36968449 market strategies
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UNIVERSITY OF SALFORD
AN INVESTIGATION INTO THE APPLICATION OF TARGETAN INVESTIGATION INTO THE APPLICATION OF TARGET
MARKETING TO CREATE COMPETITIVE ADVANTAGES AMARKETING TO CREATE COMPETITIVE ADVANTAGES A
CASE STUDY OF THE GROWING INDIAN AUTOMOBILECASE STUDY OF THE GROWING INDIAN AUTOMOBILE
MARKET.MARKET.
Name: Venkata R K Pagadala
Registration Number: @00223394
Course: Msc International Business
Supervisor: Mr. Mike Ward
October 2009
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Declaration
I declare that no part of this Dissertation has been taken from
existing published or unpublished material without due
acknowledgement and that all secondary material used therein has
been fully referred.
Signed:
Date:
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Acknowledgement
Since several years most of the contributed material has been published and given
great response through our university authors. I would like to extend special thanks to
my supervisor Mr. Mike Ward for his careful revision of work and the attitude of a
genius. Without his guidance and persistent help this dissertation would not have been
possible.
Thank you!13-10-2009
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Abstract
The report starts with Introduction which covers the automobile industry of India and
the present status in todays context. The research questions and objectives are also
covered in this chapter. The growth path of the industry is included along with the
various phases through which it went. The role of auto finance which has instrumental
in terms of growth has also been included. The importance of the automobile sector
and the current developments has also been covered. It is then followed by literature
review deals with the background, size; components industry and the research which
has been carried out in this area have been covered.
In the methodology part, aspects such as the research plan, design, approach etc are
included in detail. This chapter also covers the sampling strategy, limitations and the
ethical consideration of research.
It is then followed by conclusion and recommendations like how the industry could
sustain growth, the innovation factor which is missing and the enhancement of global
share of the industry.
Finally, I have included my personal reflections on this dissertation which includes the
difficulties I faced before and during the projects and how I overcame all the hurdles
to complete my report.
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CONTENTS
TITLE1
ACKNOWLEDGEMNET...3
ABSTRACT..4
CONTENTS..5
ABBREVIATIONS...9
LIST OF TABLES ..11
1. INTRODUCTION12
1.1 Aims and objective
15
1.2 Research
Questions.15
1.3 Research Objectives15
2. LITERATURE REVIEW.17
2.1 WHY MARKET SEGMENTATION NEED FOR
AUTOMOBILE17
2.1.1 Better matching of customer needs17
2.1.2 Enhanced profits for business17
2.1.3 Better opportunities for growth.17
2.1.4 Retain more customers..17
2.1.5 Target marketing communications18
2.1.6 Gain share of the market segment.18
2.2 MARKET
SEGMENTATION18
2.3 SEGMENTATION, TARGETING AND PRODUCT
POSITIONING..20
2.4 BASES FOR MARKET SEGMENTING CONSUMER MARKETS.22
2.4.1 Geographic approaches 22
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2.4.2 Demographic approaches..23
2.4.3 Psychographic approaches24
2.4.4 Behavioristic approaches..24
3. METHODOLOGY.31
3.1 Research Plan...31
3.2 Research Perspective31
3.3 Research Design...32
3.4 Research Philosophy33
3.5 Data Collection Methods..33
3.5.1 Secondary Data...333.5.1.1 Documentary secondary data.33
3.5.1.2 Survey-based secondary data.33
3.5.2 Questionnaires..34
3.6 Validity, Reliability and
Generalisability34
3.7 Evaluation of Secondary
Data.35
3.8 Analysis of Secondary Data.36
3.9 Sampling Strategy36
3.10 Data Analysis.37
3.11 Ethical Considerations...37
3.12 Limitations of the Research...37
4. FINDINGS..38
4.1 Background of Indian automobile..38
4.2 The first phase of Indian automobile industry40
4.2.1 The first reform- 1980s.41
4.2.2 The second reform- 1990s.42
4.3 Role of Auto Finance...43
4.4 Recent initiatives of the Government..44
4.5Scope of the Indian automobile sector.45
4.6 Size of the Indian Automotive Industry..46
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4.7 International Business (Exports).48
4.8 Environment and Safety Regulations..49
4.9 The Importance of Automobile Industry in India50
4.10 Growth Drivers..51
4.11 Fast Growth Firms in the Automotive Industry..52
4.11.1 Hindustan Motors..52
4.11.2 Bajaj Auto Ltd.52
4.11.3 Mahindra & Mahindra.53
4.11.4 Maruti Udyog Ltd53
4.11.5 Tata Motors..54
4.11.6 Ashok Leyland.55
4.12 Current developments..56
4.13 Human Resource Development...57
4.14 Tata Nano- A New Chapter.58
4.15 Manufacturing Component..58
5. Discussion: How does Literature compare with the
Finding...595.1 Automobile segmentation..59
5.1.1 Market Segmentation....59
5.1.2 Targeting...63
5.1.3 Market targeting Low-Cost Car Technologies.63
5.1.4 Positioning.64
5.1.5 India's Auto sector on fast track....64
5.2 Why India for Automobile?............................................................................65
5.2.1 The political economy66
5.2.2 Nation and state..66
5.2.3 Licensing, law, and reform.66
. 5.2.4 Investment procedures67
5.2.5 Labour.67
5.2.6 Taxation...67
5.2.7 Location and market685.2.8 Domestic markets68
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5.2.9 Infrastructure..69
5.3 Data Analysis..70
6. CONCLUSION..82 6.1 Recommendation.85
6.2 Reflection on the Dissertation...87
6.3 References.90
6.4 Appendix..102
6.5 Questionnaire102
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ABBREVIATIONS
FDI: Foreign Direct Investment.
NCAER: National Council for Applied Economic Research.
STP: Segmentation, Targeting, Positioning.
SWOT: Strengths, Weaknesses, Opportunities, and Threats.E-V-R: Environment, value and resources.
HRM: Human Resource Management.
MNC: Multi National Company.
ACMA: Automotive Component Manufacturers Association.
GDP: Gross Domestic Product.
TELCO: TATA Engineering and Locomotive Company.
LCVs: Light Commercial Vehicles.
EMI: Equal Monthly Installment.
HDFC: Housing Development Finance Corporation.
ICICI: Industrial Credit and Investment Corporation of India.
R&D: Research and Development.
NATRIP: National Automotive Testing and R&D Infrastructure Project.
USD: United States Dollar.
SIAM: Society of Indian Automobile Manufacturer.
CMVR: Central Motor Vehicle Rules.
IS: Indian Standards.
AIS: Automotive Industry standards.
OEMs: Original Equipment Manufacturers.
HCV: Heavy Commercial Vehicles.
ATM: Any Time Mobile.
ISO: International Standard Organization.
IIT: Indian Institute of Technology.
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IIM: Indian Institute of Management.
ITIS: Industrial Training Institutes.
ATIS: Advanced Traveller Information Systems.
DVD: Digital Versatile Disc.
INR: Indian Rupees.
M&HCV: Medium and Heavy commercial vehicles.
FIPB: Foreign Investment Promotion Board.
VAT: Value Added Tax.
CFOs: Chief Financial Officer.
SEZs: Special Economic Zones.
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LIST OF TABLES
Indian automobile market
Steps in market Segmentation, Targeting and Positioning
Diagram of Demographic segmentation
Automobile export graph
EXPORTS TRENDSSegmentation of Indian Car Market
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Introduction
The statement that the prosperity and economic development of a country is
enhanced by having more cars on roads reflects Indias international presence,
according to the viewpoint of politicians. The automobile industry is called as the
industry of industries" by Peter Drucker. If we compare with the last few years the
production and management systems have been revolutionized in the automobile
Industry (Karmokolias, 1990). Due to the growth of several emerging markets, there
have been some of the major changes in the industry. India is counted among one of
the most important emerging car economies in the world today but two decades back,
such imagination would not have been possible.
