The ride for big profit

Comparison of China and India Auto Industry

Business intelligence fe 2401
By:
Farrukh Sahar
800418 - P510
February 14, 2008
Fasd07@student.bth.se
Contents
Executive summary ................................................................................................................................. 5

1.0 Internal factors ............................................................................................................................... 6

1.1 China, India to Remain the Fastest growing automobile Markets ....................................... 6

1.2 India as a market for compact car and China as a sedan car ................................................ 6

1.3 Manufacturing process and net margins in prices ................................................................. 7

1.4 Continuous Rise in per capita incomes ................................................................................... 7

1.5 Comparison of saving rates and affordability ......................................................................... 7

1.6 Falling of vehicle prices ............................................................................................................. 7

1.7 Availability of cheaper financing .............................................................................................. 7

1.8 Competitive Cost Structure benefits ........................................................................................ 8

1.9 Investment policy by the government ..................................................................................... 8

1.10 Stability aspects in the auto market ....................................................................................... 8

1.10.1 At present returns in China Are High, but Likely to Fall.............................................. 8

1.10.2 Returns in India Are Likely to Remain Stable ............................................................... 8

1.11 Impact on Global Stage ............................................................................................................. 9

1.11.1 China Likely to Have Greater Impact on Global Stage .................................................. 9

1.12 Competition for capital ............................................................................................................ 9

1.13 Domestic demand and export ..................................................................................................... 9

1.14 Competitive environment ........................................................................................................ 9

1.14.1 China .................................................................................................................................... 9

1.14.2 India................................................................................................................................... 10

1.15 India and china auto industry statistical aspects ............................................................... 10

1.15.1 China auto industry.............................................................................................................. 10

1.15.2 India auto industry .............................................................................................................. 11

1.16Production ................................................................................................................................ 12

1.16.1China ................................................................................................................................... 12

1.16.2 India................................................................................................................................... 12
 1.17 Exports...................................................................................................................................... 12

1.17.1China ................................................................................................................................... 12

1.17.2 India ................................................................................................................................... 13

1.18 passenger car market size ...................................................................................................... 13

1.18.1 China .................................................................................................................................. 13

1.18.2 India .................................................................................................................................. 13

1.19 different market structures.................................................................................................... 14

1.19.1 China .................................................................................................................................. 14

1.19.2 India................................................................................................................................... 14

2.0 Macro Factors .................................................................................................................................. 14

2.1 Political ........................................................................................................................................ 14

2.1.1China ...................................................................................................................................... 14

2.1.2 India ...................................................................................................................................... 15

2.2 Economic ..................................................................................................................................... 15

2.2.1 China ..................................................................................................................................... 15

2.2.2 India ...................................................................................................................................... 16

2.3 Social............................................................................................................................................ 16

2.3.1 China ..................................................................................................................................... 16

2.3.2 India ...................................................................................................................................... 16

2.4 Technological ............................................................................................................................... 17

2.4.1 China ..................................................................................................................................... 17

2.4.2 India ...................................................................................................................................... 18

2.5 Demographical.......................................................................................................................... 18

2.5.1 China ................................................................................................................................... 18

2.5.2 India .................................................................................................................................... 19

2.6 Infrastructure ........................................................................................................................... 20

2.6.1 China ................................................................................................................................... 20

 2.6.2 India ...................................................................................................................................... 21

2.7 Ecological ..................................................................................................................................... 21

2.7.1 China ..................................................................................................................................... 21

2.7.2 India ...................................................................................................................................... 22

3.0 Analysis ......................................................................................................................................... 23

3.1 Forecast analysis of predicted demand of passenger cars .................................................. 23

3.1.1 Chinas auto industry overview ........................................................................................ 23

3.1.2 Indias auto industry overview ........................................................................................ 24

3.2 porters competitive analysis ...................................................................................................... 25

3.2.1 China ................................................................................................................................... 25

3.2.2 India .................................................................................................................................... 25

3.3 SWOT analysis .............................................................................................................................. 26

3.3.1China automobile sector Swot Analysis .......................................................................... 26

3.3.2 India automobile sector SWOT Analysis ........................................................................... 27

4.0 Analysis conclusion ..................................................................................................................... 29

5.0 Recommendations ....................................................................................................................... 29

6.0 References ..................................................................................................................................... 30

7.0 Acknowledgement........................................................................................................................... 32
Executive summary

China and India, the world's two most populous countries, used to be described as massive ships
passing in the night; such was the war of economic and other ties between the two neighbors. But they
are starting to sound the foghorns as they draw closer and they are pushing their limits to cross success
barriers.

The auto industry has risen to become one of the five largest industries in China. In spite of rapid
growth rate of all sectors in China's blooming economy, the auto industry has outperformed others in
the last seven years.

The automotive Industry in India is now functioning in terms of the dynamics of an open market.
Many joint ventures in auto industry have been set up in India with overseas collaboration.

To some extent China and India's strengths are complementary rather than clashing. Whereas China
has turn into the world's workshop for manufactured goods and India is on its way towards developing
a highly competitive services sector.

In the initial portion of the report follows the comparison between India and china automotive
industry based on internal factors such as market, financing, prices, production, imports etc.

Section two is derived by macro factors some of them are political, technological, infrastructural etc.

Section three is based on three different analyses of China and India car industries.

Last section is about conclusions derived from analysis that lead to business intelligence
recommendations and at last acknowledgement.
 Ref Cls CLI

1.0 Internal factors

1.1 China, India to Remain the Fastest growing automobile
Markets

The Chinese passenger car

market, which was smaller than
Indias five years back, after
speedy growth rate is now more
than twice as big in terms of
volumes.

In china about four times in terms

of revenues (average selling price
is more than double that in India).

China, followed by India, should

continue to remain the most
vibrant auto markets in terms of
growth over the next three years

1.2 India as a market for compact car and China as a sedan car
More than 75% of the cars sold in India are small cars, while in China a similar
percentage of sedans type cars are sold.
China could remain a large car market and India market of small cars reasons are
below
1. Indian Fuels prices, which are nearly 50% higher then China.
2. China has a better infrastructure for foreign investors then India.
3. Different consumer perspectives, as Chinese cars tend to be home shared
transportation rather than personal vehicles.
India will likely to stay supremacy in small-car market as long as petrol cross
 subsidizes kerosene/LPG.
The rising vehicle growth rate, incorporation of road tax into fuel price, and second-
car consumption could help motivate demand in the Chinese small car market.

