Ishaan Punj.Rollno .15

Introduction

The automobile industry in India has become one of the most vibrant and growing industries in the Indian economy and accounts for 22% of India’s total manufacturing GDP. In the recent years Indian automotive market because of its growth potential has attracted many top automobile companies like Volkswagen, Volvo and Syangyong to make investments and start production here. India currently is the 3rd largest exporter of Two-wheelers after China and Japan. According to IBEF(Indian Brand equity Foundation), the next few years are projected to show solid growth in terms of sales and revenues generated in automotive industry.

Two wheelers dominate production volumes; in FY13, the segment accounted for 77 per cent of the total automotive production in India. Source (IBEF)

The Indian Automotive industry comprises of 4 divisions:-

Two wheelers, Passenger Vehicle, Commercial Vehicle and Three wheelers. From the Pie chart it is apparent that the two wheelers section occupies the major chunk of automobiles produced in India by volume.

Now to analyze the various trends in this industry, where it currently stands in India, whether it is in emerging, maturing and declining stage a host of 13 variables have been provided by Porter to conduct a thorough study of various aspects of industrial behavior in both macroeconomic and microeconomic framework.

1) Process innovation: Process innovation is mainly the strategy adopted by mature industries wherein it is required to reduce the costs of the product (to achieve cost differentiation) in comparison to the competitors by adopting better practices and procedures of making the same product .T Krishnan (2011) Bajaj has tried to improve the production facilities of Bajaj Pulsar when faced with direct competition from Hero Honda. By improving the process or in other terms by process innovation, Bajaj was able to occupy a major chunk of the 200cc two wheeler market, due to cost reduction and improved quality.

2) Product innovation: This strategy is again adopted by companies in a mature industry. For example Tata motors has recently come up with ZEST, a complete product overhaul over its predecessor Indigo Manza. Zest is the first car in India with revolutionary

revotroninc engine (http://zest.tatamotors.com/revotron.php). In line with company’s vision of entering into top 3 of the commercial car segment as well, Zest is mainly meant for the urban commute. The innovation has brought in product differentiation by introducing revotronic engine (first of its kind in India), thereby creating a separate market for cars with such engine and completely differentiating the product in comparison to its competitors.

3) Diffusion of knowledge: For an industry that moves from being an emerging industry to mature in its stature, there is a significant amount of knowledge diffusion which aids in the transition. Take the example of DTSI or CRDI (common rail diesel injection), initially developed by Isuzu but then within a couple of years all other car manufactures made use of this technology although with different names because of patent by Hyundai. Thus with the maturity of industry there is significant ease of diffusion of knowledge which aids in development of other companies and takes an industry from being fragmented to emerging to mature.

4) Government policy changes: With the allowing of 100 percent FDI in automobiles under automatic route, the government has opened doors to various foreign multinationals that would to want to cater to India’s growing domestic market by indigenous production and customized car for the Indian consumers. ( http://118.67.250.203//scripts/auto-policy.aspx) Thereby allowing the emerging Indian automotive sector to grow further and add to India’s manufacturing GDP. Though steps like this in various emerging economies would not change the maturity stage of automobiles in the global arena but at the same time would definitely help to keep the industry lingering in the same.

5) Accumulation of experience: According to Canter et al (2005), firms which have pre-entry ex-perience have a tendency to be better off than the inexperienced firms, and that early entrants have a tendency to be better off than late entrants and the innovative firms (at least one patent since entry) tend to be a little better off than non innovative firms, which is always expressed in terms of its better survival chances. In Indian context Maruti has come of age by improving upon the technology on the basis of its experience of operating in India. By keeping the cost of spare parts extremely economical and opening up service stations even in the most remote parts of the state Maruti has been able to leverage its experience to the fullest.

6) Reduction of Uncertainty: In an automotive industry uncertainty is caused mainly by suppliers or by customers i.e. whether the proposed project would get manifested as sales but these usually occurs at the beginning or the emerging stages of the industry, once the industry have matured enough and the companies have established their strong foothold within their respective domains there is a considerable reduction in uncertainty on suppliers part. Also once the customers have accepted the automobile, there is considerable decrease in uncertainty on company’s part whether to go ahead with the full scale production.

7) Economies of Scale: According to Husan (1995) even though Economies of scale has not been given due importance by Japanese companies, still in global context economies of scale has and is producing significant effect by cost differentiation. In Indian context when Maruti established its plant in Gurgaon , a lot many spare part companies established themselves in the vicinity ,once such company is Denso (http://www.denso.co.in) which provides fuel injectors to Maruti. Also economies of scales are usually found in a mature industry which has taken sufficient time to establish its base and found a secure market for its operations...

8) Entry & Exit barriers: Post 1995 , witnessed a large number of global automakers make an entry with the advent of de-control, de-licensing and de-regulation policies by Indian government 1993.But post 2000 automakers mostly entered through joint ventures and post 2005 through Green field mode. This was mainly due to entry barriers created either by govt policies or by the companies which had earlier established themselves i.e. post 1995. (http://tejas.iimb.ac.in/articles/91.php). If the industry is matured then the exit barriers for the companies is fairly high because of all the investments in the fixed assets and thus becomes difficult for the companies to exit even though they incur significant losses. Take the case of Daewoo a Korean company , which once in India challenged the might of Maruti Udyog ltd. but whence it started incurring losses it was just not able to salvage anything .,because of high exit barriers(http://www.icmrindia.org/free%20resources/casestudies/Cielo%20A%20Car%20In%20Trouble1.htm)

9) Buyers’ Learning: In India as people became more and more aware of the safety standards of BS I, BS II, BS IV etc , this caused the automobile manufacturing companies to change their manufacturing procedures and follow the international safety standards while producing cars in India. Thus slowly and gradually as buyers become more aware and learn about the various nitties and gritties connected to the industry they are dealing with there is a significant change in their perception and feedback regarding the products they use. Today, all automobile manufacturing companies in India and around globe follow the safety standards set by their respective institutions.

10) Structural changes in adjacent industry: Gandolphea (2013) has talked about the impact of shale gas revolution on the automotive industry in US and around the world. Considering shale gas to be the fuel of future, automotive industry is bracing itself up to use this as a fuel in various automobiles considering the finishing of oil reserves in the near future. Thus a change in the oil industry is and has significantly impacted the automobile industry throughout the world.

References

Rishikesha T. Krishnan & Srivardhini K. Jha.(2011). Innovation Strategies in Emerging Markets: What Can We Learn from Indian Market Leaders? ASCI Journal of Management 41(1): 21–45

Uwe Cantner, Kristina Dreßler & Jens J. Krüger (2005). Knowledge Compensation in the German Automobile Industry. Friedrich-Schiller-Universität Jena. ISSN 1611-1311

Rumy Husan, (1997) "The continuing importance of economies of scale in the automotive industry",European Business Review, Vol. 97 Iss: 1, pp.38 – 42

Sylvie Cornot-Gandolphe(2013). The Impact of the Development of Shale Gas in the United States on Europe’s Petrochemical Industries. Centre Énergie

Web Links:

Tata Zest,http://zest.tatamotors.com/revotron.php

Society of Indian automobile manufacturers http://118.67.250.203//scripts/auto-policy.aspx

IIM B articles, Tejas .http://tejas.iimb.ac.in/articles/91.php

Daewoo case study. http://www.icmrindia.org/free%20resources/casestudies/Cielo%20A%20Car%20In%20Trouble1.htm

http://www.ibef.org/industry/india-automobiles.aspx