UNIVERSITY OF SALFORD

AN INVESTIGATION INTO THE APPLICATION OF TARGET

MARKETING TO CREATE COMPETITIVE ADVANTAGES A

CASE STUDY OF THE GROWING INDIAN AUTOMOBILE

MARKET.

Name: Venkata R K Pagadala

Registration Number: @00223394
Course: Msc International Business
Supervisor: Mr. Mike Ward
October 2009

1
Declaration

I declare that no part of this Dissertation has been taken from

existing published or unpublished material without due
acknowledgement and that all secondary material used therein has
been fully referred.

Signed:
Date:

2
Acknowledgement

Since several years most of the contributed material has been published and given
great response through our university authors. I would like to extend special thanks to
my supervisor Mr. Mike Ward for his careful revision of work and the attitude of a
genius. Without his guidance and persistent help this dissertation would not have been
possible.

Thank you!
13-10-2009

3
Abstract

The report starts with Introduction which covers the automobile industry of India and
the present status in today’s context. The research questions and objectives are also
covered in this chapter. The growth path of the industry is included along with the
various phases through which it went. The role of auto finance which has instrumental
in terms of growth has also been included. The importance of the automobile sector
and the current developments has also been covered. It is then followed by literature
review deals with the background, size; components industry and the research which
has been carried out in this area have been covered.

In the methodology part, aspects such as the research plan, design, approach etc are
included in detail. This chapter also covers the sampling strategy, limitations and the
ethical consideration of research.

It is then followed by conclusion and recommendations like how the industry could
sustain growth, the innovation factor which is missing and the enhancement of global
share of the industry.

Finally, I have included my personal reflections on this dissertation which includes the
difficulties I faced before and during the projects and how I overcame all the hurdles
to complete my report.

4
CONTENTS

TITLE………………………………………………………………………1
ACKNOWLEDGEMNET………………………………………………...3
ABSTRACT………………………………………………………………..4
CONTENTS………………………………………………………………..5
ABBREVIATIONS………………………………………………………...9
LIST OF TABLES ………………………………………………………..11

1. INTRODUCTION………………………………………………………12
1.1 Aims and objective
……………………………………………………………15
1.2 Research
Questions…………………………………………………………….15
1.3 Research Objectives……………………………………………………………15

2. LITERATURE REVIEW……………………………………………….17
2.1 WHY MARKET SEGMENTATION NEED FOR
AUTOMOBILE…………17
2.1.1 Better matching of customer needs……………………………………17
2.1.2 Enhanced profits for business…………………………………………17
2.1.3 Better opportunities for growth……………………………………….17
2.1.4 Retain more customers……………………………………………..…17
2.1.5 Target marketing communications……………………………………18
2.1.6 Gain share of the market segment…………………………………….18
2.2 MARKET
SEGMENTATION…………………………………………………18
2.3 SEGMENTATION, TARGETING AND PRODUCT
POSITIONING………..20
2.4 BASES FOR MARKET SEGMENTING CONSUMER MARKETS………….22
2.4.1 Geographic approaches …………………………………………………22

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 2.4.2 Demographic approaches………………………………………………..23
2.4.3 Psychographic approaches………………………………………………24
2.4.4 Behavioristic approaches…………………………………..……………24

3. METHODOLOGY…………………………………………….31
3.1 Research Plan……………………………………………………………...31
3.2 Research Perspective………………………………………………………31
3.3 Research Design…………………………………………………………...32
3.4 Research Philosophy………………………………………………………33
3.5 Data Collection Methods…………………………………………………..33
3.5.1 Secondary Data……………………………………...………………33
3.5.1.1 Documentary secondary data……………………………….33
3.5.1.2 Survey-based secondary data……………………………….33
3.5.2 Questionnaires………………………………………………..34
3.6 Validity, Reliability and
Generalisability…………………………………34
3.7 Evaluation of Secondary
Data…………………………………………….35
3.8 Analysis of Secondary Data……………………………………………….36
3.9 Sampling Strategy…………………………………………………………36
3.10 Data Analysis…………………………………………………………….37
3.11 Ethical Considerations…………………………………………………...37
3.12 Limitations of the Research……………………………………………...37

4. FINDINGS……………………………………………………..38
4.1 Background of Indian automobile………………………………………..38
4.2 The first phase of Indian automobile industry……………………………40
4.2.1 The first reform- 1980s…………………………………………….41
4.2.2 The second reform- 1990s………………………………………….42
4.3 Role of Auto Finance……………………………………………………...43
4.4 Recent initiatives of the Government……………………………………..44
4.5Scope of the Indian automobile sector…………………………………….45
4.6 Size of the Indian Automotive Industry…………………………………..46

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 4.7 International Business (Exports)………………………………………….48
4.8 Environment and Safety Regulations……………………………………..49
4.9 The Importance of Automobile Industry in India…………………………50
4.10 Growth Drivers…………………………………………………………..51
4.11 Fast Growth Firms in the Automotive Industry…………………………..52
4.11.1 Hindustan Motors…………………………………………………..52
4.11.2 Bajaj Auto Ltd…………………………………………………….52
4.11.3 Mahindra & Mahindra…………………………………………….53
4.11.4 Maruti Udyog Ltd…………………………………………………53
4.11.5 Tata Motors………………………………………………………..54
4.11.6 Ashok Leyland…………………………………………………….55
4.12 Current developments……………………………………………………..56
4.13 Human Resource Development…………………………………………...57
4.14 Tata Nano- A New Chapter……………………………………………….58
4.15 Manufacturing Component………………………………………………..58

5. Discussion: How does Literature compare with the

Finding…………………………………...59
5.1 Automobile segmentation…………………………………………………..59
5.1.1 Market Segmentation……………………………………………...….59
5.1.2 Targeting……………………………………………………………...63
5.1.3 Market targeting Low-Cost Car Technologies……………………….63
5.1.4 Positioning…………………………………………………………….64
5.1.5 India's Auto sector on fast track……………………………………....64
5.2 Why India for Automobile?............................................................................65
5.2.1 The political economy…………………………………………………66
5.2.2 Nation and state………………………………………………………..66
5.2.3 Licensing, law, and reform…………………………………………….66
. 5.2.4 Investment procedures…………………………………………………67
5.2.5 Labour………………………………………………………………….67
5.2.6 Taxation………………………………………………………………...67
5.2.7 Location and market……………………………………………………68
5.2.8 Domestic markets………………………………………………………68

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 5.2.9 Infrastructure…………………………………………………………..69
5.3 Data Analysis……………………………………………………………..…70

6. CONCLUSION………………………………………………..82
6.1 Recommendation…………………………………………………………….85
6.2 Reflection on the Dissertation……………………………………………...87
6.3 References………………………………………………………………….90
6.4 Appendix…………………………………………………………………..102
6.5 Questionnaire………………………………………………………………102

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ABBREVIATIONS

FDI: Foreign Direct Investment.

NCAER: National Council for Applied Economic Research.
STP: Segmentation, Targeting, Positioning.
SWOT: Strengths, Weaknesses, Opportunities, and Threats.
E-V-R: Environment, value and resources.
HRM: Human Resource Management.
MNC: Multi National Company.
ACMA: Automotive Component Manufacturers Association.
GDP: Gross Domestic Product.
TELCO: TATA Engineering and Locomotive Company.
LCVs: Light Commercial Vehicles.
EMI: Equal Monthly Installment.
HDFC: Housing Development Finance Corporation.
ICICI: Industrial Credit and Investment Corporation of India.
R&D: Research and Development.
NATRIP: National Automotive Testing and R&D Infrastructure Project.
USD: United States Dollar.
SIAM: Society of Indian Automobile Manufacturer.
CMVR: Central Motor Vehicle Rules.
IS: Indian Standards.
AIS: Automotive Industry standards.
OEMs: Original Equipment Manufacturers.
HCV: Heavy Commercial Vehicles.
ATM: Any Time Mobile.
ISO: International Standard Organization.
IIT: Indian Institute of Technology.

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IIM: Indian Institute of Management.
ITIS: Industrial Training Institutes.
ATIS: Advanced Traveller Information Systems.
DVD: Digital Versatile Disc.
INR: Indian Rupees.
M&HCV: Medium and Heavy commercial vehicles.
FIPB: Foreign Investment Promotion Board.
VAT: Value Added Tax.
CFOs: Chief Financial Officer.
SEZs: Special Economic Zones.

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LIST OF TABLES

Indian automobile market

Steps in market Segmentation, Targeting and Positioning
Diagram of Demographic segmentation
Automobile export graph
EXPORTS TRENDS
Segmentation of Indian Car Market

11
Introduction

The statement that “the prosperity and economic development of a country is

enhanced by having more cars on roads” reflects India’s international presence,
according to the viewpoint of politicians. The automobile industry is called as “the
industry of industries" by Peter Drucker. If we compare with the last few years the
production and management systems have been revolutionized in the automobile
Industry (Karmokolias, 1990). Due to the growth of several emerging markets, there
have been some of the major changes in the industry. India is counted among one of
the most important emerging car economies in the world today but two decades back,
such imagination would not have been possible.

To expand the domestic market, the Indian government set up Maruti Udyog Limited
in partnership with Suzuki Motors of Japan. At that time Indian car buyer was having
choice of only two Ambassadors, one from Hindustan motors and another was
‘Premier Padmini’ from Premier automobiles. Then an 800 cc small car was launched
for the Indian car buyers. The foundation for the Indian auto market was laid by the
success of the Maruti 800 set up and then grown immensely after the economic
liberalization that followed a decade later.

Over the past two decades the Indian automobile industry has reached a substantial
growth. And now India has one of the largest manufacturing sectors. India has earned
a strong reputation in the export market. Indian vehicles and components are in great
demand all over the world (Aggarwal, 1998).

India has entered the big league of Asian car market. India is one of the most
important emerging car economies in the worlds today. In 1991, the government of
India initiated an ambitious structural adjustment programmed aimed at economic
liberalization based on Delicensing, Decontrol, Deregulation and devaluation
(Aggarwal, 1998).

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Because of this new automobile policy, a large number of automobile companies are
attracted to India. A large number of multinational auto companies especially from
Japan, USA, and Europe are entering the Indian auto market and are working in
collaboration with the Indian firms. Also, the growth of the Indian automobile industry
increased because of the facility of the automobile finance.

The Indian automotive industry started from 1991with the government’s de-licensing
of the sector and subsequent opening up for 100 per cent FDI through automatic route.
Since then many large global companies have set up their facilities in India taking the
production of vehicle from 2 million in 1991 to 9.7 million in 2006.

At present, India is the worlds

 Largest tractor and three-wheel vehicle producer.
 Second largest two-wheel vehicle producer.
 Fourth largest commercial vehicle producer.
 Eleventh largest passenger car producer.
(Source: http://www.business-in-asia.com/countries/automotive_industry_india.html)

Presently, the overall auto market- two wheelers, passenger cars and commercial
vehicles is slated for further growth after sustained growth over the past five years.
Today, the customer has abundant choice across all these segments. In two wheelers,
there are multiple models from different players, be it for mopeds, scooters or
motorcycles. “The automotive industry in India has hit the fast lane with almost all
global manufacturers queuing up their launches.” -Anang Dev Jena, head, Synovate
Motoresearch India.

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 Indian Automobile Market

Source: - Cygnus research, 2007

The Indian automobile industry has a mix of large domestic players like Tata,
Mahindra, Ashok Leyland, Bajaj, Hero Honda and major international player like GM,
Ford, Daimler Chrysler, Toyota, Mercedes, BMW, Lexus, Fiat, Suzuki, Honda,
Hyundai, MAN, VW and Volvo. Today, the Indian automobile industry is the world’s
largest motorcycle manufacturer, the second largest two wheelers and tractor
manufacturer, the fifth largest commercial vehicle manufacturer and the fourth largest
car maker in Asia.

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Aims and objective

The aim of this project is to assess the use of target marketing to achieve competitive
advantage: a case study approach of the Indian automobile industry will be used. It is
very important and necessary to have a frame work from which to work. Dissertation
presents the growth path and target marketing to create competitive advantages of
India automobile sector as well as its future growth path. Auto finance has a greater
role for this phenomenal growth of Indian automobile sector. In this project this auto
finance marketing and automobile segmentation will also be analyzed.

Research Questions

• A review of current literature for target marketing and competitive

advantage.
• Has the automobile industry in India achieved growth?
• What are the factors contributing to the growth of automobile sector in
India?
• What are the current developments in the automobile sector and to what
extent will it grow in the future?
• What has been the role of government as far as growth in this sector is
concerned?

Research Objectives

• To gain a comprehensive understanding of the automobile sector in India.

• Understand the perceptions of marketing segmentation which gives the way of
establishing a competitive advantage in organization.
• A contextual review of how porter’s five forces determine automobile industry
attractiveness and long-run industry profitability.

15
• Understand the implications of the growth.
• Evaluate the over all strategic position of Indian automobile and its
environment by SWOT analysis.
• To develop a research design which helps to answer the research question in a
valid and reliable manner?
• A contextual review of the current business environment in India in relation to
the purchase of cars from which can be established the opportunities and
threats for car manufacturers.
• A concluding chapter that considers the academic and the contextual literature
that will enable you to answer the research question.

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 LITERATURE REVIEW

WHY MARKET SEHMENTATION NEED FOR AUTOMOBILE

There are several important reasons why businesses should attempt to segment their
markets carefully. These are summarized below

Better matching of customer needs

Customer needs differ. Creating separate offers for each segment makes sense and
provides customers with a better solution.

Enhanced profits for business

Customers have different disposable income. They are, therefore, different in how
sensitive they are to price. By segmenting markets, businesses can raise average prices
and subsequently enhance profits.

Better opportunities for growth

Market segmentation can build sales. For example, customers can be encouraged to
"trade-up" after being introduced to a particular product with an introductory, lower-
priced product.

Retain more customers

Customer circumstances change, for example they grow older, form families, change
jobs or get promoted, change their buying patterns. By marketing products that appeal
to customers at different stages of their life ("life-cycle"), a business can retain
customers who might otherwise switch to competing products and brands.

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Target marketing communications

Businesses need to deliver their marketing message to a relevant customer audience. If

the target market is too broad, there is a strong risk that (1) The key customers are
missed and (2) The cost of communicating to customers becomes too high
unprofitable. By segmenting markets, the target customer can be reached more often
and at lower cost.