To expand the domestic market, the Indian government set up Maruti Udyog Limited
in partnership with Suzuki Motors of Japan. At that time Indian car buyer was having
choice of only two Ambassadors, one from Hindustan motors and another was
Premier Padmini from Premier automobiles. Then an 800 cc small car was launched
for the Indian car buyers. The foundation for the Indian auto market was laid by the
success of the Maruti 800 set up and then grown immensely after the economic
liberalization that followed a decade later.
Over the past two decades the Indian automobile industry has reached a substantial
growth. And now India has one of the largest manufacturing sectors. India has earned
a strong reputation in the export market. Indian vehicles and components are in great
demand all over the world (Aggarwal, 1998).
India has entered the big league of Asian car market. India is one of the most
important emerging car economies in the worlds today. In 1991, the government of
India initiated an ambitious structural adjustment programmed aimed at economic
liberalization based on Delicensing, Decontrol, Deregulation and devaluation(Aggarwal, 1998).
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Because of this new automobile policy, a large number of automobile companies are
attracted to India. A large number of multinational auto companies especially from
Japan, USA, and Europe are entering the Indian auto market and are working in
collaboration with the Indian firms. Also, the growth of the Indian automobile industry
increased because of the facility of the automobile finance.
The Indian automotive industry started from 1991with the governments de-licensing
of the sector and subsequent opening up for 100 per cent FDI through automatic route.
Since then many large global companies have set up their facilities in India taking the
production of vehicle from 2 million in 1991 to 9.7 million in 2006.
At present, India is the worlds
Largest tractor and three-wheel vehicle producer.
Second largest two-wheel vehicle producer.
Fourth largest commercial vehicle producer.
Eleventh largest passenger car producer.
(Source:http://www.business-in-asia.com/countries/automotive_industry_india.html )
Presently, the overall auto market- two wheelers, passenger cars and commercial
vehicles is slated for further growth after sustained growth over the past five years.
Today, the customer has abundant choice across all these segments. In two wheelers,
there are multiple models from different players, be it for mopeds, scooters or
motorcycles. The automotive industry in India has hit the fast lane with almost all
global manufacturers queuing up their launches. -Anang Dev Jena, head, Synovate
Motoresearch India.
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Indian Automobile Market
Source: - Cygnus research, 2007
The Indian automobile industry has a mix of large domestic players like Tata,
Mahindra, Ashok Leyland, Bajaj, Hero Honda and major international player like GM,
Ford, Daimler Chrysler, Toyota, Mercedes, BMW, Lexus, Fiat, Suzuki, Honda,
Hyundai, MAN, VW and Volvo. Today, the Indian automobile industry is the worlds
largest motorcycle manufacturer, the second largest two wheelers and tractor
manufacturer, the fifth largest commercial vehicle manufacturer and the fourth largest
car maker in Asia.
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Aims and objective
The aim of this project is to assess the use of target marketing to achieve competitive
advantage: a case study approach of the Indian automobile industry will be used. It is
very important and necessary to have a frame work from which to work. Dissertation
presents the growth path and target marketing to create competitive advantages of
India automobile sector as well as its future growth path. Auto finance has a greater
role for this phenomenal growth of Indian automobile sector. In this project this auto
finance marketing and automobile segmentation will also be analyzed.
Research Questions
A review of current literature for target marketing and competitive
advantage. Has the automobile industry in India achieved growth?
What are the factors contributing to the growth of automobile sector in
India?
What are the current developments in the automobile sector and to what
extent will it grow in the future?
What has been the role of government as far as growth in this sector is
concerned?
Research Objectives
To gain a comprehensive understanding of the automobile sector in India.
Understand the perceptions of marketing segmentation which gives the way of
establishing a competitive advantage in organization.
A contextual review of how porters five forces determine automobile industryattractiveness and long-run industry profitability.
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Understand the implications of the growth.
Evaluate the over all strategic position of Indian automobile and its
environment by SWOT analysis.
To develop a research design which helps to answer the research question in a
valid and reliable manner?
A contextual review of the current business environment in India in relation to
the purchase of cars from which can be established the opportunities and
threats for car manufacturers.
A concluding chapter that considers the academic and the contextual literature
that will enable you to answer the research question.
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LITERATURE REVIEW
WHY MARKET SEHMENTATION NEED FOR AUTOMOBILE
There are several important reasons why businesses should attempt to segment their
markets carefully. These are summarized below
Better matching of customer needs
Customer needs differ. Creating separate offers for each segment makes sense and
provides customers with a better solution.
Enhanced profits for business
Customers have different disposable income. They are, therefore, different in how
sensitive they are to price. By segmenting markets, businesses can raise average pricesand subsequently enhance profits.
Better opportunities for growth
Market segmentation can build sales. For example, customers can be encouraged to
"trade-up" after being introduced to a particular product with an introductory, lower-
priced product.
Retain more customers
Customer circumstances change, for example they grow older, form families, change
jobs or get promoted, change their buying patterns. By marketing products that appeal
to customers at different stages of their life ("life-cycle"), a business can retain
customers who might otherwise switch to competing products and brands.
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Target marketing communications
Businesses need to deliver their marketing message to a relevant customer audience. If
the target market is too broad, there is a strong risk that (1) The key customers aremissed and (2) The cost of communicating to customers becomes too high
unprofitable. By segmenting markets, the target customer can be reached more often
and at lower cost.
Gain share of the market segment
Unless a business has a strong or leading share of a market, it is unlikely to be
maximizing its profitability. Minor brands suffer from lack of scale economies in
production and marketing, pressures from distributors and limited space on the
shelves. Through careful segmentation and targeting, businesses can often achieve
competitive production and marketing costs and become the preferred choice of
customers and distributors. In other words, segmentation offers the opportunity for
smaller firms to compete with bigger ones.
MARKET SEGMENTATION
Proctor, T (1996) pointed out that segmentation in marketing management techniques
which can help firms find ways of establishing a competitive advantage. A market
segment is a section of a market which possesses one or more unique features that
both give it an identity and set it apart from other segments. Market segmentation
amounts to partitioning a market into a number of district sections, using criteriawhich reflect different and distinctive purchasing motives and behavior of customers.
Segmentation makes it easier for firms to produce goods or services that fit closely
with what people want.
Segmentation can be put into effect in variety of ways. Markets comprise buyers of
products and services, who differ from one another in various respects. The
differences point to varying buyer wants and needs, the different resources at buyersdisposal, their place of residence, buying attitudes and buying practices. Any
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combination of these differences can be used as a basis for market segmentation. The
important thing that has to remember however that is a market segment exists only
when people have common characteristics as buyers. Segmentation is a powerful
component of marketing strategy. [Proctor, T (1996)]
Thomas, (2007) When the term market segmentation is used, most of us
immediately think of psychographics, lifestyles, values, behaviors, and multivariate
cluster analysis routines. Market segmentation is a much broader concept, however,
and pervades the practice of business throughout the world. What is market
segmentation? At its most basic level, the term market segmentation refers to
subdividing a market along some commonality, similarity, or kinship. That is, the
members of market segment share something in common. The purpose of
segmentation is the concentration of marketing energy and force on the subdivision (or
the market segment) to gain competitive advantage within the segment. Its analogous
to the military principle of Concentration of Force to overwhelm an enemy.
Concentration of marketing energy (or force) is the essence of all marketing strategy,
and market segmentation is the conceptual tool to help achieve this focus. Before
discussing psychographic or lifestyle segmentation (which is what most of us mean
when using the term segmentation), lets review other types of market segmentation.
Our focus is on consumer markets rather than business markets Thomas, (2007).
In my investigation, Indian automobile market is estimated to increase to 1.2 million
units 2011-12 (NCAER). Though I am more optimistic, I doubt the ability of anyone
to forecast accurately beyond nine months, given the current unstable and complex
business environment. Nothing radical has changed in the Indian economy to give a
logical reason in support. Experience tells that the extant policy measures at best can
support a GDP growth of 5.5- 6.5 per cent., but because of the political will to create a
supporting infrastructure for fast-track economic growth. Strangely, in 1997 China and
India had almost equal market sizes in the car segment.
