Introduction to the Industry in Indian Market
â€¢ The Indian auto industry has the potential to emerge as one of the largest in the world. Presently, India is
-Second largest two wheeler market in the world
-Fourth largest commercial vehicle market in the world
Automobile Production Trends
-11th largest passenger car in the world and is expected to be the seventh largest market by 2016.
Domestic Market Share for 2009-10
Prerequisites for globalization, high level of competence and productivity has become the forte of Indian automakers due to the favorable environment in the country.
Established in year 1996, Hyundai Motor India Ltd. is a sub division of the giant South Korean multinational, the Hyundai Motor Company. It is Korea’s top automobile manufacturer, capturing the Indian market and giving a strong competition to its rivals in the same segment. The company success story is based on a profitable Indian – Korean partnership where Indian skills and workmanship combine with Korean design and technology to produce one of the best cars.
In the year 1997, its sales revenue had touched 8.24 billion. The Hyundai Santro is giving tough competition to other segments and has been designed in India at the integrated auto-manufacturing unit at Irrungattukatoi near Chennai. This plant is capable of producing 1,20,000 cars, 1,30,000 engine and transmission systems annually.
It is planned to invest another $1 billion in manufacturing more critical components by the year 2001. Equipped with latest technology, machinery, international quality press, body and paint shops all across the world, the company has set more than 70 dealer workshops. The company has incorporated state-of-the-art manufacturing plant near Chennai that tells about some of the most developed production, quality and testing potentials in the country.
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According to a company release, the rise in production will help the company increase its export destinations to 95 countries by the end of this year. Apart from offering global technology products, Hyundai motors has also been appreciated with the benchmark ISO 14001 certification for its sustainable environment management practices. To cater with the differing and growing needs of the market, company hopes to increase its presence in the Indian market with coming up new models.
In the financial year 2006, the company registered joint sales of 252,861 units with a steady expansion of 17.26%. In a span of 7 and half years, HMIL launched 1,000,000 passenger cars and is recognized as the chief exporter of cars with an annual export turnover of Rs. 1,800 crores.http://www.iloveindia.com/cars/hyundai/index.html
There are key substitutes .They include public transports like railways and bus companies, air ways company ,2- wheeler and 3 wheeler and other transport system. Currently there are both enough products and companies which can provide the substitute products for the current products and services.
Hyundai Motor India Limited (HMIL), currently has more than 30 modifications of passenger cars in six sections. The various cars feature in different divisions such as Santro is B type car, Getz a B+ type car, Accent C type, Elantra D type, Tucson SUV type, etc.
The Industry map
The key competitors of the company include Tata Motors and Maruti Udyog Ltd. which manufactures similar small segment cars to that of the Hyundai Motors India Ltd. The positioning of the companies in the industry with respect to their Cost versus Quality is given below
Strategic Capability :-
The competencies, knowledge, and skills that an organization can apply to achieve success in a competitive environment. The concept is derived from the core competencies approach to corporate strategy. It is viewed as one of the main pillars of strategic management and focuses on the ability to provide products that customers value. This involves the need to adjust and change in order to fit the changing environment and the need to stretch to exploit organizational resources in ways that are innovative, or that other organizations will find it hard to match.
Key resources required for the automobile industry :-
Physical resources :- Physical resources include Premises(location,storage facilities), plant,machinery and Equipment,Materials and stocks. The plant of Hyundai Motors India Limited is located in Irrungattukottai,Sriperumbudur in Tamil Nadu,India that holds the main assembly line of a wide variety of Hyundai models
Financial Resources :- The Hyundai Motors India Limited has financial resources from its parent company Hyundai Motors.
Human resources :- In 2009, Hyundai Motors India Limited had around 5000 employees on its payroll for automobile production.
Intellectual capital :- collectively refers to all resources that determine the value and the competitiveness of an enterprise. An intangible assets -Relational, Human and Oraganizational capital include business brand, patents and customer database. Hyundai has a very good reputation in the Indian market.
In this sternly aggressive business world, the goal of most firms is to establish distinctive or unique capabilities to gain a competitive advantage in the marketplace through utilising the most of their core competencies. Competencies refer to the fundamental knowledge owned by the firm (knowledge, know-how, experience, innovation and unique information), and to be distinctive they are not confined to functional domains but cut across the firm and its organisational boundaries (Lowson, 2002). Having a competitive advantage is having a difference, the choice of certain activities to deliver a unique value-mix to a selected market, thus the ability to perform particular activities and manage the linkages between activities is the key source of competitive advantage. The strategic task, then, is to create a distinctive way ahead, using whatever core competencies and resources at its disposal, against the background and influence of the environment. Through these distinctive capabilities the organisation seeks sustainable competitive advantage. Competition in many domestic and international markets appears to be entering a new phase, in which product quality and performance are becoming more important to customers than price. In such markets, the effective management of the new product development process is the essence of competitive advantage.
