Industry

Size, Growth, Competitors, Products, Brands

Key success factors
Application of Porters model of five forces
Key driving forces of the Industry
The future ahead

Indian Automotive Industry.
India Becoming Global Hub for Small cars.
India's passenger car industry is evolving in a unique way driven by economic growth, rising
incomes and a large number of mid income households aspiring to own a car.
The notable feature about domestic car sales in India is that over three fourths are hatchbacks. This
is driven by tax breaks for small cars (defined by engine size and length) and the purchasing power of
customers.
With India likely to cross 8% GDP growth from 2010-11 onwards, domestic car sales are
expected to grow at 10 to 12% per year reaching about 2.5 Mn in 2015. Exports too are likely to
grow to about 1 Mn as Europe and other countries develop a liking for fuel efficient, low cost cars
that comply with all regulations.
The preponderance of hatchbacks is likely to continue in future for several reasons. First, the
ramping up of Tata Nano will increase volumes at the entry level. Second, the higher tax rate for
larger cars and sedans will continue. Third, larger cars may have to use hybrid or electric propulsion
technologies thereby further increasing the price differential from hatchbacks. Thus, over the next
ten years, India is likely to evolve into possibly the worlds largest single market for hatchbacks. It
will certainly be the biggest car market focused on hatchbacks. Even as this happens, the vehicles
will grow increasingly sophisticated in terms of features eg. safety, comfort, fuel efficiency and
emissions.
The car market in India is dominated by three major players (Maruti Suzuki, Hyundai and Tata
Motors) who hold about 80% share collectively. The remaining 20% of the market is accounted by
most other international brands Ford, GM, Toyota, Honda, Fiat, Skoda.
Market size
The automobile industry produced a total of 1,861,849 vehicles including passenger vehicles,
commercial vehicles, three-wheelers and two-wheelers in April 2014 as against 1,687,243 in April
2013, registering a growth of 10.35 percent over the corresponding month of 2013. The growth is
mostly attributed to the rise in two-wheeler production.
Two-wheeler sales registered growth of 11.67 percent in April 2014 over April 2013. Within this
segment,scooters, motorcycles and mopeds grew by 26.08 percent, 8.06 percent and 0.23 percent
respectively.
In April 2014, passenger car sales stood at 1,786,899 units while utility vehicles sales stood at
525,942 units, as per data from Society of Indian Mobile Manufacturers (SIAM). Export of utility
vehicles showed an improvement of 298 percent with 41,550 units.
Tractor sales in the country will grow at a compound annual growth rate (CAGR) of 8-9 per cent in the
next five years making India a high-potential market for international brands such as Kubota, Case
New Holland, AGCO, Same Deutz Fahr and John Deere, according to JD Power Asia Pacific's
maiden pilot study on the Indian tractor market.
The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during the
period April 2000 -May 2014 was recorded at US$ 9,885.21 million, according to data published by
Department of Industrial Policy and Promotion (DIPP).

Key Success factors
Ability to enhance and vary product mix - A diverse and broad product mix enables a manufacturer
to serve a wide variety of transportation solutions across different load levels. It also helps in
building strong brand loyalty among customers. In addition the presence in business such as auto
spares, buses, exports and defence helps companies to weather the cyclicity in passenger car sales.
Sales and distribution service network - A widespread sales and distribution setup enables the
company to ensure a geographically diversified client profile.
Access to new technologies In addition to matching competitors new products and
upgraded machinery, technology is also going to be critical with emission norms are going to be
stricter going forward. The requirement of updated technologies has driven domestic players into
acquisition/collaborations/JVs with global majors.
Balance between outsourcing and in-house production - Companies with high integration level
have higher fixed costs which results in higher profitability in robust growth scenario. However it
also results in sharp drop in performance as they would be affected by lower sales volume backed by
Industry cyclical nature. More over companys proximity to their raw material and component
suppliers help them in reducing procurement costs.
Porter Five Force Model
Porters Five Forces of Competition framework

Competition from Substitutes
The price customers are willing to pay for a product depends, in part, on the availability of substitute
products. The absence of close substitutes for a product, as in the case of automobiles, means that
consumers are comparatively insensitive to price (i.e., demand is inelastic with respect to price). The
existence of close substitutes means that customers will switch to substitutes in response to price
increases for the product (i.e., demand is elastic with respect to price).
The extent to which substitutes limit prices and profits depends on the propensity of buyers to
substitute between alternatives. This, in turn, is dependent on their price performance
characteristics. The more complex the needs being fulfilled by the product and the more difficult it is
to discern performance differences, the lower the extent of substitution by customers on the basis
of price differences .

