Professional Documents
Culture Documents
ON
PESTLE ANALYSIS OF
AUTOMOBILE SECTOR OF
INDIA
Submitted to:
(LOVELY INSTITUTE OF MANAGEMENT)
MBA Ist B(Ist Sem.)
(Session 2009-2011)
Date- 05 Dec 2009
Submitted To:
Submitted By:
Suman Tiwari
Roll No. A-22
Reg. No.10904478
ACKNOWLEDGEMENT
Literature Review
Competitiveness of manufacturing sector is a very broad multi-dimensional concept that
embraces numerous aspects such as price, quality, productivity, efficiency and macroeconomic environment. The OECD definition of competitiveness, which is most widely
quoted, also considers employment and sustainability, while being exposed to
international competition, as features pertaining to competitiveness. There are numerous
studies on auto industry in India, published by industry associations, consultancy
organizations, research bodies and peer-reviewed journals. In this section, various studies
on the Indian auto industry are reviewed, under different heads pertaining to
competitiveness, namely, global comparisons, policy environment and evolution of the
Indian auto industry, productivity, aspects related to supply-chain and industrial structure
and technology and other aspects.
PESTLE Analysis
PESTLE Analysis is a simple, useful and widely-used tool that helps you
understand the "big picture" of your Political, Economic, Socio-Cultural and
Technological, Legal and Environmental aspects. As such, it is used by business
leaders worldwide to build their vision of the future.
PESTLE analysis is concerned with the environmental influences on a business.
Identifying PESTLE influences is a useful way of summarizing the external
environment in which a business operates. However, it must be followed up by
consideration of how a business should respond to these influences.
It is important for these reasons:
First, by making effective use of PESTLE Analysis, you ensure that what
you are doing is aligned positively with the powerful forces of change that
are affecting our world. By taking advantage of change, you are much more
likely to be successful than if your activities oppose it;
Second, good use of PESTLE Analysis helps you avoid taking action that is
doomed to failure from the outset, for reasons beyond your control; and
Third, PESTLE is useful when you start operating in a new country or
region. Use of PESTLE helps you break free of unconscious assumptions,
and helps you quickly adapt to the realities of the new environment.
The table below lists some possible factors that could indicate important
environmental influences for a business under the PESTLE headings:
Political / Legal
Economic
Social
Technological
- Environmental regulation
and protection
- Taxation
- Economic growth
- Income distribution
- Monetary policy
- Demographics
- Government spending
on research
- Government and
industry focus on
technological effort
- International trade
regulation
- Consumer protection
- Government
spending
- Policy towards
unemployment
- Employment law
- Taxation
- Rates of technological
obsolescence
- Government organization /
attitude
- Exchange rates
- Education
- Competition regulation
- Inflation
- Changes in material
sciences
- Impact of changes in
Information technology
- Living conditions
- Lifestyle changes
- Internet!
Political
In 2002, the Indian government formulated an auto policy that aimed at
promoting integrated, phased, enduring and self-sustained growth of the
Indian automotive industry
Allows automatic approval for foreign equity investment up to 100% in the
automotive sector and does not lay down any minimum investment criteria.
Formulation of an appropriate auto fuel policy to ensure availability of
adequate amount of appropriate fuel to meet emission norms
Confirms the governments intention on harmonizing the regulatory
standards with the rest of the world
Indian government auto policy aimed at promoting an integrated, phased and
conductive growth of the Indian automobile industry.
Allowing automatic approval for foreign equity investment up to 100% with
no minimum investment criteria.
Establish an international hub for manufacturing small, affordable passenger
cars as well as tractor and two wheelers.
Ensure a balanced transition to open trade at minimal risk to the Indian
economy and local industry.
Assist development of vehicle propelled by alternate energy source.
Lying emphasis on R&D activities carried out by companies in India by
giving a weighted tax deduction of up to 150% for in house research and
R&D activities.
Plan to have a terminal life policy for CVs along with incentives for
replacement for such vehicles.
Promoting multi-model transportation and the implementation of mass rapid
transport system.
Economic
The level of inflation Employment level per capita is right.
Preference for small and compact cars. They are socially acceptable even
amongst the well off.
Preference for fuel efficient cars with low running costs.
Technological
More and more emphasis is being laid on R & D activities carried out by
companies in India.