Average rough growth rates and profitability of firms in the industry :-
The Indian economy has grown at an annual rate of more than 8% over the last five years and the industrial production has made an outstanding contribution to this growth. Auto industry was licensed, controlled and restricted in the early years of independent India and had a limited contribution to the economy. But post delicensing in 1991 the industry has grown at an average rate of 17%. The industry currently contributes about 5% of the GDP and it is targeted to grow five fold by 2016 and account for over 10% of India’s GDP. Automotive mission plan (AMP) expects the industry to reach a turnover of $150-200 billion in the next ten years from the current $45 billion levels. Over the last five years the production of four wheelers in India has increased from 9.3 lakh units in 2002-03 to 23 lakh units in 2007-08 reporting a CAGR of 20%. Vehicle manufacturers are increasingly adopting an outward looking approach and exploring new markets & territories, ranging from Middle East, Europe, South Africa, Algeria, Latin America, Russia, etc. Exports have increased immensely from 84,000 units in 2002-03 to 280,000 units in 2007-08. Crisil estimates the passenger vehicle exports to cross 7 lakh units by 2011-12.
While the demand growth has been volatile on a y-o-y basis, over a 14 year period till 2008-09 the domestic passenger vehicle market has grown at a healthy CAGR of 12.6% to 1.6 million units. The demand has been driven by buoyant economic activity, growing middle class population, increasing average household income levels and improved availability of financing at competitive lending rates. The low level of passenger vehicle ownership1 in comparison to other developing economies and, shortening vehicle ownership cycle, besides increasing penetration in rural markets also has supported growth. During the current fiscal, the passenger vehicle segment has recorded a growth of 22.6% with 1.5 million units sold during April-November 2009 as against the corresponding period last year – a significant turnaround in the context of stagnant demand during H2, 2008-09. The bounce back in growth has been higher than industry expectations – reflecting strong recovery in consumer confidence aided also by, declining interest rates, stimulus package offered by the government in the form of excise duty cuts and improving financing environment since the lows of Q3, 2008-09. The growth has also been supported by higher disposable income with Government employees facilitated by the implementation of the sixth pay commission. On the export front the growth has been robust during 2008-09, even during periods of economic turmoil, albeit on a small base. The exports have been supported largely by the success of HMIL’s i10/ i20 models. During April-November 2008-09, passenger vehicle exports grew by 28.8% driven by small car exports, which would also have benefited from the scrapping scheme in Europe. However, exports may be less buoyant in the near term as incentive-driven demand2 has already been met in many parts of Europe. Also, imports from India could be impacted by FTA agreement between EU and Korea, rendering manufacturing in India more expensive.
Passenger cars and utility vehicles are the main segments of the Indian passenger vehicle industry with the former accounting for ~80% the total volumes. Within the passenger car segment, the mini and compact segment together accounts for around 80% of total volumes. Over the last 5-6 years the compact car segment in particular has been the focus for most OEMs, leading to a large number of product introductions and the segment has outperformed the rest of the industry in terms of growth. Being the largest segment by volume, the compact car segment is also intensely competitive with the presence of seven players with as many 16 offerings. The segment has also witnessed the highest number of launches over the past 12-18 months with major ones being Ritz, A-Star, Zen Estilo (from MSIL), i10, i20 (from HMIL) and Indica Vista (from Tata Motors Limited – TML). This segment has also been the bread and butter for India’s small car exports, especially from MSIL and HMIL. Overall, the top three market players in the passenger car segment – MSIL, HMIL and TML – currently dominate the segment. Over a period of time however, this segment (mini + compact) is likely witness some fragmentation as it attracts new players and more aggressive model launches from hitherto smaller/ marginal players. In H1, 2010, this segment is likely to witness the entry of General Motors, Volkswagen, Ford India and Nissan. Going forward, all serious players in the Indian market are expected to introduce products in the compact segment, leading to some fragmentation of the overall segment. In terms of market share, the top four players currently account for 87.2% of the total volumes with the rest being spread amongst 14 other players. The overall market share for the top players is likely to get further fragmented since a number of global majors have significant plans for the Indian market.