Segmentation, targeting and positioning together comprise three stage processes. We
first (1) Determine which kinds of customers exist, then (2) Select which ones we are
best off trying to serve and, finally, (3) Implement our segmentation by optimizing our
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products/services for that segment and communicating that we have made the choice
to distinguish ourselves that way [Perner,L (1999)].
The strategic marketing planning process flows from a mission and vision statement to
the selection of target automobile markets, and the formulation of specific marketing
mix and positioning objective for each product or service the organization need to
proceeds to segment the automobile market, select the appropriate market target, and
develop the offer's value Positioning. The formula- segmentation, targeting,
positioning (STP) - is the essence of strategic marketing." (Kotler, 1994, p. 93).
SEGMENTATION, TARGETING AND PRODUCT POSITIONING
Having introduced to nature of market segmentation. It is now appropriate to examine
how it relates to targeting and product positioning. Marketing executes employ the
following steps.
Segment the market
Target the users Position the products
Steps in market Segmentation, Targeting and Positioning
[Proctor, T (1996)] in order to segment a market, characteristics have to be identified
which distinguish among customers according to their buying preferences. Profiles of
YearsCategory of twowheelers has increasedover the past 5Strongly agreeAgreeNeither Disagree nor agreeDisagreeStrongly Disagree
64%
36%
0%
0%
0%
1. Identify segmentationvariables and segment themarket.
2. Develop profiles ofresulting segments.
3. Evaluate theattractiveness of eachsegment
4. Select the targetsegment(s)
5. Identify possiblepositioning concepts foreach target segment.
6 select, develop andcommunicate the chosen
positioning concept.
Market segmentation Market targeting Market positioning
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market segments which reflect different combinations of these characteristics have
then to be constructed.
Proctor, T (1996) evaluate that to target the users, the financial appeal of all segments
should be assessed and segments which have the greatest appeal should be selected for
targeting. The selection criteria should take account of the relative financial
attractiveness of the segments, and the organizations capability to exploit them. In
positioning a product, one should aim to match it with that segment of the market
where it most likely to succeed. This involves identifying possible positions for
products within each target segment and then producing, adapting and marketing them
towards the target market. The product and service should be positioned in such a
manner that it stands apart from competing products. The positioning of a product or
service indicates what the product represents and how customers should evaluate it.
Having introduced the nature of market segmentation and looked at how this relates to
targeting and positioning, we will look at now operational aspects of market
segmentation. Various bases can be used to segment markets, and because the natures
of consumer and industrial markets difference. [Proctor, T (1996)]
In my investigation, the positioning of the brands in the Indian car market can be
understood from the price-power map given in the next page. This map gives an idea
of competition in different segments. Since the Indian car market is in a state of flux,
the positioning of most companies in the consumer's mind appears to be confused.
However, the companies have developed image-based positioning strategies for their
brands. The target of four-wheeler sales is the large number of two-wheeler owners.
And second, the bulk of four-wheeler sales will be small cars.A significant migration
from two- to four wheelers is expected.
Dividing a market into smaller groups of buyers with distinct needs, characteristics or
behaviours who require separate products or marketing mixes. The company identifies
different ways to segment the market and develop profiles of the resulting market
segment. A market segmentation approach aims at a narrow, specific consumer group
through one specified marketing plan that caters to the needs of that segment. The
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segmentation is defined as "a process of dividing the total market for goods or services
into several smaller, internally homogeneous groups"[Smith, W (1956)].
BASES FOR MARKET SEGMENTING CONSUMER MARKETS
There are several approaches to segmenting markets for consumer goods. The
methods reflect such things as geographic, demographic, psychographic and
behavioral characteristics of consumers.
Geographic approaches
Geographical perhaps the most common form of market segmentation, where in
companies segment the market by attacking a restricted geographic area. A market can
be divided according to where consumers are located. Understanding cultural
differences between countries could be pivotal for business success, consequently
marketers will need to tailor their strategies according to where consumers are.
Geographic segmentation is the division of the market according to different
geographical units like continents, countries, regions, counties or neighborhoods. This
form of segmentation provides the marketer with a quick snapshot of consumers
within a delimited area [Hiam, A and Schewe, C (1998)].
Geographic segmentation can be a useful strategy to segment markets because it:
Provides a quick overview of differences and similarities between consumers
according to geographical unit;
Can identify cultural differences between geographical units;
Takes into consideration climatic differences between geographical units;
Recognizes language differences between geographical units.
But this strategy fails to take into consideration other important variables such as
personality, age and consumer lifestyles. Failing to recognize this could hinder a
company's potential for success.
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Demographic approaches
A very popular form of dividing the market is through demographic variables.
Understanding who consumers are will enable you to more closely identify andunderstand their needs, product and services usage rates and wants. Understanding
who consumers are requires companies to divide consumers into groups based on
variables such as gender, age, income, social class, religion, race or family lifecycle.
Clear advantage of this strategy over others is that there are vast amounts of secondary
data available that will enable you to divide a market according to demographic
variables.
Diagram of Demographic segmentation Age Life-cycle
Stage
Income Social
Class
E.g.
under 6,
6-11,
12-19,
29-34,
35-49,
50-64,
65+
E.g.
Bachelor State,
Newly Wed: No kids
Full Nest 1: w/child
under 6
Full nest 2: Youngest
child over 6
Full nest 3: Older
married couples with
dependent children
Empty nest 1: Older
couples no children
at home
Empty nest 2:
Retired Solitary
survivor: Still
in the labor force
Solitary survivor:
Retired
E.g.
Under 5,000;
5,000-20,000;
20,000-50,000;
50,000-100,00,
100,000-250,000
etc
E.g.
A = Upper, upper
B = Upper lower
C1= middle class
C2= Working class
(skilled workers)
D= upper lowers
E= Lower, lower
Source: Hiam, A and Schewe, C (1998)].
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Demographic segmentation entails using such factors as age, sex, income, occupation,
family size, stage in the family life cycle. Demographic segmentation strategies that
describe who is purchasing a product or service, psycho-demographic segmentation
attempts to answer the 'why's' regarding consumer's purchasing behavior. Through this
segmentation strategy markets are divided into groups based on personality, lifestyle
and values variables. Segmenting consumers into lifestyles is based on the notion that
a person's lifestyle has a direct impact on their interests in products and services
[Hiam, A and Schewe, C (1998)].
Psychographic approaches
Psychographic segmentation entails dividing buyers into different groups based on
their social class, lifestyle and /or personally characteristics. Lifestyle and personality
segmentation are growing in popularity. The methods involve attempting to endow a
product with characteristics that correspond to the target group of consumers self
perceptions. It is maintained that these factors reflects peoples values and opinions
and thus enable researchers to ascertain why customers prefer certain products and
services to others.
Fear is a psychographic variable which can be used to good effect in marketing
communication. It is particularly good in establishing new market segments and works
best with people who are low in anxiety and high in self-esteem, who are not
interested in this topic of fear itself and believe that they are not very vulnerable. A
social fear appeal is better than a physical fear appeal. [Burnet and Oliver, (1979)].
Segmentation and positioning constitute the crux of marketing strategy. Over the past
two decades, lifestyle and psychographics have been increasingly used as a basis for
market segmentation.
Behaviouristic approaches
A behaviouristic approach entails dividing customers into groups according to their
knowledge, attitude, and use or response to a product or service. Behavioral patterns
can be differentiated by occasions, benefits, and user status and usage rate. Occasions
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are situations where one can distinguish between buyers according to when they
purchased or used a product or service. User status reflects non-users, ex-users,
potential users, first time users and regular users of a product or service. Usage rate
reflects light, medium, or heavy use of products or services.