Gain share of the market segment

Unless a business has a strong or leading share of a market, it is unlikely to be

maximizing its profitability. Minor brands suffer from lack of scale economies in
production and marketing, pressures from distributors and limited space on the
shelves. Through careful segmentation and targeting, businesses can often achieve
competitive production and marketing costs and become the preferred choice of
customers and distributors. In other words, segmentation offers the opportunity for
smaller firms to compete with bigger ones.

MARKET SEGMENTATION

Proctor, T (1996) pointed out that segmentation in marketing management techniques

which can help firms find ways of establishing a competitive advantage. A market
segment is a section of a market which possesses one or more unique features that
both give it an identity and set it apart from other segments. Market segmentation
amounts to partitioning a market into a number of district sections, using criteria
which reflect different and distinctive purchasing motives and behavior of customer’s.
Segmentation makes it easier for firms to produce goods or services that fit closely
with what people want.

Segmentation can be put into effect in variety of ways. Markets comprise buyers of
products and services, who differ from one another in various respects. The
differences point to varying buyer wants and needs, the different resources at buyer’s
disposal, their place of residence, buying attitudes and buying practices. Any

18
combination of these differences can be used as a basis for market segmentation. The
important thing that has to remember however that is a market segment exists only
when people have common characteristics as buyers. Segmentation is a powerful
component of marketing strategy. [Proctor, T (1996)]

Thomas, (2007) When the term “market segmentation” is used, most of us

immediately think of psychographics, lifestyles, values, behaviors, and multivariate
cluster analysis routines. Market segmentation is a much broader concept, however,
and pervades the practice of business throughout the world. What is market
segmentation? At its most basic level, the term “market segmentation” refers to
subdividing a market along some commonality, similarity, or kinship. That is, the
members of market segment share something in common. The purpose of
segmentation is the concentration of marketing energy and force on the subdivision (or
the market segment) to gain competitive advantage within the segment. It’s analogous
to the military principle of “Concentration of Force” to overwhelm an enemy.
Concentration of marketing energy (or force) is the essence of all marketing strategy,
and market segmentation is the conceptual tool to help achieve this focus. Before
discussing psychographic or lifestyle segmentation (which is what most of us mean
when using the term “segmentation”), let’s review other types of market segmentation.
Our focus is on consumer markets rather than business markets Thomas, (2007).

In my investigation, Indian automobile market is estimated to increase to 1.2 million

units 2011-12 (NCAER). Though I am more optimistic, I doubt the ability of anyone
to forecast accurately beyond nine months, given the current unstable and complex
business environment. Nothing radical has changed in the Indian economy to give a
logical reason in support. Experience tells that the extant policy measures at best can
support a GDP growth of 5.5- 6.5 per cent., but because of the political will to create a
supporting infrastructure for fast-track economic growth. Strangely, in 1997 China and
India had almost equal market sizes in the car segment.

Segmentation, targeting and positioning together comprise three stage processes. We

first (1) Determine which kinds of customers exist, then (2) Select which ones we are
best off trying to serve and, finally, (3) Implement our segmentation by optimizing our

19
 products/services for that segment and communicating that we have made the choice
to distinguish ourselves that way [Perner,L (1999)].

The strategic marketing planning process flows from a mission and vision statement to
the selection of target automobile markets, and the formulation of specific marketing
mix and positioning objective for each product or service the organization need to
proceeds to segment the automobile market, select the appropriate market target, and
develop the offer's value Positioning. The formula- segmentation, targeting,
positioning (STP) - is the essence of strategic marketing." (Kotler, 1994, p. 93).

SEGMENTATION, TARGETING AND PRODUCT POSITIONING

Having introduced to nature of market segmentation. It is now appropriate to examine

how it relates to targeting and product positioning. Marketing executes employ the
following steps.

 Segment the market

 Target the users
 Position the products

Years
Category of two Steps in market Segmentation, Targeting and Positioning
wheelers has increased
over the past 5
Strongly agree
Agree
Neither Disagree nor agree
3. Evaluate the 5. Identify possible
Disagree
attractiveness of each positioning concepts for
Strongly Disagree
64%
segment each target segment.
36%
0%
0%
0% 4. Select the target 6 select, develop and
1. Identify segmentation segment(s) communicate the chosen
variables and segment the positioning concept.
market.
Market segmentation Market targeting Market positioning
2. Develop profiles of
resulting segments.
[Proctor, T (1996)] in order to segment a market, characteristics have to be identified
which distinguish among customers according to their buying preferences. Profiles of

20
market segments which reflect different combinations of these characteristics have
then to be constructed.

Proctor, T (1996) evaluate that to target the users, the financial appeal of all segments
should be assessed and segments which have the greatest appeal should be selected for
targeting. The selection criteria should take account of the relative financial
attractiveness of the segments, and the organization’s capability to exploit them. In
positioning a product, one should aim to match it with that segment of the market
where it most likely to succeed. This involves identifying possible positions for
products within each target segment and then producing, adapting and marketing them
towards the target market. The product and service should be positioned in such a
manner that it stands apart from competing products. The positioning of a product or
service indicates what the product represents and how customers should evaluate it.

Having introduced the nature of market segmentation and looked at how this relates to
targeting and positioning, we will look at now operational aspects of market
segmentation. Various bases can be used to segment markets, and because the natures
of consumer and industrial markets difference. [Proctor, T (1996)]

In my investigation, the positioning of the brands in the Indian car market can be
understood from the price-power map given in the next page. This map gives an idea
of competition in different segments. Since the Indian car market is in a state of flux,
the positioning of most companies in the consumer's mind appears to be confused.
However, the companies have developed image-based positioning strategies for their
brands. The target of four-wheeler sales is the large number of two-wheeler owners.
And second, the bulk of four-wheeler sales will be small cars. A significant migration
from two- to four wheelers is expected.

Dividing a market into smaller groups of buyers with distinct needs, characteristics or
behaviours who require separate products or marketing mixes. The company identifies
different ways to segment the market and develop profiles of the resulting market
segment. A market segmentation approach aims at a narrow, specific consumer group
through one specified marketing plan that caters to the needs of that segment. The

21
segmentation is defined as "a process of dividing the total market for goods or services
into several smaller, internally homogeneous groups"[Smith, W (1956)].

BASES FOR MARKET SEGMENTING CONSUMER MARKETS

There are several approaches to segmenting markets for consumer goods. The
methods reflect such things as geographic, demographic, psychographic and
behavioral characteristics of consumers.

Geographic approaches

Geographical perhaps the most common form of market segmentation, where in

companies segment the market by attacking a restricted geographic area. A market can
be divided according to where consumers are located. Understanding cultural
differences between countries could be pivotal for business success, consequently
marketers will need to tailor their strategies according to where consumers are.
Geographic segmentation is the division of the market according to different
geographical units like continents, countries, regions, counties or neighborhoods. This
form of segmentation provides the marketer with a quick snapshot of consumers
within a delimited area [Hiam, A and Schewe, C (1998)].

Geographic segmentation can be a useful strategy to segment markets because it:

Provides a quick overview of differences and similarities between consumers
according to geographical unit;

 Can identify cultural differences between geographical units;

 Takes into consideration climatic differences between geographical units;
 Recognizes language differences between geographical units.

But this strategy fails to take into consideration other important variables such as
personality, age and consumer lifestyles. Failing to recognize this could hinder a
company's potential for success.

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Demographic approaches

A very popular form of dividing the market is through demographic variables.

Understanding who consumers are will enable you to more closely identify and
understand their needs, product and services usage rates and wants. Understanding
who consumers are requires companies to divide consumers into groups based on
variables such as gender, age, income, social class, religion, race or family lifecycle.
Clear advantage of this strategy over others is that there are vast amounts of secondary
data available that will enable you to divide a market according to demographic
variables.
Diagram of Demographic segmentation
Age Life-cycle Income Social
Stage Class
E.g. E.g. E.g. E.g.
under 6, Bachelor State, Under 5,000; A = Upper, upper
6-11, Newly Wed: No kids 5,000-20,000; B = Upper lower
12-19, Full Nest 1: w/child 20,000-50,000; C1= middle class
29-34, under 6 50,000-100,00, C2= Working class
35-49, Full nest 2: Youngest 100,000-250,000 (skilled workers)
50-64, child over 6 etc D= upper lowers
65+ Full nest 3: Older E= Lower, lower
married couples with
dependent children
Empty nest 1: Older
couples no children
at home
Empty nest 2:
Retired Solitary
survivor: Still
in the labor force
Solitary survivor:
Retired
Source: Hiam, A and Schewe, C (1998)].

23
Demographic segmentation entails using such factors as age, sex, income, occupation,
family size, stage in the family life cycle. Demographic segmentation strategies that
describe who is purchasing a product or service, psycho-demographic segmentation
attempts to answer the 'why's' regarding consumer's purchasing behavior. Through this
segmentation strategy markets are divided into groups based on personality, lifestyle
and values variables. Segmenting consumers into lifestyles is based on the notion that
a person's lifestyle has a direct impact on their interests in products and services
[Hiam, A and Schewe, C (1998)].

Psychographic approaches

Psychographic segmentation entails dividing buyers into different groups based on

their social class, lifestyle and /or personally characteristics. Lifestyle and personality
segmentation are growing in popularity. The methods involve attempting to endow a
product with characteristics that correspond to the target group of consumers self
perceptions. It is maintained that these factors reflects people’s values and opinions
and thus enable researchers to ascertain why customers prefer certain products and
services to others.

Fear is a psychographic variable which can be used to good effect in marketing

communication. It is particularly good in establishing new market segments and works
best with people who are low in anxiety and high in self-esteem, who are not
interested in this topic of fear itself and believe that they are not very vulnerable. A
‘social fear’ appeal is better than a ‘physical fear’ appeal. [Burnet and Oliver, (1979)].
Segmentation and positioning constitute the crux of marketing strategy. Over the past
two decades, lifestyle and psychographics have been increasingly used as a basis for
market segmentation.

Behaviouristic approaches

A behaviouristic approach entails dividing customers into groups according to their

knowledge, attitude, and use or response to a product or service. Behavioral patterns
can be differentiated by occasions, benefits, and user status and usage rate. Occasions

24
are situations where one can distinguish between buyers according to when they
purchased or used a product or service. User status reflects non-users, ex-users,
potential users, first time users and regular users of a product or service. Usage rate
reflects light, medium, or heavy use of products or services.

Behavioral segmentation methods can be applied to products which are purchased to

celebrate an occasion. Behavioral Segmentation is the effort to cross-tabulate or
associate behaviors with known demographics. It is the oldest method of
segmentation. In essence, it classifies a customer into a "bucket" based upon whether
customers are similar to other customers who have performed that behavior in the
past. Historically, behavioral segmentation has been generated by cross-tabulation
analysis [Hiam, A and Schewe, C (1998)].

In Porter earlier book, Competitive strategy, he proposed techniques for analyzing

industries and competitors. The phrase “Completive advantages” and “Sustainable
completive advantages” have become commonplace in testimony to the power of
Porter’s ideas.

Writing in the Porter, (1980) points out that competitive advantage grows
fundamentally out of values a firm is able to create for its buyers that exceed the
firm’s cost of creating it. Values is what the buyers or customers are willing to pay,
and superior values stems from offering lower prices than competitors for equivalent
benefits or providing unique benefits that more than offset a higher price.

SWOT ANALYSIS

SWOT analysis is a simple framework for generating strategic alternatives from a

situation analysis. It is applicable to either the corporate level or the business unit level
and frequently appears in marketing plans. SWOT (sometimes referred to as TOWS)
stands for Strengths, Weaknesses, Opportunities, and Threats. Thopmson L, J (1997)
proposed that the SWOT analysis provides information that is helpful in matching the
firm's resources and capabilities to the competitive environment in which it operates.

25
As such, it is instrumental in strategy formulation and selection. The following
diagram shows how a SWOT analysis fits into an environmental scan:

SWOT Analysis Framework

Environmental Scan
/ \
Internal Analysis External Analysis
/\ /\
Strengths Weaknesses Opportunities Threats
|
SWOT Matrix

The internal and external situation analysis can produce a large amount of information,
much of which may not be highly relevant. The SWOT analysis can serve as an
interpretative filter to reduce the information to a manageable quantity of key issues.
The SWOT analysis classifies the internal aspects of the company as strengths or
weaknesses and the external situational factors as opportunities or threats. Strengths
can serve as a foundation for building a competitive advantage, and weaknesses may
hinder it. By understanding these four aspects of its situation, a firm can better
leverage its strengths, correct its weaknesses, capitalize on golden opportunities, and
deter potentially devastating threats [Thopmson L, J (1997)].

Thompson, L J (1997) proposed that environmental opportunities are only potential

opportunities unless the organization can utilize resources to take advantage of them
and until the strategic leader decides it is appropriate to pursue the opportunities in
relation to the strength and weakness of the organization’s resources, and in relation to
the organizational culture .Real opportunities exist when there is a close fit between
environment, value and resources. Similarly the resources and culture will determine
the extent to which any potential threat becomes a real threat. This is E-V-R
congruence.

26
All the resources at the disposal of the organization can be deployed strategically,
including strategic leadership. It is therefore useful to consider the resources in terms
of where there are strong and where they are weak as this will provide an indication
of their strategic value, How ever this should not be seen as a list of absolute strengths
and weakness seen from an internal prospective; rather, the evaluation should consider
the strengths and weakness in relation to the needs of the environment and in relation
to competition .The views of external stakeholders may differ from those of internal
managers .when evaluating the relative strength of a particular product, resource or
skill. Resources should be evaluated for their relative strengths and weaknesses in the
light of key success factors [Thompson, L J (1997)].

Once all the important strategic issues have been teased out from a long list of
strengths, weakness, opportunities and threats, the following question should be asked;
Thopmson L, J (1997) said that a firm's strengths are its resources and capabilities that
can be used as a basis for developing a competitive advantage.

In my investigation, Indian automobile strength is Cost Competitiveness in terms of

Labor and Raw Material, Established Manufacturing Base, Economies of Scale due
to Domestic Market, Potential to harness Global Brand Image of the Parent
Company. Global Hub Policy for Small Car. (Hyundai, Suzuki etc.) And weakness is
Perception about Quality, Infrastructure and Bottlenecks.