1.3 Manufacturing process and net margins in prices

Car prices in China are amongst the highest in the world because of a high level of
import content.
Prices of larger sedans type cars (1500 cc) in India are also very expensive,
comparable to those in China, mainly due to very low volumes and high import
content.
The prices of compact cars in India are amongst the lowest in the world reasons are
below
1. India has a large domestic market of compact cars.
2. Apply of low cost automation procedures to manufacture automobiles.
3. Low labour costs.
1.4 Continuous Rise in per capita incomes
India's per capita income (nominal) is $820, ranked 128th in the world.
China has almost 30% more then Indias figure of per capita income.
This implies that vehicle demand is likely to follow growth in GDP per capita.

1.5 Comparison of saving rates and affordability

Chinas gross domestic savings rate, after averaging 40% or so of GDP for most of the
1990s, has developed over the past couple of years to close to 50% of GDP.
The saving rates in India are nearly half of china saving rates.
The Consumers in China and India are able to tap into savings to buy vehicles that
would normally seem unaffordable based on income alone.

1.6 Falling of vehicle prices

Vehicle prices in China are 20- 30% higher than in the US. They are expected to drop
by 8- 10% annually for the next few years, mainly driven by the overcapacity and
rapidly new model launches.
Vehicle prices of compact cars in India are lowest in the world but prices of sedan cars
are very expensive in India that is likely to be decrease in upcoming years because of
the competition in auto market.
1.7 Availability of cheaper financing
In China, only 10-15% of cars sold are through financing schemes.
Borrowing from banks in China is relatively inconvenient although cheap.
Banks cannot give good reason for risk premium in the rates.
 Loan issuing has been very conventional.
In India almost 75% cars are sold through financing schemes.
Borrowing from banks is usual thing.

1.8 Competitive Cost Structure benefits

India, like China, has low-cost manufacturing potential Because of availability of
cheap land, labor and utilities.
The salary levels in China higher than in India.
The productivity levels are similar amongst the OEMs.

1.9 Investment policy by the government

China in order to promote technological innovation and enhance product quality in
the
Local assembly plants, foreign auto companies are encouraged to make investments
in China, through the joint venture format.
India announced a new automobile investment policy. The new and improved
automobile investment policy removed previous local content and minimum
investment requirements.
Indias investment policy allows automatic approval for 100% foreign equity
investment for manufacturing automobiles and components.
In August 2002, the Indian government removed export performance requirements
for foreign automakers.

1.10 Stability aspects in the auto market

1.10.1 At present returns in China Are High, but Likely to Fall
China should remain the fastest rising market in the world and a significant source of
profits for global auto industries.
The highly fragmented Chinese market is expected to get intensely competitive as
with the passage of time capacity rate is getting higher and higher.
Net margins in China are high for passenger sedan OEMs because of very high car
demand and upstream components scale-up. These should come down finally, say
over the next three years, as a result of price deflation.

1.10.2 Returns in India Are Likely to Remain Stable

India should also be a high growth of auto market, its implication to a large number
of global automakers should be specified by limited boundaries because of the
compact car industry is mainly focus in India.
India should also have more secure growth and earnings margins as we expect greater
 pricing discipline.
In compact cars, competitive pressures are likely to be limited as we expect a healthy
demand/supply equation, at least over the next two years.

1.11 Impact on Global Stage

1.11.1 China Likely to Have Greater Impact on Global Stage
China currently accounts for a huge portion of profits for several car makers,
including Volkswagen, Honda, and General Motors.
China will likely be a major source of incremental auto demand and profits globally
and has long-term competence to serve as a vital export base for vehicles.
In India more than 85% of the cars sold are small cars.
In China a similar percentage of sedans are sold. That gives China a potential
prospect to export cars and components in future.

1.12 Competition for capital

Over the next three years, capital allocation decisions of global majors would be
primarily based on growth/profit prospects in the domestic market, which is likely to
be higher in China.
However, if the chinas sedan market picks up in India with a considerable rise in
income levels and reduction of tax charges incorporated in gasoline prices, it could
become most preferred destination as an export base, as India permits 100% foreign
owned subsidiaries while China agrees on joint ventures with domestic companies
holding at least a 50% stake.

1.13 Domestic demand and export

Because of the huge domestic demand and present high costs, China has hardly had
significant car exports.
India is emerging as a strong base for export of compact cars.
Compared to India, China currently is less competitive as an export base because car
production costs in China are higher due to a higher level of import content.

1.14 Competitive environment

1.14.1 China
The Chinese car market is highly fragmented nearly about 15 foreign manufacturers
are participating in the Chinese auto market through partnerships with domestic auto
companies.
In current situation VW is the leader but is losing share, and some of its product
appears out-of-date.
1.14.2 India
Though high, competitive pressures in India is likely to be less intense as 75% of the
auto market is compact cars, where at present only three major players compete.
According to the information about stock exchange shares we can see that Chinese as
well as Indian auto stocks have given handsome outperformance.
The strong performance was due to exponential industry growth and what investors
professed as impressive earnings upside.

1.15 India and china auto industry statistical aspects

1.15.1 China auto industry

The Chinese automotive market

has grown rapidly after passing
different hurdles from its internal
and surrounding environment.
The passenger vehicle sector has
been and will maintain to be a key
driver in auto industry.
In China auto industry
Competition is increasing in a
dispersed and fragmented market.