Behavioral segmentation methods can be applied to products which are purchased to
celebrate an occasion. Behavioral Segmentation is the effort to cross-tabulate or
associate behaviors with known demographics. It is the oldest method of
segmentation. In essence, it classifies a customer into a "bucket" based upon whether
customers are similar to other customers who have performed that behavior in the
past. Historically, behavioral segmentation has been generated by cross-tabulation
analysis [Hiam, A and Schewe, C (1998)].
In Porter earlier book, Competitive strategy, he proposed techniques for analyzing
industries and competitors. The phrase Completive advantages and Sustainable
completive advantages have become commonplace in testimony to the power of
Porters ideas.
Writing in the Porter, (1980) points out that competitive advantage grows
fundamentally out of values a firm is able to create for its buyers that exceed the
firms cost of creating it. Values is what the buyers or customers are willing to pay,
and superior values stems from offering lower prices than competitors for equivalent
benefits or providing unique benefits that more than offset a higher price.
SWOT ANALYSIS
SWOT analysis is a simple framework for generating strategic alternatives from a
situation analysis. It is applicable to either the corporate level or the business unit level
and frequently appears in marketing plans. SWOT (sometimes referred to as TOWS)
stands for Strengths, Weaknesses, Opportunities, and Threats. Thopmson L, J (1997)
proposed that the SWOT analysis provides information that is helpful in matching the
firm's resources and capabilities to the competitive environment in which it operates.
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As such, it is instrumental in strategy formulation and selection. The following
diagram shows how a SWOT analysis fits into an environmental scan:
SWOT Analysis Framework
Environmental Scan
/ \
Internal Analysis External Analysis
/ \ / \
Strengths Weaknesses Opportunities Threats
|
SWOT Matrix
The internal and external situation analysis can produce a large amount of information,
much of which may not be highly relevant. The SWOT analysis can serve as an
interpretative filter to reduce the information to a manageable quantity of key issues.
The SWOT analysis classifies the internal aspects of the company as strengths or
weaknesses and the external situational factors as opportunities or threats. Strengths
can serve as a foundation for building a competitive advantage, and weaknesses may
hinder it. By understanding these four aspects of its situation, a firm can better
leverage its strengths, correct its weaknesses, capitalize on golden opportunities, and
deter potentially devastating threats [Thopmson L, J (1997)].
Thompson, L J (1997) proposed that environmental opportunities are only potential
opportunities unless the organization can utilize resources to take advantage of them
and until the strategic leader decides it is appropriate to pursue the opportunities in
relation to the strength and weakness of the organizations resources, and in relation to
the organizational culture .Real opportunities exist when there is a close fit between
environment, value and resources. Similarly the resources and culture will determine
the extent to which any potential threat becomes a real threat. This is E-V-R
congruence.
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All the resources at the disposal of the organization can be deployed strategically,
including strategic leadership. It is therefore useful to consider the resources in terms
of where there are strong and where they are weak as this will provide an indication
of their strategic value, How ever this should not be seen as a list of absolute strengths
and weakness seen from an internal prospective; rather, the evaluation should consider
the strengths and weakness in relation to the needs of the environment and in relation
to competition .The views of external stakeholders may differ from those of internal
managers .when evaluating the relative strength of a particular product, resource or
skill. Resources should be evaluated for their relative strengths and weaknesses in the
light of key success factors [Thompson, L J (1997)].
Once all the important strategic issues have been teased out from a long list of
strengths, weakness, opportunities and threats, the following question should be asked;
Thopmson L, J (1997) said that a firm's strengths are its resources and capabilities that
can be used as a basis for developing a competitive advantage.
In my investigation, Indian automobile strength is Cost Competitiveness in terms of
Labor and Raw Material, Established Manufacturing Base, Economies of Scale due
to Domestic Market, Potential to harness Global Brand Image of the Parent
Company. Global Hub Policy for Small Car. (Hyundai, Suzuki etc.) And weakness is
Perception about Quality, Infrastructure and Bottlenecks.
Examples of such strengthsinclude:
Patents
Strong brand names
Good reputation among customers
Cost advantages from proprietary know-how
Exclusive access to high grade natural resources
Favorable access to distribution networks
Reputation in marketplace
Expertise at partner level in HRM consultancy
Weaknesses
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Changes in the external environmental also may present threats to the firm. Some
examples of such threats include:
Shifts in consumer tastes away from the firm's products
Emergence of substitute products
New regulations
Increased trade barriers
Large consultancies operating at a minor level
Other small consultancies looking to invade the marketplace
In my investigation of Indian automobile SWOT analysis some of the strengths of the
industry are low labor costs, supportive government policies and trained manpower. Major
weaknesses are a small and fragmented ancillary industry, poor infrastructure, and low level of
diffusion of lean manufacturing, improvements needed in quality and productivity, and lack of
product development capabilities. The opportunities that the industry offers are a large
untapped market, and a possible production base for exports. Some MNCs like Maruti-Suzuki
have already started using their Indian plant for exports [Mukharjee, A (1996)].
The SWOT Matrix
A firm should not necessarily pursue the more lucrative opportunities. Rather, it may
have a better chance at developing a competitive advantage by identifying a fit
between the firm's strengths and upcoming opportunities. In some cases, the firm can
overcome a weakness in order to prepare itself to pursue a compelling opportunity.
To develop strategies that take into account the SWOT profile, a matrix of these
factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is
shown below:
Strengths Weaknesses
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OpportunitiesS-O strategies W-O strategies
ThreatsS-T strategies W-T strategies
SWOT / TOWS Matrix
S-O strategies pursue opportunities that are a good fit to the company's
strengths.
W-O strategies overcome weaknesses to pursue opportunities.
S-T strategies identify ways that the firm can use its strengths to reduce its
vulnerability to external threats.
W-T strategies establish a defensive plan to prevent the firm's weaknesses from
making it highly susceptible to external threats [Thopmson L, J (1997)].
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METHODOLOGY
Research Plan
My research will operate within the functionalist paradigm (Saunders et al, 2003) as
it looks to evaluate a process within the industry recommend ways in which its
functionality could be improved.
The research will begin with an expansive review of the literature (further to the
above). This will incorporate the segment of automobile sector and its growth trends
along with the present scenario which will form the beginning of my understanding as
to the role of these aspects and the impact they have on the entire economy of India.
Research Perspective
According to Saunders (2003), research perspectives usually include three parts,
namely, the perspective of positivist and realist approaches. The positivism research
philosophy stresses the importance of observable social reality, the generalizations
of the research end product, and the replication of the research outcomes (Gill and
Johnson 1997). Since the report primarily deals with measuring a phenomenon;
namely growth of automobile sector in India, I believe a realistic approach would
provide me with more useful insights.
In terms of research approaches, the research will have a dual approach yet, with an
emphasis an inductive character. The collected data will be analyzed and used in order
to provide recommendations. Such approach will enable me to understand the
automobile sector in India. Additionally, the flexible structure will give possibilities to
alter the emphasis of the research if such need occurs and gather data will have a
qualitative aspect. Nonetheless, inductive character of the research will implement
limitations to the study; the possibility to generalize the findings is much more
restricted than in terms of the deduction. Furthermore, inductive approach is usually
more time demanding (Saunders, Lewis, and Thornhill 2007). I will use previous
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theories and models as a base of the research (which indicates the use of deduction),
yet they have not been design to deal with the particular case of automobile sector in
India.
Since my topic involves trying to understand industrial processes I believe a realistic
approach will give a more accurate insight on the industrial aspects of the processes
under consideration.
The spokespersons of the automobile sector are different from many aspects some of
which may not get truly reflected in the paper. It will be interesting to compare what
they typically perceive the automobile sector to be and how they differ at their level of
understanding. This will involve exploring the following extremes: quantitative and
qualitative, objective and subjective and facts and feelings. (Jewell 2007)
Research Design
A cross-sectional design will be used in this research. This is justified in that, the study
is being carried out at a particular point in time, which in my case is the present day,where the perception levels differ according to various spokespersons and at different
points of time. The effect of this current phenomenon and its implication for players in
the industry is what this project all about.