Examples of such strengths include:

• Patents
• Strong brand names
• Good reputation among customers
• Cost advantages from proprietary know-how
• Exclusive access to high grade natural resources
• Favorable access to distribution networks
• Reputation in marketplace
• Expertise at partner level in HRM consultancy
Weaknesses

27
The absence of certain strengths may be viewed as a weakness. For example, each of
the following may be considered weaknesses:
• Lack of patent protection
• A weak brand name
• Poor reputation among customers
• High cost structure
• Lack of access to the best natural resources
• Lack of access to key distribution channels
• Shortage of consultants at operating level rather than partner level
• Unable to deal with multi-disciplinary assignments because of size or lack of
ability

In some cases, a weakness may be the flip side of strength. Take the case in which a
firm has a large amount of manufacturing capacity. While this capacity may be
considered a strength that competitors do not share, it also may be a considered a
weakness if the large investment in manufacturing capacity prevents the firm from
reacting quickly to changes in the strategic environment.

Opportunities

The external environmental analysis may reveal certain new opportunities for profit
and growth. Some examples of such opportunities include:

• An unfulfilled customer need

• Arrival of new technologies
• Loosening of regulations
• Removal of international trade barriers
• Well established position with a well defined market niche.
• Identified market for consultancy in areas other than HRM

Threats

28
Changes in the external environmental also may present threats to the firm. Some
examples of such threats include:
• Shifts in consumer tastes away from the firm's products
• Emergence of substitute products
• New regulations
• Increased trade barriers
• Large consultancies operating at a minor level
• Other small consultancies looking to invade the marketplace

In my investigation of Indian automobile SWOT analysis some of the strengths of the

industry are low labor costs, supportive government policies and trained manpower. Major
weaknesses are a small and fragmented ancillary industry, poor infrastructure, and low level of
diffusion of lean manufacturing, improvements needed in quality and productivity, and lack of
product development capabilities. The opportunities that the industry offers are a large
untapped market, and a possible production base for exports. Some MNCs like Maruti-Suzuki
have already started using their Indian plant for exports [Mukharjee, A (1996)].

The SWOT Matrix

A firm should not necessarily pursue the more lucrative opportunities. Rather, it may
have a better chance at developing a competitive advantage by identifying a fit
between the firm's strengths and upcoming opportunities. In some cases, the firm can
overcome a weakness in order to prepare itself to pursue a compelling opportunity.
To develop strategies that take into account the SWOT profile, a matrix of these
factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is
shown below:

Strengths Weaknesses

29
 S-O strategies W-O strategies
Opportunities

S-T strategies W-T strategies

Threats
SWOT / TOWS Matrix

 S-O strategies pursue opportunities that are a good fit to the company's
strengths.
 W-O strategies overcome weaknesses to pursue opportunities.
 S-T strategies identify ways that the firm can use its strengths to reduce its
vulnerability to external threats.
 W-T strategies establish a defensive plan to prevent the firm's weaknesses from
making it highly susceptible to external threats [Thopmson L, J (1997)].

30
 METHODOLOGY

Research Plan

My research will operate within the “functionalist paradigm” (Saunders et al, 2003) as
it looks to evaluate a process within the industry recommend ways in which its
functionality could be improved.

The research will begin with an expansive review of the literature (further to the
above). This will incorporate the segment of automobile sector and its growth trends
along with the present scenario which will form the beginning of my understanding as
to the role of these aspects and the impact they have on the entire economy of India.

Research Perspective

According to Saunders (2003), research perspectives usually include three parts,

namely, the perspective of positivist and realist approaches. The positivism research
philosophy stresses the importance of “observable social reality”, the generalizations
of the research end product, and the replication of the research outcomes (Gill and
Johnson 1997). Since the report primarily deals with measuring a phenomenon;
namely growth of automobile sector in India, I believe a realistic approach would
provide me with more useful insights.

In terms of research approaches, the research will have a dual approach yet, with an
emphasis an inductive character. The collected data will be analyzed and used in order
to provide recommendations. Such approach will enable me to understand the
automobile sector in India. Additionally, the flexible structure will give possibilities to
alter the emphasis of the research if such need occurs and gather data will have a
qualitative aspect. Nonetheless, inductive character of the research will implement
limitations to the study; the possibility to generalize the findings is much more
restricted than in terms of the deduction. Furthermore, inductive approach is usually
more time demanding (Saunders, Lewis, and Thornhill 2007). I will use previous

31
theories and models as a base of the research (which indicates the use of deduction),
yet they have not been design to deal with the particular case of automobile sector in
India.

Since my topic involves trying to understand industrial processes I believe a realistic

approach will give a more accurate insight on the industrial aspects of the processes
under consideration.

The spokespersons of the automobile sector are different from many aspects some of
which may not get truly reflected in the paper. It will be interesting to compare what
they typically perceive the automobile sector to be and how they differ at their level of
understanding. This will involve exploring the following extremes: quantitative and
qualitative, objective and subjective and facts and feelings. (Jewell 2007)

Research Design

A cross-sectional design will be used in this research. This is justified in that, the study
is being carried out at a particular point in time, which in my case is the present day,
where the perception levels differ according to various spokespersons and at different
points of time. The effect of this current phenomenon and its implication for players in
the industry is what this project all about.

The questions underlying the alternative of data compilation methods have been
identified by the use of “Research Onion” developed by [Saunders et al, 2003:83].
According to Saunders (2003:82) “outer layers need to be peeled away” to get to the
centre and answer what research philosophy, research approach and research strategies
are to be followed to answer the objectives of the research. Moving onto the research
onion with the outer layers answered first.

Research Philosophy

32
The first step of the “research onion” is the most crucial as it will suggest what
research approach and strategy is to be followed through out the research. The careful
analysis of research objectives suggests the researcher to follow the philosophy of
interpretivism. The researcher proposes to understand and evaluate the automobile
sector and the growth trends along with the present scenario. Remenyi et al (1998:35)
as cited by Saunders (2003:84) call “the details of the situation to understand the
reality or perhaps a reality working behind them.” The researcher is critical about the
use of philosophy of positivism as he agrees with Saunders (2003:84) “that the social
world of business and management is far too complex to lend itself to theorising by
definite ‘laws’ in the same ways as physical sciences”. The researcher further believes
“that rich insights into this complex world are lost if such complexity is reduced
entirely to series of law-like generalizations”, Saunders et al (2003:84).

Data Collection Methods

The following data methods will be used

1) Secondary Data

The particular secondary data collected will be as per the following classifications
supplied by Saunders, Lewis and Thornhill (2007:248-252)
1.1.) Documentary secondary data.
1.1.1) Written materials: From textbooks and journals, to further investigate the
conceptual framework and benchmark studies surrounding this project. From
newspapers to reviews, market changes and trends. From organisations’ websites with
particular focus on (cosmetic) company product portfolios and annual account reports.

1.1.2) Non-written materials: In the form of billboard and TV ad visuals. These

will give an idea on the effectiveness of communication with the customers using such
media and the perceptions behind such images.
1.2.) Survey-based secondary data.
2) Questionnaires

33
For the purpose of getting a generic idea on perception of the industry and how they
feel about automobile sector in their company and the extent to which it has grown
over the years, I will distribute 20 questionnaires. Colleagues, classmates, relatives
and friends will help me do an initial.

I will try to ensure that only persons of a certain maturity who can appreciate the
necessity of this research are approached so that a response rate of at least 90% is
obtained. The questionnaires will be as brief and to the point as possible so that only
necessary information is obtained without taking too much of respondents’ time.

Validity, Reliability and Generalisability

The data collection methods being used will meet the requirement of validity as I
believe they will adequately help me answer the research questions. The research will
be reliable and externally valid within the limitations fixed by this research i.e. using
the employees in the manufacturing industry. A common pattern may emerge that
could be used to generalise findings to other countries and other industries but the
outcome will probably not be as specific as that of the present study.

Validity is the most important criteria – is the research question being addressed?
(Jewell, S. 2007). Reliability should provide a possibility for other researchers to
replicate the results. There are four threats to reliability, as quoted by (Robson, 2002)
in (Saunders et al: 2007:149), which should be avoided – subject of participant error,
subject of participant bias, observer error and observer bias.

The research will be carried out in such a way as to not skew the results in any
manner. As mentioned above, this includes gathering the data from a variety of
employee demographics, and industry experts from across the spectrum. Information
will be taken at neutral times, not just around large events when media coverage may
be higher. It is my belief that similar observations regarding the automobile sector
would likely be crucial regardless of which country under study. Finally, there will be
transparency throughout in reaching my conclusions.

34
It is my intention that the study will be generalisable. It analyses the automobile
sector and the growth trends in India. The research will be particularly useful for other
similar entities outside the industry and other similar industry looking to find the
growth trends and the methodology adopted.

The feasibility of this research design is high due to the access I have to the people
that I wish to consult. The nature of my current role means that I will be able to speak
to a number of key personnel within the area of study.

It is important to appreciate the potential limitations of this research. Much of the data
collected via questionnaires may be affected by bias, as people may express opinions
rather than facts and may also portray their particular organisation/occupation in a
favourable light. Drawing from interviewees from across the spectrum should
dissipate this to a certain extent.

Evaluation of Secondary Data

Validity is the most important criteria – is the research question being addressed?
(Jewell, S. 2007). Reliability should provide a possibility for other researchers to
replicate the results. There are four threats to reliability, as quoted by Robson (2002)
in Saunders et al (2007:149), which should be avoided – subject of participant error,
subject of participant bias, observer error and observer bias.

Both form an important criterion while evaluating secondary data. Nature, Currency,
Objectives, Errors and Dependability associated with the secondary data has to be
properly examined. One critical issue that researchers face regarding the error part is
that the researcher did not participate while the collection of data was done. So one
way to ascertain the reliability and validity is to check original source of data or check
multiple sources of the original source is not known.

The secondary data may not be current and the time lag elapsed between collection
and publication of the data may be very high. It is the researcher’s responsibility to
check whether the data has been updated or not.

35
The objective of collecting the data will ultimately determine whether the data
collected would be useful to the study or not because when data is collected with some
objective in mind in one situation may not be very useful for other situations.

Special attention would be given to the content of the data. If the variables defined are
inconsistent with those of researchers’ then the data might not be of any use. Hence, it
is advisable to reconfigure the data and convert unit (if necessary) to make the data
consistent.

The dependability of the data can be ascertained by asking people who have already
used the data. Also it is important to analyze whether the data came from original
source or procured source. Examining such facts may result in data which has high
credibility.

Analysis of Secondary Data

Burns and Bush (2006) have proposed various ways in which data can be analyzed. By
secondary data analysis, we refer to the process of searching for and interpreting
existing information relevant to the research objectives. Your library and the internet
are full of secondary data, which include information found in books, journals,
magazines, special reports, bulletins, newsletters and so on. An analysis of secondary
data is often the ‘core’ of exploratory research.

Sampling Strategy

1) Non-probability sampling
1.1.) Purposive sampling:
Out of the various sampling techniques proposed by Saunders et Al (Saunders et Al
2007: 232) I have decided to use purposive sampling which is a non-probability
sampling technique.
1.1.1.) Heterogeneous sampling:

36
I will specifically be using the heterogeneous sampling technique to bring out the key
themes that stand out from the responses to the questionnaires.

Data Analysis

The quantitative data from the questionnaires will be analysed through descriptive
statistical analyses. The data will be presented through the use of charts, tables and
graphs.

Ethical Considerations

Given the nature of my research I will surely have to approach customers from various
demographics. I am aware that at times people may become vulnerable so extra care
will be taken when dealing with them. I will ensure that my behaviour towards them
may not at any point in time be considered discriminatory.

The participants in my research will have clear, unambiguous, informed knowledge on

the purpose of my research.

Questionnaires will be distributed only after approval from my supervisor.

I will duly respect the participants’ safety as well as my safety.

Limitations of the Research

It is important to appreciate the potential limitations of this research. Much of the data
collected via interviews may be affected by bias, as people may express opinions
rather than facts and may also portray their particular organisation/occupation in a
favourable light. Drawing from interviewees from across the various spectrums of
employees and secondary sources should dissipate this to a certain extent. Other
limitations of the research include the time constraints of the chosen method.

FINDINGS

37
BACKGROUND OF INDIAN AUTOMOBILE

The distant reaching economic changes undertaken since 1991 have given a free rein
to the growth prospective of the Indian economy. A sequence of “Second Generation
Reforms” designed at deregulating the nation and motivating foreign investment have
stirred India confidently into the front position of the rapidly emerging Asia Pacific
region. (Husain and Sushil, 1996)

The automobile segment consists of all the vehicle, comprising of 2-3 wheelers,
passenger cars and multi-convenience vehicles, light and heavy commercial motor
vehicles, and the associated engineering segment consists mostly of the auto
components sector (Sushil, 2000) Earth Moving Machinery and Agricultural tractors
are an allied division, which helps to maintain the speed of the wheels of the agrarian
economy moving. It is heavily dependent and associated to the automobile and
associated engineering segment and plays an important role in India (Abernathy and
Utterback, 2001). The Automobile and associated Engineering Industry might on the
other hand be termed as the automotive industry.

The automotive Industry in India is at present functioning in provisions of the

dynamics of an open marketplace. A large number of joint business enterprises have
been established in India with the help of foreign collaboration, both technical and
financial with top worldwide manufacturers (Noori, 1990).

In addition a huge number of joint business enterprises have been established in the
auto-components division and the speed is anticipated to rise up even further. The
Government of India is enthusiastic to offer a appropriate economic, as well as
business atmosphere favorable to the success of the established and potential foreign
partnership undertakings. C$ 5.7 billion is the investment visualized in the latest
vehicles projects (ACMA, 2005) Enhanced business self-confidence, improved
agriculture production plus infrastructure industry. In the financial year 2001-2002,
the Automobile Industry witnessed an increase of 13% over financial year 2000- 2001.
It accomplished a revenue of C$ 16 billion by investing more than C$ 10 billion and

38
the opportunity of a high-quality performance by the manufacturing industry have
improved (Anderson et al, 2000) Since April to Dec. 2002, the demand expansion in
virtually every vehicle segments pointed out a growth of over 22%. The recent trend
continues to be encouraging, suggesting further improvement in the upcoming months
(Banker, Chang & Natarajan, 2005).

