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Michelin in the Land of the Maharajas

Group 10:
Bhargav Uday Chandra – 211 Nihal Kumar – 231 Harsh Kumar - 269
Tushar Ganatra – 224 Vaibhav Kumar - 232
Shilpa Kaul – 228 Tanya Goel -
Growth in Indian Automobile Industry

Following India's growing openness, the arrival of new and existing models, easy availability
of finance at relatively low rate of interest and price discounts offered by the dealers and
manufacturers all have stirred the demand for vehicles and a strong growth of the Indian
automobile industry. Annual growth was 16.0 per cent in April-December, 2004; the growth
rate in 2003-04 was 15.1 per cent.
With investment exceeding Rs. 50,000 crore, the turnover of the automobile industry
exceeded Rs. 59,518 crore in 2002-03. Including turnover of the auto-component sector, the
automotive industry's turnover, which was above Rs. 84,000 crore in 2002-03, is estimated to
have exceeded Rs.1,00,000 crore ( USD 22. 74 billion) in 2003-04.

The industry has adopted the global standards and this was manifested in the
increasing exports of the sector. After a temporary slump during 1998- 99 and 1999-00, such
exports registered robust growth rates of well over 50 per cent in 2002-03 and 2003-04 each
to exceed two and- a-half times the export figure for 2001-02.
Automobile Export Numbers

Category 1998-99 2004-05 (Apr-Dec)
Passenger Car 25468 121478
Multi Utility Vehicles 2654 3892
Commercial Vehicles 10108 19931
Two Wheelers 100002 256765
Three Wheelers 21138 51535
Percentage Growth -16.6 32.8


Sales incentives, introduction of new models as well as variants coupled with easy
availability of low cost finance with comfortable repayment options continued to drive
demand and sales of automobiles during the first two quarters of the current year. The risk of
an increase in the interest rates, the impact of delayed monsoons on rural demand, and
increase in the costs of inputs such as steel are the key concerns for the players in the

As the players continue to introduce new models and variants, the competition may intensify
further. The ability of the players to contain costs and focus on exports will be critical for the
performance of their respective companies.

The auto component sector has also posted significant growth of 20 per cent in 2003-04, to
achieve a sales turnover of Rs.30,640 crore (US$ 6.7 billion). Further, there is a potential for
higher growth due to outsourcing activities by global automobiles giants.

Positioning of Michelin in Emerging Countries

It is expected that demand will go up in China, and subsequently in India as well as Russia
and Brazil. When truck owners will discover that they get better value with radial tyres, they
will move on to them. The road conditions in India and China were similar at the time, and
hence tyre companies need to 'customise' the tires for such roads.
India and China are two of Asia's key markets, so Michelin would be in an extraordinarily
strong position in the continent if it could build up its strength here. Both these countries have
trucks which are overloaded trucks way beyond capacity. So Michelin needs to make those
radial tyres adaptable to their roads. Besides, if they want a shift in the tyre pattern of the
truck owners, they need to convince the trucks owners about the extra value that he would
derive using Michelin tyres. There is also a need for careful pricing of the tyres such that it
does not come across as a high-end premium product, and hence unaffordable for many
A strong position in Asia would help Group Michelin in a big way. The tyre industry
worldwide is brutally competitive and the top three players are constantly jostling for the top
spot. Michelin is the market leader with around 19 per cent of the world market and over a
billion dollars in profits.
It should use a Multinational product strategy combined with new product innovation - This
strategy extends the product life, avoids the risk of market, expand the market, and thus
improve the competitive environment. In the Chinese market, Michelin’s advanced R&D of
the product promises to meet various customers’ needs, making the scale of Michelin expand
continuously, for example, Green Tire, Alpine etc. It should be targeting the high price
segment in the market, commanding premium due to its brand and product innovations.

Compromise on Quality?

Being a reputed player in the global tyre industry and known for its standardized quality,
Michelin’s entry into the Indian market should not be characterized by a cut in quality or
technology to earn supernormal profits. Michelin, having very high operational efficiencies,
to the tune of just about 24% expenses related to input costs can afford to go in either for an
aggressive marketing campaign in an effort to obtain greater market share. Michelin can also
afford to enter into a price war in the competitive tyre industry and win the price war because
of its efficiencies.

Joint Venture or Operating Solo?

Considering the dynamics of the Indian tyre and automobile industry, Michelin’s entry into
India as a solo venture would take a considerable amount of time to
a. Create Brand Identity
b. Establish a strong distribution network
Michelin’s strategy to enter should revolve around forming a joint venture with either of JK
Tyres or Apollo Tyres since a JV with MRF will not be beneficial for MRF and would be
rejected by the latter. Now, JK Tyres being the leader in the commercial tyre market would
not see a significant boost in their bottom line as a result of the Joint Venture and JK tyres
also has technological links with the German Giant “Continental”. The synergies derived out
of the two businesses operating together are not going to be greater than each of the
companies operating as stand-alone entities.
Michelin can go in for a JV with Apollo Tyres, which has a strong export market but a
relatively low domestic market. Michelin’s technological expertise and their operational
efficiencies can be leveraged by Apollo while Michelin can tap on the strong distribution
network of Apollo Tyres.