The questions underlying the alternative of data compilation methods have been
identified by the use of Research Onion developed by [Saunders et al, 2003:83].
According to Saunders (2003:82) outer layers need to be peeled away to get to thecentre and answer what research philosophy, research approach and research strategies
are to be followed to answer the objectives of the research. Moving onto the research
onion with the outer layers answered first.
Research Philosophy
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The first step of the research onion is the most crucial as it will suggest what
research approach and strategy is to be followed through out the research. The careful
analysis of research objectives suggests the researcher to follow the philosophy of
interpretivism. The researcher proposes to understand and evaluate the automobile
sector and the growth trends along with the present scenario. Remenyi et al(1998:35)
as cited by Saunders (2003:84) call the details of the situation to understand the
reality or perhaps a reality working behind them. The researcher is critical about the
use of philosophy of positivism as he agrees with Saunders (2003:84) that the social
world of business and management is far too complex to lend itself to theorising by
definite laws in the same ways as physical sciences. The researcher further believes
that rich insights into this complex world are lost if such complexity is reduced
entirely to series of law-like generalizations, Saunders et al(2003:84).
Data Collection Methods
The following data methods will be used
1) Secondary Data
The particular secondary data collected will be as per the following classifications
supplied by Saunders, Lewis and Thornhill (2007:248-252)
1.1.) Documentary secondary data.
1.1.1) Written materials: From textbooks and journals, to further investigate the
conceptual framework and benchmark studies surrounding this project. From
newspapers to reviews, market changes and trends. From organisations websites with
particular focus on (cosmetic) company product portfolios and annual account reports.
1.1.2) Non-written materials: In the form of billboard and TV ad visuals. These
will give an idea on the effectiveness of communication with the customers using such
media and the perceptions behind such images.
1.2.) Survey-based secondary data.
2) Questionnaires
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For the purpose of getting a generic idea on perception of the industry and how they
feel about automobile sector in their company and the extent to which it has grown
over the years, I will distribute 20 questionnaires. Colleagues, classmates, relatives
and friends will help me do an initial.
I will try to ensure that only persons of a certain maturity who can appreciate the
necessity of this research are approached so that a response rate of at least 90% is
obtained. The questionnaires will be as brief and to the point as possible so that only
necessary information is obtained without taking too much of respondents time.
Validity, Reliability and Generalisability
The data collection methods being used will meet the requirement of validity as I
believe they will adequately help me answer the research questions. The research will
be reliable and externally valid within the limitations fixed by this research i.e. using
the employees in the manufacturing industry. A common pattern may emerge that
could be used to generalise findings to other countries and other industries but the
outcome will probably not be as specific as that of the present study.
Validity is the most important criteria is the research question being addressed?
(Jewell, S. 2007). Reliability should provide a possibility for other researchers to
replicate the results. There are four threats to reliability, as quoted by (Robson, 2002)
in (Saunders et al: 2007:149), which should be avoided subject of participant error,
subject of participant bias, observer error and observer bias.
The research will be carried out in such a way as to not skew the results in any
manner. As mentioned above, this includes gathering the data from a variety of
employee demographics, and industry experts from across the spectrum. Information
will be taken at neutral times, not just around large events when media coverage may
be higher. It is my belief that similar observations regarding the automobile sector
would likely be crucial regardless of which country under study. Finally, there will be
transparency throughout in reaching my conclusions.
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It is my intention that the study will be generalisable. It analyses the automobile
sector and the growth trends in India. The research will be particularly useful for other
similar entities outside the industry and other similar industry looking to find the
growth trends and the methodology adopted.
The feasibility of this research design is high due to the access I have to the people
that I wish to consult. The nature of my current role means that I will be able to speak
to a number of key personnel within the area of study.
It is important to appreciate the potential limitations of this research. Much of the data
collected via questionnaires may be affected by bias, as people may express opinions
rather than facts and may also portray their particular organisation/occupation in a
favourable light. Drawing from interviewees from across the spectrum should
dissipate this to a certain extent.
Evaluation of Secondary Data
Validity is the most important criteria is the research question being addressed?(Jewell, S. 2007). Reliability should provide a possibility for other researchers to
replicate the results. There are four threats to reliability, as quoted by Robson (2002)
in Saunders et al (2007:149), which should be avoided subject of participant error,
subject of participant bias, observer error and observer bias.
Both form an important criterion while evaluating secondary data. Nature, Currency,
Objectives, Errors and Dependability associated with the secondary data has to be
properly examined. One critical issue that researchers face regarding the error part is
that the researcher did not participate while the collection of data was done. So one
way to ascertain the reliability and validity is to check original source of data or check
multiple sources of the original source is not known.
The secondary data may not be current and the time lag elapsed between collection
and publication of the data may be very high. It is the researchers responsibility to
check whether the data has been updated or not.
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The objective of collecting the data will ultimately determine whether the data
collected would be useful to the study or not because when data is collected with some
objective in mind in one situation may not be very useful for other situations.
Special attention would be given to the content of the data. If the variables defined are
inconsistent with those of researchers then the data might not be of any use. Hence, it
is advisable to reconfigure the data and convert unit (if necessary) to make the data
consistent.
The dependability of the data can be ascertained by asking people who have already
used the data. Also it is important to analyze whether the data came from original
source or procured source. Examining such facts may result in data which has high
credibility.
Analysis of Secondary Data
Burns and Bush (2006) have proposed various ways in which data can be analyzed. By
secondary data analysis, we refer to the process of searching for and interpreting
existing information relevant to the research objectives. Your library and the internet
are full of secondary data, which include information found in books, journals,
magazines, special reports, bulletins, newsletters and so on. An analysis of secondary
data is often the core of exploratory research.
Sampling Strategy
1) Non-probability sampling
1.1.) Purposive sampling:
Out of the various sampling techniques proposed by Saunders et Al (Saunders et Al
2007: 232) I have decided to use purposive sampling which is a non-probability
sampling technique.
1.1.1.) Heterogeneous sampling:
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I will specifically be using the heterogeneous sampling technique to bring out the key
themes that stand out from the responses to the questionnaires.
Data Analysis
The quantitative data from the questionnaires will be analysed through descriptive
statistical analyses. The data will be presented through the use of charts, tables and
graphs.
Ethical Considerations
Given the nature of my research I will surely have to approach customers from various
demographics. I am aware that at times people may become vulnerable so extra care
will be taken when dealing with them. I will ensure that my behaviour towards them
may not at any point in time be considered discriminatory.
The participants in my research will have clear, unambiguous, informed knowledge on
the purpose of my research.
Questionnaires will be distributed only after approval from my supervisor.
I will duly respect the participants safety as well as my safety.
Limitations of the Research
It is important to appreciate the potential limitations of this research. Much of the data
collected via interviews may be affected by bias, as people may express opinions
rather than facts and may also portray their particular organisation/occupation in a
favourable light. Drawing from interviewees from across the various spectrums of
employees and secondary sources should dissipate this to a certain extent. Other
limitations of the research include the time constraints of the chosen method.
FINDINGS
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BACKGROUND OF INDIAN AUTOMOBILE
The distant reaching economic changes undertaken since 1991 have given a free rein
to the growth prospective of the Indian economy. A sequence of Second Generation
Reforms designed at deregulating the nation and motivating foreign investment have
stirred India confidently into the front position of the rapidly emerging Asia Pacific
region. (Husain and Sushil, 1996)
The automobile segment consists of all the vehicle, comprising of 2-3 wheelers,
passenger cars and multi-convenience vehicles, light and heavy commercial motor
vehicles, and the associated engineering segment consists mostly of the auto
components sector (Sushil, 2000) Earth Moving Machinery and Agricultural tractors
are an allied division, which helps to maintain the speed of the wheels of the agrarian
economy moving. It is heavily dependent and associated to the automobile and
associated engineering segment and plays an important role in India (Abernathy and
Utterback, 2001). The Automobile and associated Engineering Industry might on the
other hand be termed as the automotive industry.
