What US CEOs Can Learn from GM’s India Failure

INB30020
Assignment 3

Jason Shanaka Daniel

101231830
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Abstract
In this case, we view why India has become a ‘graveyard’ for foreign automobile manufacturers.
We will be looking into why General Motors failed in India by analyzing primary data and
applying theories of justice and fairness, sustainability, institutional based view and disruptive
innovation. Furthermore, we will be discussing whether General Motors can re-enter the
multibillion-dollar Indian automobile industry.

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Contents
Abstract............................................................................................................................................3
Introduction......................................................................................................................................5
Literature Review............................................................................................................................6
Justice and Fairness.....................................................................................................................6
Sustainability...............................................................................................................................7
Institutional based view...............................................................................................................7
Disruptive Innovation..................................................................................................................9
Case Analysis.................................................................................................................................10
Justice and Fairness...................................................................................................................10
Institutional Based view............................................................................................................11
Disruptive Innovation................................................................................................................11
Discussion......................................................................................................................................12
Can General Motors Re-enter India?.........................................................................................12
Implications...................................................................................................................................13

Case Analysis
From 2006 onwards, General Motors started selling its vehicles under India’s Chevrolet brand
name. The company introduced 8 models to the Indian market, which was substantially more
extensive than the portfolios of Honda and Ford. Despite this significantly extensive portfolio
and its long history in India, GM only capitalized on 1.6% of the Indian Motorsport market as of
July 2015. The company had experienced a loss of INR 27 billion, with most of its models
experiencing a double-digit drop in sales; the loss was forecasted to inflate more. Thus, the
company announced its exit from the South Asian market in 2017.

Justice and Fairness

In 2013, the Indian branch of General Motors admitted to violating testing norms. The
company’s employees refitted already approved engines to their Tavera models, which were sent
to the inspection to pass the specified emission norms. Further investigation was conducted on
General motors revealed that the company manipulated the weight of the vehicles to comply with

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less stringent emission laws over time. Under section 182A of the Motor Vehicle Act, any
violation or irregularities is punishable under the Indian Penal Code.

In response to this allegation, GM recalled 114,000 of its Chevrolet Tavera model, produced
from 2005 to 2013, to address the emissions and specification matters. The recall was a
significant setback and reputation damage for the American motor manufacturer, hoping for a
10% market share in the South Asian market. Moreover, GM responded to this allegation by
expelling top officials, including chief financial officer Anil Mehrotra and the R&D executives
in India, and removing a few senior officials, including the head of global engine development in
GM’s Detroit headquarters (Mathew 2015).

Institutional Based view

Another major reason for the failure of General Motors in India is that the strategy used by them
wasn’t India specific. Despite General motors offering 8 models in their portfolio, which was far
more than other foreign car manufacturers in the country. However, none of these vehicles was
customized to suit the conditions of the Indian roads and the needs of the Indian consumers. For
example, the French automobile manufacturer Renault adopted unique suspension systems to
adapt to the Indian roads, which are popular among Indians (Soundarajan 2017). Furthermore,
When SUVs first gained popularity, they were forced to compete with MPVs and hatchbacks.
Even though GM introduced the Trailblazer, it was too far up the price scale to significantly
impact the mainstream market. Neither did General Motors have the same reputation as Toyota,
which helped the Fortuner sell like hotcakes (D’ Souza 2017).

Disruptive Innovation
The future of the Indian Automobile industry is shaped by three disruptive forces: electrification,
shared ownership, and driverless technology. Many Automotive manufacturers in the Indian

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market have tried out various low-cost models with the aforementioned technologies, causing
disruptive innovation. In 2010, Mahindra Limited, India’s leading producer of SUVs, acquired
Reva Electric Car Company to form Mahindra Reva Electric Vehicles Private Limited. The
company launched its next-generation electric vehicle, ‘e-20’, which became popular among
Indian consumers. The existence of a young urban middle class, a rising number of dual earners
in urban families and the availability of various financing options to purchase vehicles has
created a new niche market that causes disruptive innovation. In such niche markets, customer
preferences are wildly divergent or detached from mainstream customers and manipulating any
one feature may not entice existing customers to adopt the product/service based on this
disruption (Pandit et al. 2018). On the other hand, General Motors used outdated technology
which barely matched what other major players in the Indian automobile industry offered. The
failure to address disruptive innovation is another critical reason General Motors could not seek
the success they were looking for from the Indian market.

