ENHANCING COMPETITIVENESS OF THE INDIAN AUTOMOBILE INDUSTRY:

A STUDY USING PORTER’S DIAMOND MODEL

Shailja Dixit Manoj Joshi

The automobile industry is one of the key sectors and drivers of a growing economy and
plays a pivotal role in a country’s rapid economic and industrial development. Indian
automobiles are finding increasing recognition worldwide and a beginning has been
made in exports of vehicles as well as components. However, at a global level, India’s
share of automobile production is almost negligible. This paper attempts to incorporate
Porter’s Diamond model to analyse the competitiveness of India’s automobile industry.
Besides looking at the four determinants of competitiveness in the original model, the
study specifically examines the impact of the government on industry competitiveness.
More importantly, the study identifies the critical roadblocks that prevent the industry
from further expansion in the global share and emerge as one of the major production
and export hubs in the coming years. In the end, we have made some specific
recommendations, which could contribute to India’s growing emergence as one of the
major automobile producing economies in the world.

Keywords: Competitiveness, Roadblocks, Globalization, Automobile Industry

1. INTRODUCTION

The Indian automobile industry is one of the key drivers of industrial growth and employment,
which will gain rapid importance. In order to accelerate and sustain growth in the automotive sector,
a roadmap is needed to steer, coordinate and synergise the efforts of all stakeholders. Exogenous
and endogenous factors affecting industry also affects the competitiveness of the firms.
Competitiveness captures the awareness of both the limitations and the challenges posed by global
competition as an exogenous factor. Underdeveloped economies tend to be competitive by
producing cheaper products, developing economies by producing better products, and developed
economies by producing innovative products continuously. Though Indian automobile
manufacturers are manufacturing innovative products and leading India to a new summit, there are
various roadblocks, which prevent this industry from being a global player.

2. COMPETITIVENESS DEFINED

Competitiveness has emerged as a paradigm towards the economic development. Michael Porter
has defined competitiveness as productivity with which a nation utilises its human, capital and
natural resources. To understand competitiveness, the starting point must be a nation’s underlying
sources of productivity. Productivity depends both on the value of a nation’s products and services –
measured by the prices they can command in open markets – and by the efficiency with which they
can be produced. Productivity is also dependent on the ability of an economy to mobilise its
available human resources. True competitiveness, then, is measured by productivity.
Competitiveness is a special challenge, because there is no single policy or grand step that can
create competitiveness. Improving competitiveness is a marathon, not a sprint. How to sustain

Management & Change, Volume 15, Number 1&2 (2011)

Electronic copy available at: http://ssrn.com/abstract=1977444

momentum in improving competitiveness over time is one of the greatest challenges countries are
facing.

3. PORTER'S DIAMOND MODEL

Porter (1990) contributed the diamond model on competitiveness, which analyses national (or
industry) competitiveness through four major dimensions: factor conditions, demand conditions,
firm strategy structure and rivalry, and related and supporting industries. Porter (1990) concluded
that due to various national characteristics, nations cannot succeed in all industries, and thus it is
important to identify and develop their internationally competitive industries. Therefore, he
proposed the diamond model with four major (and two additional) determinants of competitive
advantage in a particular industry.

Porter’s diamond model provides an analytical framework with multi- measurements for
national or industry competitiveness. According to Porter (1990) nations are most likely to succeed
in industries or industry segments where the diamond factors are mostly favourable.

Figure 1: Porter’s Diamond Model

FIRM STRATEGY
STRUCTURE AND
RIVALRY

Chance

FACTOR DEMAND
CONDITIONS CONDITIONS

Porter’s Diamond Model (Porter, 1990, p. 76)

RELATED AND
Government
SUPPORTING
INDUSTRIES

3.1. Factor Conditions for production are the inputs and infrastructure necessary for competition,

Management & Change, Volume 15, Number 1&2 (2011)

Electronic copy available at: http://ssrn.com/abstract=1977444

which include:
• Human resources: Quality and quantity of skilled labour, cost of personnel, and labour skill
variety;
• Physical resources: “The abundance, quality, accessibility, and cost of the nation’s land, water,
mineral, or timber deposits, hydroelectric power sources, fishing grounds, and other physical traits.”
(Porter, 1990, p. 74);
• Knowledge resources: Market, scientific, technical knowledge residing in a nation’s research
institutions;
• Capital resources: Capital availability and cost to finance industries. Capital resources can be
affected by the rate of savings and national capital market structure;
• Infrastructure: Availability and quality of infrastructure, including communication system,
transportation system, payment or funds transfer, health care, and so forth (Porter, 1990, p. 74-75).