The automotive Industry in India is at present functioning in provisions of the
dynamics of an open marketplace. A large number of joint business enterprises have
been established in India with the help of foreign collaboration, both technical and
financial with top worldwide manufacturers (Noori, 1990).
In addition a huge number of joint business enterprises have been established in theauto-components division and the speed is anticipated to rise up even further. The
Government of India is enthusiastic to offer a appropriate economic, as well as
business atmosphere favorable to the success of the established and potential foreign
partnership undertakings. C$ 5.7 billion is the investment visualized in the latest
vehicles projects (ACMA, 2005) Enhanced business self-confidence, improved
agriculture production plus infrastructure industry. In the financial year 2001-2002,
the Automobile Industry witnessed an increase of 13% over financial year 2000- 2001.
It accomplished a revenue of C$ 16 billion by investing more than C$ 10 billion and
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the opportunity of a high-quality performance by the manufacturing industry have
improved (Anderson et al, 2000) Since April to Dec. 2002, the demand expansion in
virtually every vehicle segments pointed out a growth of over 22%. The recent trend
continues to be encouraging, suggesting further improvement in the upcoming months
(Banker, Chang & Natarajan, 2005).
The industry is portrayed by an excessive percentage (75%) of production in the 2/3-
wheeler segment. India has been ranked as the major manufacturer of motorcycles
along with second major manufacturers of scooters in the world. India at the moment
is also the second major manufacturer of tractors. The industry has a powerful forward
and backward incorporation. The joint venture listing points out an extensive variation
starting from 10% to 100%, i.e., entirely possessed foreign subsidiaries (Braga and
Willmore, 1999). The equity involvement is not synchronized by Government but is
market driven. It depends on the market awareness of the joint business enterprise
partners and their business awareness principally in terms of technical, economic and
market potency of the partners. The setting up of joint business enterprises has in
addition led to improved capacity formation in the vehicle segment, predominantly in
the passenger car segment and the additional capacity is anticipated to increase by one
million passenger cars in the subsequent 4-5 years.
The huge amount of investment together with foreign direct investment in the
automobile manufacturing business enterprises and technological collaboration are
boosting a quantum leap in up gradation of technology. Domestic requirement for
passenger cars as well as multi purpose vehicles is anticipated at 800,000 cars by 2004
A.D. With better production and aptitude creation in the passenger car segment,
foreign nations might use India as an export center. This incredible development is
likewise generating growth of the auto-component sector (Cole et al, 2004).
Strenuous efforts are going on in India for initiating and captivating the most up-to-
date technology and improving the value of products to a worldwide level and a
partner investigation operation is on.
Indian firms are searching for Joint business enterprises and Technology Transfers
concentrating in niche technology and to harmonize their series of products as well asbench marking with the worlds most up-to-date and the best (Cole et al, 2004).
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The first phase of Indian automobile industry
In spite of growth in today automobile industries in India, it went through several pits-falls in its starting phase. Government policies had prevalent effect on that period. And
the result of this it was in its slowest pace. Expect this; scenario of too many needs
chasing too few resources in a growing economy resulted in the auto industry not
keeping pace with international levels of volume and quality (Cygnus research, 2007).
Personal vehicle were seen as elitist symbols and the restricted production ensured a
premium during resale of a car, which had been even used for a couple of years. Thiswas despite the rather uncharitable description of an Indian car as one where every
part except the horn made noise. The economy itself was in what was called
disparagingly although The Hindu growth rate mode of GDP growth at around 3.5%
per annum and this did not provide much scope even for the commercial vehicles
market to develop. Added to what were vagaries of what was called the License
permit Raj with India being perhaps the only country in the world where an
industrialist was penalized for producing more than licensed capacity (Cygnus
research, 2007).
The command economy manifested itself in another way too- that of imposing high
level of taxation both on inputs as well as on the finished products. This, when allied
with the protection from imports given to local vehicles manufacturers, proved to be a
significant disincentive for anything but minor cosmetic improvement in their
products.
All these factors together created a rather paradoxical situation of not very
distinguished products, either in terms of finish or being of contemporary design or
technology, which still commanded hefty premium since production was woefully
inadequate when compared to demand. In fact, we can predict by that example that in
late seventies, the most popular model of scooter had a ten year waiting line which
seems to be unbelievable today [Cygnus research(2007)].
.
The first reform- 1980s
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This situation finally started changing in the eighties with the governments initiative.
There were two major initiatives which brought about dramatic transformation - a
process which as continued till today. The first major and most important initiative
taken by the government of India was to allow foreign technology with or without
equity participation, in partnership with Indian companies. As a result, the following
international companies entered the field of vehicle manufacture in India during this
period [Emerald insight (2008)];
Car: Suzuki (Japan)
Motorcycles: Suzuki, Honda, Kawasaki, Yamaha (all from Japan)
Scooters: Honda, Piaggio(Italy)
Mopeds: Steyr Daimler Puch (Austria), Zundapp (Germany), Agrati Garelli
(Italy)
LCVs: Mitsubishi, Nissan, Mazda, Toyota (all from Japan)
The second initiatives of broad banding were another important factor in spurring
growth in this sector. This policy effectively meant that, for instance, a heavy truckmanufacturer could think of making light trucks or even cars or that a company
making scooters could start manufacturing motorcycles or mopeds. In the four wheeler
segment, TELCO(now Tata motors), and Bajaj auto in the two wheeler segment, were
the two companies that took maximum advantage of this policy by entering segments,
where they were hitherto not present. Tata started the manufacturing of their light
commercial vehicle in this period and cars later, while Bajaj auto moved into the
manufacturing of mopeds and motorcycles [Emerald insight (2008)].
The second reform- 1990s
The fruits of the first reform were consolidated but still there are lots which need to be
reform and soon its happens. In the early 1990s, the measure that proved especially
beneficial to the auto industry was:
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De-licensing of almost all industries, especially automobile and automobile
components.
Identification of some industries, again including automobile and automobile
components, as high priority and allowing up to 51% foreign equityparticipation in these.
Simplification of procedure for approval of the foreign collaboration involving
technology transfer with or without equity participation.
Reducing of peak customs duties to 65% ad valorem from the earlier peak of
110%.
Full convertibility of rupee on current account.
Withdrawal of the condition of a phased manufacturing program forindigenization before allowing imports.
The early 1990s was a trying period for the Indian economy as a whole and perhaps
desperate situation called for desperate measures. Be that as it may, a great many of
players reacted to these positive governmental measure with great gusto and took the
Indian automobile industry to a totally different plane. Especially when compared with
the early post independence period, on various dimension like a variety of choice for
the consumer, modernity of offerings, quality consciousness or even scale of
production, many Indian companies have equaled, if not surpassed, global standards.
As a whole, Indian car production is surpassed by only ten countries in the world,
whereas Indian truck production occupies an even better position being at the 4 th spot
in the world in the same year (Emerald insight, 2008).
Role of Auto Finance
As we know most of the people in India belongs to mediocre class. And this part is the
major consumer for this industry. Though buying and owing a car or two wheelers is a
dream of every individual but the constraint of hard cash ensures that most of them do
not give a serious thought to it, due to automobile companies are loosing out a huge
lucrative and potential market. So there is problem arising in the form finance. The
provision of finance and financial jargon EMI has given an engine of growth to the
automobile industry to flourish in its full capacity.
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Major contribution of the auto finance company to the Indian automobile sector:
Auto finance company ensures the issue of the financial support and the other
needs to consumers.
Due to the emergence of auto finance companies, a consumer has been assured
of his ability to buy the automobile depending upon the need and ability to pay.
