Peugeot leaving india


The case explores the reasons for the poor performance in, and the eventual exit of the French automobile company Peugeot from India. It discusses various problems faced by Peugeot and Premier Automobiles Ltd. (PAL), their joint venture partners, in their formative years. It played a major role in the joint venture company's failure and its eventual closure
Closing Down

In October 1994, Europe's 4th largest automobile major, Peugeot of France (Peugeot), entered the Indian automobile market through a joint venture with Premier Automobiles Ltd. (PAL), christened as PAL-Peugeot Ltd. As Peugeot was one of the first automobile MNCs to enter India, the early mover advantage was expected to help the company make its mark in the Indian automobile market. According to reports,1 Peugeot was set to achieve cash breakeven within two years and to begin generating profits by 1998. Peugeot decided to enter the Indian market with its passenger car model, Peugeot 309, as the car was believed to be the best suited for Indian terrain. Production began at the Kalyan plant and the car was launched in 1995, positioned in the mid-size segment, against Daewoo's Cielo and Maruti's Esteem. The initial response to the car was positive, with the company selling around 10,000 units in the first year of the launch. However, Peugeot's ambitious plans soon went haywire when production at the Kalyan plant was disrupted due to labour unrest in mid 1996. Production of the Peugeot 309 had to be halted resulting in mounting losses and a severe cash crunch. Problems surfaced with PAL regarding certain strategic issues including infusion of fresh funds and violation of the PAL-Peugeot MoU. By 1997, the company's accumulated losses touched over Rs 3 billion. In November 1997, Peugeot announced its decision to exit from the joint venture and leave the Indian market. The news came as no surprise, as there had been several media reports about how Peugeot was finding it difficult to survive in the Indian market. Peugeot of course claimed that it was moving out of India only because of a policy decision by its parent company to concentrate only on European markets. Pegueot's exit from the Indian market opened up a debate on a host of issues including the company's blunders, and more importantly, the survival prospects of MNC players in the newly-liberalized Indian economy.
Background Note

The history of Peugeot dates back to the early 1800s, with the France-based Peugeot family setting up a milling business. In 1810, the family converted its grain mill into a steel foundry, which began supplying springs to the clock industry.

Over the next few decades, the company soon diversified into producing coffee grinders, razors for hairdressers, sewing machines, roasting spits, clocks, garden furniture, bicycles, tricycles, and gramophones, through the company Les Fils de Peugeot Freres (LFdePF). In 1896, a new company, 'Automobiles Peugeot Company' (APC) was formed which began producing cars and trucks. By 1913, it was credited with having produced half the cars in France. The initial models of the company included Type 15, Bebe Peugeot and Peugeot Lion. In 1910, LFdePF and APC were merged to create Automobiles et Cycles Peugeot (ACP). In 1921, Peugeto acquired a carmaker De Dion Bouton. Five years later, ACP was separated into two companies, Cycles Peugeot and Societe des Automobiles Peugeot. In 1929, the Peugeot 201 was launched, becoming the first model whose name included a '0' for the second digit.2 The next few decades saw the company expanding significantly on a global scale. In 1974, Peugeot acquired 38.2% stake in Citroen,3 with each company maintaining its model range and sales network. Peugeot took over the management of the combined organization and shared operations such as research, purchasing and investments. In 1976, Citroen was merged with Peugeot. By 2001, Peugeot Citroen was present in over 142 countries (Refer Exhibit I) and had diversified into an automotive equipment, transportation and finance businesses with sales of over 27,025 million euros. Peugeot's partner, PAL, was one of India's first automobile manufacturing companies, established in 1944 by the Walchand Hirachand family. The family owned many other businesses, including Hindustan Shipyard, Hindustan Aeronautics, Hindustan Construction, Rayalgaon Sugar and Walchandnagar Industries. In the early 1950s, PAL entered into a technical agreement with the Italian automobile major Fiat for manufacturing Fiat 500 in India...
Starting Problems

Despite the impressive 10,000 unit sales in its first year, Peugeot recorded a loss of Rs 920 million for the year 1995-96 (12 months). The company's problems could by and large be traced back to PAL's association with Fiat.

