Features of the automobile industry
The structure of the auto market has been changing at a faster pace along with the global changes in the Industry. There are several global automobile companies who were averse to come and invest in India ten years ago, now have kept India as a priority destination for their investment. Along with the entry of multinational auto companies, the profile of domestic auto companies too witnessed a structural change.
The stiff competition to access market prompted companies to go for different models with differing qualities and efficiency. The market too expanded at a rapid pace with the entry of soft financial assistance from several financial institutions to middle income households.
MNCs need to carefully plan their entry into emerging markets. Early commitment to a market often results in first mover advantages that are difficult to replicate. On the other hand, later entrants have the opportunity to learn from the mistakes of the first entrant.
The Indian car market offers useful lessons in this context. In the 1990s, the Indian Government removed several restrictions in a bid to attract foreign investors into the automobile industry. Among the first to enter was Daewoo of South Korea, with its model Cielo, targeted at the upper end of the market. Other MNCs such as Ford and General Motors also entered the Indian market, followed by Hyundai, Honda, Toyota, Volkswagen etc.
Most MNCs began their operations in India as joint ventures with local partners. Examples include Suzuki, G.M, Ford and Daewoo. With the exception of Suzuki, these joint ventures have become fully owned subsidiaries of the foreign partners. In all these cases, the local partners have just not had enough resources to chip in whenever the equity base has been expanded. Consequently, the foreign partners have pumped in the additional capital and raised their equity stakes
With the liberalization of the India economy, the Rs 18,500 crore Indian car market is being opened up to foreign investors. Several companies are setting up or have already set up operations in India to cater to the Indian market. There are several strategies by which a foreign enterprise can set - up Indian operations.
This module aims to give the various entry options available to a foreign investor, especially for foreign direct investment. This module does not deal with portfolio investments.
Broadly, entry strategies may be classified into two major types :-
1. A foreign investor may directly set up its operations in India through a branch office or a representative office or liaison office or project office of the foreign Company ; or
2. It may do so through an Indian arm i.e. through a subsidiary company set - up in India under Indian laws.
Generally, setting up operations through an Indian arm is advisable, especially if the quantum of investment is huge.
The impact of India’s initiatives in economic liberalization and globalization (post 1991) is most apparent in the automotive sector. Automotive industry is a key driver of economic growth contributing around four to five percent to the Indian GDP. Introduction of reforms and entry of international companies has intensified competition in the Indian automotive sector.
This has resulted in the transformation of a seller’s market (created mainly due to the Indian government’s protectionist policies) into a buyers market. The changing structure of this industry has posed many challenges and opportunities to the market participants.
Previously, Indian automotive market was characterized by weak air pollution regulations. In addition, low labor cost of maintenance and the psyche of Indian consumer to delay the discarding of the old vehicle reduced the scrap rate. All these factors resulted in prolonged operational existence of vehicle on Indian roads.
The benefit of this practice is the comparatively higher revenues for automotive component suppliers, due to increased demand in the aftermarket. But recent pronouncement of GoI to prohibit polluting vehicles in the National Capital Region (NCR) is likely to force the old polluting vehicles off road. This will reduce the average life span of vehicles on road and the overall impact would be reduced per vehicle parts consumption.
Two wheelers generate the highest volumes and are more popular in rural and semi urban markets primarily due to lower income levels and poor road conditions. Therefore, these could be classified as entry-level vehicles. Within two wheeler segments, progressively mopeds are likely to be replaced by motorcycles. With the growth in the family income of these rural and semi-urban buyers and the option of numerous used cars, it is expected that a significant shift would take place from two wheelers (mainly scooters) to four wheelers.
Lucrative finance schemes have made the purchase of mid-sized cars really affordable. The present owners of the small car are likely to graduate to mid-size cars mainly due to declining importance of small car as status symbol and the marginal increment in repayment installment in the finance options.
Good performance of the economy has led to higher all round growth leading to high GDP growth of 8%. Excise duty reduction on passenger vehicles helped to reduce the ultimate price to the customer. Brisk activities on infrastructural development will give a boost to the automobile industry. Softening of interest rates and improved financing of second hand vehicles have made the purchasing of cars financially viable.
Availability of finance in rural and semi-urban areas have led the low-end customers to put money in the purchase of vehicles. Emergence of India as a manufacturing hub for the automobile industry is a good sign for the country’s future prospects.
The automotive industry performance is closely linked to industrial growth. It is hoped that industrial growth would be around 7 per cent during the year 2003-04 as against around 6.5% last year. Agriculture output during the year 2003-04 increased by over 10% as compared to (-)3.2% in the previous year.
Today we are fourth largest economy (USD 2.5 trillion) in the world after USA, Japan and China in terms of purchasing power parity. The outlook for the year 2004-05 is promising and it is expected that the current growth rates of GDP and industrial output will be sustainable, which would ensure robust growth in the automotive sector.