Despite the economic downturn across the globe, the exports of passenger vehicles from Indian shores grew by a strong 53.7% in 2008-09, largely driven by the strong growth in the small car (compact) segment. During 2008-09, OEMs based out of India exported nearly 0.34 million passenger vehicles, of which 91% were small cars. The top two OEMs – MSIL and HMIL together account for over 98% of export of small cars followed by TML. India’s large domestic market for the small car segment provides the necessary scale and business environment for investing in the segment. Gradually, the evolving in-house R&D skills, ability to develop vendors to supply high quality auto components, export-specific products and cost competitive manufacturing capabilities are the key reasons that have allowed OEMs to develop sizeable export volumes. With growing investments from global OEMs targeting this segment, long term potential for exports remains strong – though India needs to strengthen its logistic infrastructure in line with the global benchmarks to improve cost competitiveness for its exports. Changes in international duty agreements (e.g., FTA between Korea and EU) with competing manufacturing locations would also remain a significant factor determining export potential from India
The following fig. shows the average rough growth rates and the profitability of Hyundai Motor India Limited when compared to other market players like Maruti Suzuki India Limited,Tata Motors Limited, Honda Siel Cars India Limited, Ford India Private Limited, General Motors India Limited, Mahindra Renault Private Limited and Other small market firms.
From the above fig. we can say that Hyundai Motors India Limited has the second highest growth rates in terms of market share with the dominant being Maruti Suzuki India Limited. Hyundai Motors India Limited has the growth rate higher than other major players.
CUSTOMER SERVICES AND QUALITY :-
Plot or map the industry forces showing the major external environmental forces operating in this case study :-
Porter’s Five Forces Analysis of Indian Automobile Industry
1. Industry Rivalry
· Industry Concentration:
The Concentration Ratio (CR) indicates the percent of market share held by a company. A high concentration ratio indicates that a high concentration of market share is held by the largest firms – the industry is concentrated. With only a few firms holding a large market share, the market is less competitive (closer to a monopoly). A low concentration ratio indicates that the industry is characterized by many rivals, none of which has a significant market share. These fragmented markets are said to be competitive. If rivalry among firms in an industry is low, the industry is considered to be disciplined
· High Fixed costs
When total costs are mostly fixed costs, the firm must produce capacity to attain the lowest unit costs. Since the firm must sell this large quantity of product, high levels of production lead to a fight for market share and results in increased rivalry. The industry is typically capital intensive and thus involves high fixed costs
· Slow market growth
In growing market, firms can improve their economies. Though the market growth has been impressive in the last few years (about 8 to 15%), it takes a beat in even slight economic disturbances as it involves a luxury good. Aggressive pricing is needed to sustain growth in such situations
· Diversity of rivals:
Industry becomes unstable as the diversification increases. In this case the diversity of rivals is moderate as most offer products which are close to standard versions and the competitors are also mostly similar in strength
· Highly competitive industry:
The presence of many players of about the same size little differentiation between competitors, and a very mature industry with very little growth were the features of a highly competitive industry. Higher the competition in the industry lower would be the profit margin. To remain ahead in competition, auto-makers were tempted to offer value added services to the customers incurring more costs
2.Threat of New Entrants
These are the characteristics that inhibit the entrance of new rivals into the market and in turn protect the profits of the existing firms. Based on the present profit levels in the market, one can expect the entrance of new firms into the market or not. The entrance is however also affected by the start-up costs
· Economies of scale:
The Minimum Efficient Scale (MES) is the point at which unit costs are minimized. The greater the difference between the MES and the entry unit cost, greater is the barrier. Economies of scale are becoming increasingly important as competition is driving the profit margins to lower levels. Also being a capital intensive industry economies of scale have important consequence
· Government policies:
o Automobile Industry was delicensed in July 1991 with the announcement of the New Industrial Policy
o The passenger car industry was delicensed in 1993. No industrial licence is required for setting up of any unit for manufacture of automobiles except in some special cases
o The norms for Foreign Investment and import of technology have been progressively liberalized over the years for manufacture of vehicles including passenger cars in order to make this sector globally competitive
o At present 100% Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger car segment. The import of technology/technological upgradation on the royalty payment of 5% without any duration limit and lump sum payment of USD 2 million is allowed under automatic route in this sector
o The automotive industry comprising of the automobile and the auto component sectors has made rapid strides since delicensing and opening up of the sector to FDI in 1991
o The industry had an investment of about Rs. 50,000 crore in 2002-03 which has gone up to Rs. 80,000 crore by the year 2007. The automotive industry has already attained a
turnover of Rs. 1,65,000 crore (34 billion USD)
o The industry provides direct and indirect employment to
1.31 crore people. The contribution of the automotive
industry to GDP has risen from 2.77% in 1992-93 to 5% in
2006-07. The industry is making a contribution of 17% to
the kitty of indirect taxes of the Government
With all the policies regarding the FDI and Tariff barriers as
mentioned above, it has become easier for the foreign players to
enter the Indian automobile industry.