The provision of automobile finance has ensured that the market grows
substantially as both the consumer and manufacturer gets benefited.
Due to the emergence of auto financing scheme market for both new and used
automobile has increased, now the consumer can think of taking a 2 nd hand
vehicle on very low cost depending upon the needs.
The facility of financing the automobile by the different financer acted as a
engine of growth for the automobile industry as a whole and ultimately it is
benefited the whole economic growth of the country.
(Source:http://www.surfindia.com/automobile/automobile-industry.html )
Some of the leading name in the auto finance includes the Citicorp Maruti, Appeejay
finance, Sundaram finance, Apex Financial, Kotak Mahindra Apex. Seeing the ample
business opportunity in this segment of business even the nationalized public sector
bank has joined this race. The largest bank in India i.e. State bank of India came up
with quite a few attractive schemes for the auto finance. Other banks like Punjab
national bank, union bank of India, HDFC bank, ICICI bank and many more too have
made significant contribution in shaping the bright career of auto finance in India.
(Source:http://auto.indiamart.com/auto-finance/banks-institutions.html )
Apart form these banks; there are some non financial institutions that are also step into
this business. In these financial institution there are mainly leading automobile players
who are in manufacturing and marketing of these products. They have also started
giving finance for only their brand of automobile. This has resulted in a huge growth
in the sales of their product and the profitability. These players also have a good
amount of market share in the auto finance industry.
A list of major auto financer which are operating in India:
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Citicorp Maruti
HDFC Bank Ltd
Fiat Sundaram Auto Finance Limited.
ICICI Bank.
The Saraswat Co operative bank Ltd
Times bank Standard charted bank
(Source:http://www.automobileindia.com/automobile-finance/major-automobile-financiers/)
Recent initiatives of the Government
In order to give a boost up to the development in this segment, the Government has
initiated numerous initiatives. Some of them are as under. The Finance Bill 2006 has
provided an additional boost to the Automotive Industry by decreasing of the excise
duty on the small motor vehicles, the diminution in the duty for raw material which is
at present stuck between 5 to 7.5% as compared to the preceding level of 10%, and the
thrust on infrastructure expansion.
As a consequence of continuous arguments by the Department of Heavy Industry, a
few of the objectives like enforcing of excise duty on body building activity of
Commercial Vehicles, lesser excise duty on the small cars, expansion of 150%
weighted deduction on R&D expenses to the automotive segment, augmented
budgetary allotment for R&D actions in the segment and moving towards a lower duty
regime have been accomplished and steps are being taken to further toughen the
potentiality of the sector.
Although government achieved several milestones in the automotive segment. But the
most important interference of the Government till now in the automotive segment is
National Automotive Testing and R&D Infrastructure Project (NATRIP) which has
come in the shape of a determined project on building up an outstanding automotive
testing and R&D infrastructure in the nation to intensify manufacturing, promote
localized R&D, encourage exports, congregate Indias matchless strengths in IT and
electronics with automotive engineering segments. As the result of this they
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confidently place India in USD 6 trillion worldwide automotive businesses. Except
this they aims for making possible introduction of world-class automotive security,
emission and performance values in India and also to make sure faultless
incorporation of Indian automotive industry with the worldwide industry.
(Source:http://www.natrip.in/home.aspx)
Scope of the Indian automobile sector
The Indian automobile sector is going through the phase of rapid change and high
growth. The industry is going for a continuous technological change because new
projects are coming on a regular basis. The major players are focusing on masscustomization, mass production and expanding their plant. Nearly every automobile
company is investing at a higher rate then ever before to achieve a high growth path.
The overall investment in the industry is increasing rapidly.
At present industry is growing at a growth rate off 14-17% per annum, with domestic
sales growth at 12.8 %. The growth rate is predicted to double by 2015. Apart from
domestic production, the industry is consistently focusing on the automobile export.The auto components segment is contributing a lot to the overall automobile industry.
The automobile export are increasing year by year, it is evident from the following
graph.
Automobile export graph
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Source: - SIAM
Size of the Indian Automotive Industry
Since the first car rolled out on the streets of Mumbai (then Bombay) in 1898, the
Automobile Industry of India has come a long way. During its early stages the auto
industry was overlooked by the then Government and the policies were also not
favorable. The liberalization policy and various tax reliefs by the Govt. of India in
recent years has made remarkable impacts on Indian Automobile Industry. Indian auto
industry, which is currently growing at the pace of around 18 % per annum, has
become a hot destination for global auto players like Volvo, General Motors and Ford
(Banker et al, 2007).
A well developed transportation system plays a key role in the development of an
economy, and India is no exception to it. With the growth of transportation system the
Automotive Industry of India is also growing at rapid speed, occupying an important
place on the 'canvas' of Indian economy. Today Indian automotive industry is fully
capable of producing various kinds of vehicles and can be divided into three broad
categories: Cars, two-wheelers and heavy vehicles (Sharif, 2005).
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In the past two years, more than a dozen multi-national firms have announced plans to
enter the Indian market. Most of them have formed joint ventures with Indian firms,
while there are exceptions such as Hyundai which plan to form fully-owned units. The
firms and their products planned for the Indian market. Despite the large growth
potential of the Indian market (analysts expect the growth to triple in the next five
years), no one expects the industry to sustain the fragmentation caused by more than a
dozen suppliers. Many of these new firms will not enjoy the scale economies and
relationships with suppliers that Maruti does, so they have decided not to challenge
Maruti at its price of $5,500 in the smaller car segment. Most are planning to produce
between 20,000 and 50,000 higher-end vehicles (Grossman and Helpman, 2005).
(Source:http://www.imvpnet.org/index.asp)
The stiffest competition is building up in the mid-sized car range (1,300 cc and
above), where several of these multi-national and Indian companies are planning to go
head-to-head. Although these newly announced vehicles at $12,000 or above remain
expensive by Indian standards and planned capacity exceeds projected demand, new
entrants are betting on the rising incomes of middle-class families. Notably, Daewoo's
new product Cielo, priced at about $15,000 in a joint venture with the Indian firm
DCM, drew 76,000 advance bookings last year reflecting the pent-up demand in the
market.( 5Womack J. P., D. T. Jones,2005)
Amongst the many issues facing the Indian automotive industry, the biggest by far is
the poor road infrastructure. India's road network, comprising of a modest national
highway system (that is only 2% or less of the total roadway length) is woefully
inadequate and dilapidated, and can barely keep pace with the auto industry's rapid
growth. Most roads are single-lane roads built in the 1950's and 60's, and are crowded
with two-wheelers, bullock carts, and even pedestrian humans and cows, Traffic laws
are not well enforced leading to one of the highest per-capita accident rates in the
world. It is to be expected that the introduction of bigger and more powerful vehicles
will only worsen the situation. Upgrading the existing highway system is itself
expected to cost $30 billion or more, and resource and land constraints prevent the
building of new highways. Three wheelers have also exhibited strong growth with aCAGR of 9%. Sale of three wheelers has grown from 145,000 units in 1995 -1996 to
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over 360,000 in 2005-06. Last year growth in three wheeler sales was around 17%
(Lieberman and Montgomery, 2007)
Today, the Indian auto component sector has over 500 organized players and about
5000 unorganized sector players. The organized sector reached a turnover of over
USD 10 billion in 2005-06. Demand from OEMs account for 54% of sales,
replacement market accounts for 30%, while exports account for over 16% at about
USD 1.8 billion (Lieberman and Montgomery, 2007).
International Business (Exports)
Export opportunities for four wheelers would lie primarily in the small car segment as
Indian companies have gained expertise in manufacturing vehicles in this segment and
enjoy an advantage over other low cost countries.