3.2. Demand Conditions refer to home demand condition. Porter (1990) discussed home demand
through three general attributes: the nature of buyer needs, the size and growth rate of home
demand, and the transferability of domestic demand into foreign markets. Porter has also described
in his location competitiveness study, about the advantages arising by having sophisticated and
demanding local customers or customers with unusual need for specialised varieties that are in
demand.

3.3. Related and Supporting Industries include parts and service suppliers and distributors in the
supply chain. As Porter (1990, p. 101) stated, competitive supplier industries can provide “efficient,
early, rapid, and preferential access to inputs”, which are basic production needs. Moreover, the
geographic proximity with internationally competitive suppliers in the home nation helps build
coordination and a communication network, which in turn improves production efficiency. Based
on the availability and efficiency of supporting industries, the most significant benefit of home-
based suppliers lies in the ability to accelerate innovation and upgrade in the overall auto industry.

3.4. Firm Strategy, Structure, and Rivalry discusses the context in which firms are created,
managed, and operated, given the domestic demand conditions, factor conditions, and supporting
industry situations. In a developed industry, firms would build on the strengths provided by the
source(s) of competitive advantage and invest in improving the less competitive factors. Moreover,
as per his research, the fierce domestic competition forces firms to innovate constantly and improve
productivity and hence increase national competitiveness in the industry. Thus, strong local and
global competition not only sharpens advantages at home turf but also compels firms in the
domestic market to sell abroad as growth strategy.

3.5. Government is responsible for framing policies and regulations for all industry activities. It is
therefore responsible for improving the well-being of all its citizens, thus achieving economic and
political stability. Government can influence all the four general determinants either positively or
negatively. As Porter (1990) pointed out, government can affect factor conditions by imposing
subsidiary policies, capital market regulations, and educational policies. It can also influence
domestic demand conditions by establishing product standards or regulations that direct customer
needs. Competition laws, tax policy, and other regulatory statutes can affect both supporting
industries and firm structure and strategy.

3.6. Chance refers to external events that may affect or benefit a nation or industry and that are
totally outside the control of firms and government. Examples of chance events include pure

Management & Change, Volume 15, Number 1&2 (2011)

invention, breakthroughs in basic technologies, wars, economic crisis, and major shifts in foreign
market demand. They create discontinuities that can unfreeze or reshape industry structure and thus
play an important role in shifting competitive advantage in many industries. Firms evaluate chance
events differently due to various industry natures and stages in their lifecycle. Porter (1990)
proposed that firms promote continuous innovation and improvement, and endeavour to seize
opportunity resulting from chance events.

4. AUTOMOBILE INDUSTRY

The automobile industry plays a pivotal role in country’s rapid economic and industrial
development. It caters to the requirement of equipment for basic industries such as steel, non-
ferrous metals, fertilisers, refineries, petrochemicals, shipping, textiles, plastics, glass, rubber,
capital equipments, logistics, paper, cement, sugar, etc. by either consuming it or supporting in
logistics. Due to its strong forward and backward linkages with almost every segment of the
economy, the industry has a strong and positive multiplier effect and thus propels the progress of
any economy.