The industry is portrayed by an excessive percentage (75%) of production in the 2/3-

wheeler segment. India has been ranked as the major manufacturer of motorcycles
along with second major manufacturers of scooters in the world. India at the moment
is also the second major manufacturer of tractors. The industry has a powerful forward
and backward incorporation. The joint venture listing points out an extensive variation
starting from 10% to 100%, i.e., entirely possessed foreign subsidiaries (Braga and
Willmore, 1999). The equity involvement is not synchronized by Government but is
market driven. It depends on the market awareness of the joint business enterprise
partners and their business awareness principally in terms of technical, economic and
market potency of the partners. The setting up of joint business enterprises has in
addition led to improved capacity formation in the vehicle segment, predominantly in
the passenger car segment and the additional capacity is anticipated to increase by one
million passenger cars in the subsequent 4-5 years.

The huge amount of investment together with foreign direct investment in the
automobile manufacturing business enterprises and technological collaboration are
boosting a quantum leap in up gradation of technology. Domestic requirement for
passenger cars as well as multi purpose vehicles is anticipated at 800,000 cars by 2004
A.D. With better production and aptitude creation in the passenger car segment,
foreign nations might use India as an export center. This incredible development is
likewise generating growth of the auto-component sector (Cole et al, 2004).
Strenuous efforts are going on in India for initiating and captivating the most up-to-
date technology and improving the value of products to a worldwide level and a
partner investigation operation is on.

Indian firms are searching for Joint business enterprises and Technology Transfers
concentrating in niche technology and to harmonize their series of products as well as
bench marking with the worlds most up-to-date and the best (Cole et al, 2004).

39
The first phase of Indian automobile industry

In spite of growth in today automobile industries in India, it went through several pits-
falls in its starting phase. Government policies had prevalent effect on that period. And
the result of this it was in its slowest pace. Expect this; scenario of too many needs
chasing too few resources in a growing economy resulted in the auto industry not
keeping pace with international levels of volume and quality (Cygnus research, 2007).

Personal vehicle were seen as elitist symbols and the restricted production ensured a
premium during resale of a car, which had been even used for a couple of years. This
was despite the rather uncharitable description of an Indian car as one where every
part except the horn made noise. The economy itself was in what was called
disparagingly although ‘The Hindu growth rate’ mode of GDP growth at around 3.5%
per annum and this did not provide much scope even for the commercial vehicles
market to develop. Added to what were vagaries of what was called the ‘License
permit Raj’ with India being perhaps the only country in the world where an
industrialist was penalized for producing more than licensed capacity (Cygnus
research, 2007).
The command economy manifested itself in another way too- that of imposing high
level of taxation both on inputs as well as on the finished products. This, when allied
with the protection from imports given to local vehicles manufacturers, proved to be a
significant disincentive for anything but minor cosmetic improvement in their
products.

All these factors together created a rather paradoxical situation of not very
distinguished products, either in terms of finish or being of contemporary design or
technology, which still commanded hefty premium since production was woefully
inadequate when compared to demand. In fact, we can predict by that example that in
late seventies, the most popular model of scooter had a ten year waiting line which
seems to be unbelievable today [Cygnus research(2007)].
.

The first reform- 1980s

40
This situation finally started changing in the eighties with the government’s initiative.
There were two major initiatives which brought about dramatic transformation - a
process which as continued till today. The first major and most important initiative
taken by the government of India was to allow foreign technology with or without
equity participation, in partnership with Indian companies. As a result, the following
international companies entered the field of vehicle manufacture in India during this
period [Emerald insight (2008)];

 Car: Suzuki (Japan)

 Motorcycles: Suzuki, Honda, Kawasaki, Yamaha (all from Japan)
 Scooters: Honda, Piaggio(Italy)
 Mopeds: Steyr Daimler Puch (Austria), Zundapp (Germany), Agrati Garelli
(Italy)
 LCVs: Mitsubishi, Nissan, Mazda, Toyota (all from Japan)

The second initiatives of ‘broad banding’ were another important factor in spurring
growth in this sector. This policy effectively meant that, for instance, a heavy truck
manufacturer could think of making light trucks or even cars or that a company
making scooters could start manufacturing motorcycles or mopeds. In the four wheeler
segment, TELCO(now Tata motors), and Bajaj auto in the two wheeler segment, were
the two companies that took maximum advantage of this policy by entering segments,
where they were hitherto not present. Tata started the manufacturing of their light
commercial vehicle in this period and cars later, while Bajaj auto moved into the
manufacturing of mopeds and motorcycles [Emerald insight (2008)].

The second reform- 1990s

The fruits of the first reform were consolidated but still there are lots which need to be
reform and soon it’s happens. In the early 1990s, the measure that proved especially
beneficial to the auto industry was:

41
  De-licensing of almost all industries, especially automobile and automobile
components.
 Identification of some industries, again including automobile and automobile
components, as high priority and allowing up to 51% foreign equity
participation in these.
 Simplification of procedure for approval of the foreign collaboration involving
technology transfer with or without equity participation.
 Reducing of peak customs duties to 65% ad valorem from the earlier peak of
110%.
 Full convertibility of rupee on current account.
 Withdrawal of the condition of a ‘phased manufacturing program for
indigenization before allowing imports’.

The early 1990s was a trying period for the Indian economy as a whole and perhaps
desperate situation called for desperate measures. Be that as it may, a great many of
players reacted to these positive governmental measure with great gusto and took the
Indian automobile industry to a totally different plane. Especially when compared with
the early post independence period, on various dimension like a variety of choice for
the consumer, modernity of offerings, quality consciousness or even scale of
production, many Indian companies have equaled, if not surpassed, global standards.
As a whole, Indian car production is surpassed by only ten countries in the world,
whereas Indian truck production occupies an even better position being at the 4 th spot
in the world in the same year (Emerald insight, 2008).

Role of Auto Finance

As we know most of the people in India belongs to mediocre class. And this part is the
major consumer for this industry. Though buying and owing a car or two wheelers is a
dream of every individual but the constraint of hard cash ensures that most of them do
not give a serious thought to it, due to automobile companies are loosing out a huge
lucrative and potential market. So there is problem arising in the form finance. The
provision of finance and financial jargon EMI has given an engine of growth to the
automobile industry to flourish in its full capacity.

42
Major contribution of the auto finance company to the Indian automobile sector:

 Auto finance company ensures the issue of the financial support and the other
needs to consumers.
 Due to the emergence of auto finance companies, a consumer has been assured
of his ability to buy the automobile depending upon the need and ability to pay.
 The provision of automobile finance has ensured that the market grows
substantially as both the consumer and manufacturer gets benefited.
 Due to the emergence of auto financing scheme market for both new and used
automobile has increased, now the consumer can think of taking a 2 nd hand
vehicle on very low cost depending upon the needs.
 The facility of financing the automobile by the different financer acted as a
engine of growth for the automobile industry as a whole and ultimately it is
benefited the whole economic growth of the country.
(Source: http://www.surfindia.com/automobile/automobile-industry.html)

Some of the leading name in the auto finance includes the Citicorp Maruti, Appeejay
finance, Sundaram finance, Apex Financial, Kotak Mahindra Apex. Seeing the ample
business opportunity in this segment of business even the nationalized public sector
bank has joined this race. The largest bank in India i.e. State bank of India came up
with quite a few attractive schemes for the auto finance. Other banks like Punjab
national bank, union bank of India, HDFC bank, ICICI bank and many more too have
made significant contribution in shaping the bright career of auto finance in India.
(Source: http://auto.indiamart.com/auto-finance/banks-institutions.html)

Apart form these banks; there are some non financial institutions that are also step into
this business. In these financial institution there are mainly leading automobile players
who are in manufacturing and marketing of these products. They have also started
giving finance for only their brand of automobile. This has resulted in a huge growth
in the sales of their product and the profitability. These players also have a good
amount of market share in the auto finance industry.

A list of major auto financer which are operating in India:

43
  Citicorp Maruti
 HDFC Bank Ltd
 Fiat Sundaram Auto Finance Limited.
 ICICI Bank.
 The Saraswat Co operative bank Ltd
 Times bank Standard charted bank
(Source:http://www.automobileindia.com/automobile-finance/major-automobile-
financiers/)

Recent initiatives of the Government

In order to give a boost up to the development in this segment, the Government has
initiated numerous initiatives. Some of them are as under. The Finance Bill 2006 has
provided an additional boost to the Automotive Industry by decreasing of the excise
duty on the small motor vehicles, the diminution in the duty for raw material which is
at present stuck between 5 to 7.5% as compared to the preceding level of 10%, and the
thrust on infrastructure expansion.

As a consequence of continuous arguments by the Department of Heavy Industry, a

few of the objectives like enforcing of excise duty on body building activity of
Commercial Vehicles, lesser excise duty on the small cars, expansion of 150%
weighted deduction on R&D expenses to the automotive segment, augmented
budgetary allotment for R&D actions in the segment and moving towards a lower duty
regime have been accomplished and steps are being taken to further toughen the
potentiality of the sector.

Although government achieved several milestones in the automotive segment. But the
most important interference of the Government till now in the automotive segment is
National Automotive Testing and R&D Infrastructure Project (NATRIP) which has
come in the shape of a determined project on building up an outstanding automotive
testing and R&D infrastructure in the nation to intensify manufacturing, promote
localized R&D, encourage exports, congregate India’s matchless strengths in IT and
electronics with automotive engineering segments. As the result of this they

44
confidently place India in USD 6 trillion worldwide automotive businesses. Except
this they aims for making possible introduction of world-class automotive security,
emission and performance values in India and also to make sure faultless
incorporation of Indian automotive industry with the worldwide industry.
(Source: http://www.natrip.in/home.aspx)

Scope of the Indian automobile sector

The Indian automobile sector is going through the phase of rapid change and high
growth. The industry is going for a continuous technological change because new
projects are coming on a regular basis. The major players are focusing on mass
customization, mass production and expanding their plant. Nearly every automobile
company is investing at a higher rate then ever before to achieve a high growth path.
The overall investment in the industry is increasing rapidly.

At present industry is growing at a growth rate off 14-17% per annum, with domestic
sales growth at 12.8 %. The growth rate is predicted to double by 2015. Apart from
domestic production, the industry is consistently focusing on the automobile export.
The auto components segment is contributing a lot to the overall automobile industry.
The automobile export are increasing year by year, it is evident from the following
graph.

Automobile export graph

45
 Source: - SIAM

Size of the Indian Automotive Industry

Since the first car rolled out on the streets of Mumbai (then Bombay) in 1898, the
Automobile Industry of India has come a long way. During its early stages the auto
industry was overlooked by the then Government and the policies were also not
favorable. The liberalization policy and various tax relief’s by the Govt. of India in
recent years has made remarkable impacts on Indian Automobile Industry. Indian auto
industry, which is currently growing at the pace of around 18 % per annum, has
become a hot destination for global auto players like Volvo, General Motors and Ford
(Banker et al, 2007).
A well developed transportation system plays a key role in the development of an
economy, and India is no exception to it. With the growth of transportation system the
Automotive Industry of India is also growing at rapid speed, occupying an important
place on the 'canvas' of Indian economy. Today Indian automotive industry is fully
capable of producing various kinds of vehicles and can be divided into three broad
categories: Cars, two-wheelers and heavy vehicles (Sharif, 2005).

46
In the past two years, more than a dozen multi-national firms have announced plans to
enter the Indian market. Most of them have formed joint ventures with Indian firms,
while there are exceptions such as Hyundai which plan to form fully-owned units. The
firms and their products planned for the Indian market. Despite the large growth
potential of the Indian market (analysts expect the growth to triple in the next five
years), no one expects the industry to sustain the fragmentation caused by more than a
dozen suppliers. Many of these new firms will not enjoy the scale economies and
relationships with suppliers that Maruti does, so they have decided not to challenge
Maruti at its price of $5,500 in the smaller car segment. Most are planning to produce
between 20,000 and 50,000 higher-end vehicles (Grossman and Helpman, 2005).
(Source: http://www.imvpnet.org/index.asp)

The stiffest competition is building up in the mid-sized car range (1,300 cc and
above), where several of these multi-national and Indian companies are planning to go
head-to-head. Although these newly announced vehicles at $12,000 or above remain
expensive by Indian standards and planned capacity exceeds projected demand, new
entrants are betting on the rising incomes of middle-class families. Notably, Daewoo's
new product Cielo, priced at about $15,000 in a joint venture with the Indian firm
DCM, drew 76,000 advance bookings last year – reflecting the pent-up demand in the
market.( 5Womack J. P., D. T. Jones,2005)

Amongst the many issues facing the Indian automotive industry, the biggest by far is
the poor road infrastructure. India's road network, comprising of a modest national
highway system (that is only 2% or less of the total roadway length) is woefully
inadequate and dilapidated, and can barely keep pace with the auto industry's rapid
growth. Most roads are single-lane roads built in the 1950's and 60's, and are crowded
with two-wheelers, bullock carts, and even pedestrian humans and cows, Traffic laws
are not well enforced leading to one of the highest per-capita accident rates in the
world. It is to be expected that the introduction of bigger and more powerful vehicles
will only worsen the situation. Upgrading the existing highway system is itself
expected to cost $30 billion or more, and resource and land constraints prevent the
building of new highways. Three wheelers have also exhibited strong growth with a
CAGR of 9%. Sale of three wheelers has grown from 145,000 units in 1995 -1996 to

47
over 360,000 in 2005-06. Last year growth in three wheeler sales was around 17%
(Lieberman and Montgomery, 2007)

Today, the Indian auto component sector has over 500 organized players and about
5000 unorganized sector players. The organized sector reached a turnover of over
USD 10 billion in 2005-06. Demand from OEMs account for 54% of sales,
replacement market accounts for 30%, while exports account for over 16% at about
USD 1.8 billion (Lieberman and Montgomery, 2007).

International Business (Exports)

Export opportunities for four wheelers would lie primarily in the small car segment as
Indian companies have gained expertise in manufacturing vehicles in this segment and
enjoy an advantage over other low cost countries.