Weighted tax deduction of up to 150% for in-house research and R & D
activities.
The Government of India is promoting National Automotive Testing and
R&D Infrastructure Project (NATRIP) to support the growth of the auto
industry in India
Technological solutions helps in integrating the supply chain, hence reduce
losses and increase profitability.
Customized solutions (designer cars, etc) can be provided with the
proliferation of technology
Internet makes it easy to collect and analyse customer feedback
With the entry of global companies into the Indian market, advanced
technologies, both in product and production process have developed.
With the development or evolution of alternate fuels, hybrid cars have made
entry into the market.
Few global companies have setup R &D centers in India.
Major global players like audi, BMW, Hyundai etc have setup their
manufacturing units in India.
Environmental
Legal
Legal provision relating to environmental population by automobiles.
Legal provisions relating to safety measures.
Confirms the governments intention on harmonizing the regulatory
standards with the rest of the world
Indian government auto policy aimed at promoting an integrated, phased and
conductive growth of the Indian automobile industry.
Establish an international hub for manufacturing small, affordable passenger
cars as well as tractor and two wheelers.
Ensure a balanced transition to open trade at minimal risk to the Indian
economy and local industry.
Introduction
The Indian automotive component industry is dominated by around 500 players
which account for more than 85% of the production. The turnover of this industry
has been growing at a mammoth 28.05% per annum from 2002-03 onwards as
illustrated in Fig.1 which clarifies its emergence as one of India's fastest growing
manufacturing sectors.
Among the automobiles, 2 wheelers account for 75.77%, cars about 11.09%, 3
wheelers to the tune of 4.33%, tractors about 2.95%, buses & trucks constitute
2.19%, Multi Utility Vehicles (MUVs) to the tune of 1.96% and Light Commercial
Vehicles (LCVs) about 1.71% of the total number of automobiles produced in the
country. Presently, India is the second largest market after China for two & three
wheelers. In tractors production, India is one of the two largest manufacturers in
the world along with China. The subcontinent stands as the 4th largest producer of
trucks in the world. Coming to the passenger car segment, the country is positioned
11th in car production in the world.
The Indian passenger car market is far from being saturated leaving ample
opportunity for volume growth since the per capita car penetration per 1000 is only
7 compared to 500 in Germany. The production of cars in the country has been
growing at a mammoth 27.58% per annum from 2002- 03 onwards as is shown in
Fig.3. In general, cars are broadly classified as Mini, Compact, Mid-Size,
Executive & Premium varieties. There has been a steady rise in compact car
production from 333,000 in 2002-03 to 715,000 in 2005- 06, mid-size cars from
122,000 to 204,000 nos., executive cars from 2000 to 23,000 nos. and premium
variety cars from 4000 in 2002-03 to 5000 nos. in 2005-06. The mini car segment
production reduced from 150,000 in 2002-03 to 98,000 nos. in 2005-06. These
statistics vividly reveal the increasing capacity of the Indian customer, thus driving
the passenger car demand rapidly up the price ladder. Analysts speculate car
production in the sub-continent to touch 1575,000 in 2009 and 2654,000 by 2014.
Cars and MUVs exports rose from 72,000 in 2002-03 to reach 176,000 nos. in
2005-06 with growth @ 48.155 per annum from 2002-03 onwards.
Out of the two wheelers produced in India, motorcycles account for 81.59%,
scooters about 13.42% and mopeds to the tune of 4.99% of the total production.
The production statistics is shown in Fig.4 which shows the growth of 2 wheelers
@ 16.58% per annum from 2002-03 onwards. Out of this, motorcycles have
exhibited production growth @ 19.99% per annum, scooters @ 6.74% per annum
& mopeds @ 2.65% per annum from 2002-03 onwards.
T
able 1. Installed capacity in different segments of the automobile industry
Against this installed capacity, the production over last few years has been as:
exports, 1996-2001
Indian automobiles are being exported mainly to the following countries.
EURO-II norms across the country by the year 2005. Seven metropolitan cities of
India would simultaneously move to EURO-III norms in 2005. Most vehicle
manufacturers are already producing EURO-II compliant vehicles in the country to
meet special requirements of capital city of New Delhi where the Supreme Court
verdict has already necessitated this.
