OPPORTUNITY-RISK ANALYSISAutomobile Sector

Automobile sector is one of the worst hit sector due to the present recession. Across the world the it is looking for bailout packages. In this situation, we are trying to find out which is the best country to operate in this sector.

Future growth will be driven by developing markets (Source: BCG Report).

It needs proximity to suppliers and customers.

We have taken an hypothetical auto manufacturer catering to B and C segment cars

AUTOMOBILE SECTOR

GROWTH IN PASSENGER CAR MARKET WORLDWIDE

Source:OICA

COUNTRIES UNDER CONSIDERATION

India China Brazil Thailand

FRAMEWORK FOR EVALUATING COUNTRIES Market potential Political scenario Infrastructure Credit availability Entry barrier Employing workers Protecting investors Trading across border Exit barrier Availability of skilled labour Raw material availability Vendor availability

MARKET POTENTIAL - BRAZIL

Year Cars % change

2001 1,501,586 -

2002 1,520,285 1.25%

2003 1,505,139 -1.00%

2004 1,862,780 23.76%

2005 2,009,494 7.88%

2006 2,092,029 4.11%

2007 2,388,402 14.17%

Source: OICA

MARKET POTENTIAL - CHINA

Year Cars % change

2001 703,521 -

2002 1,101,696 56.59%

2003 2,018,875 83.25%

2004 2,480,231 22.85%

2005 3,078,153 24.10%

2006 5,233,132 70%

2007 6,381,116 21.93%

Source: OICA

MARKET POTENTIAL - LNDIAYear Cars % change

2001 654,557 -

2002 703,948 7.54%

2003 907,968 28.98%

2004 1,178,354 29.77%

2005 1,264,000 7.26%

2006 1,473,000 16.53%

2007 1,707,839 15.94%

• By 2015 developing markets will contribute to 30% of new car sales (BCG).• India (72% of total sales is small cars and mid size)

Source: OICA

MARKET POTENTIAL - THAILAND

Year Cars % change

2001 156,066

2002 169,321 8.49%

2003 251,691 48.64%

2004 299,439 18.97%

2005 277,603 -7.29%

2006 298,819 7.64%

2007 315,444 5.56%

Source: OICA

POLITICAL SCENARIO

– Relatively stable– But, Highly publicized

scandals– Reforms are slow

China Brazil

– Stable Govt.– Autocracy– Policies Implemented

quickly• No time for

companies to adjust

Thailand

• A new constitution was drafted and promulgated in late 2007

• Political turmoil in 2008• PPP government facing

pressure to step down amid mounting civil disobedience and unrest lead by the PAD

India

• Either congress or BJP coalition govt.

• Both support development of economy

• Power will receive encouragement

• Stable policy

INFRASTRUCTURE - BRAZILSector Sub

SectorProjects Total

Investment

Energy Electricity 130 63,590

Natural Gas

15 6,624

Total Energy

145 70,214

Transport Railroads 16 8,572

Roads 39 12,121

Seaports 37 2,768

Total Transport

92 23,461

Per capita investment in transport= $122.2

Per capita investment in energy = $365.8Source: World bank group

INFRASTRUCTURE - CHINASector Sub

SectorProjects Total

Investment

Energy Electricity 157 31,416

Natural Gas

177 4,135

Total Energy

334 35,551

Transport Airports 17 2,766

Railroads 7 5,314

Roads 130 21,941

Seaports 55 12,426

Total Transport

209 42,447

Per capita investment in transport= $31.9

Per capita investment in energy = $26.7

Source: World bank group

INFRASTRUCTURE - INDIASector Sub

SectorProjects Total

Investment

Energy Electricity 93 33,133

Natural Gas

4 776

Total Energy

97 33,909

Transport Airports 6 4,514

Railroads 3 218

Roads 133 9,862

Seaports 24 4,327

Total Transport

166 18,922

Per capita investment in transport= $16.4

Per capita investment in energy = $29.5

Source: World bank group

INFRASTRUCTURE - THAILANDSector Sub

SectorProjects Total

Investment

Energy Electricity 52 10,894

Natural Gas

3 1,350

Total Energy

55 12,244

Transport Airports 2 455

Railroads 3 2,772

Roads 2 782

Seaports 11 199

Total Transport

18 4,208

Per capita investment in transport= $ 67.4

Per capita investment in energy = $196.3

Source: World bank group

CREDIT AVAILABILITY

Source: www.doingbusiness.org

ENTRY BARRIER

Source: www.doingbusiness.org

EMPLOYING WORKERS

Source: www.doingbusiness.org

PROTECTING INVESTORS

Source: www.doingbusiness.org

TRADING ACROSS BORDERS

Source: www.doingbusiness.org

EXIT BARRIER

Source: www.doingbusiness.org

AVAILABILITY OF SKILLED LABOR

Thailand Shortage of skilled labor deterring

new FDI Now companies reevaluating

Thailand’s attractiveness. Shortfall of 580000 by 2010.

