3.

3 PEST ANALYSIS

There are many factors that affect any organization. Tax changes, new laws, trade barriers,
demographic changes government policy changes etc. are all examples of macroscopic changes.
To help analyze these factors we categorize them using the PESTEL model. This classification
distinguishes between political, economical, social, technological, ecological and legal factor. By
PESTEL analysis we can know about extended environment and key drivers of change of an
organization.
Political:

These refer to government policy such as the degree of intervention in the economy. What goods
and services do a government wants to provide, to what extent it believes in subsidizing firms,
what are its priorities in terms of business support.

The political factors related to automobile industry are:

Indian government auto policy aimed at promoting an integrated, phased and conductive
growth of the Indian automobile industry.
Promoting multi-model transportation and the implementation of mass rapid transport
system.
Changes in taxation policy.
Foreign equity investment up to 100% in the automotive sector and there is no minimum
investment criteria.

Economical:

These include interest rates, taxation changes, economic growth, inflation and exchange rates.
Economic change can have a major impact on a firm's behavior.

The economics factors related to automobile industry are:

Weighted tax deduction of up to 150% for in-house research and R&D activities.
Govt. has granted concessions, such as reduced interest rates for export financing.
Several Indian firms have partnered with global players.
Rise in price of the raw materials.
 Increase in petrol price.
Cost of automobile in India is the cheapest in world .The cost of a finished vehicle here is
as much as the cost of gear box in developed countries. Hence there exists tremendous
scope for exports.
Deteriorating foreign exchange situation in western country, poor buying capacity and
comparatively cheaper import of second hand automobile from developed country
reduces the export of automobile from India in recent days.

Social:

Changes in social trends like population increase can impact on the demand for a firm's products
and the industry as a whole.

The social factors related to automobile industry are

Indian customers are highly price sensitive and put a lot of emphasis on value for money.
Changed lifestyle of people has lead to increased purchase of automobiles. So the
company has a large customer base to serve.
Upward migration of household income levels.
Preference for fuel efficient vehicles with lower running cost.
Growth in urbanization.

Technical:

New technologies create new products and new processes. Technology can reduce costs,
improve quality and lead to innovation. These developments can benefit consumers as well as
the organizations providing the products. Sometimes the technology reduces the life cycle of
products. The technological factors related to automobile industry are

Accelerated acquisition of technology capabilities to raises productivity in agriculture.

Continuous technological innovation.
Renewable energy development. Ex, coal gas renewable.

Environmental:

The ecological factors related to automobile industry are

 Physical infrastructure such as roads and bridges affect the use of automobiles.
Global warming.

Legal:

These are related to the legal environment in which firms operate. In recent years the changes
legal factors of developed countries affected firms' behaviour in other countries due to
globalization. Legal changes can affect a firm's costs if new systems and procedures have to be
developed and demand if the law affects the likelihood of customers buying the good or using
the service. The legal factors related to tractor industry are

Collaboration with government which shapes policy issues.

Legal provision relating to environmental pollution by automobiles.
Legal provisions relating to safety measures.

3.4 PORTER’S FIVE FORCES (P5F) ANALYSIS

A Porter's Five Forces Analysis explores five principal industry factors to determine the
attractive of a given industry in a given market. In this, we look at the automobile industry in
India. This is independent of any manufacturer. As such, it applies to every Indian car
manufacturer.

In any P5F analysis, one must examine the following:

1. The threat of new entrants.

2. The bargaining power of buyers/customers.

3. The threat of substitute products.

4. The amount of bargaining power suppliers have.

5. The amount of rivalry among competitors.

 The threat of new entrants:

In most markets, the capital and expertise needed to setup an auto or parts manufacturing
facility would be a great enough barrier to entry to prevent many new entrants from setting
up.

However, given India's incredible growth forecasts, infrastructure progress (especially new
and better roads), and ever-expanding financing options to rural residents, the market is
attractive. As such, we expect the threat of new entrants to be high.

The bargaining power of buyers/customers:

Buyers in India have a wide variety of choice. There are more than 20 foreign manufacturers
selling in India (including ultra high-end such as Rolls-Royce and Lamborghini). Of course
there are also a plethora of incredibly cheap choices, like the famous Tata Nano.

The threat of substitute products:

India is famous for its two-wheelers (bikes and mopeds) and three-wheelers. These are very
real and obvious threats to auto manufacturers

The amount of bargaining power suppliers have:

It is likely that the suppliers to the manufacturers have considerable bargaining power. They
are not held ransom by one single manufacturer as they can market their products to any of
the others in India.

The amount of rivalry among competitors:

The amount of rivalry amongst competitors in India is high. The industry is not yet in its
shake-out phase and is still struggling to find the up-and-coming stars and possibly topple the
leaders.
3.5 SWOT Analysis of Ashok Leyland:

Strengths Weaknesses
Adaptability of the company in the fast change of Low Margin
the Environment.

Rich Experience of the management High Price

Wide variety of Services to match with every level Sales representatives are less
of customers

High Market Share & Strong Functional Structure There is no proper mechanism to handle the
grievance of the customers.

Well combination of new Energetic & Experienced Strict union which oppose Management decisions
Employees

Opportunities Threats

Due to liberalization, demand for heavy vehicle High competition

has steeped up all over the globe.

National market through good Advertisement. Liberal Credit policy of other brand

Company should provide better credit facility to Complicated national Market

dealers

Company should introduce Promotional Programs Good Replacement facility if other brands