The domestic brands are gaining an increasingly significant market position because
of its population factor and other factors.
The sales of Chinese-made parts and components have been growing progressively
year on year, and cover an increasing share of the domestic automotive market.
In domestic sector Foreign invested entities, such as Sino-foreign joint ventures, as
well as domestic producers struggling to raise their share in the market.
The advantage is going towards customers and consumers as an increase in the [1] 9 9
quality of automobiles.
The disadvantage of increasing competition has resulted in lower profits for the
companies.
Exports sales as a percentage of total sales has been growing at an increasing rate;
about half of the survey respondents predicted that by 2010.exports sales would [2] 8 8
account for 25-50% of their total sales.
 No. of units Market
Produced Share Produced Share

1 Shanghai VW Automotive Co. Ltd. 230,281 32.7%

2 FAW-VW Automatic Co,ltd 133,893 18.9%
3 Dongfeng Motor Corporation (Citroen j.v) 72.192 10.2%
4 Shanghai General Motors Corporation Ltd. 58,543 8.2%
5 Guangzhou Honda Automobile Co. Ltd 51,146 7.2%
6 Tiangin Automotive Ziali Co. Ltd. (Daihatsu 51,019 7.2%
7 Changan Automobile (Group) Liabilit 43,1 6.1%
8 China FAW Group Corporation 21,488 3.0%

Total production(All firms) 661,685

Share of top eight: 94%

Leading car makers in china, 2001 [3] 8 8

1.15.2 India auto industry

The automotive market is one of the foundation industries of the Indian economy,
whose present and future prospect is reflective of the economic elasticity of the
country.
In concern of macro factors, the policy of Continuous economic liberalization over the
years by the government of India has resulted in building India as one of the leading
business destination for many global automotive players (MNES).
[4] 7 8
The automotive sector in India is growing at around 18 per cent per annum.
The Indian automotive industry started its new journey from 1991 with delicensing
of the sector and subsequent opening up for 100 per cent FDI through automatic
route. Since then almost all the global majors have set up their facilities in India
taking the production of vehicle from 2 million in 1991 to 9.7 million in 2006 (nearly
7 per cent of global automobiles production and 2.4 per cent of four wheeler
production). [5] 7 8

No. of units Market

Produced Share Produced Share
1 Maruti Udyog Ltd (Suzuki j. v.) 351,949 62.2%
2 Hyundai Motor India Ltd. 93,888 16.5%
3 Tata Engineering and Locomotive Co. Ltd. 64,712 11.5%
4 Hindustan Motor Ltd. 19,398 3.4%
5 Ford India Motors Ltd. 14,306 2.5%
6 Hero Honda Motors Ltd. 10,310 1.8%
7 General Motors India Ltd. 8,135 1.4%
8Daimler Chrysler India Pvt. Ltd. 1,415 0.2%

Total production(All firms) 564,113

Share of top eight: 100%

[6] 8 8
Leading car makers in India, 2001, 02
1.16Production
1.16.1China
As per China Association of Automobile Manufacturers (CAAM), as many as 364,600
sedans were sold, a 20% growth while there was a snap up of 30,900 SUVs. MPVs also grew
in popularity, selling 17,800 units. Overall car sales in China grew by 24% for the initial ten
months, reaching 7.15 Million units. To keep pace with the strong demand, manufacturing
during January to October had risen by 21.7% to 5.14 Million units, with 713,100 passenger
[7] 8 8
vehicles manufactured in October 2007.

1.16.2 India
According to the Society of Indian Automobile Manufacturers, the Indian automobile
industry has reached double-digit growth for the past three years in a row. In 2006, the
industry produced 10.9 million vehicles, an increase of 16.22% over 2005. In 2005,
production grew 14.5% over the previous year. The production of the automotive industry is
expected to achieve a growth rate of over 20 per cent in 2006-07 and about 15 per cent in
[8] 7 7
2007-08.

1.17 Exports
1.17.1China
China has strength of low-cost but low-skilled manpower to tap export opportunities for
1. Low-tech collision parts.
2. Sedan cars
3. Low cost auto-components

Dec. 7, 2007 (China Knowledge) China has exported 413,500 complete finished vehicles in
the first 3 quarters, up 64% year-on-year, while the export revenue reached US$4.8 billion in
total, more than double the figure in the same period last year, according to a report on
[9] 6 7
Chinese auto industry released by the Ministry of Commerce.

[10] 9 9
India Automobile export (in nos)
1.17.2 India

India has an advantage of low-cost engineering skills to tap export opportunities for 1.Auto-
components
2. Compact cars
3. R&D services

Automobile Exports grew by 17.39 percent during April-November 2007 over the same
period last year.
Exports were led by Two Wheelers which grew by 24.34 percent, followed by Commercial
Vehicles exports at 16.02 percent, Three Wheelers exports at 4.35 percent and Passenger
[11] 7 8
Vehicles exports at 3.70 percent.

The India cumulative annual growth rate of automotive exports during the period 2000-
01 to 2005-06 was 32.92 per cent. Exports during 2006-2006 and 2007-2008 are expected
[12] 8 8
to grow over 20 per cent.

[13] 9 9
India Automobile export (in nos)
1.18 passenger car market size
1.18.1 China
Excitement about the Chinese passenger car market is reaching one of the most
prominent grounds for both domestic and foreign investors.
The Chinese auto market is growing rapidly, serving producers are making very high
profits and the growth projections appear extraordinary.

1.18.2 India
In India Small cars already about 70% of India's total one-million-car yearly market
this figure is predicted that it will be double in the next four years.
Global auto companies such as Honda (HMC) and Hyundai (HYMZY) and domestic
ones such as Maruti Udyog (MUDGF), Tata Motors and, a contributory of Japan's
Suzuki Motor, are speeding up forward with plans to launch more models of small
cars.
 Around a dozen new models of compact and medium cars, with advanced technology
are expected to hit the auto market in the next two years.

1.19 different market structures

1.19.1 China
China, the global majors should maintain their supremacy in the mid to high-end
sectors in auto market. But right after the deregulation brought on by the 2002 WTO
agreement, the increasing number of domestic assemblers, enhanced availability of
finance and growing affordability in rural areas propose that the discount sector in
auto market is likely to record the highest growth in China over the next few years
and increase its auto market share.

1.19.2 India
In India, inadequate infrastructure, higher taxes, and higher fuel prices have not only
controlled growth but forced the market toward compact cars, which account for 70%
of the total market. As a result of that Market share is concentrated among the top
three manufacturers in the country, despite the existence in the country of most
global majors.

2.0 Macro Factors

2.1 Political
In the political environment new policies and strategies for the working environment
in the country are initiated and apply.
The political environment and their consequences of china and India are completely
different.