4.1. Global Scenario

The global motor vehicle industry (four-wheelers) contributes 5 per cent directly to the total
manufacturing employment, 12.9 per cent to the total manufacturing production value and 8.3 per
cent to the total industrial investment (Badri & Vashisht, Indian Council for Research on
International Economic relations, 2008). It also contributes US$560 billion to the public revenue of
different countries, in terms of taxes on fuel, circulation, sales and registration. The annual turnover
of the global auto industry is around US$5.09 trillion, which is equivalent to the sixth largest
economy in the world (Organisation Internationale des Constructeurs d'Automobiles, 2006). The
production of passenger and commercial vehicles has reached a new record of 66.46 million units in
2005. The growth in production has been as follows:

Table 1: Global Vehicle Production (1997-2005)

Year World Vehicle Production (units in million) Percentage increase/ decrease (–)
1997 55.87
1998 53.20 (–) 4.77
1999 55.74 4.77
2000 58.33 4.64
2001 56.17 (–) 3.70
2002 58.45 4.05
2003 60.09 2.80
2004 64.16 6.77
2005 66.46 3.58

Source: Indian Industry: Centre for Monitoring Indian Economy, (Surjiani, Rahul, October
2008)

Management & Change, Volume 15, Number 1&2 (2011)

 There has been an addition of 10.59 million vehicle production since 1997. A majority of
this growth is coming from the Asia – Pacific region (excluding Japan). The production has nearly
stagnated in Western Europe at 17 million, NAFTA (North American Free Trade Agreement) at 16
million and Japan at 10 million but it has more than doubled in the Asia-Pacific region from 7.1
million in 1997 to 16 million in 2005.

A bulk of this increase in the Asia- Pacific region has come from China where production
has grown three times from 1.6 million units in 1997 to 4.6 million in 2005. The second contributor
to this growth is India where production has doubled going up from 0.8 million units in 1997 to
1.58 million in 2005. The third contributor to this growth is Thailand where it has increased from
0.36 million units in 1997 to 0.8 million units in 2005. The industry being highly capital intensive,
has entry barriers for smaller players. Even the existing global auto majors themselves are
realigning their production bases coming closer to the scene of action in Asia-Pacific region, mainly
in China, India and Thailand. Besides the above, the constant pressure or cost reduction on OEMs
(Original Equipment Manufacturer) is compelling them to outsource additional components from
developing countries. The changing scenario has opened up opportunities for the Indian automotive
industry.

4.2. Present Landscape of the Indian Auto Industry

India is emerging as one of the world’s fastest growing passenger car markets and second largest
two wheeler manufacturer. It is home for the largest motor cycle manufacturer and fifth largest
commercial vehicle manufacturer. The industry is producing about 1.3million passenger vehicles,
0.4 million commercial vehicles, 7.6 million two wheelers and about 0.3 million tractors per annum.
The automobile industry has achieved a turnover of US $28 billion and the auto component industry
has reached a turnover of US $10 billion. The Indian tyre industry, which is an integral part of the
Indian automotive industry, has registered a turnover of almost US $3 billion. (Ministry of Heavy
Industries and Public Enterprises 2006a)

Table 2: Passenger Cars Market Size

2007-08 2008-09
Units 2003-04 2004-05 2005-06 2006-07
Estimate Forecast
1,760,278.
Production Numbers 843,235.0 1,027,858.0 1,112,794.0 1,322,728.0 1,517,481.0
0
1,741,698.
Sales Numbers 881,950.0 1,047,109.0 1,119,657.0 1,353,726.0 1,515,176.0
0
Export Numbers 126,242.0 161,897.0 171,083.0 194,053.0 210,780.0 305,631.0
Realization Rs./Number 285,308.4 303,519.8 308,369.9 312,491.1 317,000.0 322,000.0
Sales Rs. crore 25,162.8 31,781.8 34,526.8 42,302.7 48,031.1 56,082.7
Domestic
market Rs. crore 25,162.8 31,781.8 34,526.8 42,302.7 48,031.1 56,082.7
value
Source: Indian Industry: Centre for Monitoring Indian Economy, (Surjiani, Rahul, October 2008)

Management & Change, Volume 15, Number 1&2 (2011)

In India, the automobile industry provides direct employment to about 0.5 million people. It
contributes 4.7 per cent to India’s GDP and 19 per cent to India’s indirect tax revenue. Automotive
retail trade and service, currently comprising a network of 6500 automobile dealers and their
service stations, form an essential part of the automotive business. This segment has investment of
over Rs. 220 billion, provides direct employment to about 4,00,000 people and contributes around
Rs. 250 billion by way of VAT, CST, service tax, road tax and other levies to central and state
exchequers. It also has a significant spin off on insurance, auto finance and oil sector. (Ministry of
Heavy Industries and Public Enterprises 2006a)

It has been noticed that the auto industry has grown in clusters of interconnected companies
which are linked by commonalities and complementarities. The major clusters are in and around
Manesar in North, Pune in West, Chennai in South, Jamshedpur-Kolkata in East and Indore in
Central India.