After having partnered Fiat in India for a significant time, PAL entered into a new technical agreement to assemble the Fiat Uno at its Kurla plant and the technical agreement was changed into a joint venture in 1997. The June 1996 production slowdown at the Kalyan plant had its roots in the problems at PAL's Kurla plant where the workers had gone on strike over issues related to wages, incentives and VRS. PAL was manufacturing the Premier Padmini and the Premier 118NE at the Kurla plant (later the Uno and Siena models as well) and the Peugeot 309

and the 118NE at the Kalyan plant. The Kurla and Kalyan plants were dependent on each other as the Kurla unit was the sole supplier of components such as gearboxes and rear axles to the Kalyan plant...
The Final Countdown

PAL was reportedly unhappy with Peugeot over the indigenisation of the 309. The 309 was only 24% indigenised. This made the spare parts very expensive and the company was unable to reduce the price of the car. PAL claimed that Peugeot was just not interested in increasing the indigenization level of the vehicle. There were reports of disagreements over the high price of the CKD from Peugeot as well. Due to the 1996 labor problems, the company had to bear heavy inventory carrying costs. To compensate for this, PAL reportedly asked Peugeot to cut down the CKD prices and release funds as loan to the joint venture. PAL sources said that Peugeot could have advanced loans to the company by treating CKD and other equipment with the venture as security for the loan. PAL even requested Peugeot to use its name to raise bank loans abroad for the joint venture, where the cost of funds was much lower than in India...
Gone Forever?

Peugeot's announcement in August 1999 that it had agreed to license its diesel engines to PAL for 5 years took observers by surprise. Peugeot also decided to write off claims on PAL amounting to Rs 850 million on account of license and technical fees. The fact that the deal did not involve any royalty payments and that Peugeot had agreed to transfer its stake in the joint venture to PAL added to the mystery. In January 2001, Peugeot Citroen and Telco began discussions for introducing a luxury car in India. There were also reports of Peugeot planning a tie-up with the Indian two-wheeler major Hero Honda to enter the motorcycle segment in India. Interestingly enough, the FI's were reported to be planning to use their clout in the Foreign Investment Promotion Board (FIPB) to protest against the re-entry of Peugeot. However, in July 2001, after the completion of various feasibility studies, Telco and Peugeot decided against going ahead with the project for the time being...

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For other uses, see Daewoo (disambiguation). Daewoo Hangul 대우 Hanja 大宇 Revised Dae-u Romanization McCuneTaeu Reischauer

Daewoo (Korean for "Great Universe") was a major South Korean chaebol (conglomerate). It was founded on 22 March 1967 as Daewoo Industrial and was dismantled by the Korean government in 1999. Prior to the Asian Financial Crisis of 1998, Daweoo was the second largest conglomerate in Korea after Hyundai, followed by LG and Samsung. There were about 20 divisions under the Daewoo Group, some of which survive today as independent companies.

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1 Corporations o 1.1 GM Daewoo 2 History o 2.1 Kim's vision 3 Crisis and collapse o 3.1 Factors that affected Daewoo's performance o 3.2 Analysis 4 Breakup and present status 5 Corporate Websites 6 See also

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7 References 8 External links

[edit] Corporations

The That-El-Emad towers built by Daewoo Construction in Tripoli, Libya

There were about 20 divisions under Daewoo Group, which before the crisis was the second largest conglomerate in Korea after Hyundai, followed by LG and Samsung. Daewoo Group had under its umbrella several major corporations:
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• • • •

Daewoo Electronics, a strong force both internationally and in Korea Daewoo Heavy Industries, which created heavy duty machinery Daewoo Shipbuilding & Marine Engineering produced containerships and oil tankers. It spun off in 2000 and became an independent company, DSME, relisting on the Korean stockmarket in 2001 Daewoo Securities, a financial securities company Daewoo Telecom, which concentrated on the telecommunications Daewoo Construction, which built highways, dams and skyscrapers, especially in the Middle East and Africa Daewoo International, a trading organization

A further subsidiary was the Daewoo Development Company, funded by cash from the Group, and set up to develop hotels. Seven were built in Korea, China, Vietnam, and Africa. They were personally designed and furnished by Kim Woojoong's socialite wife Heeja who was Chairwoman of the company. The most lavish was/is the 5-star Hanoi Daewoo Hotel which cost US$163 million in 1996 and was decorated by Heeja with fine art, porcelain, sculptures, and marble. She invited 3000 guests to the opening, including Russian President Vladimir Putin. There is an 18-hole golf course in the grounds and a swimming pool which is thought to be the largest in Asia. Kim is believed to have spent time there while "on the run".[1]
[edit] GM Daewoo For specific Daewoo vehicle models, see Category:Daewoo vehicles.