2.1.1China [14] 8 8
China has one party regime.
The system of supervision.
Authoritarian government though it is liberalizing over the years its resulted in
building a China as one of the attractive business destination for MNES.
Provides good investment opportunities in china for domestic investors.
All rights belong to the peoples.
Democratic centralism.
Govern the country through the rule of law.
All ethnic groups are equal.
The freedom of speech and thought.
Complete freedom of the person according to law.
The right to receive education and welfare
2.1.2 India
India continues to be an open, multiparty, participatory, democracy.
The Government of India is devoted to provide an appropriate economic, and
business environment contributing to the success of the established and prospective
foreign partnership ventures in auto industry sector.
http://trak.in/tags/business/2007/05/23/indian-political-landscape-and-its-effect-
on-doing-business-in-india/(15)
( 8)(cli7)
When it comes to effect of Politics on doing business in India. The two main factors
[15] 8 7
are the corruption and Red tape/ bureaucracy both of which are attributed to the
Political environment in India.
In India Every time, you bribe a low level government officer, be sure that some part
of that bribe goes to the local corporator and even the ministers.
Proprietary business, a partnership or a corporation, each of them have to deal with
corruption and be0urocracy to a large extent.
When you are starting something afresh, involving government approvals and
paperwork. They either survive or succumb.

For small businesses, they have to tackle local corporators and government officers.
For big corporations or multinationals, there is a involvement of political parties and
local lobbies. [15] 8 7

Here are some facts about corruption in India:

India ranks 70 in the corruption index 2006
In all public services; police are perceived to be the worst, followed by judiciary
Bribe Payer Worst performer among 30 countries in Bribe Payer Index
2.2 Economic
2.2.1 China
China's vehicle market has regained strong growth momentum this year after a
slow pace the past two years, beating estimates of most industry analysts.
In the first three quarters of this year, sales of domestically-made vehicles grew by a
quarter to 5.17 million units with car sales rocketing by more than 30 per cent. Full-
year sales are expected to total 7 million units, enabling the country to dwarf Japan
as the world's second biggest vehicle market. [16] 6 7
Sales in 2005 and 2004 rose by 13.5 per cent and 15.5 per cent respectively. Both of [17] 9 9
the growth rates in 2003 and 2002 were above 30 per cent.
The World Bank cut its forecast for China's 2008 GDP growth to 9.6 percent in a
report released 1.2 percentage points lower than an earlier estimate of 10.8 percent.

According to China Quarterly Update, the World Bank said China's growth prospects [17] 9 9
remain robust but there are macro-policy challenges, including those from inflation.

China's economic growth has begun to inch down from its record high in 2007, but
the country is in a strong macroeconomic position to stimulate demand by easing [17] 9 9
fiscal policy and credit controls, even if the global slowdown will be more
pronounced, the bank said
2.2.2 India
The Government of India is keen to provide a suitable economic and business environment
[18] 8 9
conducive to the success of the established and prospective foreign partnership ventures. C$
5.7 billion is the investment envisaged in the new vehicles projects.
The Automobile Industry recorded a growth of 13% over FY 2000-2001. It achieved a turn
[18] 8 9
over of C$ 16 billion with an investment of more than C$ 10 billion and the expectations of a
good performance by the manufacturing industry have increased.
[19] 8 8
In the last four years, the Indian economy has achieved an average growth rate of
8.6%. [19] 8 8
In the last couple of years, Indias total savings have gone up to 32.4% of GDP in
[19] 8 8
2005-06 as against around 23.5% of GDP in 2001-02.
[19] 8 8
Economists feel that India has entered a cycle of high savings. With this, total
investment in the economy has gone up to 33.8% of GDP in 2005-06.
[20] 6 7
Flow in investment has put India into the high growth cycle of 8-9%. [20] 6 7
GDP (PPP) $5.21 trillion (PPP) (2008 est.) [20] 6 7
$1.250 trillion (nominal) (2008) (12th (nominal) ; 3rd (PPP)) [20] 6 7
GDP growth 9.6% (2006/07)
GDP per capita $1,089 (nominal); $4,543 (PPP)

2.3 Social
2.3.1 China
In China cars are the symbol of economic and social status.
Most Chinese families would like to be an owner of a car as long as they can afford it.
Moreover bicycles, as a substitute for cars as a transportation means, should not be
[21] 8 8
seen as a threat towards the demand for automobiles in china.
Auto Companies and other companies operating in China must be concerned not only [21] 8 8

with their economic interest, but also with social and environmental issues.
Key Social Issues for establishing business in China
1. Retaining good labour in a tightening market.
2. Building good Corporate Governance in desired industry.
3. Maintaining and enhancing the trust of Chinas increasingly informed
consumers and the growing NGO community. [21] 8 8

In 2004 it was reported that Chinas industry power-house province Guangzhou

experienced labour shortages for the first time. [21] 8 8

It is increasingly difficult for organizations to retain a good labour force for their
organizations without understanding and abiding by Chinas labour laws.

2.3.2 India
In India after the research it is stated that considerable number of households in semi
-urban and rural areas planning to purchase consumer durables in the next up
coming years.
Nearly about 1.05 million households are planning to buy cars, almost equal to car
 sales in 2006-7.

As a result of the changes in the economic status, Indian middle class is also expected
to expand from its current size so it is projected that additional 30 million households
will be able to buy a car.
Indian peoples are willing to buy cars, as cars are luxury goods in social environment.
Further more travelling by car is also convenient, such as you do not need to wait at
train or subway station. [22] 8 8
Social communities demand more economical and social rights.
Social communities wanting more autonomy for their cultures within the Indian [22] 8 8
states. [22] 8 8
Social communities demanding autonomous states within the Indian Union.
[22] 8 8
Social communities demand right of independence.