Management & Change, Volume 15, Number 1&2 (2011)

 Figure 2: Major automobile clusters in India

N Delhi-Gurgaon-Manesar

• Maruti Suzuki
• Honda Motors
• Hero Honda
• Eicher Motors
• Yamaha
Halol Pune-Nasik
Aurangabad Jamshedpur
Kolkata
W E
• General Motors
• Skoda
• Tata Motors
• Mahindra & Mahindra
• Bajaj Auto
• Volkswagen Chennai Bangalore Hosur
• Mercedes-Benz
• Eicher Motors • Hyundai
• Force Motors • Ford
• Hindustan Motors
• Ashok Leyland
S • BMW

4.3. Journey of India's Automobile Industry

Till the 1940s, the Indian auto industry was non-existent, since automobile were imported from
General Motors and Ford. Since the 1950s, companies entered the market in two-wheelers and
commercial segment vehicles. However, most of them either imported or indigenously produced

Management & Change, Volume 15, Number 1&2 (2011)

auto-components, till the mid-1950s, when India had launched import substitution programme,
thereby resulting in a distinctly separate auto-component sector. Between 1970 and 1984 cars were
considered a luxury product; manufacturing was licensed & restricted; there were quantitative
restriction (QR) on imports and a tariff structure designed to restrict the market. The market was
dominated by six manufacturers -Telco (now Tata Motors), Ashok Leyland, Mahindra & Mahindra,
Hindustan Motors, Premier Automobiles and Bajaj Auto. The sector was suffering from low
volumes of production, obsolete and substandard technologies.

The decade of 1985 to 1995 witnessed the entry of Maruti Udyog in the passenger car
segment and Japanese manufacturers in the two wheelers and light commercial vehicle segments.
The Indian automotive Industry embarked on a new journey in 1991 with de-licensing of the sector
and subsequent opening up for 100 per cent FDI through automatic route. This decade witnessed the
emergence of Hero Honda as a major player in the two wheeler segments and Maruti Udyog as the
market leader in the passenger car segment. Since then almost all the global majors have set up their
facilities in India taking the level of production of vehicle from 2 million in 1991 to 9.7 million in
2006 (Automotive Component Manufacturers Association. (2006). The Indian automotive industry
after de-licensing in July 1991 has grown at a spectacular rate on an average of 17 per cent over the
last few years. The industry has now attained a turnover of Rs. 1,650 billion of which the share of
auto component sector is 1.8 billion USD during the year 2005-06.

Indigenously developed (Made in India) vehicles were introduced in the domestic market
and exports were given a thrust. Auto companies started collaboration with financial firms to
provide auto financing and insurance services to customers. Manufacturers also introduced systems
to improve capacity utilization and adopted quality and environmental management systems. In
2003, Core-group on Automotive R&D (C.A.R.) was set up to identify priority areas for automotive
R&D in India.

Table 3: Passenger Car Sales Forecast

2007-08 2008-09 % change

Mini 86,742.00 110,000.00 26.80
Compact 1,028,394.00 1,182,299.00 15.00
Mid size 249,129.00 279,227.00 12.10
Executive 42,181.00 45,364.00 7.50
Premium 6,134.00 8,074.00 31.60
Luxury 815.00 907.00 11.30
MPV 101,781.00 115,827.00 13.80
Total cars 1,515,176.00 1,741,698.00 15.00

Source: Indian Industry: Centre for Monitoring Indian Economy, (Surjiani, Rahul, October 2008)

Management & Change, Volume 15, Number 1&2 (2011)

 Figure 3: Passenger Car Sales Growth Forecast (%)

Source: Indian Industry: Centre for Monitoring Indian Economy, (Surjiani,

Rahul, October 2008)