Discussion

Can General Motors Re-enter India?

The Indian automotive market is dominated by players such as Maruti and Hyundai, who set the
‘rules of the game.’ Therefore, it poses many challenges for new and established players like
General motors to crack into the 32 billion US dollar market even though they possess financial
and technological clout in car manufacturing. Certain strategical flip-flops on the management
part, paired with the failure to understand consumers of the Indian market and disruptive
innovation by competitors, led to General Motors leaving the Indian market in 2017 (Sridhar Raj
et al. 2019).

To re-enter the Indian market, General Motors needs to prepare a more specific strategy to suit
the needs and conditions of the Indian market. The company saw frequent changes in their

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corporate structure, such as joint ventures with Hindustan Motors and SAIC, changes in CEOs,
etc., resulting in the company lacking a coherent long term strategy in India.

The Indian automotive market is known for its low-cost vehicles, which many foreign
manufacturers fail to apply to their business strategy (except for Maruti and Hyundai). When
GM was operating in India, they could not make a car for price points that matched what
competitors offered. As the urban middle class keeps growing, the demand for vehicles has
shifted from 800cc to hatchbacks. These hatchbacks are provided at a much higher price range,
which allows GM to rethink its strategy and its cost model before entering the Indian market.

With the rise in the price and fluctuations in oil supply, environmental issues of concern and
technological changes, the Indian government has shifted its focus toward electric vehicles.
Special measures such as cutting the GST to 5% and incentivizing the production of Electric cars
have been taken by the Indian government to encourage automotive manufacturers. These
incentives and new policies have forced manufacturers to redefine their production with more
cleaner technologies (Prabaharan et al. 2020). As General Motors have experience in producing
EVs, this creates a massive opportunity for them to capitalize and re-enter the South Asian
market. Furthermore, this also enables the company to become more sustainable as it becomes
more environmentally conscious.

In terms of Justice and Fairness, GM motors need to be just regarding the adherence to Indian
regulatory authorities and environmental norms after its scandal with emission tests. After the
2013 scandal regarding manipulating vehicle weights to pass emissions inspections, many
consumers in the Indian market lost trust in General Motors. They were getting a vehicle that
was not up to the standards for the high price they paid. Therefore, if GM wishes to re-enter, it
needs to build trust with Indian consumers. It needs to implement strict policies and a code of
conduct to ensure that such misconduct won’t happen again and that all stakeholders receive
Justice and Fairness when conducting business with the firm (Mathew 2015).

To conclude, there is a massive opportunity for General Motors to enter the Indian Automobile
market. However, it needs to understand the rules of the game set by other major institutions
operating in the South Asian market and develop a strategy to suit the needs and conditions of

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the Indian market. Furthermore, disruptive innovation in the automobile industry has opened up
a call for GM to introduce sustainable electric vehicles to the Indian market. Moreover, it also
has to implement strict policies and procedures to ensure that justice and fairness are served to
stakeholders involved in the business.

Implications
India has earned the nickname ‘the graveyard for world auto giants’ due to many international
automobile manufacturers failing to capitalize on a portion of the multibillion-dollar industry.
This case study shows us the importance of understanding ‘the rules of the game’ set by
institutions when implementing a strategy to operate in the market. General Motors used a
generic strategy in conducting business in India. Thus they couldn’t achieve the growth they
ambitioned for. Furthermore, the rise of the urban middle class has opened up a niche market for
disruptive innovations such as electric vehicles. Such disruption has allowed motor
manufacturers to achieve sustainability. Justice and fairness also is significant point that needs to
be addressed by business planning to establish in a foreign country.