2.4 Technological
Four major input factors help to build future technological standing

1. National orientation toward technological competitiveness

2. Socioeconomic infrastructure
3. Technological infrastructure
4. Productive capacity

2.4.1 China
The environment of China auto industry not generally considered to be high tech.
Different foreign investment and joint ventures generally has helped the China auto
Industry sector to advance its technology that increases its productivity and efficiency
levels.
The 2007 statistics show China with a technological standing of 82.8, compared to
76.1 for the United States, 66.8 for Germany and 66.0 for Japan. Just 11 years ago, [23] 8 9
China's score was only 22.5. The United States peaked in 1999 with a score of 95.4.
China's low-cost manufacturing and focus on technology advancements, then
[23] 8 9
combine them with the rising emphasis on research and development, the result
ultimately won't leave much room for other countries.
China's main emphasis on training scientists and engineers who conduct the research [23] 8 9
needed to maintain technological competitiveness and it will continue to grow its
ability to innovate.
2.4.2 India
India has expertise in Understanding Technical Drawings, and requirements.
well aware in all Global Automotive Standards such as American, Korean, Japanese,
and European Standards etc.
Another study analysing the technology exports of developing countries has rated [24] 9 9
India as "most diverse and 'deep' (in terms of going into basic design of products and
manufacturing capabilities. [24] 9 9
At present India is able to provide not just the operating knowledge to start and run
industries, but also the design and manufacture of the plant and required equipment.
[24] 9 9
India, though far behind from the developed countries such as USA, Germany,
Sweden has one of the most advanced S&T capabilities among the developing
countries. [24] 9 9
In spite of the growing amounts spent on research, the national laboratories have
failed to become important sources in the development of industrial technology. [24] 9 9
A considerable proportion of the technologies developed by national laboratories are
not utilized for commercial purposes. [24] 9 9
The nature of the relationship between technology imports and local in-house R&D in
the Indian context has been realized to be dependent upon the nature of import.
[25] 8 8
Indian scientific research and technological developments since independence in
1947 have received considerable political support and the majority of their funding
are from the government.
Science and technology advancements in India have been important aspects of the [25] 8 8
government's five-year plans and usually are based on achievements of short-term
needs, to proceed towards the fulfilment of long- terrn goals.
India is making every effort to develop leading scientists and world-class research
institutes, government-sponsored scientific and technical developments have played
[25] 8 8
an important role in the development of diverse areas such as agriculture, cold
regions research, nuclear power, biotechnology, communications, Automotive
industry, mining, environment, space, and transportation.

2.5 Demographical
Demographics and growth line of India and China appear quite parallel.
However, there are certain differences in terms of the types of vehicles sold, export
opportunities, pricing and margin trends, financing, R&D capabilities, fuel prices,
emission norms and capacity trends.

2.5.1 China
China is a large-sedan market while
China has much higher profit margin, which should be normalize
Chinas capacity building appears much more aggressive than Indias [26] 7 7
 Chinas fuel prices are half of those of India [26] 7 7
Size: 1,329,349,388 (2007) [26] 7 7
Growth: 0.606% (2007)
[26] 7 7
Birth: 13.45 births/1,000 population (2007)
Death: 7 deaths/1,000 population (2007) [26] 7 7

Life expectancy: 72.58 years (2007) [26] 7 7

Life expectancy(m): 70.89 years (2007)
[26] 7 7
Life expectancy(f): 74.46 years (2006)
Fertility: 1.73 children born/woman (2006)

2.5.2 India
India is a compact-car market
[27] 7 7
India has 8-10% profit margins which appears stable
India has mush higher auto financing ratio then China. [27] 7 7
Total population in 2007: 1,129,866,154 [27] 7 7
Urban Population: Age structure:
[27] 7 7
014 years: 30.8%, male: 188,208,196, female: 171,356,024
1564 years: 64.3%, male: 386,432,921, female: 364,215,759 [27] 7 7

65+ years: 4.9%, male: 27,258,259, female: 30,031,289 (2007 est.) [27] 7 7
The average age of Indians is 24.8 years.
[27] 7 7
Population growth rate: 1.38% (2007 est.)
[27] 7 7
Birth rate: 22.69 births/1,000 population (2007 est.)
Death rate: 6.58 deaths/1,000 population (2006 est.) [27] 7 7
Literacy rate:79.9% [27] 7 7
Percent of the population under the poverty line: 22% (2006 est.)
[27] 7 7
Unemployment Rate: 7.8%
Net migration rate: -0.05 migrant(s)/1,000 population (2007 est.) [27] 7 7

Sex ratio: at birth: 1.12 male(s)/female [27] 7 7

under 15 years: 1.098 male(s)/female
[27] 7 7
1564 years: 1.061 male(s)/female
[27] 7 7
65 years and over: 0.908 male(s)/female
total population: 1.064 male(s)/female (2006 est.) [27] 7 7
Infant mortality rate: total: 34.61 deaths/1,000 live births (2007 est.) female: 29.23 [27] 7 7
deaths/1,000 live births male: 39.42 deaths/1,000 live births
[27] 7 7
Life expectancy at birth:
total population: 68.59 years [27] 7 7

male: 66.28 years

female: 71.17 years (2007 est.)
2.6 Infrastructure
2.6.1 China
The china with the huge population, the economy is reportedly rising at over 7% per
anum, road infrastructure is being built fast.
According to the statistics china now has the second largest road network in the world
after US.
Now significant numbers of private citizens are able to afford cars.
[28] 7 8
"China needs many more airports according to its population growth rate. The
country, with a population of about 1.3 billion people, has only 196 airports certified
[28] 7 8
to handle transport aircraft.
The electricity consumption continuing to grow throughout the country, China needs
increased power generating capacity and more reliable distribution systems. [28] 7 8
According to its import and export growth rate China also needs more port facilities.
Although significant, existing no. of ports dont have the capacity to continue to grow [28] 7 8
with China.
In communication system China needs better telecommunications to handle a [28] 7 8
steadily rising amount of voice and data.
By 2010, there are expected to be 1 billion telephone users in China and 200 million [28] 7 8
Internet users.
Chinas major cities that include Shanghai, Dalian and Beijing continue to experience [28] 7 8
severe water shortages.
China is building a superhighway system, China, by one estimate, is now putting $40
[28] 7 8
billion a year into road construction.
China is working on overhauling its rail system, building separate lines for freight and
[28] 7 8
passenger traffic.
For the 2008 Olympic Games alone, the Beijing municipal government is expected
to invest about $22 billion on infrastructure, including roads, railways and subway [28] 7 8
lines.
Shanghai is expected to invest another $10 billion on infrastructure in connection [28] 7 8
with the World Expo there in 2010.
Currently, about 90% of the computers used in the generation, transmission and [28] 7 8
distribution of electric power in China are HP.
Shanghai Tonghua Gas Turbine Services Co. Ltd. announced it had signed a
contractual service agreement with GE Energy. [28] 7 8

