PORTERS FIVE FORCES ANALYSIS- THE INDIAN AUTOMOBILE INDUSTRY SUBJECT – STRATEGIC MANAGEMENT

Submitted by: Sandeep Kumar Singh Pintoo Prasad Ujjwal Kumar Rameez Abbas Alok Kumar Ankit Saraswat Nivedita Singh Himanshu Bisht

Submitted to:Prof. Hitesh Manocha

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Gurgaon neighboring New Delhi. Mahindra and Mahindra in the process of setting up or already set up facilities. with the Indian city accounting for 60 per cent of the country's automotive exports. a time when a car had touched the Indian streets for the first time. the country is expected to top the world in car volumes with approximately 611 million vehicles on the nation's roads. As of 2009. Chakan corridor near Pune. Withstanding a growth rate of 18% per annum and an annual production of more than 2 million units.5 million cars were sold in India in 2009 (an increase of 26%). A major chunk of India's car manufacturing industry is based in and around the city of Chennai (also known as "Detroit of India").3 million units in 2008 — is expected to become one of the major global automotive industries in the coming years. Maharashtra is another prominent vehicular production hub with General Motors. Kolkatta in West Bengal are some of the other automotive manufacturing regions around the country. Aurangabad in Maharastra . India is home to 40 million passenger vehicles and more than 1. Halol in Gujarat.INTRODUCTION: Indian automobile industry has grown leaps and bounds since 1898. At present it holds a promising tenth position in the entire world with being # 1 in Two Wheelers and # 4 in commercial vehicles. 2 . making the country the second fastest growing automobile market in the world. Volkswagen/ Skoda. By 2050. The automobile industry in India — the ninth largest in the world with an annual production of over 2. it may not be an exaggeration to say that this industry in the coming years will soon touch a figure of 10 million units per year.

285 36. 238 million dollars.238 3 .612 38.Genre of Indian Automotive Industry: - The above diagram shows the current genre of the Indian Automobile Industry. Gross Turnover: The Indian automobile industry has seen a steady increase of its total turnover over the years. Below is a table depicting the Gross Turnover of the Indian Automobile Industry in the past five years.896 27. As of the last Financial Year 2008-09. the figure has been 38.011 34. GROSS TURNOVER OF THE AUTOMOBILE INDUSTRY IN INDIA Year 2004-05 2005-06 2006-07 2007-08 2008-09 (IN USD MILLION) 20.

Current Market Share of the Indian Automobile Industry: - Current Market Share Source: SIAM 4 .

Industry Analysis: - Five Forces Model INTRODUCTION Assessing the Balance of Power in a Business Situation The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in a business situation. However it 5 . because it helps you understand both the strength of your current competitive position. With a clear understanding of where power lies. This makes it an important part of your planning toolkit. This is useful. improve a situation of weakness. the tool is used to identify whether new products. and the strength of a position you're considering moving into. you can take fair advantage of a situation of strength. and avoid taking wrong steps. Conventionally. services or businesses have the potential to be profitable.

if no-one else can do what you do. Again. the cost of switching from one to another. then this weakens your power. The fewer the supplier choices you have. Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. the cost to them of switching from your products and services to those of someone else. if you supply a unique software product that automates an important process. If substitution is easy and substitution is viable. their strength and control over you. Supplier Power: Here you assess how easy it is for suppliers to drive up prices. and they offer equally attractive products and services. then they are often able to dictate terms to you. this is driven by the number of buyers. and so on. then you can often have tremendous strength. the uniqueness of their product or service. Competitive Rivalry: What is important here is the number and capability of your competitors. This is driven by the number of suppliers of each key input. 4. because suppliers and buyers will go elsewhere if they don't get a good deal from you. These are: 1.can be very illuminating when used to understand the balance of power in other situations too. powerful buyers. the more powerful your suppliers are. and so on. Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do – for example. and the more you need suppliers' help. Understanding the Tool: Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. If you have many competitors. the importance of each individual buyer to your business. 2. 3. then you'll most likely have little power in the situation. people may substitute by doing the process manually or by outsourcing it. 6 . On the other hand. If you deal with few.

If it costs little in time or money to enter your market and compete effectively. or if you have little protection for your key technologies. then new competitors can quickly enter your market and weaken your position. if there are few economies of scale in place. then you can preserve a favorable position and take fair advantage of it. Threat of New Entry: Power is also affected by the ability of people to enter your market.5. If you have strong and durable barriers to entry. These forces can be neatly brought together in a diagram like the one below: 7 .

convenience. a domestic company. but none offer the utility. These forces are Degree of Rivalry Despite the high concentration ratio seen in the automotive sector. the power axis is tipped in industry’s favor. Buyers’ Power In the relationship between the automotive industry and its ultimate consumers. independence and value offered by automobiles. establishing companies are entering the new markets through strategic partnerships or through buying out or merging with other companies. The switching cost associated with using a different mode of transportation. Supplier’s Power In the relationship between the industry and its suppliers. The industry rivalry is extremely high with any being product being matched in a few months by the competitors. rivalry in the Indian auto sector is intense due to the entry of foreign companies in the market. convenience and utility. This instinct of the industry is primarily driven by technical capabilities acquired over years of gestation under the technical collaboration with international players. 8 . The industry is comprised of powerful buyers who are generally able to dictate their terms to the suppliers. Although the barriers to new companies are substantial. However. Numerous other forms of transportation are available. the startup capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. the power axis is tipped in the consumers’ favor.Michael Porter identifies five forces that influence an industry. For a new company. Threat of Substitutes The threat of substitutes to the automotive industry is fairly mild. Barriers to entry The barriers to enter automotive industry are substantial. with local knowledge and expertise. may be high in terms of personal time. has the potential to compete its home market against the global firms who are not well established there. This is due to the fairly standardized nature and the low switching costs associated with selecting from among competing brands.

SWOT Analysis A scan of the internal and external environment is an important part of the strategic planning process. and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis. SWOT analysis of the Indian automobile sector gives the following points: Strengths      Large domestic market Sustainable labor cost advantage Competitive auto component vendor base Government incentives for manufacturing plants Strong engineering skills in design etc Weaknesses      Low labor productivity High interest costs and high overheads make the production uncompetitive Various forms of taxes push up the cost of production Low investment in Research and Development Infrastructure bottleneck Opportunities      Commercial vehicles: SC ban on overloading Heavy thrust on mining and construction activity Increase in the income level Cut in excise duties Rising rural demand Threats    Rising input costs Rising interest rates Cut throat competition 9 . Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W).

 Recommendations:  Manufacture and export of small cars. Appropriate Tariff Policy should be followed to attract further investments in the Automobile Sector. The total investments required to support the estimated growth are around US$ 120-159 billion by 2016.Growth Forecasts  The size of the Indian automotive industry is expected to grow at a rate of 13% per annum over the next decade to reach around 31. Infrastructure development around identified automotive clusters should be undertaken. Policy initiatives for competitiveness and development of technology should be taken. tractors. A road map for Auto Fuel Policy beyond 2010 should be considered. Multi Utility Vehicles (MUV). Measures should be taken to expand the domestic market. components should be further promoted in lieu of the current export trends. Exports should be more encouraged.96 Million in 2016 from 14Million in 2009. Emphasis should be on more product innovation and Value added services as the current customer demands better products and services aggressively.         10 . two & three wheelers. Setting up of virtual SEZ and Auto Parks for auto component industry should be considered.

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