Indian Automobile Industry Analysis

This assignment delves into the dynamic landscape of India's automobile industry. It requires students to analyze the factors driving its growth, identify emerging trends and technologies, and evaluate the challenges and opportunities facing this crucial sector. The analysis should encompass market liberalization, government policies, technological advancements, and environmental concerns.

Running head: INDIA’S AUTOMOBILE INDUSTRY ANALYSIS
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India’s Automobile Industry analysis
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INDIA’S AUTOMOBILE INDUSTRY ANALYSIS 2
Contents
India’s Automobile Industry Analysis.................................................................................2
Industry Overview...............................................................................................................2
History of the Automobile Industry in India...................................................................3
Market Size......................................................................................................................3
Porter’s five Force Model analysis of the Indian Automotive Industry..............................3
Threat to new entrants.....................................................................................................4
Economies of scale and capital requirement...............................................................4
Access to raw material technology and distribution....................................................4
Government policies and protection of the Automobile sector...................................5
Brand identity Product differentiation and customer switch costs..................................5
Bargaining power of Suppliers........................................................................................5
Buyer bargaining power..................................................................................................6
Industry Rivalry from competitors..................................................................................6
Future Trends in India’s Auto Industry...............................................................................7
Conclusion...........................................................................................................................8

INDIA’S AUTOMOBILE INDUSTRY ANALYSIS 3
India’s Automobile Industry Analysis
The automotive industry remains to be one of the largest industries globally. This is no
exception to India’s automotive industry that is ranked as the sixth largest in the world and is
expected to continue growing. With its manufacturing capacity of about 11 million automobiles
and exporting approximately 1.5 million of them, India’s automobile industry plays a crucial role
in the country’s transport landscape and economic growth. The accelerated growth of the
industry has been largely owed to government effort to create favorable conditions for Foreign
investment, the cost effective and skill labor as well as the growth of per capita disposable
income among India’s population of 100 million people; a population whose growth is about 1.2
percent per annum(Shegokar, 2017). However such favorable market condition has led to many
of the global automobile players to venture into the market increasing the competitiveness of the
automobile industry in the country. Despite this there is room for continued growth and with
India strategic geographical position, it can serve as an assembly and manufacturing for firms
willing to venture into the Industry. This essay seeks to analyze India’s automobile industry and
future trends of the industry with regard to firms that may wish to venture in the industry.
Industry Overview
India’s automotive industry has overtime become one of the largest industries globally
whose annual production was estimates at 21.48 million vehicles by the end of 2014 financial
year. According to Shegokar (2016) India’s auto industry, is the largest market for three wheel
automobiles with a share of about 75%, second largest for two wheelers at 9 %, the 10 largest for
passenger vehicles at 16 % market share and fifth in buses and trucks at 9 % worldwide. As of
2012 the industry’s turnover was estimated to gross over USD 354 billion and employing about
13 million people directly and indirectly. In India, the automobile industry is a major player in
propelling the growth of India’s economy, where it accounts for 22 percent of the country’s gross
domestic product (GDP) (KPMG, 2006).
History of the Automobile Industry in India
India’s automotive industry has come a long way since the 1980’s when the market was
restricted to outside players and the production of outdated model among the 5 players in the

INDIA’S AUTOMOBILE INDUSTRY ANALYSIS 4
industry. Over the years the industry has witnessed resurgence owing to the de-licensing and
deregulation of the industry and the liberalization of the market in 1993. The move has
encouraged a lot of investment in the industry including over USD 12.3 billion in FDI from 1993
to 2015. In turn the industry has seen tremendous growth as it production of vehicles grew to
about 110 million by 2011 compared to the 2 million vehicles produced by 1991. Currently most
of the major industry players in the Globe have set up manufacturing facilities in India as the
demand for luxury medium and small automobiles continues to grow with the country’s
economic growth (KPMG, 2010). Notably, despite a slow-down in growth during the recession
in 2008 to 2011, India was one of a few automotive industries that witnessed a positive growth.
Market Size
India industry has an estimated worth of 24,000 crores 65 percent of the total market
being attributed to two-wheeler vehicles while, 19 percent to passenger vehicles 3 percent to
commercial vehicles while 11 percent market share is comprised of three-wheeler vehicles. The
market share is also poised to grow with the economy of Indian experiencing a growth rate of 7.1
annually(Bhatia, 2016). There have been a variety of global players entering the Indian market
However locally established Maruti India and Tata motors dominate in their respective specialty
field which are passenger cars and leight vommercial vehicles.
Porter’s five Force Model analysis of the Indian Automotive Industry
The Porter’s five force model is an important model for conducting the conduciveness of
a market especially for companies wishing to invest in the market. The Porter's five Forces
model is centered on five aspects that influence a market and its health which include: Threats to
new entrants, the bargaining power of customers, the existing threat of a substitute product, the
suppliers bargaining power, and the level of competition within the industry.
Threat to new entrants
The threat to new entrants is posed by more companies venturing into an industry and
curving out a market share of the currently existing companies. New entrants thereby exert prices
and cost pressures as well as investments needed to compete for the market share (Bhatia, 2016).