And late last year, GE announced it was going to supply the Chinese Ministry of
Railways with 300 6,000-horsepower locomotives in deal worth more than $450
[28] 7 8
million.
According to the Chinese plan, they are in the process of investing $170 billion for
environmental protection that includes wastewater treatment.
2.6.2 India
According to the research results of global consultancy The Indian automotive industry may
fail to accomplish the target of sale by 2016 if investments are not made in infrastructure.
The infrastructure directly effects the production of car manufacturing as well as all sectors
that are directly of indirectly link up with the car manufacturing.
[29] 8 8
Indias economic boom is being built on the unstable foundations. Modern bridges,
Highways, world-class airports, clean water and reliable power are in desperately
short supply in concern of the demand. [29] 8 8
Economic losses from congestion and poor roads alone are as high as $6 billion a [29] 8 8
year.
On overcrowded highways where speeds average is just 20 miles per hour largely [29] 8 8
affecting the different sectors in industries specially the automotive industry.
In India some major ports rely on armies of labourers to unload cargo from vehicles
and lug it onto ships.
[29] 8 8
The electricity infrastructure is in shaking state across the state of Maharashtra;
major cities lose power one day a week to relieve pressure on the grid that effect the
rate of production. [29] 8 8
Without reliable power and water and a modern transportation network, the chasm
between India's moneyed elite and its 800 million poor will continue to widen, [29] 8 8
potentially destabilizing the country.
Up to 40% of farm produce is lost because it rots in the fields or spoils en route to
consumers, which contributes to rising prices.
New airports are under development in Bangalore and Hyderabad and other major
cities.
[29 8 8
The government estimates public and private organizations will chip in $330 billion
to $500 billion over the next five years for highways, power generation, ports, and
[29] 8 8
airports.
Japan's Maruti Suzuki says trucking its cars 900 miles from its factory in Gurgaon to
[29] 8 8
the port in Mumbai can take up to 10 days.
General Electric Co. (GE ) sold $1.2 billion worth of gear such as power generators
and locomotives in India, more than double what it billed in 2005.

2.7 Ecological
2.7.1 China
As an ecological impacts of china rapid motorization, the air quality in several
Chinese cities remains among the poorest in the world.
The face of the country has changed as bicycles have been replaced by cars and a huge
road and highway infrastructure project has been implemented.
Due to the high rate of automobiles, now China is the worlds second largest
 consumer of petroleum, and largest consumer of coal.

[30] 8 8
Like other developing countries, China is economic boom came at the expense of
controls on air pollution, land clearing, deforestation, endangered species and rural [30] 8 8
and industrial waste.
China is huge population combines with geographical factors make its environmental [30] 8 8
problems infinitely more massive than that of other nations.
Nine out of 10 of the worlds most polluted cities are found in China, and estimates
are hat by 2005 China may become the worlds largest source of air pollution.
[30] 8 8
Tests conducted by the World Health Organization (WHO) and Chinas National
Environmental Protection Agency showed levels of airborne suspended particles
average 526 micrograms per sq meter in northern China. [30] 8 8
The first problem is coal. It provides some 70% of Chinas energy needs and around
900 million tones of it go up in smoke every year. This heavy reliance on coal has lead
to an estimated 40% of the country being affected by acid rain.
[30] 8 8
Coal-rich Shangxi province alone has an annual death rate from mining of over 1000.
China is expected to become a major oil importer as demand rapidly outstrips
[30] 8 8
domestic resources.
The main cause of these storms is the desertification of large parts of northern and
western China due to a lack of sustainable land management.

2.7.2 India
In India there is an ecological factor highly involve in case where old vehicles increase
their emission that will massively increase air pollution level.
The more cars increase the more fuel consumption rate will increase.
With the passage of time the new compact cars such as low emission, hydro-electric
and electric have been increasing their worth because they are environment friendly. [31] 8 8

[31] 8 8
With the passage of time the rolling stock of vehicles continuously locks up huge
amount of energy and carbon.
The rapid rising rate of vehicles is lacing the air with more toxics. [31] 8 8
All vehicles in India that currently use 27 per cent of the countrys primary oil
demand will guzzle 47 per cent close to half, by 2030 World Energy Outlook (WOE) [31] 8 8
2007.
The total consumption of oil is responsible for 57 per cent of the CO2 in the country [31] 8 8
today.
among all oil-consuming sectors, CO2 emissions from transport are increasing at the [31] 8 8
fastest rate at more than 6 per cent per annum.
 Public policy is tacitly supportive of diesel cars using a high quality diesel because
[31] 8 8
these are more fuel efficient and emit less CO2.
On average, by 2030, Indians will travel thrice as many kilometres as they travelled
[31] 8 8
during 2000-01.
The current policy of government with more roads, more parking spaces and more
[31] 8 8
fiscal sops will only bring more cars that lead to increase more air pollution.
The International Energy Agency estimates a 100 per cent difference in oil use in a
future scenario dominated by high quality bus systems.

3.0 Analysis
3.1 Forecast analysis of predicted demand of passenger cars
3.1.1 Chinas auto industry overview
1. In china considerable investments already made in auto market.
2. China is already the world's fourth-largest manufacturer of automobiles after North
America, Western Europe, and Japan, and the third-largest producer of commercial
Vehicles, after US and Japan.
3. Auto industry is dominated by a few large Auto manufacturing companies.
4. Foreign Auto manufacturers have their share about 70% of the Chinese market.
5. Authoritarian government though it is liberalizing over the years its resulted in building a
China as one of the attractive business destination for MNES.
Statistical approach on Chinas Auto industry
1. The country has about more than 100 auto manufacturing companies, only a few
[32] 7 8
Companies, including the major market leader names as First Automotive Works
Group (FAW), produce more than 500,000 units per year, including commercial
[32] 7 8
Vehicles.
2. Different automotive companies such as VWs sales are growing steadily, and the [32] 7 8
711,000 units sold By Volkswagen Group in China in 2006.
3. Between 2007 and 2009, VW will invest 1.9 billion in China, although this will be [32] 7 8
Financed from internal funds of its local joint ventures.
4. In 2006, export rate of Chinese-made vehicles (including CKD) reached about 340,000 [33] 7 8
Units.
[33] 7 8
5. After joining the WTO in 2001 China has more then 300% increase in automobile
Output.
1. According to the ministry, China's vehicle production reached 8.5 million units last [33] 7 8
Year.
7. Auto exports rose 70 percent to 294,000 units in the first seven months in a year
2006 earlier, while the value of component shipments increased 32 percent to 8.85
Billion U.S. dollars. [33] 7 8
8. Exports of engine parts, wheels, tires, brakes and other components, forecasted to
Rise up to 40 billion dollars by the end of 2010, the China Association of Automobile [33] 7 8
Manufacturers reported.
9. China's auto production has experienced annual growth rate of 45.8 percent since
2002.
China Will continues to grow over the next few years. Forecasts range from 15% to 30%.
Automotive Resources Asia, a consultancy that has particularly good data on China, estimates
[34] 9 9
growth of 25% a year, implying 6 million units by 2010. But even if we overlook the possibility
of a slowing economy or, worse still, some form of economic crisis, such growth rates implies
only 2.2 million units by 2006 and 3.9 million Units by 2010.

