OLYMPIA MOTORS

Mr. Sachin Mehra, President and MD Olympia Motors, was sitting in

his chambers going through various reports. Along side him was the
company Vice President, Mr. Kapil Mishra. Global CEO Mary
Fenrandes, was in discussions regarding what steps should be taken
to minimize the issues. The global CEO was concerned with the
market scenarios that were appearing every year.
The scenario was not looking appealing for the company. Although
the sales were happening for Olympia, but the numbers were
declining steadily, the customer sentiments had not picked up as
were expected and because of this reason the competitors were
picking away the large chunks of their market. In the month of May
alone the sales had declined by a whopping 33 % to 3780 as
compared to the previous year, which had already added to the
existing woes for the company, which was suffering from losses of
INR 3.6 billion since its entry in India.
The operations were running smoothly and as per the standard
costing methods, the products that were being produced at the
optimum cost level, still the Olympia cars were more expensive as
compared to their competitors segments. Sachin was thinking on
the lines of changing the costing method or varying the product mix
to identify the most profitable products and concentrate on their
production specifically.

OLYMPIA MOTORS HISTORY

Olympia Motors rose to prominence in the European automobile
market in the 1930s and dominated the landscape till the 1950s.
The Oil Crisis in the 1970s coupled with the entry of the Japanese
manufacturers increased the competition to Olympia Motors and the
company started losing market share. Collaborations and joint
ventures with its Japanese competitors helped it to stem this loss
but it was not able to recapture the lost market. With a view of
regaining its lost position in the global market, Olympia decided to
expand into the emerging markets in the 1990s. It wanted to cater
to the burgeoning auto market in the Asian subcontinent and the
nearby markets of the likes of China. It was able to establish its
foothold in China and rise to prominence in the Chinese market
however its expansion into India was marred with multiple setbacks
and failures. This report tries to highlight the reasons behind

Olympia Motors failure in India and suggests ways in which it can

reverse its fortunes in the country.

OLYMPIA MOTORS IN INDIA

Post-liberalization, the Government of India's new automobile policy
announced in June 1993 contained measures, such as delicensing,
automatic approval for foreign holding of 51% in Indian companies,
abolition of phased manufacturing programme, reduction of excise
duty to 40% and import duties of CKD to 50% and of CBU to 110%,
and commitment to indigenization schedules.
OLYMPIA MANUFACTURING
Olympia entered the Indian market in 1997 with a partnership with
Premier Automobiles Ltd. For the first few years, Olympia used the
premiers distribution network to generate a personalized network of
dealers and transporters. Even after the a successful network of
dealers and transporters had been created, it was identified by the
management, that the firm was not able to position itself in the
market, while its competitors kept on accruing their market share
year after year. It had been 4 years for the company in India, yet it
was not able to generate profits.
To break the poor display, all the heads not only from India but also
from the Asian subcontinent, where Olympia not only was
generating profits but also turned out to a market leader in a short
span of time. After a healthy and long brain storming session, the
company decided to do away with the partnership, stop import of
parts and started looking forward to a manufacturing facility in
India. Soon the location was found, Sawargaon near Nashik.
The factory in Sawargaon, was a strategic location, which provided
not only a good supply of electricity but also abundant flow of water
for various operations, which helps the factory to manage its
operational costs to a great extent. The issue that lied with the
location was the lack of a proper shed and warehouse for storage of
manufactured car, which added to a transportation cost. But still the
company decided to go ahead with the plant at Sawargaon as its
first plant.
Currently the plant operates at 80 percent efficiency, creating Neo,
Oracle and Apoc. Neo lying in the luxury segment, Oracle in the Mid
car sedan segment while Apoc was the entry level Hatchback.

All the three cars being manufactured require, various raw materials
including steel, plastic and vinyl which are acquired at a cost of
INR5000, INR3000 and INR2000 per ton. The usage varies for all the
three greatly, with one segment requiring more of one material
compared to the other.
The manufacturing involves various processes like, manufacturing
chassis and body, painting, internal assembly and Mate, where all
the manufactured components and the acquired components are
assembled together and tested for safety standards on a random
basis.
The manufacturing is done with help of skilled labor. The skilled
labor is one of the major strengths for Olympia, they not only carry
out the painting job, various operations on the floor (the floor
workers) but also manage the mate assembly line operations (called
the assemblers).
The operating expense of all the machines, raw material costs and
overheads and the Labor costs and overheads are mentioned in the
EXHIBIT 2. The expenses for all the assembly lines are given
separately except for the case of Interior Assembly Machine
assembly line, which also includes the cost of labor that is being
used to operate on these machines.
Currently, the cars manufactured involve automated as well as
manual processes of production. The overhead costing for the all the
cars is done using, labor scales, production scale, total percentage
of automation in the manufacturing process and finally
manufacturing and administrative overheads. The labor scale
overhead cost is measured in terms of number of hours a laborer
spends in manufacturing of a car, Production scale overheads are
calculated in terms of number of units of each of Neo, Oracle and
Apoc are manufactured in a day. The total percentage of automation
is calculated on the basis of the amount of automation required per
car unit manufactured. The manufacturing and administrative
overheads are calculated on a per car unit basis.
OLYMIA MANUFACTURING PRACTICES
The manufacturing practices followed by Olympia have been
standardized over the years and are same across all locations,
countries and continents. The practices involve working in a single
shift per day for 17 hours at a go. There are 2 assembly lines being
used for every model, one each for body manufacturing and
painting, while the other one for chassis manufacturing and mate
process. There is also another Assembly line, which is shared by the
three cars and is used for the purpose of Internal Assembly. The
assembly lines start up requires warming up for a half hour after
which the manufacturing process starts. To ensure minimal

electricity usage, the assembly lines are started at a fixed time

every day and shut down only in the evening. The costing of the
machine operations can be divided into three parts mainly, firstly
the electricity costs, which contribute to 45 percent of total machine
costs, the coolant cost which contributes approximately 30 percent
and lubricants remaining 25 percent costs. A mid day shutdown is
avoided unless there is any issue with the unit production process,
in which case, both the assembly lines for the car unit being
manufactured are closed down to remove the issue, which is a very
rare occurrence in itself.
OLYMPIA VALUE CHAIN
Olympia value chain, comprises mainly of 5 components raw
material supplier, the manufacturing plant, distributer and
transporter, dealer and finally the consumer. Every single
component plays an irreplaceable part in the value chain. The Raw
material suppliers are basically of two categories, firstly the ones
that provide the raw materials for manufacture the body (i.e. the
steel, vinyl and plastic) and the other which provide the tires, radios
and air conditioning parts.
These suppliers have been with the organization, since the plant
was set up and thus provide a 30 day credit, which is twice the
credit size that is being provided in the industry currently.
Next comes the plant where, the three segments are manufactured
in parallel assembly lines to meet the demands of market. Currently
the assembly lines that are being used are best according to the
industry standards.
The distributer lies next in the value chain. Its main purpose is to
meet the dealers demand on time and provide seem less transfer of
a manufactured car unit from the plant to the shed and warehouse,
and from the shed and warehouse to the specific dealer whenever
required.
COMPETITIVE ANALYSIS
Being a cost follower in an Industry dominated by Giants like Suzuki
and Hyundai, who control more than half of the car segments in
India, Olympia is searching for a way to increase its profits in a way
which not only reduces the costing pressures but also helps in
accruing a greater share of the biggest market in the Indian
subcontinent.