Daewoo Motors arrived in the UK in 1995. At the time, it was the only manufacturer not using traditional dealerships; it owned and operated its own retail network. It was once considered to be near the top 10 motor companies in terms of production.

Daewoo was forced to sell off its automotive arm, Daewoo Motors, to General Motors by the Kim administration. Since then, GM has been moving to rebadge Daewoo cars as the low-end models for many brands, including Chevrolet and Pontiac. GM was sued by Daewoo's former U.S. dealer network over this practice, since they no longer had new Daewoo cars to sell. Daewoo commercial vehicles division was sold to Tata Motors of India.
See also GM Daewoo and Daewoo Motor Sales
[edit] History

The Daewoo Group was founded by Kim Woo-Jung in March 1967. He was the son of the Provincial Governor of Daegu. He graduated from the Kyonggi High School, then finished with an Economics Degree at Yonsei University in Seoul. It became one of the Big Four chaebol in South Korea. An industrial and multi-faceted service conglomerate, Daewoo was prominent in expanding its global market through joint ventures all over the world. During the 1960s, after the end of the Syngman Rhee government, the new government of Park Chung Hee intervened to promote growth and development in the country. It increased access to resources, promoted exports, financed industrialization, and provided protection from competition to the chaebol in exchange for a company's political support. In the beginning, the Korean government instigated a series of five-year plans under which the chaebol were required to achieve a number of basic objectives. Daewoo did not become a major player until the second five-year plan. Daewoo benefited from government-sponsored cheap loans based on potential export profits. The company initially concentrated on labor-intensive clothing and textile industries that provided high profit margins. The most significant resource in this plan was South Korea's large workforce. The third and fourth of the five-year plans occurred from 1973 to 1981. During this period, the country's labor force was in high demand. Competition from other countries began eroding Korea's competitive edge. The government responded to this change by concentrating its effort on mechanical and electrical engineering, shipbuilding, petrochemicals, construction, and military initiatives. At the end of this period, the government forced Daewoo into shipbuilding. Kim was reluctant to enter this industry, but Daewoo soon earned a reputation for producing competitively priced ships and oil rigs. During the next decade, the Korean government became more liberal in economic policies. Small private companies were encouraged, protectionist import restrictions were loosened, and the government reduced positive discrimination, to encourage free market trade and to force the chaebol to be more aggressive abroad. Daewoo responded by establishing a number of joint ventures with U.S. and European companies. It expanded exports of machine tools, defense products, aerospace interests, and semiconductor design and manufacturing. Eventually, it began to build civilian helicopters and airplanes, priced considerably cheaper than those produced by its U.S. counterparts. It also expanded efforts in the automotive industry and was ranked as the

seventh largest car exporter and the sixth largest car manufacturer in the world. Throughout this period, Daewoo experienced great success at turning around faltering companies in Korea. In the 1980s and early 1990s, the Daewoo Group also produced consumer electronics, computers, telecommunication products, construction equipment, buildings, and musical instruments (Daewoo Piano).
[edit] Kim's vision

Kim Woo-Choong was an excellent entrepreneur. He led the company's growth from an $18,000 initial capital value to $25 billion in annual sales. Some of the solutions he employed to counter problems his company faced are as follows:

