between innovation leadership and cost leadership is the Bosch Production System (BPS). This is a lean manufacturing concept which ensures that the production processes are simple and transparent, thus saving them from excessive production costs. Bosch has also invested in new development centres at low cost locations.

4.3 Business DivisionsIn accordance with the above overall business strategy for the auto components industry, Bosch has formulated its strategies for various business divisions as follows -

Business Divisions Strategy / CharacteristicsAutomotive aftermarket Guarantee the highest-possible level of service and quality for our customers in

132 countries round the world, round-the-clockChassis System Brakes Offer customers advanced technology, quality and excellent services.

The continual improvement of driving security and comfort supports.Diesel Systems Contribute to making vehicles cleaner and economical.Gasoline Systems Manufacture modern gasoline-engine systems that contribute to making

vehicles more dynamic, cleaner and more economical.Top class technology, high quality products and services.

Car Multimedia Top class technology, high quality products and services.Work continuously to make driving more cost-effective, easier, and safer, despite increasing complexity.

Spark Plugs and Glow plugs Build to help engine achieve the power and performance it was designed to deliver.

4.4 GlobalisationBosch has always focussed on a global vision open to opportunity across the world. Bosch’s approach to globalisation can best be described as:

Early entry Long-term vision, and

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Having the patience and stamina to invest in innovation well in advance of market rewards.

Bosch applies its two-pronged business strategy at a global level in the following ways -

1. Identify and respond to megatrends in the different parts of the world - Addressing the current needs of driving and environmental safety and fuel economy, Bosch’s product philosophy for more than 30 years has been the 3 S - “Sicher, Sauber, Sparsam” (Safe, Clean, Economical). Pursuing this philosophy has led to the technological advances mentioned above.

2. Think Global, but do not forget local requirements - Identify needs and expertise globally, and to share tasks and resources globally as well. Thus a Bosch sales and marketing organisation has “one face” worldwide. Many of Bosch’s core products are developed in places where Bosch centers of competence are located. At the same time, to meet regional needs, these products are modified in the Bosch regional centers.

3. Pursuing a “right site” strategy for globalisation - New products start off as innovation leaders. They turn to commodities when the maturity phase sets in. Cost Leadership is crucial at this stage. The trend, nowadays, is to focus on cost at an earlier stage (even mid-growth). Responding to this, Bosch follows a “right site” strategy. Part of this is the “Lead Plant” concept. Lead Plants are located close to large pilot customers or Bosch R&D centers. This is where production is started. As production levels increase, manufacturing is shifted to other cost-effective locations. The lead plants transfer the know-how for manufacturing to the new location. This process keeps overhead low in new locations, leading to cost benefits.

4. Strategically align purchasing on a global basis - In recent years, Bosch has amplified purchasing volume in low-cost locations.

5. Future

5.1 Challenges

Union BudgetEconomic slowdown, job losses and pay cuts, cautious stance of vehicle financiers, all on the back of the global financial crisis added to the woes of the automobiles industry in 2008-09.

With the economy back on track supported by a number of incentives offered through the fiscal stimulus package, namely the cuts in excise rates (more pronounced in the case of small cars to 8 per cent and CVs), accelerated depreciation allowable for CV purchases, Government support under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for purchases of buses by the State Road Transport Undertakings (SRTUs) thus pushing up bus sales along with the revival in consumer confidence and availability of finance, post July 2009, the automobile industry is witnessing revival in demand.

Also, a range of new launches especially in the compact PC segment has helped to push the sales. The April–December 2009 period has seen domestic automobile sales grow by 22.1 per cent.

Budget Proposals1. Ad valorem component of excise duty increased to 10 per cent from 8 per cent across board. 2. Ad valorem component of excise duty on large cars, Sports-Utility Vehicles (SUVs) and Multi-Utility

Vehicles (MUVs) hiked to 22 per cent from 20 per cent. 3. Hike in excise duty on petrol and diesel by Re.1 per litre. 4. Full exemption from excise duty to trailers and semi-trailers used in agriculture.

Budget Impact: Auto Industry

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1. CVs - Increase in excise duty on CVs is expected to be passed on to the consumers along with rise in operating costs (hike in fuel prices) resulting in a marginal negative impact on CV sales.

2. Two wheelers - Rise in personal income tax slab coupled with continued impetus on rural development is likely to result in higher disposable income for target two-wheeler customers, thereby partially offsetting the hike in excise duty and fuel price.

3. Cars - Passenger Car manufacturers are expected to pass on the excise duty hike and the prices of passenger vehicles are expected to increase. However, increase in disposable income is likely to offset the increase in vehicle and fuel prices.

These have provided new opportunities which should be tapped by Bosch in its future strategy.

5.1.3 Recent news and Impact on Future StrategyBosch India is one of the latest Indian auto-parts makers to face labour troubles. Workers’ salary was last revised in Dec 2008. Following failed salary negotiations (which had been going on for last 7 months), Bosch declared lockout at its Bangalore plant on Mar 10th. The workers had been on a ‘work to rule’ since Feb. According to Bosch, the lockout has resulted in a revenue loss of Rs. 1 crore daily. The lockout was lifted on Mar 13th. According to workers, managers had adopted a casual approach to negotiations. Bosch had faced similar issues in its Jaipur plant in 2008 and had declared a lockout at that instance as well.The issues come at a time when the fast-growing auto industry is driving demand for parts in India. Also, global auto makers setting up manufacturing plants in the country are sourcing parts locally to reduce costs.It needs to look at these HR issues because they can tarnish the image among customers and so there is requirement of developing new strategy to improve its image and harness the immense potential of skilled workforce in India.

