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existing published or unpublished material without due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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