4.4. Drivers of Growth

Rising per capita income and the changing demographic distribution are conducive inclusive for
growth. India has the highest proportion of population below 35 years, 70 per cent, (potential
buyers), which means that 130 million people will get added to the working population between
2003 and 2009. The trends indicate that small and medium cars would remain dominant and a shift
towards high end cars is expected at a faster rate. The SUV (Small Utility Vehicle) market is
expected to develop rapidly in future. Higher disposable incomes coupled with availability of easy
finance options have driven the passenger vehicle segment. The growth of the Indian middle class
with increasing purchasing power along with strong growth of the economy over a past few years
have attracted major auto manufacturers to the Indian market. The market-linked exchange rate and
availability of trained manpower at competitive cost have further added to the attraction of the
Indian domestic market.

Management & Change, Volume 15, Number 1&2 (2011)

 Table 4: Car sales April-August 2008

Sales(Nos.) Growth(%) Share(%)

Maruti Suzuki India Ltd. 308,018 5.4 46.7
Hyundai Motor India Ltd. 201,281 46.0 30.5
Tata Motors Ltd. 76,649 -0.2 11.6
Honda Siel Cars India Ltd. 19,074 -13.9 2.9
General Motors India Pvt. Ltd. 19,040 12.7 2.9
Ford India Pvt. Ltd. 10,390 -26.4 1.6
Skoda Auto India Pvt. Ltd. 7,973 74.7 1.2
Mahindra Renault Pvt. Ltd. 7,505 -27.2 1.1
Hindustan Motors Ltd. 3,637 -23.4 0.6
Fiat India Pvt. Ltd. 2,175 33.8 0.3
Toyota Kirloskar Motor Pvt. Ltd. 1,364 -55.1 0.2
Mercedes-Benz India Pvt. Ltd. 1,305 43.7 0.2
B M W India Pvt. Ltd. 1,051 98.3 0.2
Total 659,462 12.6 100.0
Source: Indian Industry: Centre for Monitoring Indian Economy, (Surjiani, Rahul, October 2008)

The increasing pull of the Indian market on one hand and the near stagnation in the auto
sector in markets of USA, EU and Japan on the other, have worked as a push factor for shifting of
new capacities and flow of capital to the auto industry of India. The increasing competition in auto
companies has not only resulted in multiple choices for Indian consumers at competitive costs, it
has also ensured an improvement in productivity by almost 20 per cent a year in auto industry,
which is one of the highest in Indian manufacturing sector.

Sales of passenger cars post 2000 have been driven by increase in the number of available
models, purchasing power, especially of the middle class, easy availability of car finance,
favourable government policies and growth of used car market. India, with its huge domestic
market, rapidly growing purchasing power, market-linked exchange rate and well established
financial market and stable corporate governance framework is emerging as an attractive destination
for new investments in this sector.

The rapid improvement in infrastructure including road, port, power and world class
facilities for Testing, Certification and Homologation, coupled with availability of trained
manpower and enabling government policies to promote fair competition make the Indian industry
more competitive in world besides making the country a favourable destination for investment by
global majors in auto industry. Given that passenger car penetration rate is just about 8.5 vehicles
per thousand, which is among the lowest in the world; there is also a huge potential demand for
automobiles in the country. The Automotive Mission Plan 2006-2016 (Society of Indian
Automobile Manufacturers (2006) was drawn as an action plan to take the turnover of the
automotive industry in India to US$145 billion by 2016, accounting for more than 10 per cent of the
GDP and providing additional employment to 25 million people, by 2016.

Management & Change, Volume 15, Number 1&2 (2011)

 Figure 4: Growth Drivers for the Indian Automotive Industry

Overall economic growth

Lower duties & taxes

Government
Policies

Growth in Income levels

Contemporary products New Increasing Easier financing
Shorter life cycle Indian Automotive consumer
product Industry
launches demand

Cost
Competitiveness

Export Competitiveness
Reduced cost to consumer
India emerging as a manufacturing
hub

5. COMPETITIVENESS IN THE AUTO INDUSTRY

One of the most important mechanisms underlying the globalization process lies in the transfer of
advanced manufacturing capabilities to low-wage economies. These “capabilities” comprise both
levels of productivity and levels of quality. The latter is by far the more important element: poor
productivity can be offset by low wage rates, but until firms attain some threshold level of quality,
they cannot achieve any sales in global markets, however low the local wage level (Sutton, J. 2000).