Good performance of the economy has led to higher all round growth leading to high GDP growth
The structure of the auto market has been changing at a faster pace along with the global changes in the Industry. There are several global automobile companies who were averse to come and invest in India ten years ago, now have kept India as a priority destination for their investment. Along with the entry of multinational auto companies, the profile of domestic auto companies too witnessed a structural change.
The stiff competition to access market prompted companies to go for different models with differing qualities and efficiency. The market too expanded at a rapid pace with the entry of soft financial assistance from several financial institutions to middle income households.
MNCs need to carefully plan their entry into emerging markets. Early commitment to a market often results in first mover advantages that are difficult to replicate. On the other hand, later entrants have the opportunity to learn from the mistakes of the first entrant.
The Indian car market offers useful lessons in this context. In the 1990s, the Indian Government removed several restrictions in a bid to attract foreign investors into the automobile industry. Among the first to enter was Daewoo of South Korea, with its model Cielo, targeted at the upper end of the market. Other MNCs such as Ford and General Motors also entered the Indian market, followed by Hyundai, Honda, Toyota, Volkswagen etc.
Most MNCs began their operations in India as joint ventures with local partners. Examples include Suzuki, G.M, Ford and Daewoo. With the exception of Suzuki, these joint ventures have become fully owned subsidiaries of the foreign partners. In all these cases, the local partners have just not had enough resources to chip in whenever the equity base has been expanded. Consequently, the foreign partners have pumped in the additional capital and raised their equity stakes
With the liberalization of the India economy, the Rs 18,500 crore Indian car market is being opened up to foreign investors. Several companies are setting up or have already set up operations in India to cater to the Indian market. There are several strategies by which a foreign enterprise can set - up Indian operations.
This module aims to give the various entry options available to a foreign investor, especially for foreign direct investment. This module does not deal with portfolio investments.
Broadly, entry strategies may be classified into two major types :-
1. A foreign investor may directly set up its operations in India through a branch office or a representative office or liaison office or project office of the foreign Company ; or
2. It may do so through an Indian arm i.e. through a subsidiary company set - up in India under Indian laws.
Generally, setting up operations through an Indian arm is advisable, especially if the quantum of investment is huge.
The impact of India’s initiatives in economic liberalization and globalization (post 1991) is most apparent in the automotive sector. Automotive industry is a key driver of economic growth contributing around four to five percent to the Indian GDP. Introduction of reforms and entry of international companies has intensified competition in the Indian automotive sector.
This has resulted in the transformation of a seller’s market (created mainly due to the Indian government’s protectionist policies) into a buyers market. The changing structure of this industry has posed many challenges and opportunities to the market participants.
Previously, Indian automotive market was characterized by weak air pollution regulations. In addition, low labor cost of maintenance and the psyche of Indian consumer to delay the discarding of the old vehicle reduced the scrap rate. All these factors resulted in prolonged operational existence of vehicle on Indian roads.
The benefit of this practice is the comparatively higher revenues for automotive component suppliers, due to increased demand in the aftermarket. But recent pronouncement of GoI to prohibit polluting vehicles in the National Capital Region (NCR) is likely to force the old polluting vehicles off road. This will reduce the average life span of vehicles on road and the overall impact would be reduced per vehicle parts consumption.
Two wheelers generate the highest volumes and are more popular in rural and semi urban markets primarily due to lower income levels and poor road conditions. Therefore, these could be classified as entry-level vehicles. Within two wheeler segments, progressively mopeds are likely to be replaced by motorcycles. With the growth in the family income of these rural and semi-urban buyers and the option of numerous used cars, it is expected that a significant shift would take place from two wheelers (mainly scooters) to four wheelers.
Lucrative finance schemes have made the purchase of mid-sized cars really affordable. The present owners of the small car are likely to graduate to mid-size cars mainly due to declining importance of small car as status symbol and the marginal increment in repayment installment in the finance options.
Good performance of the economy has led to higher all round growth leading to high GDP growth of 8%. Excise duty reduction on passenger vehicles helped to reduce the ultimate price to the customer. Brisk activities on infrastructural development will give a boost to the automobile industry. Softening of interest rates and improved financing of second hand vehicles have made the purchasing of cars financially viable.
Availability of finance in rural and semi-urban areas have led the low-end customers to put money in the purchase of vehicles. Emergence of India as a manufacturing hub for the automobile industry is a good sign for the country’s future prospects.
The automotive industry performance is closely linked to industrial growth. It is hoped that industrial growth would be around 7 per cent during the year 2003-04 as against around 6.5% last year. Agriculture output during the year 2003-04 increased by over 10% as compared to (-)3.2% in the previous year.
Today we are fourth largest economy (USD 2.5 trillion) in the world after USA, Japan and China in terms of purchasing power parity. The outlook for the year 2004-05 is promising and it is expected that the current growth rates of GDP and industrial output will be sustainable, which would ensure robust growth in the automotive sector.
Good performance of the economy has led to higher all round growth leading to high GDP growth