EXPORTS TRENDS (No. of Vehicles)

Category 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Passenger
72,005 129,291 166,402 175,572 198,452 218,418
Vehicles
Commercial
12,255 17,432 29,940 40,600 49,537 58,999
Vehicles
Two
179,682 265,052 366,407 513,169 619,644 819,847
Wheelers

Total 263,942 411,775 562,749 729,341 867,633 1,097,264

Source: http://auto.indiamart.com/cars/car-statistics/import-export.html

India is one of the largest produce of automobiles. Indian automotive industry started
in 1991 and that time they just produce 2 million and according to last statistics which
have been taken place in 2007 it have grown to 10 million which is great work in the
automobile industry.

At present, India is the world:

48
  Largest tractor and three-wheel vehicle producer.
 Second largest two-wheel vehicle producer.
 Fourth largest commercial vehicle producer.
 Eleventh largest passenger car producer.

Facts: - Europe is the biggest importer of cars from India, while African nations
largely account for the import of buses and trucks. China is most recently making
inroads into this market. The South-East Asian region is the prime destination for
Indian two wheelers.
(Source:http://www.business-in-asia.com/countries/automotive_industry_india.html)

Automobile Exports registered a growth of 25.43 percent during April- March 2007
over the same period last year. Passenger Vehicles Exports grew by 13.05 percent,
Commercial Vehicles exports increased by 22.58 percent, Three Wheelers exports by
87.17 percent and Two Wheelers Exports grew by 20.65 percent [SIAM (2006)].
(Source: http://www.siamindia.com/scripts/industrystatistics.aspx).

Environment and Safety Regulations

(Swamidass, 2004) proposed that, safety regulations and environment imperatives are
two separate issues which automobile industry is facing all around the world.
Automobile industry in India had changed dramatically in last decade and has made
significant progress on the environmental front by adopting stringent emission
standards, and is progressively aligning technically with international safety
standards.

Central Motor Vehicle Rules (CMVR) came into force from 1989 and serious
enforcement of regulations came into effect. In Addition to rules governing this
emission limits, there are several rules in this chapter requiring motor vehicles to
comply with safety regulations. After this all the vehicles which are manufactured
they all have to comply with relevant Indian Standards (IS) and Automotive Industry

49
standards (AIS). Indian standards were introduced in late 1960s and all these standards
were based on EEC/ISO/DIN/BSAU/FMVSS etc at that time.

All these regulations were reviewed periodically by the technical team known as
Technical standing Committee on MCVR (CMVR-TSC). Emission norms came into
force with the Idle Emission Norms in 1984. Mass Emission Norms were introduced
in 1991 for petrol vehicles and in 1992 for diesel vehicles (Swamidass, 2004).

In order to have a planned approach to introduction of advanced safety features, SIAM

drew up a Road Map for Automobile Safety Standards. The Roadmap was prepared by
the CMVR, Safety & Regulations Committee. Its been considered that driving habits,
current traffic conditions, traffic density and road user behaviour forces to create
maximum safety in the vehicle.
(Source: http://www.siamindia.com/scripts/background.aspx)

The Importance of Automobile Industry in India

The automobile industry, along with the auto components industry, occupies a
prominent place in the fabric of the Indian economy. This is primarily due to the fact
that this industry has strong forward and backward linkages with several key segments
of the economy. Thus the automotive industry has a strong multiplier effect and is
capable of being the driver of the economic growth. In addition, a sound transportation
system plays a vital role in the country’s rapid economic and industrial development
and the well developed Indian automotive industry ably fulfils this catalytic role by
producing a wide variety of vehicles, multi utility vehicles, scooters, motorcycles,
mopeds, three wheelers, tractors, etc. Due to the mass production and growth of the
automobile sector, there is huge growth in the employment opportunity also.
Investment in this sector will definitely attract employment opportunity for the citizen.
With the emergence of new projects and introduction of technological advancement,
the focus is more on the skilled and advanced labor. India has several advantages for
making it one of the favorite attractive destinations for the investment in the
automobile sector. It has got the low cost and high skilled labor with the abundance of

50
engineering talent which is second in the world. It has a well developed globally
competitive auto ancillary industry.

By 2016, the automotive industry should have created employment for 25 million
people in India, according to government predictions, set out in its Automotive
Mission Plan. (To put this into context; MG Rover's collapse in 2005 led to the loss of
6,000 jobs.) For every job created directly by the automotive industry, a further seven
are created indirectly in the economy at large, explains Jagdish Khattar, managing
director and chief executive of India's best-selling car maker, Maruti Udyog, and a
contributor to the report. (By Jorn Madslien Business reporter, BBC News, Chengalpattu,
Tamil Nadu, India)

Growth Drivers

Rising per capita Income and the changing demographic distribution are conducive for
growth. India has the highest proportion of population below 35 years, 70%, (potential
buyers), which means that 130 million people will get added to the working
population between 2003 and 2009 (Hendricks and Sing Hal, 2007).

The trends indicate that small and medium cars would remain dominant and a shift
towards high end cars is expected at a faster rate (Sharif, 2005). The SUV market is
expected to develop rapidly in future. Higher disposable incomes coupled with
availability of easy finance options have driven the Passenger vehicle segment.

The growth in tractor industry is linked with the growth in agricultural output and
exports to neighboring countries. Auto component industry growth is directly linked to
the growth of automobile industry since more than 50% sales is to the OEMs (Corbett
and Russo, 2001). However, in recent years, component exports are becoming an
important growth driver and it is expected to assume greater importance in future.

Fast Growth Firms in the Automotive Industry:

51
These are the companies that bring to us our dream machines. This is where it all starts
from; the bourgeoisie Maruti 800, the upmarket Astra, the stately Mercedes, the
'Indian' Indica, the racy Hero Honda, the Tata truck and the rest.

1. Hindustan Motors

Hindustan Motors was the first Indian Car Company to start production In India in
1942. Since then, it has become a vast company, manufacturing cars like the sturdy
Ambassador, the elegant Contessa, and in collaboration with Mitsubishi of Japan now
manufactures the new Mitsubishi Lancer. It started production of the Landmaster in
1954, and in 1957 began the production of the Ambassador. Later tie-ups with General
Motors Corporation of USA, Vauxhall Motors, UK, Marion Power Shovel Co, USA
led to new products being launched. At present, it is a one billion turnover company
manufacturing Passenger Cars, Utility Vehicles, Power Products and Earthmoving
Equipment. The manufacturing facilities of the company are spread across India:
Uttarpara in West Bengal, Pithampur in Madhya Pradesh, Thiruvallur and Hosur in
Tamil Nadu, and Pondicherry. The latest model, Mitsubishi Lancer, is manufactured in
their state - of - the - art manufacturing facility at Thiruvallur, Tamil Nadu.

2. Bajaj Auto Ltd

It is one of India's top ten companies in terms of market capitalization and among the
top five in terms of annual turnover. Established in 1945, it was incorporated as a
trading company. From 1948 till 1959, it imported scooters and three wheelers from
Italy and sold them in India. It then obtained a production license in 1959 and struck a
technical collaboration with Piaggio of Italy in 1960. Scooter production commenced
in 1961. Three wheeler productions followed in 1962. Its collaboration with Piaggio
expired in 1971 and since then the Company's scooters and three wheelers are sold
under the "Bajaj" brand name. Under the "Horizontal transfer of technology" 11
Policy, Maharashtra Scooters Ltd., a Company with 24% equity participation by the
Company and 27% participation from Maharashtra State Government's Western
Maharashtra Development Corp. was formed in 1975. Production facilities are located
at Satara, in Maharashtra State. This helped augment production capacities. The unit

52
continues to assemble scooters from CKDs supplied by the Company. These scooters
are marketed through the Company's distribution network and under the Company's
brand name. The Company's second plant was set up in 1984 at Aurangabad, in
Maharashtra State. In this plant, scooter production commenced in 1986; three wheeler
productions commenced in 1987; and scooterettes and motorcycle facilities were
commissioned in 1990 & 1991 respectively. From 1961 when the annual production
was about 4000 units, today the Company has become a market leader with annual
production in excess of 1.35 million units and with product offerings in all segments
(mopeds & scooterettes, scooters, motorcycles, three wheelers).

3. Mahindra & Mahindra

Mahindra & Mahindra is a part of the Mahindra Group and was established in 1945 to
manufacture general-purpose utility vehicles. It later moved into manufacturing
tractors and light commercial vehicles, and is today the tenth largest private sector
company in India. Having increased the scope of work, the company's business is
divided into four division’s viz. automotive, tractor, inter trade and MSL. The
company has rapidly expanded itself and today has seven state-of-the-art factories and
33 sales offices supported by a network of more than 500 dealers throughout the
country. The company employs over 17,000 technical and non - technical personnel
and is situated on an area of over 5, 00, 000 square meters. With an experience of over
52 years in extensive manufacturing and engineering development, it has a strong
technological base, and is supported by a team of experienced personnel.

4. Maruti Udyog Ltd

December 1983 heralded a revolution in the Indian car industry. Maruti collaborated
with Suzuki of Japan to produce the first affordable car for the average Indian. At this
time, the Indian car market had stagnated at a volume of 30,000 to 40,000 cars for the
decade ending 1983. This was from where Maruti took over. The sales figure for the
year 1993 reached up to 1,96,820. The company reached a total production of one
million vehicles in March 1994 becoming the first Indian Company to cross this
milestone. It crossed the two million mark in 1997. India's largest automobile

53
company, Maruti entered the Indian car market with the avowed aim to provide high
quality, fuel - efficient, low - cost vehicles. Its cars operate on Japanese technology,
adapted to Indian conditions and Indian car users. Maruti comes in a variety of models
in the 800 segment.

To fend off growing competition, Maruti has recently completed a Rs. 4 billion
expansion project at the current site, which has increased the total production capacity
to over 3,20,000 vehicles per annum. The total production of the company will exceed
4,00,000 vehicles per year. In the small car segment it produces the Maruti 800 and
the Zen. The big car segment includes the Maruti Esteem and the Maruti 1000. It also
manufactures the Maruti Omni, Maruti Classic, Wagon R and Baleno.

5. Tata Motors

TELCO is India's largest private sector company with an annual turnover of Rs. 101.3
billion. It is also India's largest commercial vehicle manufacturer with a market share
of 31.2% in the multi-utility vehicles segment and 6.4% in the luxury car segment.
Worldwide it is ranked among the top ten in the manufacture of vehicles in the range
of 5-15 tonnes. It manufactures heavy commercial vehicles (HCV), light commercial
vehicles (LCV), passenger cars and multi-utility vehicles. One of India's premier
automobile companies; it was established in 1945 to manufacture steam locomotives.
A tie-up with Daimler-Benz to produce commercial vehicles lasted from 1954 to 1969,
by when Telco was in a position to independently design and manufacture commercial
vehicles. It ventured into the production of other engineering equipment before it
finally settled down to automobile and construction equipment machinery. Telco has 4
modern manufacturing plants: at Jamshedpur in Bihar, Pimpri and Chinchwad in Pune
(Maharashtra) and Lucknow in Uttar Pradesh. Tata has entered into several
collaborations with different companies. Tata Cummins Ltd is a 50:50 venture with
Cummins Engine Company, USA for the manufacture of fuel-efficient, low emission,
environment-friendly diesel engines. A joint venture with Daimler Benz/ Mercedes
Benz A.G produces the 'E-Class' Mercedes Passenger Cars and it is also in
collaboration with Holset Engineering Company, U.K. for turbo chargers to be used in
the diesel engines manufactured by Tata Cummins Ltd. and other OEMs. The only
Indian company which is equipped with crash testing facilities, servicing is never a

54
problem with its vehicles. Service set-ups exist at every 100 kms at national highways.
Besides there are 450 Service Centers across India, 24 hour ATM (Any Time Mobile)
centers in Mumbai and Ahmedabad and fully functional Customer Training Cells in
the Service Centers to help the customers make the best use of their vehicles. Telco
manufactures some of the most favorite vehicles of all times. Its Tata Safari, Tata
Estate, Tata Mobile, Tata Sierra, and the trucks and buses manufactured by it are very
popular.

6. Ashok Leyland

The origin of Ashok Leyland can be traced to the urge for self-reliance, felt by
independent India. Pandit Jawaharlal Nehru, India's first Prime Minister persuaded Mr.
Raghunandan Saran, an industrialist, to enter automotive manufacture. In 1948, Ashok
Motors was set up in what was then Madras, for the assembly of Austin Cars. The
Company's destiny and name changed soon with equity participation by British
Leyland and Ashok Leyland commenced manufacture of commercial vehicles in 1955.
Since then Ashok Leyland has been a major presence in India's commercial vehicle
industry with a tradition of technological leadership, achieved through tie-ups with
international technology leaders and through vigorous in-house R&D. Access to
international technology enabled the Company to set a tradition to be first with
technology. Be it full air brakes, power steering or rear engine busses, Ashok Leyland
pioneered all these concepts. Responding to the operating conditions and practices in
the country, the Company made its vehicles strong, over-engineering them with extra
metallic muscles. "Designing durable products that make economic sense to the
consumer, using appropriate technology", became the design philosophy of the
Company, which in turn has moulded consumer attitudes and the brand personality.
Ashok Leyland vehicles have built a reputation for reliability and ruggedness. The 5,
00,000 vehicles we have put on the roads have considerably eased the additional
pressure placed on road transportation in independent India. In the journey towards
global standards of quality, Ashok Leyland reached a major milestone in 1993 when it
became the first in India's automobile history to win the ISO 9002 certification. The
more comprehensive ISO 9001 certification came in 1994, QS 9000 in 1998 and ISO
14001 certification for all vehicle manufacturing units in 2002. It has also become the
first Indian auto company to receive the latest ISO/TS 16949 Corporate Certification

55
(in July 2006) which is specific to the auto industry. From 18 seater to 82 seater
double-decker buses, from 7.5 tonne to 49 tonne in haulage vehicles, from numerous
special application vehicles to diesel engines for industrial, marine and genset
applications, Ashok Leyland offers a wide range of products. Eight out of ten metro
state transport buses in India are from Ashok Leyland. With over 60 million
passengers a day, Ashok Leyland buses carry more people than the entire Indian rail
network.