National Manufacturing Competitiveness Commission’s National Manufacturing Strategy

(2006) lists the following factors impacting manufacturing competitiveness of an automobile
industry:

(i) Higher import duties including inverted duty structure on raw materials

Management & Change, Volume 15, Number 1&2 (2011)

(ii) Higher incidence of indirect taxes
(iii) Sub-optimal levels of operations
(iv) Lower operational efficiencies and higher transaction costs
(v) Lower labour productivity and higher cost of capital
(vi) Inadequate infrastructure

The other factors that also contribute to competitiveness of the automobile industry are:
Sustainability, Global comparison, Policy Environment, Productivity, Capacity Utilization, Aspects
related to Supply Chain and Industrial Structure, Price, Quality and Contracts.

The key factors that contribute to competitiveness of a country or a location can be

summarized as shown in the Figure 5

Figure 5: Key factors for Competitiveness

Labour Productivity Cost

Efficiency factor Labour Flexibility

Capital efficiency/other production factors

Quality Manpower

Resource Availability Infrastructure

Raw Materials

Economic Policies & stability

Ability to attract
Investment
Incentives

Domestic/Exports

Proximity to Markets

Auto clusters

6. ROADBLOCKS AND MEASURES TO IMPROVE COMPETITIVENESS

The dream project of Tata group “Tata Nano” showed India’s ability to innovate has increased
India’s stature in the global automotive stage but at the same time it also proved that conditions

Management & Change, Volume 15, Number 1&2 (2011)

prevailing in the country do not permit companies to be competitive enough with the range of
roadblocks prevailing for the industry. On a global level, the India’s share of automobile production
is around 2.3 per cent of the world production and exports only 0.3 per cent of global trade.

In a Global Competitiveness Survey (Ministry of Heavy Industries and Public Enterprises

2006a) of 104 countries India ranked only 55th. In terms of a macro-economic environment, public
institutions and technology, India ranked 52, 53 and 63 respectively. On location attractiveness for
manufacturing, India ranked 43 while other regional countries such as China, Singapore and Hong
Kong ranked 39, 11 and 6 respectively. The productivity in automotive industry in India is
substantially higher than other sectors and it has a huge potential for further improvement, which in
turn will pull up the competitiveness of entire manufacturing sector. Hence it becomes imperative to
identify factors that make manufacturing in India un-competitive and address these and improve our
competitiveness.

Factors which are roadblocks to the automotive industry have been identified with the help
of Porter’s diamond model and various suggestions have also been made to counter these
roadblocks.

Management & Change, Volume 15, Number 1&2 (2011)

S.No. Determinants Roadblocks Suggestions
• Less productivity because of skill shortages and • Labour reforms, good training and development
skill mismatches facilities
• Wages and salaries of labour • Wages and salaries of labour as per world
• Low Quality, inconsistent supply of raw material standards to increase productivity
and land • Flexible and investor friendly labour laws
• Contractual nature of labours • Cheap raw material & land to promote
• Low Quality, inconsistent supply of raw material competitiveness
and land • Reliable and quality power supply. Small firms to
• High costs, inconsistency and low quality of adopt better technologies and minimize
power wastage of power/fuel.
1. Factor • Low investment in R&D expenditure as a share • R & D expenditure should be as percentage to
Condition of turnover sales ratio. Centres for automotive
• Does not possess good design facilities manufacturing excellence to be created
• Poor and insufficient infrastructure, poor • R & D for product, processes and technology to
connectivity be incentivized. Establishment of world class
• Immense port congestion and excess lead time testing, homologation and certification facilities.
• Expenditure Infrastructure as a percentage of
GDP especially around automotive clusters.
• Fleet Modernization to be encouraged
• Proper traffic Regulation, National Road Safety
Board should act as the coordinating body for
promoting safety
• Low demand because of traffic congestion, and • Proper traffic regulation, National Road Safety
poor road conditions Board should act as the coordinating body for
• High interest rates of finances, excessive taxes promoting safety
and fees, operational restrictions, and red tapes • Lower financing and single window operations
in vehicle purchasing and registration. • Measures for demand creation, brand building
2. Demand • Poor brand image of Indian cars parameters of (Made in India) should be promoted
conditions performance, features, and safety • Measures for demand creation, brand building
• Low penetration level (Made in India) should be promoted.
• India basically a small car market • Cost effective small carriers, strong, rugged, low
cost vehicle for the rural market. Alternative
cheap fuel to enhance demand
• Highly fragmented and counterfeit auto • Joint ventures with foreign suppliers.
component Industry. • Setting up of virtual SEZ and Auto Parks for auto
• Demand uncertainty, credit constraint and lack component industry
3. Related and of skilled manpower • Policy measures to reduce the indirect taxes on
all input materials
supporting • Capacity building, capability augmentation,
industries competency profiling by suppliers
• Reduce the vulnerability to oil prices by
designing lower fuel consumption vehicles