He used organizational politics to work with the government. He understood that to gain power, resources, and growth, he needed the protection of the government Daewoo Group was excellent at turning around faltering companies due to a well-managed, highly centralized organizational structure. Under Kim's vision, he developed a unique culture in his chaebol known as the "Daewoo Spirit". This spirit meant a commitment to creativity, challenge, and sacrifice. Kim believed in co-prosperity whereby the company provides value to employees, customers, suppliers, partners, and the country as a whole Daewoo enlarged its capital supply sources by diversifying its method of securing funds, including leasing and deferred payments. It raised funds successfully overseas for large foreign investment projects Daewoo established a number of joint ventures with U.S. and European companies. Under the Vision 2000 campaign, Daewoo established jointventure production facilities, invested in foreign facilities, established sales and local subsidiaries, and localized component production and other operations. This campaign was aimed at strengthening Daewoo's international competitiveness After two workers committed suicide in 1987, Kim developed a unique program to mend management-labour relations. Managers and company presidents were required to work on the assembly line, and assembly line workers could be promoted to management level. This policy was aimed at improving the management-labour relations as well as helping managers to understand the difficulties and problems on the assembly line Daewoo increased their R&D expenditures to be more internationally competitive. To boost this effort, Daewoo established a technology R&D team called the Institute for Advanced Engineering. This team used three strategies in technical development: competitiveness, managerial system development, and the use of a technology network

Kim also wrote a book in 1992 on how he brought Daewoo from a 20-man company to an international group in his Every Street is Paved With Gold (ISBN 0-688-11327-3) or in Korean, The World Is Big And There's Lots To be Done, 세계는 넓고 할 일은 많다
[edit] Crisis and collapse

Daewoo Group ran into deep financial trouble in 1998 due to the Asian financial crisis, increasingly thin relationships with the Korean government under President Kim Dae Jung, and its own poor financial management. With the Korean government in deficit, traditional reliance on access to cheap and nearly unlimited credit was severely restricted. In 1998, when the economic crisis forced most of the chaebol to cut back, Daewoo brazenly added 14 new firms to its existing 275 subsidiaries, in a year where the group lost a total of 550 billion won ($458 million) on sales of 62 trillion won ($51 billion). At the end of 1997, South Korea’s four biggest chaebol had a debt of nearly five times their equity. While Samsung and LG cut back in the midst of the economic crisis, Daewoo took on 40% more debt."[2] By 1999, Daewoo, the second largest conglomerate in South Korea with interests in about 100 countries, went bankrupt, with debts of about 80 billion won ($84.3 million). Soon after the demise, Chairman Kim Woo-Choong fled to France, and former Daewoo factory workers put up "Wanted" posters with his picture. Kim returned to Korea in June 2005 and was promptly arrested, after spending six years abroad. Kim was charged with masterminding accounting fraud worth 41 trillion won ($43.4 billion), illegally borrowing 9.8 trillion won ($10.3 billion) and smuggling $3.2 billion out of the country, according to South Korea's Yonhap News Agency.[3] On 30 May 2006, Kim was sentenced to 10 years in prison after being convicted of fraud and embezzlement. On the last day of the trial, Kim tearfully addressed the court, "I cannot dodge my responsibility of wrongly buttoning up the final button of fate."[4]
[edit] Factors that affected Daewoo's performance

• •

Government intervention: Government policy served as a double edged sword: it protected the chaebol, providing them with massive subsidies, unlimited cheap credit, and protection against foreign competition. However, the price for these services was total loyalty to the government. Chaebol were forced to take over industries against their will. The government was constantly involved in their businesses and stifled their creativity. Labor market: The traditional work ethic that helped Korea reach economic prosperity has been threatened as workers have begun increasingly violent protests against years of long hours and low pay. Daewoo shipbuilding suffered heavy losses due to workers' demands for pay raises. Operating in a global economy: International demand for free trade is forcing the Korean government to open its market. The chaebol will lose its protectionist import controls. Most recently, the North American Free Trade Agreement and the European Economic Community imposed trade limitations. Product quality from Korea: Korean products were considered to be of low quality. By the 1990s, Daewoo Group was heavily leveraged, major markets were stagnant, expenditures on R&D were increasing, labor unrest was continuing, and government policy was turning against the company. Kim was most recently charged with allegedly paying campaign contributions to former president Roh Tae Woo in exchange for a large government contract to build a submarine base.