To meet the concomitant testing and certification activities relating to higher safety
and emission norms, testing infrastructure in the country is being overhauled. A
substantive state funding is being planned in upgrading the testing infrastructure
with participation of industry.
Environmental pollution and the need to conserve existing supply of fossil fuels
have led to search for alternative fuels. In addition to supporting greenfield
research in this area, an ambitious phased programme to upgrade carbon fuel
quality commensurate with higher emission norms is also being undertaken.
Foreign direct investment norms have already been considerably relaxed.
Unhindered import of automobiles, including new and second hand vehicles, has
also been permitted. Most non-tariff barriers have also been relaxed or removed.
The Government has moderated and lowered taxes and duties on automobiles,
including customs duty. Value Added Tax (VAT) is also proposed to be introduced
across the country from 1 April 2001. The Government has also allowed private
sector participation in the insurance sector. Norms guiding external commercial
borrowings (ECBs) have been liberalized and lending rates within the country have
also been reduced further strengthening the environment of investment. An
ambitious programme to upgrade the quadrilateral of highways in the country, the
Government is laying an eight-lane expressway linking all metropolitan and
several important capital towns across the country paving the way for movement of
heavier haulage vehicles.
substitutes, competition from entrants, and competition from established rivals; and
two sources of vertical competition: the bargaining power of suppliers and
buyers. The strength of each of these competitive forces is determined by a number
of key structural variables, as shown in Figure 3.3.
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.
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.
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 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.
Tariff rationalization and taming of avoidable competition between rail and road
transport sectors should be carried out. In this unhealthy competition, both the
industries are unable to realize their full potential.
Easier availability of market credit for funding automobile acquisition is required.
Despite lower interest rates, availability of easy credit in rural and semi-urban
areas requires more focused attention. This can substantially spur the demand.
Suggestions at the international level
Serious and sustained dialogue on regional cooperation in automobile sector
should begin at the earliest. Dialogue should be regular and focused in which
Governments and industry should both engage.
The recent statistics of custom duties show that the average tariff rates of different
countries have declined. However, it has been noticed that the problem of high
tariffs is still prevalent in certain sectors. These high tariffs are generally noticed in
developed countries.
Reduction of peak tariffs is necessary to facilitate free flow of automobiles.
Non-tariff barriers should be phased out with mutual dialogue and consensus.
Mutual recognition should be accorded to the testing and certification agencies in
various countries.
Countries should join hands in developing alternative fuels to replace the existing
fossil fuels. Similar cooperation is required in other critical areas of technological
development. Fragmented and limited research in each country may lead to delay
and more expensive results.
Affordability of quality automobiles should be focus of industry across the world
to facilitate volumes and widespread ownership.
Reasons of Growth
Economic liberalization, increase in per capita income, various tax relief policies,
easy accessibility of finance, launch of new models and exciting discount offers
made by dealers all together have resulted in to a stupendous growth of India
automobile industry.
Market Share
Automobile industry of India can be broadly classified under passenger vehicles,
commercial vehicles, three wheelers and two wheelers, with two wheelers having a
maximum market share of more than 75%. Automobile companies of India, Korea,
Europe and Japan have a significant hold on the Indian market share. Tata Motors
produces maximum numbers of mid and large size commercial vehicles, holding
more that 60% of the market share. Motorcycles tops the charts of two wheelers
with Hero Honda being the key player. Bajaj by far is the number one
manufacturer of three wheelers in India.
Passenger vehicle section is majorly ruled by the car manufacturers capturing over
82% of the total market share. Maruti since long has been the biggest car
manufacturer and holds more that 50% of the entire market.
Global recession has impacted, the Indian automobile industry also and can be seen
clearly in the sales figures of the last financial year. Even then this industry has
high hopes in 2009-2010, as banks have reduced loan interest rates and the major
chuck of automobile customers belong to the middle income group who are
becoming economically stronger with every passing day.
Conclusions
Easier and faster mobility of people and goods across the regions, countries and
continents is a cherished yearning of mankind. The automobile industrys potential
for facilitating this mobility is enormous. Wheels of development across the globe
would have to be powered by this industry. However, a seamless development of
this industry across countries and continents alone will help in realization of this
objective. For such seamless and barrier-free development of the sector, countries
will have to come together and develop better understanding. Industry across
countries will have to meet challenges of newer technologies, alternative fuels and