Competition among multinationals these days is likely to be a
three-dimensional game of global chess: the moves an organization
makes in one market are designed to achieve goals in another market
in ways that aren't immediately apparent to rivals.Global
competition occurs when companies cross-subsidise national market
share battles in pursuit of global brand and distribution
positions.
INTERNATIONALISATIONBusinesses are increasingly operating on a
global scale. Competitive advantage of nationsIn global industries
the competitive advantage in one country is influenced by its
position inothers.Political environmentThe problem facing strategic
planners is how to plan for changes in the political
environment.
THE DEVELOPMENT OF THE GLOBAL BUSINESSDevelopmentsOne of the
most significant developments to occur in business over the past
quarter of a century has been its increasing
internationalisation.Motives of multinationalsThe reasons why MNCs
possess this distinctive advantage are reasonably clear.
GLOBAL STRATEGIESChoosing the most effective market supply
strategy is one of the most complex decisions facing the
international firm. Standardisation versus customisationA key issue
in the development of a global strategy is the extent to which the
strategy, particularly the marketing strategy, will be standardised
across countries.
AUTOMOTIVE INDUSTRYHigh oil prices in the mid 1990s caused many
consumers to shift away from high fuel dependent vehicles like SUVs
and Hummers that the US automakers were producing to lighter and
more compact cars. Sales dropped dramatically as more and more
people preferred the smaller and more fuel efficient Japanese cars
to the more high powered American ones. MARKET TRENDSThe changing
nature of mobility KPMG's 2012 global survey shows that the
automotive industry continues to face environmental challenges,
growing urbanization and shifting customer behavior, which calls
for radical new approaches to future mobility.New
technologyElectrified vehicles will not exceed 15 percent of annual
global new car registrations before 2025. COOPERATION AND
ALLIANCESFacing the future togetherAs automotive companies embrace
electromobility, urban mobility concepts and ubiquitous
connectivityEMERGING MARKETSAs expected, 80 percent of respondents
see China as the biggest automotive market in terms of both sales
and production in 2016. OVERCAPACITY The specter of overcapacity
and excess production will haunt the industryGLOBAL CAR SALES IN
2012
JAPAN AND RUSSIA LEAD GAINS GOVERNMENT POLICIES DRIVE
ACCELERATION IN CHINA AND BRAZIL NORTH AMERICAN SALES AT FIVE-YEAR
HIGHS MEDITERRANEAN VOLUMES CUT IN HALFFUTURE OF THE AUTOMOTIVE
INDUSTRYThe green movement has hit the automotive industry as all
car manufacturers are focusing their attention on producing more
environmentally friendly small cars and fuel efficient
vehicles.
GLOBAL COMPETITIVENESS FOR SMALL CARSAs oil prices rise and
concerns about the environment grow, the small car is becoming the
king of the road. SMALL-CAR REVOLUTIONThe global auto market is
already tilting toward small cars, sales of which are growing not
just in emerging markets but throughout the world. In India, the
average car costs around $15,000, while the average small car costs
about $8,000.The impact of this shift to smaller cars on the
worldwide auto industry will be dramatic. That shift is the rise of
a whole host of carmakers such as Tata and Mahindra, as well as
Tier 1 suppliers like Bharat Forge and the TVS Group, forcing a
change in long-established patterns of global competition.
With the shift to smaller cars for emerging markets, carmakers
must develop new technologies and new business models to meet the
demands of these markets. Small cars must be lighter and more
fuel-efficient, so manufacturers are turning to such technologies
as alternate power trains, fuels, propulsion systems, and braking
systems, as well as materials not typically used in cars, including
plastics for exterior body components such as doors, and strong,
lightweight alloys and composites for structures. The small-car
revolution is taking place within the context of the very different
needs and desires of the new consumer in emerging markets. INDIA
AND THE WORLDNanos price of $2,500, however, puts it well within
the realm of possibility for a much larger, and fast-growing,
number of households. extending these factors to the entire Indian
auto industry will allow India to maintain and extend its position
in the small-car market worldwide. Indeed, India boasts certain
advantages in its quest for control of the small-car market. India
is one of the largest markets for small cars in the world, with
more than 8 million households that can afford cars in the $5,000
to $8,000 range. With the introduction of cars like the Nano, and
similar vehicles being developed by players such as Toyota,
Renault, and Suzuki in the $2,500 to $5,000 range, the number of
households that can afford a car will triple. COMPETITIVE
ENVIRONMENT Japan, Korea, China, and Thailand are all looking to
grow exports to emerging markets. Korea and Japan, especially, have
long been strong players in the small-car segment. India is already
the second-largest exporter of small cars after South Korea, and
its low labor costs give it a significant competitive advantage
over South KoreaSUPPORTING THE INDUSTRYIndia must work to promote
its auto industry along two lines: The Indian government must
support the auto industry by developing policies that can further
the industrys small-car goals. And the industry must continue to
innovate, developing the means to build more paradigm-shifting
products like the Nano.
INNOVATION IMPERATIVEIndian government works to support the
countrys small-car market, Indian manufacturers must invest in
bringing to market a wider variety of low-cost, high-value products
that consistently offer quality, reliability, and durabilitywith
style.
For India to play in the global small-car market, and to take
share from other players, its cars have to be as good or better
than the best in the market, in styling and quality, as well as
execution.
GLOBAL COMPETITION FORCED AUTOMAKERS TO IMPROVE QUALITYglobal
competition has forced automakers to improve the quality and
reliability of their vehicles everything from inexpensive mini-cars
to decked-out luxury SUVs.