5.2 Alternative StrategiesBosch can pursue future strategies in 3 possible ways. These are through continuous innovation and differentiation in its products and services. It can also aggressively try to find ways to reduce costs and thus achieve higher margins. Lastly it could focus on a particular sector in the wide industry. It also has the option of consolidating by acquiring smaller players.

These 3 basic strategies lead to a number of specific strategies suitable for Bosch’s environment. While some of these are fundamentally exclusive, others can be implemented simultaneously as well.

Expand aggressively to tap opportunities - Additional investments and technology transfer to meet the future demands. Build capabilities to cater large and growing domestic demand.

Continue to innovate, increase R&D spending - Leveraging on a long tradition of competitiveness with innovations and cutting-edge technology solutions, it will continue to offer innovative technologies in all these sectors ensuring customer delight to the Indian and exports market.

Develop green technology products - Future trends ask for better fuel economy and multi-fuel concepts. In order to comply with stricter emission norms, new vehicles will need to be equipped with electronically controlled gasoline and diesel fuel injection systems. Safety will continue to play an increasingly important role with improving road infrastructure and consequently higher vehicular speeds. Technologies such as Antilock Braking System (ABS) and Electronic Stability Program (ESP) will play a significant role towards this. This strategy can be used to get into relationships with new OEMs.

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Continue cost leadership - Bosch should continue to maintain its cost leadership to grow its market and focus on cost control with quality and process improvement.

Benefit from states’ tax-holiday scheme - Substantial tax benefits are available for investments in newer locations which can allow Bosch to supply components at lower rates.

Derive cost benefits through workforce - Take advantage of skilled workforce as skilled labour cost in India is amongst the lowest in world.

Leverage IT to lower costs - There is an increasing realisation of significance of knowledge management in this sector. The usage of IT is very low compared to other parts of the world. Bosch can leverage India’s acknowledged leadership in the IT industry.

Focus on exports - Exports provide the highest margins. Expansion of market and low cost distribution due to India’s proximity to other Asian markets and emerging markets such as Africa. Shipments to Europe are also cheaper from India than from Brazil and Thailand.

Focus on low-cost automobiles - Indian market’s continued focus on low-cost automobiles after the introduction of Tata Nano has led to other major players entering this market. This presents a rich opportunity for Bosch to move in early in this sector by developing low-cost parts.

Focus on distribution network - Bosch has followed a strategy of selling directly to customers. To grow in the market, the company can concentrate on improving supplier relationships. They should also focus on Service Level Improvement and Customer Interaction Enhancement.

Acquire smaller players - Bosch can consider growing inorganically by acquiring ready-made capabilities from smaller players.

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2.3 Recommendation:The analysis of alternate strategies emphasises on strategies of defending and extending the current business as the market has a huge growth potential and will remain highly competitive. So they should focus on

1. Aggressive Expansion to cater huge demand of exports and focus on domestic market which is growing enormously. Make use of tax holiday scheme and other govt. benefits.

2. Future trend asks for low cost automobiles, greener and cleaner solutions

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ReasonsStrategy

Market is very large and diverse - OBut any no of players can be absorbed to accommodate buyer’s needs - T

Expand Aggressively to tap opportunities

Brand Image as leader in innovation - SWell developed R&D centres - S

Innovate, Increase R&D spending

Future trends ask for greener solutions - OTighter compliance norms - O

Develop green technology products

Majority of business through OEMs - O Pressure due to Union Budget - TLead on costs Uttarakhand fast emerging as an auto hub with leading companies deciding to set up units there - OInvestments about US$ 640 million in Uttarakhand - O

Benefit from states’ tax-holiday scheme

Educated, skilled and English speaking workforce - SSeen as a authoritative company, needs to improve on its perception - W

Derive cost benefits through workforce

Increased significance of knowledge management - OLeverage IT to lower costs

Highest margins - O Locational advantage - OFocus on exportsDistribution not well developed inspite of having manufacturing locations - WFocus on distribution network

Auto manufacturers investing heavily in low-cost automobiles - OFocus on low-cost

automobiles

Indian auto component industry highly fragmented (23% by unorganised player) - OAcquire smaller players

3. Cost leadership and R&D focussing on quality and process improvement with newer technologies is must and gives a competitive edge in the sector.

4. Leverage the cost benefits of skilled, low cost workforce and avoid HR issues which will help in Service level improvement and will make Bosch more reliable and stable in customer’s view.

Exhibits

Exhibit 1 - Product Range of Indian Manufacturers

Exhibit 2 - Auto Component Sector Performance over last 5 years

Exhibit 3 - Availability of qualified human resources

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Exhibit 4 - Auto Components Sub-segments and Key Players

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Exhibit 5 - Product Segments and Key Players

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Exhibit 6 - Bosch components sales by customer market

7. References1. News Article :

http://online.wsj.com/article/SB10001424052748703909804575122832895561158.html?mod=WSJ_latestheadlines

2. http://www.boschindia.com 3. http://www.bosch.com 4. Budget :

http://www.domain-b.com/economy/budget/union_budget_2010/sectors/20100227_automobile.html

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