Introduction
Headquartered in Detroit, Michigan, United States, General Motors is an American multinational
automotive corporation and, for the most prolonged period, held the position of largest
Automobile manufacturer in the world for 77 consecutive years until it was overtaken by
Japanese manufacturer Toyota. General Motors initially commenced its business operation in
India in 1928, assembling buses, trucks and cars until it ceased its operation in 1954. The
company formed a 50-50 joint venture with Hindustan Motors and re-entered liberalizing India
in 1994 (Matthew 2015). Eventually, the share of Hindustan Motors was bought by GM in 1999,
taking complete control over the operations in India. However, unlike its fellow compatriot Ford,
GM could not capture a substantial market share in the Indian market which ultimately led to
GM stopping selling vehicles in the Indian Market at the end of 2017.
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Despite the claims by India that they attract more Foreign direct investment than China, many
American companies have failed to achieve ‘the Indian Dream.’ GM’s failure in India has been
linked to the issues below:-

 Inconsistent Leadership
 Less Autonomy to Local managers
 Using a strategy that wasn’t suitable for India
 Not having a long term vision

This report will look into General Motors’ failure in the Indian market by implying it into
International Business strategy theories. Major themes such as the Institutional based view and
disruptive innovation will be discussed, along with Justice, Fairness and Sustainability.

Literature Review
This section of the report will analyze the themes of Justice and Fairness, Institutional based
view and Disruptive Innovation.

Justice and Fairness

In an advanced and highly competitive business environment, leaders in a corporate environment
must treat their employees with justice and fairness. Research has shown that employees who are
treated with integrity, fairness and sensitivity are more likely to respond with increased
commitment and productivity. In this highly competitive and complex international business

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world, having a satisfied workforce is vital as it determines the employee’s perception regarding
organizational justice (Caldwell et al. 2010). The principle of organizational justice begins with
the notion that rewards should be proportional to contributions. There are 3 core dimensions of
organizational justice: distributive justice, procedural justice, and interactional justice.

Distributive justice refers to when the fairness perception induced compares an individual’s
outcome with an outcome of a comparative individual. In other words, distributive justice is the
perceived fairness of how a group shares rewards and costs. There are three widely recognized
criteria for distributive justice: equality, equity, and need. Equality refers to treating each other
the same, equity refers to rewarding each individual based on their contributions to achieving the
desired outcome and need refers to allocating resources based on individuals’ requirements
(Bahri-Ammari et al. 2017).

Procedural justice refers to the perceived fairness of the policies and procedures used by an
organization to make a decision (Lance Frazier et al. 2010). In an organizational setting,
Procedural justice has a significant impact on the employees of an organization as it is linked to
cognitive, affective and behavioural reactions towards the organization. Research has shown that
procedural justice helps build the employee’s trust with the upper management and positively
influences work engagement, knowledge sharing, and innovative work behaviour (Pan et al.
2018).

Interactional justice refers to how the people affected by a decision are treated with dignity and
respect. It is split into two; Interpersonal justice and Informational justice. Interpersonal justice is
how a person is treated by their fellow subordinates or senior employees. In contrast,
Informational justice is the transparency between the employees and decision-makers about the
procedures used to achieve the desired outcome/result (Muzumdar 2012).

Sustainability
In short, sustainability refers to the effects a business has on factors such as environment, social
and governance domains. As stakeholder expectations have grown across the environmental,
social and governance (ESG) disciplines, sustainability has become a key element that
organizations must integrate into their business globally. A growing number of organizations

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have willingly undertaken many sustainability initiatives in their strategy to build a
differentiation advantage (Ioannou et al. 2018).

In order to successfully integrate sustainability into the strategy, organizations need to

understand their external expectations, such as environmental regulation, standards set by
governments, etc. and build uniques competencies that match their internal state. The business’s
reaction to these signals provides a glimpse into how the external environment and the
opportunities and challenges influence its activities. It describes, for example, the forces that
push it to minimize emissions and waste, restrict product life cycle costs, and lower the
environmental burden of business expansion from a sustainability standpoint. If, on the other
hand, these just result in the formation of procedures with the narrow goal of control and
compliance, then the company response has been partial, reactive, and tactical. Furthermore, it
must thoroughly know the structure and substance of its internal state and the nature of its
specific competence, such as its essential resources, possibilities, and the potential leverage they
can accrue from its sustainability measures (Murthy 2012).