INDIA’S AUTOMOBILE INDUSTRY ANALYSIS 5
However the threat to new entrants is barred by the amount of resistance presented from existing
players that may deter the new entrants from venturing. The factors include:
Economies of scale and capital requirement
Notably the automotive industry requires a substantial amount of investment to setup
manufacturing facilities and market research among others. The attractiveness of the Indian
market has led to entry of international players such as Renault, Nissan,and Volkswagen among
others who have a strong capital base to invest a healthy market. While the local players such as
Maruti and Tata still retain a large market share, the new technological base of new entrants has
allowed such firms to gain a footing in the Indian market(Bhatia, 2016). Therefore threat from
new entrants can be deduced to be high.
Access to raw material technology and distribution
Factors such as raw materials, distribution chains and technological accessibility are vital
requirement of the automotive industry. In India, these factors are not easily accessible. Steel is
mostly imported from China thus addition to expenses while policies such as capping fuel
emission, price of fuel could impede on final net profit (Mohile, 2016). Technological
advancement is changing frequently and its penetration in Indian automotive industry has been
medium but steady (KPMG, 2017). This also creates a high threat to new entrants that may find
more efficient technology that may disrupt the traditional market.
Government policies and protection of the Automobile sector.
Due to the high value of the automobile sector to India’s economy, the government has
developed favorable conditions that have attracted huge investments to the industry. These
include de-licensing and liberalization of the market where government allows 100 percent
Foreign Direct Investment(Bhatia, 2016). The government has also worked to ease of doing
business while also introducing favorable rating for fuel efficiency automobiles to encourage
purchases.
Brand identity Product differentiation and customer switch costs

INDIA’S AUTOMOBILE INDUSTRY ANALYSIS 6
Popularity of a Brand and differentiation of product serve as deterrent to new entrants.
India, exclusive luxury car brands and industry trend setter have been able to curve out a market
for themselves due to high brand image globally and the brand equity value associate to the
brand. Trend setters capitalize on the high switch cost of Automobile(Bhatia, 2016). However in
a bid to penetrate the market company acquisition and mergers are a common entry strategy to
penetrate the market. For instance, Maruti India a leader in Commercial vehicle production
acquired Land Rover and Jaguar to curve out a market share of the luxury automotive industry.
Bargaining power of Suppliers
The bargaining power of India’s supplier is moderate based on the large number of
suppliers of automotive parts and the high switch costs to other suppliers outside the country.
With 500 main manufacturers and over 5000 suppliers in the unorganized industry sector, the
suppliers sector is populate but equally have a superior advantage of accessibility to supply
manufacturers. Local suppliers enjoy lower rates of imports through bilateral free trade
agreements with India and trade allies such a tax reliefs and duty free imports sourcing; a
privilege not extended to outside supplier thus giving local suppliers a competitive edge. In such
a case manufacturers have high supplier switching cost making it cost effective to source raw
materials locally (Singh, Garg & Sharma, 2010). However, where high technological capability
of producing parts is unavailable locally, manufacturers have no choice but to incur higher cost
for quality value, leaving the bargaining power of local traders low, with regards to particular
raw material.
Buyer bargaining power
Buyer bargaining power depends on the number of willing buyers within an industry
factored in with the availability of substitute product and cost of switch to another product as
well as the ability of consumer to meet the price value for quality provided. India’s automobile
consumption has grown steady in the last decade and is expected to continue rising. With an
increase in the middle class’s disposable income due to soaring economic growth and population
growth, as well as the cross-effect growth of automobile industry on other sectors, the industry
register growth in coming years(Kumaraswamy et al., 2012). Currently, commercial vehicle high