Current developments

India which is emerging as a new power house in the automobile industry, all the other
countries are seeing India as a great opportunity which is till now untapped, so every
player want to enter into India and try to grab some opportunity. The year 2008-09 has
been a watershed year in the history of automobile sector. A number of leading global
brands were making their entry into Indian market and Indian companies were going
for acquisition of global automobile companies.

This is the reason for attracting the focus of top global car manufacturer in the fast
growing Indian automobile sector. From the total sales of total automobiles 52 lacks
in 2001-02 is 52 Lakhs to more than 1 Crore in 2007-08, the Indian automobile
market is one of the fastest growing one in the world says latest figure of the society of
Indian automobile manufacturer. (SIAM)

The 9th edition of the Indian automobile Expo summit is held in the field of pragati
maidan, where India emerged as a major manufacturing as well as export base for the
automobile companies across India.

The expo witnessed one of the biggest global participation with automobile
manufacturer from U.S, Japan, China, Germany, France and Italy and others
exhibiting their products.

The biggest driver of this growth was the passenger vehicle segment and the two
wheelers. Sales figure of cars went up from 6.75 lacks units in 2001-02 to 13.79 lakh

56
units in 2007-08. In the case of two wheelers, it rose from 42 lakh unit to 78 lakh
units. This growth made India one of the hot markets for automobile industry no only
in Asian countries but among the whole world (SIAM).

Human Resource Development

Employment is always a major factor when measuring the significance of any

economic activity. The automotive industry, on account of its backward and forward
linkages, is a significant generator of employment - both direct and indirect. While
direct employment is by way of workers engaged in the production of automobiles and
auto components, indirect employment is generated in feeder and supplier industries to
the automotive industry, such as the vehicle financing and insurance industry, vehicle
repair, service and maintenance outfits, automobile and auto component dealers and
retailers, vehicle drivers and cleaners, tyre industry, amongst others (Stigler, 2005).
Thus steps are needed to ensure that demand – supply gap, both quantitative and
qualitative, in terms of human resources, does not arise (Stigler, 2005).

The need of engineering and managerial manpower is being met by IIT and IIM. The
setting up of a specialized institute for industry will add to the competitiveness of the
Industry. The institute, besides developing as a repository of knowledge in the field,
will also take up market research and analysis within and outside the country. It will
also develop training modules and will disseminate them through ITIs and ATIs.

The Investment Commission has also identified this input as requirement for the
industry. The adoption of existing training institutes by OEMs and setting up of new
training institutes by them will be promoted (Stigler, 2005).

Tata Nano- A New Chapter

The story goes that Ratan Tata, the chairman of Tata group, saw a scooter driven by a
father with his young kid standing at the front and his wife sitting behind carrying a
baby. And that day he conceived the idea of a safe, affordable and all weather form of
transport for the entire family. This is a project that has spanned nearly five years and
has generated interest enormous interest throughout the world. “Tata spent five years

57
making its budget model "people's car", priced at just 100,000 rupees and marketed at
India's developing middle class.” Ratan Tata had a promise to keep from this project.

Tata Nano was unveiled by Rata Tata at the recently held Auto Expo on January 10,
2008 at Pragati Maidan in New Delhi. Naughton (2008) identifies the Nano as a part
of a "new breed of 21st-century cars" that embodies "a contrarian philosophy of
smaller, lighter, and cheaper" and portends a new era in inexpensive personal
transportation — and potentially, "global gridlock" “At about $2,500 retail, the Nano
is the most inexpensive car in the world. Its closest competitor, the Maruti 800, made
in India by Maruti Udyog, sells for roughly twice as much. To put this in perspective,
the price of the entire Nano car is roughly equivalent to the price of a DVD player
option in a luxury Western car.”
(Source: http://www.pmforum.org/library/RegionalReports/2008/PDFs/Rao-2-08.pdf)

Manufacturing Component

Indian auto component manufacturing, at present hampered by shortages of large

capabilities, is gradually but steadily functioning on escalating competencies and
mechanization levels. As the consumers are more and more becoming judicious in
their buying behavior, fresh model introduction by the auto manufacturers has now
become the tendency. Superior assortment in vehicle is contributing challenges to the
manufacturing potentialities and economies of scale of component suppliers.
Therefore the component industry is continuously looking at preserving lean and well-
organized manufacturing systems. Having established themselves in the domestic
market, tapping opportunities abroad was a natural step for the auto component
manufacturers in their growth path. The Indian auto component industry is aiming a
larger share of the export market and is in the process of ramping up its manufacturing
capabilities to meet the capacity and quality requirements. During the period of 2004,
the auto component industry augmented its investment by 17% while the automation
procedure in this industry recorded a growth of over 40% (Grossman and Helpman,
2005).

58
Discussion how does Literature compare with the Findings

Automobile Segmentation

Market Segmentation

The Indian automobile market is still in its evolutionary or early growth stage.
Therefore, no fixed or widely accepted method of segmenting the market has evolved
as yet. Segmentation has mostly been done on product types or price ranges. There has
hardly been any kind of segmentation on psychographic or behavioral parameters as
seen in developed car markets. The segmentation provided in this paper is based on an
understanding of the current state of the industry. These segments are quite different
from the segments known in the US, European or Japanese markets
[Mukharjee, A (1996)].

Segmentation of Indian Car Market

Segments Economy Luxury Super-Luxury

59
Market share (1994- 79.6% 5.4% 15.0%
95)
Buyer Profile Households Households Corporate

Key Attributes Price Operating costs Power Comfort Safety

Influencing Choice

Driven By Driving ease Owner mainly Chauffer

Owner
Zen 118 NE Mercedes Benz
Models Ambassador Contessa , Esteem BMW
Premier Sierra , Peugeot, Audi
Maruti 800 Astra
Cielo , Ford Escort ,
VW
Mitsubishi Lancer
Rover Montego

Growth Rate pa (last 3

years) 16% 140% 65%

Household incomes Status symbol Rising affluence

Demand Drivers New products New models
Corporate executive Financing schemes
perks Income distribution

Small businessmen Senior corporate Businessmen

Owner Profile Corporate middle- executives Diplomats and
level expatriate managers
executives

Basis of Competition Product features Product features Positioning

Price Price Spares network
Distribution/spares Distribution and
network services
Mfg. expertise
Funding schemes

Source: INFAC report on Cars

The most popular cars in the Indian market are the small hatchbacks. Maruti has a
wide range in this segment, with the 800, Alto, Zen (based on the last generation Alto,
but soon to be discontinued) and the Wagon R models dominating a fair share of the

60
market. Its main competitor, Hyundai sells the popular Santro Xing in the same
segment while Tata has the Indica [Rathor D and Swarup T (2006)].

In the near future, however, this segment may see the entry of new players. GM is
planning to re-launch the Daewoo/Chevrolet Matiz in India. Meanwhile Toyota is
reportedly working on a small car of its own. New entrant VW may also look at a
small car to enter the Indian market.

The next segment up, in terms of vehicle dimensions, is the compact hatchback -
models like the Maruti-Suzuki Swift. The Swift has been very well received in the
market and Maruti is expected to launch a diesel variant soon. The main rival to the
Maruti-Suzuki Swift is the Hyundai Getz, which is not as popular [Rathor D and
Swarup T (2006)].

The fourth-largest segment in the Indian passenger car market is the so-called C
segment. The Honda City (a three-box version of the Jazz), Mitsubishi Lancer (with
old and new generations sold simultaneously), Toyota Corolla, Chevrolet Optra and
the Skoda Octavia (last generation) are the competitors in this class.

The Executive class is dominated heavily by the new Honda Accord (US body shape)
and the Toyota Camry. Other players in this market are the Mercedes C-, E- and S-
Classes, the Ford Mondeo, Opel Vectra and the Skoda Laura (new generation
Octavia).

Segments B and C to see further growth but A-segment may see resurgence. In recent
times, the Indian passenger car market has seen the highest growth in the B- and C-
segments. While the A-segment of the market only has two players in the form of the
Maruti 800 and Omni micro van, the B-segment is where the action is. There can be
no greater indicator of the shift of focus from A- to B-segment in India than the fact
that, currently, the most-sold car is the Maruti Alto - a B segment car. Also, a number
of manufacturers, including Toyota, are readying small cars that will go into the B-
segment.

61
Another fast-growing segment is the lower C-segment of the market which has also
seen a number of new models being introduced. The Honda City, Tata Indigo,
Hyundai Accent, Ford Ikon and the Maruti Esteem all do significant numbers each
month [Rathor D and Swarup T (2006)].

The main reasons for the fast growth of the B- and C-segments in recent times are:

• An increase in per capita income, particularly in urban pockets, has made

people move up from the smaller Maruti 800. Also for families with two
working members, two cars are needed and people prefer one of these to be
larger.
• Prices of B- and C-segment cars have become very competitive. The base
version of the Alto is available for approximately INR227, 000. That is exactly
what the Maruti 800 cost five years earlier, as excise duty cuts and price
corrections by the company has the 800 on sale at slightly less than
INR200,000 at present.
• A number of B-segment cars have recently become even cheaper because of a
reduction in excise duty announced by the government in the recent Union
Budget.

A huge number of new models have been introduced in the B- and C segments
recently.

One of the effects of this has been that the Maruti 800 has started appearing very out
dated. This has made people move away from the 800 to entry-level B-segment
models. In fact, Maruti 800 sales have fallen sharply over the last year.

However what may boost the A-segment in the future may be the Tata budget car
‘NANO’. The car, to be tentatively priced at INR100, 000 is an ambitious project for
Tata Motors and, if successful, has the potential to win a large market share for the
manufacturer. The Tata small car will also benefit from the recently announced excise
duty cut [Rathor D and Swarup T (2006)].

62
Targeting

Market targeting Low-Cost Car Technologies

India’s Tata Group building low-cost car technologies and others planning to do so,
Mueller said, “The other major focus area in India is small cars. Infineon is active in
this segment: the XC2700 family is designed for small-car powertrain applications
too. Infineon has a long-term roadmap for cars, having launched its Audo Future
family of 32-bit microcontrollers with samples for selected customers available, and
volume production expected for 2009” [Pinto, J (2008)].

Henderson, A and Koppinger, P (2007) view that the target of four-wheeler sales is
the large number of two-wheeler owners. And second, the bulk of four-wheeler sales
will be small cars. A significant migration from two- to four wheelers is expected. The
two-wheeler market is composed of motorcycles, scooters, and mopeds and represents
75 percent of India’s annual new vehicle sales. 10 Interviewed executives believe that
many of these buyers will migrate to four-wheelers not only because of increases in
GDP per capita, but also because of the development of small, inexpensive four
wheelers.

The expected delivery of the Tata Group’s “1 lakh car” (a price of approximately
US$2,500) is the prime example interviewees use to describe the potential
affordability of four-wheelers and India’s developing expertise in small cars. There are
differing predictions about the introduction of the “1 lakh car” into the vehicle market.
One executive thinks, “If they really come out with a US$2,500 car, there will be, at a
minimum, a 10- to 15-percent shift from two-wheelers to four-wheelers.” Other
predictions are much greater – some say a million consumers will migrate. Foreign
competition is also gearing up. Renault recently formed a JV with Mahindra &
Mahindra to build its low-cost Logan car as well as an even less expensive vehicle.13
Other global manufacturers such as Hyundai already offer low-priced vehicles or are
coming to India with the expressed purpose of building and selling inexpensive, small
vehicles[ Henderson, A and Koppinger, P (2007)].

63
Many of India’s best-selling vehicles are small and inexpensive

• Maruti 800: US$5,093

• Tata Indica: US$5,945
• Maruti Alto: US$6,093
• Hyundai Santro: US$7,100
• Maruti Wagon R: US$8,299

(Sources: Maruti Udyog Web site; DriveInside.com Car Pricing)

Positioning

The positioning of the brands in the Indian passenger car market can be understood
from the Price-power map given in the next page. This map gives an idea of
competition in different segments. Since the Indian car market is in a state of flux, the
positioning of most companies in the consumer's mind appears to be confused
[Mukharjee, A (1996)].

India's Auto sector on fast track

Lal, U (2006) said that Indian Automobile sector continues to grow in top gear. Based
on estimates, the total sales (domestic + exports) last year has crossed the 10 million
mark. Advertisement According to auto industry experts Indian Automobile sales will
grow at a CAGR of 9.5% up to 2010. To tap this large opportunity, Indian Automobile
companies and global automotive giants have announced huge expansion plans.

The Automobile Industry performance in the year 2005-06 showed encouraging

results for all segments of the automobile industry. The industry registered a growth of
around 13 percent in numbers over the financial year 2004-05. The total vehicle
production in Year 2005-06 including tractors touched at a new high of 10 million
units which include production of 9,735,216 units of vehicles and an estimated
production of more then 2,70,000 units of tractors.

The passenger vehicles posted a growth of around 8% in the year 2005-06 over the

64
year 2004-05. The commercial vehicle segment clocked a growth rate of 10%. While
the medium and heavy commercial vehicles (M&HCV) segment has grown by 4.5%,
the light commercial vehicles (LCVs) grew by more than 19% during 2005-06 as
compared to 2004-05. The Three Wheelers grew by 17% during the same period.
Backed by Government's initiative on rural roads and better connectivity with major
towns and cities, improved agricultural performance, upward trend of purchasing
power in the hands of rural people, the Two Wheeler segment continued to post a
steady growth of around 14% and was able to achieve the record performance of
crossing 7 million two wheelers with exact sales standing at 7,056,317 during 2005-
06. Motorcycle segment grew at the rate of more than 17% during the fiscal 2005-06
as compared to 2004-05.

The export thrust the high-growth domestic automobile industry would attract a
massive investment of $ 18 billion by next year, but its export potential still remains
untapped despite it gaining global recognition, says the Economic Survey of the
Government of India [Lal, U (2006)].

Why India for Automobile?

India represents an economic opportunity on a massive scale: China and India are
likely to be the world’s two biggest economies by mid-century, and although India has
underperformed in the first lap of the growth race, there was a strong possibility that
India may well move ahead [Gomes, I and Nagporewalla, Y (2005)].