GLOBAL COMPETITION AND THE POSITION OF INDIAN SMALL CARSSUPERIOR
SMALL CAR PORTFOLIO AND COMPETITIVE PRICING ARE KEY FACTORS FOR NEW
ENTRANTS IN INDIAThe passenger car sales have crossed two million
units in FY 2010-2011, expanding beyond the mega cities. India has
been one of the few markets globally to buck the recessionary trend
and record a strong 25.6 percent growth in passenger vehicle sales
in FY 2010-2011.Driven by new Hatchback launches such as Ford Figo,
Toyota Etios Liva, Volkswagen Polo, Nissan Micra etc, the new
entrants together have achieved a share of 7-8 percent in the
hatchback segment.Industry Composition
Maruti Suzuki, Hyundai Motors, and Tata Motors, currently
dominate the Mini and Compact segment.
GM India's Chevrolet Beat, Toyota Etios and Etios Liva, Nissan
Micra, and Renault Pulse are the recent launches in the market in
diesel variants. This will further boost the market share of the
compact car segment passenger vehiclesStrategic Outlookrising fuel
prices, increasing interest rates and spiralling input costs may
exert some pressure on the automotive OEMs. It is estimated that
that the passenger vehicle industry will grow at a CAGR of 12
percent over the next five years.Market driversIndia is likely to
emerge as small car production hub:
India is the second-largest exporter of small cars, behind
Japan. Compact cars account for majority of passenger car exports
from India.Product pricing
Most OEMs targeting the highly-competitive small car segment
focus on localisation of key components, which forms an integral
part of their strategy and helps them keep the cost
competitive.
Key challenges
Prices of core inputs in the manufacture of vehicles, like
steel, non-ferrous metals, and rubber have grown over the last few
years, which in turn have increased the production cost of
vehicles. Such cost escalation in input prices will impact the
growth of passenger vehicles. Fuel Price Volatility Rising fuel
prices especially petrol prices are impacting the demand for petrol
vehicles. Increasing Borrowing RatesAuto loan rates have been
further hiked to tame the rising inflation. Infrastructure
ConstraintsInsufficient road infrastructure and traffic congestion
could prove to be a bottleneck in the growth of the passenger car
segmentSuperior small car portfolio and competitive pricing will be
the key factors in determining the success for new entrants in the
Indian passenger vehicle market.
INDIAS HIGHLY COMPETITIVE SMALL CAR MARKETSouth Koreas
automobile maker Hyundai Motors has intensified the competition by
launching its hatchback, the EonJapanese automobile giants Toyota
and Honda also entered the Indian small car market this year.
Toyota came in with the Etios Liva in June, while Honda joined its
peer by launching the BrioNissan Motor, introduced its hatchback,
the MicraThis growth is being driven by the 160 million strong
middle class, which has abandoned its once upon a time prized
possession, the scooter, having taken to the steering of four
wheels. For the Indian middle class, the rising disposable income
and easily obtainable loans have effaced the distance between the
dream and the reality of owing a car. Small car sales account for
more than 70 percent of the Indian car market. Maruti Suzukis Alto
is currently the top selling car in the world and the main driver
of the companys high volume sales. India is also transforming into
a small car headquarter due to Indians expertise in frugal
engineering. Companies are increasingly using their India-based
manufacturing unit to manufacture and export. Honda Siel Cars India
(HSCI), a joint venture between Honda Motor and Siel Limited, has
indicated that it plans to export its newly launched Brio to Nepal
and BhutanCEO of Ford Motor, told the press that the company will
make India its small car hub.Nissan Motor India started exporting
its Made-in-India compact hatchback, the Nissan Micra.
COMPETITION INTENSITY THE KEY CHALLENGE IN SMALL CAR MARKETCost
pressure is mounting on small car manufacturers as they attempt to
maintain market share through frequent model introductions, in
response to competition intensity. Competition Intensifies in Small
Cars with the Increase in Number of Models
The level of competition in India's small car market,
particularly the A2 segment, has increased significantly as its
size and growth potential has attracted several global car
manufacturers
Sales Volume per Model will Continue to Decline as Competition
Intensifies
CRISIL Research expects the A2 segment to grow 11-13 per cent in
2010-11 compared with that of 10-12 per cent for the industry as a
whole (excluding sales volumes of Tata Nano).
Cost Pressures Increase with the Increase in the Number of
Models
While the introduction of several models over the past few years
has enabled car manufacturers to increase sales volumes, their
costs have increased significantly.
Model Introductions Increase Players' Product Development and
Selling Expenses
For instance, selling expenses per unit of sales have increased
at 11 per cent CAGR over the past four years up to 2008-09. This
indicates car manufacturers are under greater pressure to attract
and retain customers in order to maintain market share.
Players will Need to Increase Sales Volumes per Model to
Maintain Margins
To maintain their margins, CRISIL Research believes that small
car manufacturers would need to increase sales volumes per model
rather than introduce more models in the A2 segment, which will
diminish the benefits of scale efficiency.
CONCLUSIONConsidering its advantagesthe scale of its domestic
small-car industry, low labor costs, and its deep understanding of
the emerging-market consumerIndia is in a strong position as it
looks to expand further into the export market.. India currently
spends more than $40 billion annually to import the oil it needs.
So the development of new, more fuel-efficient technologies will
help the country reduce its massive trade deficit while making its
cars more attractive in other emerging markets. A more robust auto
industry will mean an additional 4 million jobs by 2012, furthering
the development of its middle class and pulling a significant
segment of its population out of poverty. The worldwide small-car
market presents a tremendous opportunity for India. But winning
that market will require that India act on a variety of fronts to
promote its export efforts. And to ensure that it stays ahead of
its many able competitors, it must act now.