[edit] Analysis

According to an article by the "Economist," dated 19 August 1999, not long after Daewoo's insolvency, "Its failure was a long time coming." The downfall of Daewoo was and still remains highly controversial, because of the sheer importance of chaebols in the national economy. The collapse caused billions of dollars in losses for both South Korean banks and the government, who were forced to stage-manage Daewoo's dissolution to soften the blow. The bankruptcy was not merely a financial, but also a political, crisis, and came as a shock to much of the nation. Michael Schuman of Time stated that while Daewoo's demise had significant consequences, it would have nonetheless been better than propping it up with fresh funds. There was a persistence of the belief that Daewoo and other Korean conglomerates were "too big to fail". Such belief led many bankers and investors to continually waste money on bailouts, despite the sign that Daewoo was unable to engineer a turnaround and repay these bad loans. Once the too-big-to-fail perception was dispelled, with large conglomerates no longer considered the safest investments, bankers and investors began financing new opportunities in areas which had been starved of capital, such as small firms, entrepreneurs and consumers. Korea's GDP actually rose after Daewoo's unwinding. Schuman also noted a similar analogy with Japan during its lost decade of the 1990s, where banks kept injecting new funds into unprofitable "zombie firms", on the belief that the firms were too big to fail. However, most of these companies were too debt-ridden to do much more than survive on further bailouts, which led to an economist describing Japan as a "loser's paradise." Schuman states that Japan's economy did not begin to recover until this practice had ended. [5]
[edit] Breakup and present status

The group was reorganized into three separate parts: Daewoo Corporation, Daewoo Engineering & Construction and Daewoo International Corporation. They are active in many markets, most significantly in steel processing, ship building and financial services. The corporate entity known as "Daewoo Corporation" is now know as "Daewoo Electronics" and is focused only in manufacturing electronics. Daewoo Electronics survives to this day despite bankruptcy, with a new brand logo "DE", but many of the other subsidiaries and divisions have become independent or simply perished under the "reorganisation" of the Korean government under Kim Dae Jung. In North America, Target stores market Daewoo Electronics products under their "Trutech" brand on an ODM basis. In 2004, General Motors pulled the Daewoo brand of vehicles out of Australia and New Zealand, citing irreparable brand damage. Later that same year, GM announced that Daewoo Motors in Europe would change its name to Chevrolet on 1 January 2005. In 2005, it was announced that Daewoo cars would have a Holden badge in Australia and New Zealand. In South Africa,

Thailand and the Middle East, Daewoo models were already being sold as Chevrolets. Only in South Korea and Vietnam does the Daewoo marque survive. The Daewoo commercial vehicle manufacturer was taken over by Tata Motors - the world's 5th largest medium and heavy commercial vehicle manufacturer. Daewoo is also moving into oil and gas industry. While western oil and gas companies were unwilling to conduct business in Burma[6] on account of the abysmal human rights record of the ruling military junta, Daewoo is one of three oil companies, along with the French company Total and the American company Unicol,[citation needed] which is already, or is close to, starting gas production in the country[citation needed](at the Yadana Field). During explorations, Daewoo found one of the largest gas fields in southeast Asia. The field is located at blocks A-1 and A-3 at the Shwe field, about 100km off Sittwe in Rakhine state. The field will go into production in five years, thereby providing a lucrative (and probably the largest) source of hard currency for the ruling junta. It is unclear whether the association between Daewoo and the oppressive military regime[dubious – discuss]{ Burma strikes Gold, Upstream 28 August 2008}, responsible for the recent bloody crackdown on peaceful monk-led anti-government protesters in September and October 2007, wholly inadequate warning and response to Cyclone Nargis in May 2008, will hurt the reputation of the company. However, Daewoo has long been one of the largest foreign investors in the country. Daewoo International President Lee Tae-yong was convicted in South Korea for illegally selling military hardware to the junta.[dubious – discuss]{Burma strikes Gold, Upstream 28 August 2008} Daewoo sold the military hardware apparently in exchange for the award of the offshore concession blocks to Daewoo. In court, Lee defended his actions as being in "South Korea's national interest" (Burma strikes Gold, Upstream 28 August 2008). On 15 November 2007, Lee and thirteen other South Koreans were convicted of illegally exporting weapons technology and equipment to Burma.[

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