The structural determinants of the Five Forces of Competition


Rivalry between Established Competitors
For most industries, the major determinant of the overall state of competition and the general level
of profitability is competition among the firms within the industry. In some industries, firms compete
aggressively sometimes to the extent that prices are pushed below the level of costs and industry-
wide losses are incurred. In others, price competition is muted and rivalry focuses on advertising,
innovation, and other non price dimensions. Six factors play an important role in determining the
nature and intensity of competition between established firms: concentration, the diversity of
competitors, product differentiation, excess capacity, exit barriers, and cost conditions.
Threat of Entry
If an industry earns a return on capital in excess of its cost of capital, that industry acts as a magnet
to firms outside the industry. Unless the entry of new firms is barred, the rate of profit will fall
toward its competitive level. The threat of entry rather than actual entry may be sufficient to ensure
that established firms constrain their prices to the competitive level.

Economies of Scale Since Indian automobile market is of order $ 350 billion, the
economies of scale are very high. Thus, threat of new entrants is low .

Product Differences Since there is hardly any difference in the offerings of the various
providers, so product differentiation is low. So threat of new entrants is high.

Brand Identity Since there is no big Retailer like Amazon.com or Wal-Mart in India. So
threat of new entrants is high .

Government Policy Since the Government Policy has been quite restrictive till now with
respect to the Retail market & FDI, so threat of new entrants is low.

Capital Requirements The capital requirements for entering in the automobile sector are
substantially high( high fixed cost and cost of infrastructure), so only big names can think of
venturing into this area So, in that respect threat of new entrants is low.

Access to distribution Since in India there is no well established distribution network. So
threat of new entrants is low.
Bargaining Power of Buyers
The firms in an industry operate in two types of markets: in the markets for inputs and the markets
for outputs. In input markets firms purchase raw materials, components, and financial and labor
services. In the markets for outputs firms sell their goods and services to customers (who may be
distributors, consumers, or other manufacturers). In both markets the transactions create value for
both buyers and sellers. How this value is shared between them in terms of profitability depends on
their relative economic power. The strength of buying power that firms face from their customers
depends on two sets of factors: buyers price sensitivity and relative bargaining power.

Product Differences Since there is hardly any difference in the offerings of the various
providers, so product differentiation is low. So bargaining power of buyers is high.

Buyer Information Todays customers are well educated about the various product
offerings
in the sector. So bargaining power of buyers is high.

Buyer Switching Costs Since customers dont have to pay a fat premium to be registered
for
provision of services , so bargaining power of buyers is high.

Brand Identity High Brand Identity and trustworthiness reduce the bargaining power of
buyers but, otherwise the bargaining power of buyers is high.

Buyer Profits Since dealers offers discounts and various bundling services like 0%
insurance,
old car sale, etc, on different items. Hence bargaining power of buyers is high.

Bargaining Power of Suppliers
Analysis of the determinants of relative power between the producers in an industry and their
suppliers is precisely analogous to analysis of the relationship between producers and their buyers.
The only difference is that it is now the firms in the industry that are the buyers and the producers of
inputs that are the suppliers. The key issues are the ease with which the firms in the industry can
switch between different input suppliers and the relative bargaining power of each party.

Product Differences Since there is hardly any difference in the offerings of the various
suppliers, so product differentiation is low. So bargaining power of Suppliers is low.

Supplier Information Todays automobile manufacturers are well educated about different
Suppliers. So bargaining power of Suppliers is low.

Supplier Switching Costs Since different Suppliers hold resources as per buyers
requirements and a large inventory has to be maintained. So bargaining power of Suppliers
is low as they would have to incur a huge cost on switching. But if they get automobile
manufacturers for similar products who can pay higher Supplier switching cost is low. In such
case, bargaining power of Suppliers is high.
Brand Identity High Brand Identity and Trustworthiness of a Supplier increases the
bargaining power of Suppliers. But, otherwise the bargaining power of suppliers is low