INDIA’S AUTOMOBILE INDUSTRY ANALYSIS 7
demand potential owing to the high cost of substitute transportation such as airplane. However
bad roads and high fuel cost may increase the cost of operating commercial vehicle making the
marketing unfavorable, but the government has made efforts to increase and maintain road
networks and also promote fuel efficient automotive technology. In personal comfort and
households affordability of personal automobile has promoted all segments of the auto industry.
In fact other modes of transportation i.e. rail and air transport account for 10 percent of the total
transport revenue while 90 percent share goes to automobiles (Luthra et al., 2017). The factors
contribute to market growth hence favorable for companies operating in the sector.
Industry Rivalry from competitors
Despite the continued growth of the auto industry in India, there exists high
competitiveness due to the rise in number of players that have entered the market since its de-
licensing and consequent liberalization. Notably the competitiveness and low product switch cost
help in minimizing price-based competition but in a bid to maximize on profits and curve out a
larger market share, companies are digressing into the variety of products and competing on
differentiation to raise competitive edge(Gupta, Gupta & Maheshwari, 2017). However the
growth on demand for automobiles is yet to be matched by supply thus making the market
conducive for proactive competition. For instance the development of fuel efficient cars,
technologically advanced cars and small cars by a number of players leaves little room of a
monopolistic domination of any given automobile segment. Tata currently dominate the Light
commercial Vehicle pool with an estimated market share of 64 percent while Maruti Suzuki
India dominates passenger cars sector with a 46 percent market share. Hero Honda is the leader
in the two-wheeler production with a market share of about 41 percent.
Future Trends in India’s Auto Industry.
The future of automobile industry is expected to continue growing with reference to the
growing demand for its products and the growing market base in rural and urban markets in
India. The current government is expected to pay increased attention on reforms and policies that
will favor the automobile industry such expenditure on developing integrated infrastructure. The
growth in the economy coupled with an increased infrastructural development harbor a

INDIA’S AUTOMOBILE INDUSTRY ANALYSIS 8
favorable future for the industry (EY, 2016). Additionally an increase in diesel prices to almost
the same price as petrol is expected to further level the playing field for utility vehicles and
passenger cars as it influences the consumer purchasing decision.
Notably the expected growth in the two-wheeler market companies in this sector as set
benefit. Additionally, competitive pressures from sector players will play a vital role in retain
status quo price margins in the industry sector(Kumar, 2008). It is also expected that the three-
wheeler industry will experience substantial growth as exports are expected to grow with
demand of this vehicles in emerging markets such as Africa and also India’s rural areas.
In recent years the government has work to increase the popularity of mechanized
farming over traditional labor farming. Such a move could present positive long-term prospects
for the Tractor production sector. With government’s focus on rural infrastructure, the tractor
industry sector is expected to grow.
India has invested heavily in the education sector thus enhancing the number of skilled
labor available in the country. A wider pool of skilled labor such as engineers may lead to
innovations among industry player and technological expertise at a relatively cheaper cost of
labor that arises with an increase in skill labor. Some companies are working on developing
electric car which may disrupt the traditional fuel market (YES Bank,2013). However,
mainstream production of such vehicles is many years away from perfection and developing
affordable electric cars.
Conclusion
India’s Automobile Industry is steadily growing and in good competitive health. Since
the liberalization of the market, the industry has experience a resurgence that not only promotes
technological advancement in the sector but also quality competitiveness that is favorable to
consumers. Increased government support of the sector and the increased per capita disposable
income is also poised to that favor the sector. One finds in evaluation of Michael Porter’s Five
Forces model, India’s market is favorable for new entrants whose could acquire or Merge with
existing companies as a way of getting into the market. While Suppliers bargaining is moderate,
is advantageous for manufacturers whose production raw material is sourced locally. Buyers

INDIA’S AUTOMOBILE INDUSTRY ANALYSIS 9
bargaining power is high thus impeding on auto manufacturers profit margins. However, with the
ever increasing demand for automotive products and consequent market growth, healthy
competition is expected to ensue especially among the two wheeler auto-sector. One negative
aspect of the Indian market is the need for heavy capital investment required to venture into the
industry. However, the strengthening and accessibility of financial institutions may allow for
affordable financial be beneficial to industry entrants.
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