Significant changes due to environmental constraints:
Environmental influences have been a major concern in the past or future development of any organisation for its growth and sustainability. Different environmental factors are interconnected. Macro environmental factors consist of PESTEL i.e. Political, Economic, Socio-Cultural, Technological analysis.
ARAI provides technical expertise in R&D, testing, certification, homologation and framing of vehicle regulations. ARAI is a co-operative industrial research association established by the automotive industry with the Ministry of Industries, Government of India. It works in harmony and complete confidence with its members, customers and the Government of India to offer the finest services, which earned for itself ISO 9001, ISO 14001, OHSAS 18001 and NABL accreditations. ARAI is well-equipped with state-of-the-art infra-structural facilities and highly qualified manpower.
The Indian Auto Industry is harmonizing both Safety & Emission regulations with International Standards for sustained growth of the Industry for combating the environment and become a global export hub. India has a well established and Regulatory Framework under the Ministry of Shipping, Road Transport and Highways in which SIAM(SOCIETY OF INDIAN AUTOMOBILE MANUFACTURERS plays a very important role. All the stake holders are part of the regulation formulation setup. The ministry issues the notifications under the Central Motor Vehicle Rules and Motor Vehicles Act.
The Safety Regulations are being aligned with the ECE regulation and the Road Map prepared by SIAM (SOCIETY OF INDIAN AUTOMOBILE MANUFACTURERS envisages alignment by 2010. The In use Vehicle Emission norms have been tightened with effect from 1st October 2004 and computerization model has been developed by SIAM(SOCIETY OF INDIAN AUTOMOBILE MANUFACTURERS, which is already in place in the Major Metro Cities and would be extended throughout the country in a phased manner.
India’s huge geographic spread- Mass transport system.
There is a very large transportation system in India for the public which helps the conomy to the large scale.
Increasing road development
The new development of road system is contributing a lot towards the transportation system of the country. Better and wide roads and the material used to build the oads is very long lasting and environment friendly. With the better material used the life of the roads is increased which is helping the economy of the country as less expenses will occur.
Higher GDP growth
With the better transportation system the material is moved to different places in short time and easily which helps in increase of the GDP as more products can be made in same time.
Increasing Per Capita income
The per capita income of India is increasing due to which the buying power of the consumers has also increased making people buy cars and bikes.
Cheaper (decline interest rates) and easier finance scheme
The banking system in India is in a good shape. It provides people with easier
and cheaper finance schemes which help the consumers to buy vehicles
easily. This helps in the increase in sales of the automobile industry which
also helps in the the increase of country’s economy.
The Automotive Research Association of India ( ARAI ) has been playing a crucial role in assuring safe, less polluting and more efficient vehicles. Reducing pollution helps creating a better and healthy environment for the society. 85% of the cars in India are financed. The banks are giving finance options easily helping the people who cannot afford to buy themselves. Low interest rates translating to low financing and acquisition costs hence greater affordability. The new technology of Hybrid engines launched in India (Honda CIVIC) is very much safe and helps the environment making it better for the social community. This technology is coming worldwide and is also available in Canada now. New measures are being taken to make the automobiles less polluting. This well help in reducing the exploitation of atmosphere. Better atmosphere gives better life.
India is harmonizing its Emission Norms for Four Wheelers with the European Regulation and has adopted Euro III, equivalent norms in 11 Metropolitan Cities from Apr 1 2005. For Two Wheelers, this constitutes 70% of the vehicle population unique Indian emission norms, which are one of the tightest in the world have been adopted. The Fuel Quality plays a very important role in meeting the stringent emission regulation. The fuel specifications of Gasoline and Diesel have been aligned with the Corresponding European Fuel Specifications for meeting the Euro II, Euro III and Euro IV emission norms. The use of alternative fuels has been promoted in India both for energy security and emission reduction Delhi and Mumbai have more than 100,000 commercial vehicles running on CNG fuel. Delhi has the largest number of CNG commercial vehicles running anywhere in the World. India is planning to introduce Biodiesel; Ethanol gasoline blends in a phased manner and has drawn up a road map for the same. The Indian auto Industry is working with the authorities to facilitate for introduction of the alternative fuels. India has also setup a task force for preparing the Hydrogen road map. The use of LPG has also been
introduced as an auto fuel and the oil industry has drawn up plans for setting up of Auto LPG dispensing station in major cities. The latest technology is being adopted by the companies and is being launched in India as well. One of the latest technologies is the Hybrid Engines which are launched by Honda motors in India. A lot of new safety measures are now taken into consideration before the car or any other motor vehicle is launched to ensure its safety and reliability.
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