3.1.2 Indias auto industry overview

1. In Countrys demographic point of view income is rising steadily and more Peoples
Going towards middle class living standards.
2. The growing rate of national economy is 9% or greater every year.
3. Auto financing as a loan product is now finally going to start into its own.
4. Reduction of 8% excise-tax in the budget for small cars.
5. Attractive discounts for small cars.
6. Loyalty bonus.
7. Exchange scheme offered by firms and dealers.

Statistical approach on Indias auto industry

Between year 2006 April and September, Indian auto companies sold more than
4.86,Million vehicles, including cars, commercial vehicles and two-wheelers, in the
[35] 9 9
Domestic market. For the April-September period in 2005-06, sales of domestic
vehicles stood at 4.15 million, up 13.4% over the previous year. Prior to this, sales for
the same period in 2004-05 were 3.6 million vehicles, a jump of 14.7%. [35] 9 9
Both the domestic vehicle producers and the foreign auto manufacturing transplants
in India together produce 1.4 million vehicles annually and with the rate of [35] 9 9
investment having considerably increased in the last 6 months, that number is
expected to double in now in year 2008.
The chances of India exceeding 1.5 million units in production in 2008 are excellent
at this point because of the initial production rate.
Approximately 1.8 million vehicles financed in India 2007. [36] 7 8
Taking all above statistics market attributes into account, it is not unreasonable at
this stage to forecast annual production of 4 million-plus vehicles by 2015, with over
3 million of that total sold in India for domestic consumption.
3.2 porters competitive analysis

Threats of

New entrants

Bargaining Competitive Bargaining

Power of Rivalry power of

Suppliers Buyers

Threats of
[37] 6 7
Substitute product

Porters competitive strategy

3.2.1 China

Bargaining Power of suppliers

Bargaining power of local supplier is contributed by
Small scale of Individual OEMs(original equipment manufacturer)
High import content up to 30-40%.

Bargaining power of customers

Customers bargaining power has been reduced because of the problems like Limited choices
of products and tight supply.
Threats of new entrants
New constraints risk is raising because of the new government policies.
Threats Substitute products
Entry barrier in china is lower because of MNE attractive policies by the policy makers, more
MNEs and local auto companies are still trying to invest and make their presence, even
though most global major OEMs are already participating their.
Players
Rivalry between existing players that include MNEs and local companies is getting more and
more intense. The decrease in the price is a reflection of it.

3.2.2 India
Bargaining Power of suppliers
OEMs have high bargaining Power because there is a High rate of competition between
suppliers and high level of domestic content.

Bargaining power of customers

Prices in India have been getting lower over the past few years due to increase in competition
mainly between compact car manufacturers.

Threats of new entrants

Because of the attractive compact car and growing sedan car markets in India, There are still
many names in global auto manufacturers, those are expecting to move their first step
towards Indian auto manufacturing market. The major European names such as BMW,
Peugeot and Renault-Nissan.

Threats Substitute products

Domestic compact cars manufacturers in India have been facing strong competition as
government allowed automatic approval for 100% foreign equity investment for
manufacturing automobiles and components.

Players
The major players in compact car segment are Maruti, Tata Motors and Hyundai

3.3 SWOT analysis

3.3.1China automobile sector Swot Analysis

Strengths
Government policies in driving the growth such as 100% foreign equity investment
for manufacturing automobiles and components.
Huge potential size of the domestic market mainly in Sedan car production.
Availability of cheap and un-unionized labour force.
Advancement in logistics.
Close to Japan and South East Asia markets.
Dividend from old planned economy.

Weaknesses
Localized component supply network is not up to the international standards.
Low standards of local R&D infrastructure.
Cost rate of production is high in the near term.
 Unavailability of skilled engineers and management.
Limited brand reliability i.e. for short period .
Lack of key process knowledge base and technical know-how and know-why.
Lack of key equipment design, manufacturing and integration potential
Weak in high-technical content product development and innovation.

Opportunities
Entry into WTO
Bonus of globalization:-MNCs move production facilities to China
Segmentation of part supply sector provides M&A opportunities.
Export of level driven cars and parts.
Critical mass could be reached simply on large domestic demand.
Significant market share in many products.
Falling tariff rate provide attraction to imports towards China market, particularly
high-end goods.
Competitive workforce.
Dealership, Car loans policies, after sales services, repairs are underdeveloped.

Threat
Expanding assembly capacity may cause problems in supply demand.
Raw material price are climbing vs., steadily falling car prices.
The 50% maximum limit on foreign ownership may discourage full commitment.
Traffic congestion problems are increasing and rising pollution in major cities.
Government's strictness measures in the near term.
Business/investment environment could change like water falls.
Manufacturing rise and fall can occur relatively quickly(DFI, new technology,
invention, exchange rate , social stability, etc )

3.3.2 India automobile sector SWOT Analysis

STRENGTHS
As a whole competitive cost structure, regardless of limitations in terms of higher
taxes and higher infrastructure costs.
Availability of Low-cost, skilled engineering manpower, leading to superior cost
structure across processes, particularly in the cases those requiring professional
design and engineering inputs.
Advantages of Low capital cost, this drives the ability to develop machine tools,
robotics, and tools and equipment at competitive cost in-house.
Developed local component industry and comparatively high levels of integration.
Low-cost production potential.
Weaknesses
India is in initial stages of evolution and thus not up to the standard of multinational
peers in terms of economies of scale and capital employed.
Exposed to local cyclicality and a narrow market foundation, as exports still in
promising stage.
High taxes, low standard of Value Added Tax structure.
Insufficient and expensive infrastructure.