EXPORTS TRENDS (No. of Vehicles)
Category 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Passenger
Vehicles72,005 129,291 166,402 175,572 198,452 218,418
Commercial
Vehicles12,255 17,432 29,940 40,600 49,537 58,999
Two
Wheelers179,682 265,052 366,407 513,169 619,644 819,847
Total 263,942 411,775 562,749 729,341 867,633 1,097,264
Source:http://auto.indiamart.com/cars/car-statistics/import-export.html
India is one of the largest produce of automobiles. Indian automotive industry started
in 1991 and that time they just produce 2 million and according to last statistics which
have been taken place in 2007 it have grown to 10 million which is great work in the
automobile industry.
At present, India is the world:
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Largest tractor and three-wheel vehicle producer.
Second largest two-wheel vehicle producer.
Fourth largest commercial vehicle producer.
Eleventh largest passenger car producer.
Facts: - Europe is the biggest importer of cars from India, while African nations
largely account for the import of buses and trucks. China is most recently making
inroads into this market. The South-East Asian region is the prime destination for
Indian two wheelers.
(Source:http://www.business-in-asia.com/countries/automotive_industry_india.html )
Automobile Exports registered a growth of 25.43 percent during April- March 2007
over the same period last year. Passenger Vehicles Exports grew by 13.05 percent,
Commercial Vehicles exports increased by 22.58 percent, Three Wheelers exports by
87.17 percent and Two Wheelers Exports grew by 20.65 percent [SIAM (2006)].
(Source:http://www.siamindia.com/scripts/industrystatistics.aspx ).
Environment and Safety Regulations
(Swamidass, 2004) proposed that, safety regulations and environment imperatives are
two separate issues which automobile industry is facing all around the world.
Automobile industry in India had changed dramatically in last decade and has made
significant progress on the environmental front by adopting stringent emission
standards, and is progressively aligning technically with international safety
standards.
Central Motor Vehicle Rules (CMVR) came into force from 1989 and serious
enforcement of regulations came into effect. In Addition to rules governing this
emission limits, there are several rules in this chapter requiring motor vehicles to
comply with safety regulations. After this all the vehicles which are manufactured
they all have to comply with relevant Indian Standards (IS) and Automotive Industry
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standards (AIS). Indian standards were introduced in late 1960s and all these standards
were based on EEC/ISO/DIN/BSAU/FMVSS etc at that time.
All these regulations were reviewed periodically by the technical team known as
Technical standing Committee on MCVR (CMVR-TSC). Emission norms came into
force with the Idle Emission Norms in 1984. Mass Emission Norms were introduced
in 1991 for petrol vehicles and in 1992 for diesel vehicles (Swamidass, 2004).
In order to have a planned approach to introduction of advanced safety features, SIAM
drew up a Road Map for Automobile Safety Standards. The Roadmap was prepared by
the CMVR, Safety & Regulations Committee. Its been considered that driving habits,
current traffic conditions, traffic density and road user behaviour forces to create
maximum safety in the vehicle.
(Source:http://www.siamindia.com/scripts/background.aspx )
The Importance of Automobile Industry in India
The automobile industry, along with the auto components industry, occupies aprominent place in the fabric of the Indian economy. This is primarily due to the fact
that this industry has strong forward and backward linkages with several key segments
of the economy. Thus the automotive industry has a strong multiplier effect and is
capable of being the driver of the economic growth. In addition, a sound transportation
system plays a vital role in the countrys rapid economic and industrial development
and the well developed Indian automotive industry ably fulfils this catalytic role by
producing a wide variety of vehicles, multi utility vehicles, scooters, motorcycles,
mopeds, three wheelers, tractors, etc. Due to the mass production and growth of the
automobile sector, there is huge growth in the employment opportunity also.
Investment in this sector will definitely attract employment opportunity for the citizen.
With the emergence of new projects and introduction of technological advancement,
the focus is more on the skilled and advanced labor. India has several advantages for
making it one of the favorite attractive destinations for the investment in the
automobile sector. It has got the low cost and high skilled labor with the abundance of
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engineering talent which is second in the world. It has a well developed globally
competitive auto ancillary industry.
By 2016, the automotive industry should have created employment for 25 million
people in India, according to government predictions, set out in its Automotive
Mission Plan. (To put this into context; MG Rover's collapse in 2005 led to the loss of
6,000 jobs.) For every job created directly by the automotive industry, a further seven
are created indirectly in the economy at large, explains Jagdish Khattar, managing
director and chief executive of India's best-selling car maker, Maruti Udyog, and a
contributor to the report. (By Jorn Madslien Business reporter, BBC News, Chengalpattu,
Tamil Nadu, India)
Growth Drivers
Rising per capita Income and the changing demographic distribution are conducive for
growth. India has the highest proportion of population below 35 years, 70%, (potential
buyers), which means that 130 million people will get added to the working
population between 2003 and 2009 (Hendricks and Sing Hal, 2007).
The trends indicate that small and medium cars would remain dominant and a shift
towards high end cars is expected at a faster rate (Sharif, 2005). The SUV market is
expected to develop rapidly in future. Higher disposable incomes coupled with
availability of easy finance options have driven the Passenger vehicle segment.
The growth in tractor industry is linked with the growth in agricultural output and
exports to neighboring countries. Auto component industry growth is directly linked to
the growth of automobile industry since more than 50% sales is to the OEMs (Corbett
and Russo, 2001). However, in recent years, component exports are becoming an
important growth driver and it is expected to assume greater importance in future.
Fast Growth Firms in the Automotive Industry:
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These are the companies that bring to us our dream machines. This is where it all starts
from; the bourgeoisie Maruti 800, the upmarket Astra, the stately Mercedes, the
'Indian' Indica, the racy Hero Honda, the Tata truck and the rest.
1. Hindustan Motors
Hindustan Motors was the first Indian Car Company to start production In India in
1942. Since then, it has become a vast company, manufacturing cars like the sturdy
Ambassador, the elegant Contessa, and in collaboration with Mitsubishi of Japan now
manufactures the new Mitsubishi Lancer. It started production of the Landmaster in
1954, and in 1957 began the production of the Ambassador. Later tie-ups with General
Motors Corporation of USA, Vauxhall Motors, UK, Marion Power Shovel Co, USA
led to new products being launched. At present, it is a one billion turnover company
manufacturing Passenger Cars, Utility Vehicles, Power Products and Earthmoving
Equipment. The manufacturing facilities of the company are spread across India:
Uttarpara in West Bengal, Pithampur in Madhya Pradesh, Thiruvallur and Hosur in
Tamil Nadu, and Pondicherry. The latest model, Mitsubishi Lancer, is manufactured in
their state - of - the - art manufacturing facility at Thiruvallur, Tamil Nadu.
2. Bajaj Auto Ltd
It is one of India's top ten companies in terms of market capitalization and among the
top five in terms of annual turnover. Established in 1945, it was incorporated as a
trading company. From 1948 till 1959, it imported scooters and three wheelers from
Italy and sold them in India. It then obtained a production license in 1959 and struck a
technical collaboration with Piaggio of Italy in 1960. Scooter production commenced
in 1961. Three wheeler productions followed in 1962. Its collaboration with Piaggio
expired in 1971 and since then the Company's scooters and three wheelers are sold
under the "Bajaj" brand name. Under the "Horizontal transfer of technology" 11
Policy, Maharashtra Scooters Ltd., a Company with 24% equity participation by the
Company and 27% participation from Maharashtra State Government's Western
Maharashtra Development Corp. was formed in 1975. Production facilities are located
at Satara, in Maharashtra State. This helped augment production capacities. The unit
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continues to assemble scooters from CKDs supplied by the Company. These scooters
are marketed through the Company's distribution network and under the Company's
brand name. The Company's second plant was set up in 1984 at Aurangabad, in
Maharashtra State. In this plant, scooter production commenced in 1986; three wheeler
productions commenced in 1987; and scooterettes and motorcycle facilities were
commissioned in 1990 & 1991 respectively. From 1961 when the annual production
was about 4000 units, today the Company has become a market leader with annual
production in excess of 1.35 million units and with product offerings in all segments
(mopeds & s
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