Although India is still seen by industrial investors as an economy where risk is higher
and the business environment more problematic than in rival Asian investment
locations, India also offers some advantages in the region. The legal framework that
protects investment is one of the best in Asia. The economy offers an abundance of
technical and managerial talent, often with international experience. Geopolitical risk
is diminishing consistently, in contrast with some of India’s emerging economy rivals
in Asia. And above all, India has a demographic advantage that should see its working
age population continue to grow well into the century, increasing wealth and reducing
cost [ Gomes,I and Nagporewalla, Y (2005)].

65
1. The political economy

India is changing from a command economy focused on self-sufficiency to becoming

a key link in the global economic chain. But India’s ambition to catch up with other
high-growth Asian economies is not always matched by its ability to implement
change [Gomes, I and Nagporewalla, Y (2005)].

2. Nation and state

India is a federation of 29 states, and highly politicized. This means that an investment
decision in India is quite likely to be affected by politics, and that needed changes in
regulation and infrastructure development are often undermined by conflict and
competition between state and federal governments. However, competition between
states means that the total tax incentive package can be high [Gomes, I and
Nagporewalla, Y (2005)].

3. Licensing, law, and reform

Central government has succeeded in opening many sectors of the economy to foreign
investment, while reserving others to state or local business. These continuing
restrictions impose costs on manufacturers even though many manufacturing sectors
(apart from strategic industries like defence and aerospace) are open for investment.
According to the World Bank, the burden of licensing and bureaucratic administration
has significantly reduced since 2000. In terms of companies’ perception of the burden,
India scores better than either China or Brazil on business regulation, better than either
on the burden of tax and customs administration, and better than Brazil on the
perceived level of corruption [Gomes, I and Nagporewalla, Y (2005)].

4. Investment procedures

Investments in some economic sectors are now given automatic approval by the
Reserve Bank of India. In other sectors the government has attempted to streamline

66
the process of approval through the Foreign Investment Promotion Board (FIPB). In
practice companies report that decision-making can still appear arbitrary.
Manufacturing investors can incorporate in India as Indian companies or foreign
companies. Indian companies may be joint ventures or wholly owned subsidiaries, and
foreign equity ownership can be up to 100 percent. However, foreign equity caps
apply to several sectors [Gomes, I and Nagporewalla, Y (2005)].

5. Labor

Some companies say that labor legislation remains a significant drag on business.
Other companies point out that location tends to determine the quality of labor
relations. Many complaints focus on the rigidity of firing regulations – only Mexico is
considered equally restrictive. Nevertheless, the labor pool is exceptionally rich, with
nine million new entrants a year. It takes on average fewer days to fill skilled job
vacancies in India than in either China or Brazil; remuneration costs are also at the low
end of the emerging economy scale. India is marginally more costly than China for
most senior managers, such as directors of HR and manufacturing, and CFOs. But
costs are significantly less than in other emerging economies such as Brazil and
Mexico [Gomes, I and Nagporewalla, Y (2005)].

5. Taxation

Corporate taxation is high compared to European and U.S. rates, but average in world
terms, and has been significantly reduced in the last 15 years –the top basic rate fell
from 48 percent to 35 percent in 2004. The indirect tax burden varies from state to
state: the federal government has current plans to introduce a unified VAT at two
lower rates of 4 percent and 12.5 percent; (20 of the 29 states have moved to the new
VAT regime starting April 2005).Companies say this can bring a significant reduction
in operational costs. Tax related industrial incentives include tax holidays, 100 percent
deductible R&D and capital expenses, accelerated depreciation and exemptions or
deferral of state sales taxes. The government is also committed to rapidly expanding
the number of concessionary Special Economic Zones (SEZs) where tax is

67
significantly reduced. A new SEZ bill was passed in Parliament in May 2005[Gomes,
I and Nagporewalla, Y (2005)].

6. Location and market

In recent years almost all foreign direct investment in India went to a small privileged
group of states and territories: according to the World Bank's Investment Climate
Report 2004, over 80 percent of FDI in 2000-2003 went to Delhi, Maharashtra,
Karnataka, Tamil Nadu, Chandigarh, Gujarat, and Andhra Pradesh. But investment
patterns are changing, say companies, with many looking further afield to less
congested and cheaper states [Gomes, I and Nagporewalla, Y (2005)].

7. Domestic markets

The consumer market is remarkably undeveloped. Consumer goods penetration is very

low compared to other emerging economies, partly because potential consumers are
more difficult to reach. India has a lower proportion of urban households compared to
Asian competitors: it is estimated that around 70 percent of Indians live in the
countryside, compared to around 60 percent in China. Consumption patterns are also
different: as Indians have grown richer, discretionary spending has become focused
outside the home. Unlike other Asian consumers, Indians have tended not to greatly
increase their spending on clothes, personal care, and household goods [Gomes, I and
Nagporewalla, Y (2005)].

8. Infrastructure

Infrastructure is top of the agenda for corporate planners in India. By far the most
significant infrastructure constraint for manufacturing is the unreliability of power
supply. On average a company can expect nearly 17 significant power outages per
month, against one per month in Malaysia and fewer than five in China. At the same

68
time costs are higher. Transport is also a constraint, and companies focus on the
weakness of ports and the road network (the deterioration of the rail system means that
companies have moved most of their distribution to road). However, new road
investment is bringing significant improvements, and public-private partnerships are
beginning to be struck in infrastructure development projects [Gomes, I and
Nagporewalla, Y (2005)].

Data Analysis

1. The number of Indian automobile consumers for the category of cars has
increased over the past 5 years.
Strongly Disagree
Disagree
Neither disagree nor agree

69
Agree
Strongly Agree

The number of Indian automobile consumers for the

category of cars has increased over the past 5 years.

0%

36%

Strongly Disagree
Disagree

Neither Disagree nor agree

Agree
Strongly agree

64%

As part of the survey carried out with the spokesperson of the various automobile
companies, 64% of the respondents surveyed responded in strong agreement to the
statement that the number of Indian automobile consumers for the category of cars
have increased over the past 5 years, while 36% of the respondents surveyed only
agreed that the number of the Indian automobile consumers in the category of cars
have increased over the past 5 years. There was no case of disagreement with the
statement. Thus, the responses obtained lead us to infer that undoubtedly the number
of automobile consumers in the category of the cars has increased over the past 5 years
without any exception. Here the exception refers to any category like mid car segment,
luxury car segment or SUVs.
2. The number of Indian automobile consumers for the category of two wheelers
has increased over the past 5 years.
Strongly Disagree
Disagree
Neither disagree nor agree
Agree
Strongly Agree

70
 The number
category of twoofwheelers
Indian automobile consumers
has increased forpast
over the the 5
years.

0%

Strongly Disagree
48% Disagree
52% Neither Disagree nor agree
Agree
Strongly agree

As part of the survey, it was obtained from responses that 48% of the respondents
surveyed strongly agree that the number of the Indian automobile consumers in the
category of two wheelers has increased over the past 5 years, while 52% of the
respondents surveyed only agree that the number of the Indian automobile consumers
in the category of the two wheelers has increased over the past 5 years. Similar to
previous responses there has been no disagreement with regard to this statement.
However, the intensity of agreement has faded with strong agreements reducing to
48% as compared to the previous of 64% and agreements increasing from previous of
36% to 52%.

3. The number of Indian automobile consumers for the category of commercial

vehicles has increased over the past 5 years.
Strongly Disagree
Disagree
Neither disagree nor agree
Agree
Strongly Agree

71
 The number of Indian automobile consumers for the
category of commercial vehicles has increased over the past
5 years.

0%

44% Strongly Disagree

Disagree
Neither Disagree nor agree
Agree
Strongly agree
56%

As part of the survey done, majority of the respondents surveyed that is 56% of the
respondents surveyed agree that the number of the Indian automobile consumers for
the category of the commercial vehicles has increased over the past 5 years, while
44% of the respondents strongly agree that the number of the Indian automobile
consumers for the category of the commercial vehicles has increased over the past 5
years. Again, there has been no disagreement with regard to this statement; however,
the intensity of the agreement has reduced similar to the latter statement.

4. The change in lifestyle of the Indian consumer is one of the factors for the
growth of the Indian automobile industry.
Strongly Disagree
Disagree
Neither disagree nor agree
Agree
Strongly Agree

72
 The change in lifestyle of the Indian consumer is one of the
Factors for the growth of the Indian automobile industry.

0% 8%

12%

Strongly Disagree
48% Disagree
Neither Disagree nor agree
Agree
Strongly agree

32%

As part of the survey, it is obtained that majority of the respondents that is 48% of the
respondents surveyed strongly agree that the change in the lifestyle of the Indian
consumers is one of the factors for the growth of the Indian auto mobile industry,
while 32% of the respondents surveyed agree with the same.

However, 12% of the respondents surveyed neither agree nor disagree that the change
in lifestyle of the Indian consumer is one of the factors for the growth of the Indian
automobile industry, while 8% of them disagree with this statement. This leads us to
infer that the change in lifestyle is major factor for the growth of the Indian
automobile industry.

5. Growing affluence of the service sector is another factor for the growth of the
Indian automobile industry.
Strongly Disagree
Disagree
Neither disagree nor agree
Agree
Strongly Agree

73
 Growing affluence is another factor for the growth of the
Indian automobile industry

0% 8%

Strongly Disagree
Disagree
Neither Disagree nor agree
36% Agree
56% Strongly agree

As part of the survey, it is obtained that majority of the respondents that is 56% of
them strongly agree that the growing affluence of the service sector is another factor
for the growth of the Indian auto mobile industry, while 36% of the respondents
surveyed only agree to the same.

However, 8% of the respondents surveyed do not either agree or disagree with the
statement. Though the 8% of the respondents surveyed are neutral to the statement, yet
the rest 92% of them agree in varying intensity that the growing affluence of the
service sector has been one of the factors for the growth of the Indian automobile
industry.

6. The market penetration initiative taken by the automobile companies to tap

the potential of the markets is the factor for the growth of the Indian automobile
industry.
Strongly Disagree
Disagree
Neither disagree nor agree
Agree
Strongly Agree

74
 The market penetration initiative taken by the automobile
Companies to tap the potential of the markets is the factor
for the growth of the Indian automobile industry.

0%
12%

28%

20% Strongly Disagree

Disagree
Neither Disagree nor agree
Agree
Strongly agree

40%

As part of the survey, it is obtained that the majority of the respondents surveyed that
is 40% of them agree that the market penetration initiative taken by the auto mobile
companies to tap the potential of he markets is another factor for the growth of the
Indian automobile industry, while 28% of them strongly agrees with the same
statement.

20% of the respondents surveyed do not either agree or disagree that the market
penetration initiative taken by the automobile companies is another factor for the
growth of the Indian automobile industry, while 12% of the respondents surveyed
disagree with the statement. This leads us to infer that market initiatives along with
above mentioned factors are accelerating the growth story of the Indian automobile
industry.

7. The option like auto finance has led to the growth of the Indian automobile
industry.
Strongly Disagree
Disagree
Neither disagree nor agree
Agree

75
Strongly Agree

The option like auto finance has led to the growth of the
Indian automobile industry

0%
15%
19%

Strongly Disagree
Disagree
Neither Disagree nor agree

23% Agree
Strongly agree

43%

Majority of the respondents, i.e. 43% of them agree that options like auto finance has
also led to the growth of the Indian automobile industry, while 19% of them strongly
agrees that auto finance has led to growth of the Indian automobile industry.

However, 23% of the respondents do not either agree or disagree with the statement;
while 15% of them disagree that option like auto finance has led to the growth of the
Indian automobile industry.

This again lead us to infer that option like auto finance is also a contributing factor for
the growth of the Indian automobile industry as the consumer who can not afford to
make down payments at one time can use this option of auto finance to make down
payments and avail the convenience.

8. The reduction in the excise duty is one of the factors for the growth of the
Indian automobile industry.
Strongly Disagree
Disagree
Neither disagree nor agree

76
Agree
Strongly Agree

The reduction in the excise duty is one of the factors for the
growth of the Indian automobile industry.

8% 0%

28%

24%
Strongly Disagree
Disagree
Neither Disagree nor agree
Agree
Strongly agree

40%

Majority of the respondents surveyed, i.e. 40% of them neither agree nor disagree that
the reduction in excise duty for automobiles has led to the growth of Indian
automobile industry. 28% of the respondents surveyed disagree that the reduction in
the excise duty is another factor for the growth of the Indian automobile industry.

Only 24% of the respondents surveyed agree while 8% of them strongly agree that the
reduction in the excise duty is another factor for the growth of the Indian automobile
industry. Since the reduction in the excise duty is only relative, hence not many
respondents agree that reduction in the excise duty is another factor for the growth of
the Indian automobile industry. However, the reduction in the excise duty helps the
automobile companies to pass on the benefit in terms of price to the consumers there
by attracting more new customers and this is the reason why majority of the
respondents do not either agree or disagree that reduction in excise duty is another
factor for the growth of the Indian automobile industry.

9. The current trend of small and cheap cars has changed the market dynamics.

77
Strongly Disagree
Disagree
Neither disagree nor agree
Agree
Strongly Agree

The current trend of small and cheap cars has changed the
market dynamics.

0%
12%

28%

20%
Strongly Disagree
Disagree
Neither Disagree nor agree
Agree
Strongly agree

40%

Majority of the respondents surveyed, i.e. 40% of the respondents agree that the
current trend of small and cheap (economically viable) cars has changed the market
dynamics, while 28% of the respondents surveyed strongly agree that the current trend
of small and cheap cars has changed the market dynamics.

20% of the respondents do not either agree or disagree with the statement while 12%
of the respondents surveyed disagree that the current trend of small and cheap cars has
changed the market dynamics.

10. The world brands are entering India to cater to also the current trend of
small and cheap cars in India.
Strongly Disagree
Disagree
Neither disagree nor agree
Agree
Strongly Agree

78
 The world brands are entering India to also cater to the
current trend of small and cheap cars in India.

0% 8%

16%
36%

Strongly Disagree
Disagree
Neither Disagree nor agree
Agree
Strongly agree

40%

Majority of the respondents surveyed, i.e. 40% of them agree that the world class
brands are entering India to cater to the current trend of small and cheap cars, while
36% of the respondents surveyed strongly agree that the world class brands are
entering India to also cater to the current trend of small and cheap cars in India.

