Automobile Industry in India: PESTEL Analysis and Porter's Diamond Model

AUTOMOBILE INDUSTRY IN INDIA
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Executive Summary
The report provides external analysis of the factors that affect automobile industry in India.
As such, various models have been used including PESTLE and Porter’s diamond model.
Indian has been provided with favorable environment for businesses and investment which is
attributed to political stability, and revision of goods and services taxes, low labor costs, rapid
urbanization, rising income levels, rise of technology which gives incentives for development
of hybrid vehicles. However, the automobile industry is affected by legislation for cleaner
transport as well as the compliance with international safety standards that sometimes inhibit
their production. The Porter’s diamond model considers factor such as the strategies of the
firms, demand and competition. The report also discusses two theories that explain the rise
and development of automobile industry in India which include Vernon’s international
product life cycle and Hofstede cultural dimensions. To ensure that there is continued
investment in automobile industry in India, the reports suggests that the following should be
taken into consideration; development of infrastructure, support of innovation, development
of human capital, introduction of sustainable initiatives and introduction of long-term policy
roadmap.

Contents
1.0. Introduction.........................................................................................................................5
2.0. PESTEL analysis.................................................................................................................5
2.1. Political factors................................................................................................................5
2.2. Economic factors.............................................................................................................6
2.3. Social factors...................................................................................................................7
2.4. Technological factors......................................................................................................8
2.5. Environmental factors.....................................................................................................8
2.6. Legal factors....................................................................................................................9
3.0. Porter’s diamond model....................................................................................................10
3.1. Firm strategy, structure and rivalry...............................................................................10
3.2. Factor conditions...........................................................................................................11
3.3. Demand conditions........................................................................................................11
3.4. Related and supporting industries.................................................................................12
3.5. Chance...........................................................................................................................12
3.6 Government....................................................................................................................12
4.0. Vernon’s international product life cycle..........................................................................13
5.0. Hofstede cultural dimensions............................................................................................14
5.1. Power Distance..............................................................................................................15
5.2. Individualism.................................................................................................................15
5.3. Masculinity....................................................................................................................15
5.4. Uncertainty avoidance...................................................................................................15
5.5. Long-term orientation....................................................................................................15
6.0. Recommendations.............................................................................................................16
6.1 Level of corruption.............................................................................................................16
6.2 Ease of doing business.......................................................................................................17
6.3 Country of origin effect......................................................................................................17
6.4 Regulations to protect Investors.........................................................................................18
6.5 Encouraging Foreign Direct Investment............................................................................18
7.0 Recommendations..............................................................................................................19
8.0 Positioning..........................................................................................................................20

9.0 Comparative analysis.........................................................................................................22
10 Conclusion...........................................................................................................................23
10.1 Overall market attractiveness.......................................................................................23
10.2. .....................................................................................................................................24
References................................................................................................................................25

1.0. Introduction
India is categorised as a leading emerging market economy. It is one of those former
developing economies which have achieved significant industrialisation, modernisation and
rapid economic growth (Hamilton and Webster, 2015). Regarding the automobile sector, at
present, the country ranks 4th in Asia and 9th worldwide among the world’s largest automobile
manufacturers. Several leading automobile manufacturers including ISUZU Motors, Ford
Motors, Honda and Suzuki Motors have heavily invested in India’s automobile
manufacturing industry. Thereby, establishing new assembly lines, manufacturing, and
Greenfield units. With the current pace of growth, India aims to become the third largest
automobile manufacturer in the world by the year 2020 (India Briefing, 2017).
2.0. PESTEL analysis
There are several macroeconomic factors which have helped in India becoming a prime
market for automobile manufacturers. According to Ho (2014), .PESTEL analysis is a
framework which is used in analyzing as well as monitoring macro-environmental factors or
rather the external factors which directly or indirectly impacts the organization (p.6480).
They include Political, Social, Economic, Technology, Environmental and Legal factors as
discussed below.
2.1. Political factors
 Positive government outlook
The government has played an active role in developing the automobile manufacturing
sector. First and foremost it adopted a liberalisation policy and allowed 100% Foreign Direct
Investment in the industry. Moreover, it introduced several policies and measures to boost
sector growth. One such plan was the Auto Policy implemented in the year 2000. The policy
aided the development of vehicles driven by alternative energy sources, raised production and
availability of auto components, and developed safety methods aligned with international
standards (Invest in India, n.d.). Recently, the government implemented two plans including
the Automotive Mission Plan and National Electric Mobility Mission Plan (NEMP). The
former aims to triple industry revenues by 2026 whereas the latter aims to raise local
emission standards to be at par with global standards (Gupta, 2018).

 Revision of Goods and Services Taxes (GST) structure
The government is also planning to exercise a revision in the current GST structure. This is
likely to have a positive impact on the automobile manufacturing sector. This reform is
expected to positively impact vehicle pricing, sourcing strategies, distribution costs and
dealer profit margins. The elimination of the tax on movement of goods across interstates is
expected to lower logistics costs for manufacturers. Moreover, it will increase transparency
and ease tax compliance and administration and lastly it would reduce the cost of doing
business for automobile distributors (EY, 2016). The graph below shows the political
stability index (-2.5 weak or 2.5 strong). The data ranges from 1996 to 2017 with the average
political stability index of India being -1.14, with the lowest being -1.51 in 2003 and the
maximum is -0.83.
Accessed from https://www.theglobaleconomy.com/India/wb_political_stability/
2.2. Economic factors
 Low labour costs
One of the most lucrative factors for foreign manufacturers is the low average wage rate in
India and an abundance of labour. As compared to other BRIC countries such as Brazil and