Opportunities
Global markets - both through direct exports of compact cars, components and
outsourcing prospective.
Sizeable local compact car market and high potential because of the demand, mainly
at the effective end with specific local market requirements, offers Indian companies
an opportunity to build scale on the hoe ground and improve gradually with the
market.
Center for compact car manufacturing.
Threats
Investments by Global automobile manufacturing companys in order to penetrate
the Indian market.
Any standard shifts in technology by Global auto manufacturing companies could
increase technology gap considerably.
4.0 Analysis conclusion
If the efficiency of investment is uncertain and investments and savings are not sustainable
then China growth rates will be decline in the future.
Strong balance sheets of most Indian compact car companies could attract many investors in
the future lead to this advance technology and huge investments in infrastructure would be the
future of Indian auto industry.
China has less inflexible production standards than India. This basic difference in both the
countries leads to different market growth drivers in a future and investment opportunities as
well as risks.
Most China auto companies overall profit size will grow in the next 12 months.
In the future when MNEs will enter in the Indian markets then it may not be easy for them to
match infrastructure standards of existing companies.
The vital reason how China will continue to get a greater share of attention and capital in the
future is that
o Its currently, growth, size and profit margins are considerably higher.
o Cars used in China are larger-sized sedans not the compacts cars.
India could face capacity shortages in compact cars if the market growth rate remains same.
China could face the over capacity in lager-sized sedan cars.
In the future Chinese auto market could become increasingly more competitive as new MNEs
will invest in China.
According to fact and figures Competitiveness in Indian auto markets are likely to be less
intense, as 85% of the market is compact cars and only three major automobile companies.
Globalization is already completed in auto industry.

5.0 Recommendations
According to overall scenario China could supply components for larger-sized sedan cars in
India and on the other side India could supply components for compacts cars in China.
At present situation Chinas competitiveness gradually increasing from domestic to global level
so China could become an outsourcing location for larger-sized sedan cars if China over come
its weaknesses.
China and India auto sector have a lot to coordinate for mutual benefits so they should
proceed for big joint ventures if they want to defeat the other MNEs and to be a part of this
RIDE FOR BIG PROFITgame.
6.0 References

[1] http://www.business-in-asia.com/china/china_automotive_industry.htm
[2] http://www.deloitte.com/dtt/cda/doc/content/dtt_MFG_ChinaDrivers013107.pdf
[3] http://personal.lse.ac.uk/sutton/auto_component_printroom_version3.pdf
[4] http://www.indiainbusiness.nic.in/industry-infrastructure/industrial-sectors/automobile.htm
[5] http://www.indiainbusiness.nic.in/industry-infrastructure/industrial-sectors/automobile.htm
[6] http://personal.lse.ac.uk/sutton/auto_component_printroom_version3.pdf
[7] http://www.rncos.com/Blog/automobile.html
[8] http://www.business-in-asia.com/countries/automotive_industry_india.html
[9]http://resources.alibaba.com/article/231879/China_s_auto_export_up_64_in_the_1st_3_quarte
rs.htm
[10] http://www.deloitte.com/dtt/cda/doc/content/dtt_MFG_ChinaDrivers013107.pdf
[11] http://www.indiainbusiness.nic.in/industry-infrastructure/industrial-sectors/automobile.htm
[12] http://www.business-in-asia.com/countries/automotive_industry_india.html
[13] http://www.siamindia.com/upload/AMP.pdf
[14] (http://www.china.org.cn/english/Political/26143.htm)
[15] http://trak.in/tags/business/2007/05/23/indian-political-landscape-and-its-effect-on-doing-
business-in-india/
[16] http://www.chinadaily.com.cn/bizchina/2006-11/20/content_737835.htm
[17]http://english.mofcom.gov.cn/aarticle/newsrelease/commonnews/200802/20080205372338.ht
ml)
[18] http://www.aiacanada.com/downloads/2003_Indian_Automotive_Industry.pdf
[19]http://timesofindia.indiatimes.com/India_Business/Economy_to_grow_at_9_says_FM/articles
how/2665795.cms
[20]Wikipedia.org
[21]http://www.erm.com/ERM/Loc/erm_china.NSF/(Page_Name_Web)/Services_SocialConsultingi
nChina
[22] http://www.earthyfamily.com/I-issues.htm
[23] http://yubanet.com/usa/Technology-indicators-show-China-ahead-of-the-U-S-in-technological-
standing.php
[24] http://www.unu.edu/unupress/unupbooks/uu04te/uu04te07.htm
[25] http://www.indianchild.com/indian_scientists.htm
[26] Wikipedia.org
[27] http://en.wikipedia.org/wiki/Demography_of_India
[28] http://www.industryweek.com/ReadArticle.aspx?ArticleID=11800
[29]http://www.businessweek.com/magazine/content/07_12/b4026001.htm?chan=globalbiz_asia_t
oday's+top+story
[30] http://www.visa4you.net/china-ecology.html
[31] http://www.cseindia.org/campaign/apc/Policy_2007_sep_dec.htm
[32] http://www.domain-.com/industry/automobiles/general/20070322_automakers.html
[33] http://news.xinhuanet.com/english/2007-09/24/content_6780875.htm
[34] http://www2.goldmansachs.com/hkchina/insight/research/pdf/chinese_auto_industry.pdf
[35] http://www.atimes.com/atimes/South_Asia/HL15Df01.html
[36] http://www.autosavant.net/2007/04/india-future-auto-giant.html
[37] http://www.marketingteacher.com/Lessons/lesson_fivefoces.htm
7.0 Acknowledgement

(
I am gratified to my teacher Klaus Solberg Silen) who urges me to write an intellectual report, this force me to
delve into more knowledge about comparison and evaluation of India and China Auto industries according to
different factors and finally achieved absolute conclusion.

Name: Klaus Solberg Silen

Learning location Blekinge Tekniska Hgskola
Cellular phone 0046736970805
E-mail address kss@bth.se
Homepage http://www.bth.se/iem/kss.nsf