However, 16% of the respondents surveyed do not either agree or disagree with it,
while 8% of the respondents surveyed disagree that the world class brands are entering
in India to also cater to the current trend of small and cheap cars in India.

This leads us to infer that the current trend of small and cheap cars has changed the
market dynamics in the sense that it is attracting world class brands to the country,
creating competition and hence benefit for the consumer.

11. The propensity of Indian automobile consumer buying an Indian brand vis-à-
vis world class brands is dependent on the flexible schemes offered by the
company.
Strongly Disagree
Disagree
Neither disagree nor agree

79
Agree
Strongly Agree

The propensity of Indian automobile consumer buying an

Indian brand vis-à-vis world class brands is dependent on
the flexible schemes offered by the company.

0%
12%

32% 8%

Strongly Disagree
Disagree
Neither Disagree nor agree
Agree
Strongly agree

48%

Majority of the respondents, i.e. 48% and 32% of the respondents surveyed agree and
strongly agree respectively that the propensity of Indian automobile consumer buying
an Indian brand vis-à-vis world class brands is dependent on the flexible schemes
offered by the company.

Only 12% of the respondents surveyed disagree with the statement while 8% of them
do not either agree or disagree that the propensity of Indian automobile consumer
buying an Indian brand vis-à-vis world class brands is dependent on the flexible
schemes offered by the company.

12 The Indian automobile industry with its burgeoning size has the capability to
create additional employment and jobs, there by affecting the GDP.

Strongly Disagree
Disagree
Neither disagree nor agree
Agree

80
Strongly Agree

The Indian automobile industry with its burgeoning size has

the capability to create additional employment and jobs,
there by affecting the GDP.

0%

Strongly Disagree
48% Disagree
Neither Disagree nor agree
52% Agree
Strongly agree

Majority of the respondents surveyed, i.e. 52% of the respondents agree that the Indian
automobile industry with its burgeoning size has the capability to create additional
employment and jobs, there by affecting the GDP.

There are no disagreements in this case; in fact 48% of the respondents surveyed
strongly agree that the Indian automobile industry with its burgeoning size has the
capability to create additional employment and jobs, there by affecting the GDP.

Hence, we can deduce out of the responses obtained that as the growth story of the
Indian automobile industry is taking leaps, so can the Indian GDP with creation of job/
employment opportunities.

Conclusion

The growth of the last two decades of the last century has continued unabated since
2000. Why is it that an industry that was almost meandering slowly for almost 40

81
years has almost overnight become one of the talking points of the world? What
special measures have been taken by the governments that have facilitated this
process? What are the systematic changes that have taken place? What does the future
hold for this industry? There are some of the questions, which we need to analyze
(Roy and Sahay, 2004).

We have already discussed the measure taken by the macro policy makers to unfetter
this industry like introduction of broad banding and removal of licensing,
rationalizing, taxes and duties, facilitating acquisition of foreign technology and
making it easier for world majors to set base in the country. What is important is that
these measures were not one-off. There has been a graded introduction with existing
controls being gradually relaxed and more reliance being put on the market system.

Today for instance the following situation exists in the automobile industry:

• All manufacturing and imports are free from licensing and approvals.

• 100% FDI is permitted in the automobile sector.

• There is no local content regulation in the automobile industry.

• Import tariff have been reduced from 35% in 2001 to 12.5% in 2006.

All these steps are not only in synchronization with earlier policy and each other, but
also represent a logical progression of policy. To cite an example, import duties have
been reduced in steps from a peak of 110% in 1992-93 to first 65%, then to 35% and
now to 12.5%.
(Source:http://in.answers.yahoo.com/question/index?qid=20070302022525AAvscMc)
Virtually all the world automobile majors are presents in India. The advent of so many
players has obviously increased customer choice. From a scenario where the customer
could choose amongst just two or three car makes, two trucks, two scooters and three
motorcycles, the Indian automobile market is now robust enough to support a variety
of options for each type of products with most model having a wide range of variants
to suit different tastes and purses.

82
Today, in the year 2007-08, India is on the track of thinking globally. Besides
exploring opportunities outside, India will have to take radical measure to develop its
home ground instead of just being a breeding space for foreign companies. This has
implication for indigenous car manufacturer like Tata motors, which will have to
develop global ambition in a more aggressive manner than what it is doing now
though the fact to be conceded is that Tata had made every Indian proud by exporting
the “all Indian “ car “Tata Indica” to the UK to be driven under the “Rover” brand.
Tata has proven the fact that Indian companies can identify changing customer needs
and face the challenge of a changing technology across the globe.

If the Indian automobile companies have to go global, tailor made strategies will have
to be drawn to target the indigenous car manufacturers. To do the same, let us take a
close look of the automobile manufacturers worldwide. The manufacturers’ worldwide
can be divided into two (Singh, Garg and Deshmukh, 2004):

1) The millionaires club which comprises countries that will make over one
million light vehicles a year in their home market by 2010.

2) The power club that now comprises ten counties, which control 95% of
global light vehicle output, in which India is only a junior member as US, Japan,
Germany, France together control 90% of global light vehicle production. The threat
comes from the South Korea and china which are all set to gain in strength. Finally
there is a loser’s club which comprises nations whose domestic car makers have lost
market share to foreign firms. India is in this club too. So the question is how India
can move to the more premium club.
With the help of some foreign investment, India can become a major production center
for low cost vehicle. But the threat here is china, which operates on lower costs and
therefore throws up the possibility of global manufacturer shifting out their bases. One
way of copying with the threat is to make cars for global majors and compete with
china on price. The government then should invest enough resources, allow Indian
companies to set up foreign distributorship or acquire companies abroad. Along with
expanding their in house production, by largely attracting FDIs, a number of Indian
companies with global ambitions are gradually moving towards creating a niche in the
world market as well. A sample of the same is as follow (Dangayach & Deshmukh,

83
2006): Tata’s acquisition of Jaguar and Land Rover from FORD is a milestone in the
history of Indian automobile sector.

Keeping in view the above, the department of heavy industries of India in its auto
policy appropriately sets the vision as ‘to establish a globally competitive automotive
industry in India and to double its contribution to the economy by 2010’.

Recommendation

Under the phenomenal growth of information technology in nearly every field of

human life, which has shorten the world and time and reduced the cost and time in
moving information, goods and capital from one part of the world to another part of
the world. This globalization has brought about the huge opportunity for the
development of human kind in developed or developing countries as a whole.

84
Now India should look into the matter of rapid development of exporting problem and
increasing the sales of auto parts and the auto industry. It should also work on
improving the skills of employee, So that these factors couldn’t work as a hindrance
for the overall development of the economy. A strong foundation for the development
of all the people is very necessary for the social, political, and economic development
of the country.

A good place to start operation in the goods arena is the finished unbranded products
and jump slowly to the branded products. Technological, marketing and strategic
alliance such as between HMT and Guildemeister of Germany, explained by Bajaj
(1991) could be used to graduate to the next level.

Just like foreign companies use the joint venture and strategic alliance to enter into the
new market, like this Indian companies can also use the same path. A lot of companies
have adopted the same path like Ranbaxy and Dr. Reddy’s lab already have tie up with
the multinational companies to market their product in the international market.

The competitiveness in the sector will largely depend on the capacity of the industries
to innovate and upgrade. The industry will also benefit if it has strong domestic
competition, home based suppliers and demanding local customers. There is no
denying the fact that the factors like labor cost, duties, interest rate and economies of
scale are the most important determinants of competitiveness. But productivity is the
prime determinant of the competitiveness and also impacts the national per capita
income.

Most of our exporters suffer due to the poor image of India as a country and its
companies in the eyes of the buyer. Indian company is having a non professional
image in the eyes of foreigner in terms of almost all the parameter. Our quality is
perceived as inferior, packaging is not also up to the mark of international standard,
delivery is unreliable and the export procedure id totally unfaithful. There are of
course some exceptions to this case but major part is consisting of this situation.

85
Thus a fresh approach by the Indian companies is required to change over the image of
India and its companies in the eyes of the foreign companies. For this it is very
necessary that individual companies should look into the matter of international
marketing strategy.

Reflection on the Dissertation

Before beginning the report, I made prior plans of how to go about doing the entire
thing. The first thing that I did was broke the entire dissertation into small and doable
parts. This gave structure to the entire dissertation and I had a clear picture in my mind
of when and how to do various activities associated with the dissertation. With the
help of SMART objectives, I was able to accomplish my task well within the
stipulated time. Even while working on the dissertation, I never got deviated from my

86
objective of sticking to the initial schedule, though I faced a number of difficulties. In
retrospect, I think that the dissertation was a great learning experience and brought out
the researcher in me to get to this level.

Writing dissertation is a challenge and I got to know this only when I was at the
middle of it. I started my dissertation work with literature review. I collected a lot of
books, articles and journals and went through a lot of material. In the course, I found
that a lot of research has been done on Indian automobile sector and hence the topic
became crystal clear in my mind. The aspects of Indian automobile sector in today’s
dynamic environment gave me an insight on how and why businesses spend so much
time; energy and money have efficient systems. But the real challenge was with the
fact that I had to analyze the data in such a way so that it could bring out meaningful
implications on my research. I was unfamiliar with the way analysis is done initially
but later on I found that it is a very interesting thing to analyze data and could be done
using Excel.

After that, I started writing the introduction part. But by this time, I had also prepared
the questionnaire and started to fill them by interviewing respondents. Initially, I was
tad apprehensive while approaching the respondents but eventually; initial inhibitions
were shed while approaching the spokesperson of various automobile companies. The
interaction with them was particularly one of the most interesting aspects of the study.

Initially, I thought that I’d not be able to do justice to the expectation people had from
me. I was scared that I might not finish my work on time and in the process jeopardize
my degree. A dissertation is a completely different experience from the class
assignments and project reports as it differs on size, matter and quality.

But like I stated earlier, breaking work into small pieces helped me overcome my
initial hurdles and made the dissertation look possible. A little work everyday also
ensured that I never indulge on the time limit given to me.

Apart from that, the most important thing that was learnt during the project was
planning and scheduling work. A lot of research work ensured that a lot of data was
collected and tabulated. Meaningful representation of the data is very crucial from my

87
perspective. A lot of data that does not makes sense, is irrelevant. Therefore, the onus
was on my shoulders to collect and represent data in a meaningful manner and if
possible do some inferential stuff. Hands on experience were gathered while
interacting with various people. A lot of interesting insights were shared during the
questionnaire filling sessions.

I think that research is an interesting process and I am pleased that I was given such an
interesting topic for research. Especially when writing the literature review, I got to
understand the various view of various authors and the nitty-gritty of automobile
companies. The quality part was also interesting to comprehend and it is fascinating to
observe how companies use various strategies for growth. Such concepts were
unheard of in the past.

If I were to write this dissertation again, then I would definitely like to make some
changes in the analysis part and go into more details. I found out that statistics is such
a wonderful tool to understand a lot of phenomenon. And using such tools, one can
comprehend and analyze a lot of trends in various industries.

Personally, I found that I was good with reviewing and assessment of works done by
various authors. I also found that discipline can make seemingly impossible work look
possible. The only area where I found problem was the word limit. I, personally, feel
that the word limit should be flexible depending on the relevance of the work done
because sometimes the report would need more than 10,000 words and sometimes less
than that. But due to the given guidelines, one has no option but to stick to the
guidelines. I may be incorrect in thinking so but since this section is included to share
my reflection, I think this should not be an issue.

If I had to sum up the entire project in few words then I’d say that the project gave me
exposure and experience. The amount of professionalism might be on a lower level
but the experience gained was not less in any way. Interacting with spokesperson of
companies was an eye opener in the entire process as it taught me how to use the
knowledge collected in effective decision making. On the personal front, time
management was very crucial while shuffling between college, work and personal life.
Managing time and resources is one important education I got while working on the

88
project. Also, I learnt to take initiative. The two months spent doing the project has
taught me some practical aspects of how business is done. The transition from theory
to practical has not been easy but the learning was worth the hard work.

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Appendix

Questionnaire

1. The number of Indian automobile consumers for the category of cars has increased
over the past 5 years.

101
 o Strongly Disagree
o Disagree
o Neither disagree nor agree
o Agree
o Strongly Agree

2. The number of Indian automobile consumers for the category of two wheelers has
increased over the past 5 years.

o Strongly Disagree
o Disagree
o Neither disagree nor agree
o Agree
o Strongly Agree

3. The number of Indian automobile consumers for the category of commercial

vehicles has increased over the past 5 years.

o Strongly Disagree
o Disagree
o Neither disagree nor agree
o Agree
o Strongly Agree

4. The change in lifestyle of the Indian consumer is one of the factors for the growth
of the Indian automobile industry.

o Strongly Disagree
o Disagree
o Neither disagree nor agree
o Agree

102
 o Strongly Agree

5. Growing affluence of the service sector is another factor for the growth of the
Indian automobile industry.

o Strongly Disagree
o Disagree
o Neither disagree nor agree
o Agree
o Strongly Agree

6. The option like auto finance has led to the growth of the Indian automobile industry.

o Strongly Disagree
o Disagree
o Neither disagree nor agree
o Agree
o Strongly Agree

7. The reduction in the excise duty is one of the factors for the growth of the Indian
automobile industry.

o Strongly Disagree
o Disagree
o Neither disagree nor agree
o Agree
o Strongly Agree
8. The current trend of small and cheap cars has changed the market dynamics.

o Strongly Disagree
o Disagree
o Neither disagree nor agree
o Agree
o Strongly Agree

103
9. The world brands are entering India to cater to also the current trend of small and
cheap cars in India.

o Strongly Disagree
o Disagree
o Neither disagree nor agree
o Agree
o Strongly Agree

10. The large diversified Indian market has place for accommodating both the
domestic as well as the world class brands.

o Strongly Disagree
o Disagree
o Neither disagree nor agree
o Agree
o Strongly Agree

11. The world class brands are coming to tap and have a share in this large diversified
Indian market.

o Strongly Disagree
o Disagree
o Neither disagree nor agree
o Agree
o Strongly Agree

12. The Indian automobile industry with its burgeoning size has the capability to
create additional employment and jobs, there by affecting the GDP.

o Strongly Disagree

104
category
of cars
has
increased
over the o Disagree
o Neither disagree nor agree
o Agree
o Strongly Agree

105