Institutional based view

Thruout the years, the field of strategic management has been dominated by two major theories.
The industry-based view dominated the 80s, and the resource-based view was prominent in the
90s. However, over the last few years, a third leading strategy named ‘Institutional based view’
that emphasizes the role of institutions in determining why companies have different competitive
advantages has emerged. The Institutional based view focuses on the dynamic interaction
between institutions and organizations and considers strategic choices as the outcome of such an
interaction. These strategic choices are not influenced by industry conditions and the capabilities
of the business but also by the formal and informal restraints that managers face within a specific
institutional framework (Peng at el. 2008).

Two main ideas build a strong foundation for an institution-based view. Firstly, from the
perspective of rational choice. Managers and organizations rationally pursue their interests and
make strategic decisions within a specific institutional framework, which helps to decrease
ambiguity and provide meaning for these decision-makers. The second proposition is that formal
and informal institutions govern the firm’s conduct. When formal constraints can be unclear or

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fails, informal regulations will be more critical in minimizing ambiguity, offering advice, and
conferring legitimacy and rewards to managers and organizations (Sun et al. 2012). For example,
the institution-based view says that even if a company cannot be a market leader in cost or
differentiation, it can nevertheless outperform competitors in nonmarket political arenas where
informal relationships significantly impact.

Researchers have identified two types of institutions based on their role and influence on
economies: ruled-based and relationship-based. Decision-makers rely more on market data and
well-defined rules and regulations in rule-based institutions, including sophisticated property
rights and investor safeguards. On the other hand, in relationship-based institutions, the weak
legal system with limited property rights and investor protections encourages decision-makers to
embrace relationship-based exchange and social networks. While most economies that are still
developing find it challenging to transition from relationship-based to rule-based institutes, it is
nevertheless hampered by the founding institution, and relationship-based institutions continue to
predominate.

The institution-based view complements the industry based and resource-based view to
collectively form a strategy tripod that also provides a vital new point of view of international
business, such as What determines an organization’s strategy and the determinants of success
and failure of international organizations.

Disruptive Innovation
In a global business environment that is intense and dynamic, innovation of new commercially
exploitable products, services and business models has become a focal point of competition. In
other words, innovation is the single building block of competitive advantage that gives an
organization something that competitors lack. Disruptive technology is a term that was initially
proposed by Clayton Christensen in his book ‘An Innovators Dilemma.’ He suggests winning
technology may not necessarily be radical or cutting-edge but instead focused on neglected
technology attributes. This concept later evolved into ‘Disruptive Innovation’, which
encompasses technological disruptions and disruptions in other areas such as products and
business models (Si et al. 2020). Disruptive innovation is an innovation process in which
products or services are initially ignored by mainstream customers but can satisfy consumers in

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low-end or new markets with performance attributes (such as being cheap, simple, or
convenient) that these consumers value.

Disruptive innovation can be categorized into four perspectives. The first perspective is the
disruptive model innovation that focuses on creating a new activity system in which new partners
and activities are arranged unprecedentedly compared to conventional business models. This
model reinvents the definition of value creation and acquisition. The second perspective is
disruptive technology innovation. It aims to develop more concise and accessible technology in a
niche or brand new market that the mainstream market does not value and eventually improve
the technology to flow into the mainstream market.

The next perspective is disruptive product innovation that focuses on making things that are
simpler, less functional, and less expensive but sufficiently excellent to fulfil a niche that is
underserved by mainstream products. Last but not least, the final perspective focuses on
innovating a strategic model for inferior products in a niche market which is totally different
from the traditional strategy of innovation. This perspective is known as disruptive strategic
innovation.

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