• Unused Production capacity • Increase latent demand

• Anti-dumping mechanism to be strengthened
• Laggard nature in outsourcing
• Increases penetration in the international
Firm strategy, • MNEs and indigenous automaker strategic markets
4. structure, and difference
• Firms should benchmark their performance
against best in the industry & adopt best
rivalry manufacturing practices and production
techniques
• To identify rivalry & partner strategy differences
• High tariff on capital. • Appropriate Tariff Policy to be followed to
• High import duties on machinery for setting up attract investment
of new plant or capacity expansion. • An appropriate policy for attracting investment
• Huge inter-state differences in taxes and should be ensured for realization of the
incentives potential.
• Political dominance in the industry • No location based tax exemptions and barriers
5. Government to inter-state movement of goods. Reduction
and simplification of direct and indirect.
• Government to act as a facilitator and aim for
creating suitable stable, predictable, and
sustainable policy. Time bound implementation

Figure 6: Cost of Labour-A Comparative Analysis

Cost of Labour–A Comparative Analysis
Cost of labour in USD per hour in developed and emerging economies is shown

Management & Change, Volume 15, Number 1&2 (2011)

 22.7
20.3
19.2
17.7

USD cost per hour

Germany Japan United Kingdom United States of

America
De ve lop e d cou ntrie s

1.80
1.60
1.50
1.40
USD cost per hour

Thailand India China Phillippines

Em e rging Co untrie s

Source: India Automotive Study 2007, KFMG

Source: OICA Statistics Committee, world ranking 2005

7. CONCLUSION

The industry expects the growth in the automotive sector to continue, fuelled by rising disposable
incomes and increasing consumerism. They also believe that global automakers will continue to
allocate a rising proportion of their foreign direct investment into India, growing auto
manufacturing first and later auto engineering and R&D services. But even as the sector grows,
some concerns are becoming more pressing. A KPMG report found that senior auto executives are
also concerned about India's eroding cost advantage and the increasing challenges of rewarding and
retaining talent. The report also expresses concern about the pace of consolidation in some parts of
the industry and the challenges firms face in building Indian auto brands.

The leading concern is the continuing cost imposed by India’s relatively poor physical

Management & Change, Volume 15, Number 1&2 (2011)

infrastructure, and the slow pace of improvement in road, rail and port facilities. Added to this, the
fact that the automotive industry lags behind other sectors such as IT and financial services in
management training, reward and retention. Above all, Indian companies recognise that to achieve
global scale they will need to meet the challenge of building persuasive global brands. Nevertheless,
the overall impression is that India’s auto sector has passed a critical turning point. The inherent
strengths of India’s manufacturing economy – an exceptional human resource base, the capacity to
deliver high quality engineering products, and the strategic geographical positioning – have been
reinforced by a strong domestic economy and a new readiness on the part of global auto
manufacturers to make key investments in India. The opportunity for India’s automotive companies
to emerge as leading participant in the global industry is clearly present: the challenge is no longer
to create the opportunity, but to manage it.

Management & Change, Volume 15, Number 1&2 (2011)

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