India Skilled labor shortage Problem is not quantity but

quality High turnover rates and steep

wage inflation have eroded the competitiveness.

China Rising wages and turnover. Only a small portion of the total

labor force qualified to work in a foreign company.

Brazil Dearth of highly skilled labor. Average level of education is very

low Foreign skilled labor also limited

because of the language barrier.

RELATIVE HOURLY COMPENSATION COSTS(US100)

Source: Key indicators of the labour market

RAW MATERIAL (STEEL) AVAILABILITY AND COST India Good availability of iron

ore. Companies investing in more efficient production methods. Currently Per capita consumption low

China Steel industry under the

control of Govt. Consolidation going on in the domestic steel industry.

Shortage of iron ore might increase domestic prices in the long run.

Current lack of demand has resulted in low prices of steel.

Year Production

1990 17MT

2003 36MT

2011 66MT

YearH.R Coil

Price (RMB/kg)

2006 4.3

2007 4.7

2008 4.8

2009 4.1

Source: Indiastat * Source: chinaesteel.com

YearH.R Coil

Price (Rs/kg)

2002 18.50 2003 23.57 2004 32.41 2005 33.87 2006 33.65 2007 38.09 2008 43.42 2009 36.20

RAW MATERIAL (STEEL) AVAILABILITY AND COST

Thailand There is a domestic

shortfall in steel production. Country dependant on steel

imports. (40% of total consumption)

YearH.R Coil Price

(THB/kg)

2004 18.52007 182008 382009 28

* Source: steelguru.com

o Brazil• Abundance of iron ore,

coke.• Availability of cheap labour• Availability of modern

production techniques.• Steel industry is mainly

export dependant

YearH.R Coil Price

(USD/kg)2004 0.78

2007 0.71

2008 1.22009 0.933

* Source: steelguru.com, financial express

VENDOR AVAILABILITY India Has got a good vendor

base for automobile sector.

The vendor bases are developed by existing companies like Maruti, Tata etc.

Estimated Rs 26,000 Cr to be pumped into auto vendors by 2010.

Country has developed as a supplier base for auto vendors for Global Auto Majors

China Good vendor base low

technology intensive components

Have a good base for forging and casting products.

Have a good supplier base auto electronic components - future trend

VENDOR AVAILABILITY

Thailand Competitive vendor base

for manufacturing casting & forging parts, stamping body parts, rubber and glass.

Cost competitive suppliers for auto electronic components. These components are exported to Japan.

Supplier base developed due to assembling plants of major automobile MNCs like Ford, GM, Chrysler, Mitsubishi, Honda, Toyota etc.

Brazil New vendors developed by

European car manufacturers after 2000.

Good supplier base available for exhaust control components – future demand.

Steel components are available at a cheaper price.

AVERAGE OPPORTUNITY SCORE

ANALYZING THE RISK

SOCIO- ECONOMIC & POLITICAL RISKS

INDIA• Uncertainties surrounding in the coming general

election.• Rising communal violence and terrorism

incidents • slow-down in government decisions due to

political instability• Labour unrest and industrial action• Corruption and bureaucratic inefficiency• Unexpected delays and cost-overruns due to• Overlapping governmental jurisdiction• Fluctuation in interest, inflation and currency

rates

SOCIO- ECONOMIC & POLITICAL RISKS

CHINA• The environment could see conservatives increase in

influence in the government.• security threats along the border as a major vulnerability.• Public demonstrations and protests • Unemployment• Three Disparities (gaps between rich and poor, east and

west, and rural and urban)• Public security & safety.• Excessive discretionary authority of the customs

administrative systems.• Inadequate patent policy and poor supervision of

counterfeit goods have prevented many brand from entering the Chinese market

SOCIO- ECONOMIC & POLITICAL RISKS

THAILAND• Political fighting is aggravating social unrest,

driving a wedge between urban inhabitants and rural farmers.

• Political turmoil is seriously hurting key national institutions.

• Political chaos damaged its image as a stable place to do business.

• Terrorist activities• Accelerating inflation due to commodity prices

will be a key economic negative factor.• Domestic demand declined

SOCIO- ECONOMIC & POLITICAL RISKS

BRAZIL• Corruption scandal weakening Lula and his

government• Policy paralysis of Administration on the defensive

and fighting off corruption allegations • The public debt burden is very heavy with

maturities too short.• The external debt level is unsustainable over the

long haul.• External financing needs are too great in

comparison to currency earnings due to the debt amortization burden.

• The low level of savings which government financing needs essentially gobble up has been impeding private

• company investment.

AVERAGE RISK SCORE

OPPORTUNITY RISK MATRIX

Increasing Opportunity

Dec

reas

ing

Risk

1 32 4

1

2

3

4

2.58

2.73

India

China

Thailand

Brazil

THANK YOU!!!

Made by:- 08FN-13 Anirudh Singh 08FN-19 Aravind Menon.M 08FN-25 Ayush Gupta 08FN-27 Biswajit Mohanty 08FN-37 Jatin Sehgal 08FN-44 Kshitij Jain