WHO IS THE NEXT HENRY FORD?

International Business

Group members:

Marco Fossati,Davide Di Labio,JiHong He,Iman Alalawi, Viola D’Andrea, Harpreet Singh

INDIA & CHINA AUTOMOBILE INDUSTRY

The World automotive industry Is the handbrake on? The countertrend A global road map A look at the engine Driving on the same lane The competitive advantage In the driver’s seat A story of change An emerging race Look down the road

Outline

The World automotive industry

70 million cars, vans, trucks and buses in 2007. €1.9 trillion of global turnover. More than 8 million people directly employed

(over 5% of the world’s total manufacturing employment).

More than 50 million people: direct plus indirect employment.

€85 billion invested in research, development and production in 2007.

Over €430 billion of contribution to government revenues (in 26 countries alone).

Is the handbrake on?

GLOBAL CRISIS OF THE AUTOMOTIVE

SECTOR

Credit crunch

Economic downturn

Cultural delay of global players

High costs of factors

Oil price

State intervention in US and Europe

The countertrend

Source: Internal elaboration on International Organization of Motor Vehicle Manufacturers data, 2008

+187,9% vs 2000+329,3% vs 2000

A global road map

World’s second largest market for two wheelers.

Average growth rate: 17% a year since 1991.

Average growth of vehicles exports: 30% a year since 2000.

11,1 billion units of volume in 2007 (+15% a year since 2000) – two wheleers mainly.

0,3 million people – direct employment (13,1 million including indirect employment).

World’s second largest market for automobiles.

Average growth rate: 25% a year since 2000.

Average growth of vehicles exports: 67% a year since 2000.

8,79 million units of volume in 2007 (+22 vs 2006) – four wheleers mainly.

1,6 million people – direct employment.

Indian Automobile Industry

Chinese Automobile Industry

A look at the engine

Private companies. India’s major automakers

are part of larger, family-controlled conglomerates

Profit is the number-one priority.

3 major home-grown makers (Tata, Mahindra, Maruti)

Mostly state-owned companies.

With ith few exceptions (Geely, BYD), Chinese automakers are controlled by local, provincial or central government

Employment is the number-one priority

12 major makers (SAIC, FAW, DFM, BAIC, GAIC, Chang’an,Chery, Geely, Brilliance, Great Wall, Hafei, BYD)

Indian Manufacturing Companies

Chinese Manufacturing Companies

Same lane (similarities)

Attracting attention from global automakers and suppliers Low cost strategy based on low cost labour (competitive

advantage) Joint ventures (with few exceptions, most JVs focused on

feeding local demand) Component supply. Foreign OEs brought their suppliers with them Major multinational suppliers have forged strong relationships with

locals Well-developed supply infrastructure in both countries Rapidly improving quality Growing R&D capability

India - The competitive advantage

FACTORS CONDITIONS

DEMAND CONDITIONS

RELATED AND SUPPORTING INDUSTRIES

STRATEGY, STRUCTURE &

RIVALRY

Availability of trained manpower at competitive cost

Domestic industries

Entire range of auto-components

Ground up strategy

Fairly well developed credit and financial facilities

Multinationals outsourcing

R&D investments and capabilities

Homegrown entrepreneurship

Local availability of almost all the raw materials at a competitive cost

Rapidly growing middle-class Auto Clusters High competition

Strong engeeniring skills

Favourable foreign policy

High technological internal resources

China - The competitive advantage

FACTORS CONDITIONS

DEMAND CONDITIONS

RELATED AND SUPPORTING INDUSTRIES

STRATEGY, STRUCTURE &

RIVALRY

Low cost labourMSC direct investment

Manufacturing all the Auto- Components of the value chain

Joint venture with MNC

Sufficient capitalDomestic demand (State Owned industries)

After-sale service Price competition

Basic industrial infrastructure

External demand (exportation)

Dependent on foreign technology

Top down structure

Raw materials Demand of labor intensive production

Good infrastructure system

Domestic brands are relatively weak

Insufficient innovative technologies (technology outsourcing)

Increasing domestic purchasing power

Growing competition (between JVs)

Sufficient skilled engineers

More sophisticated customers

High level of burocracy

In the driver’s seat

Strong contribution and support to the automotive sector through the Automotive Mission Plan 2016 to make India a global auto hub.

Support the National Automotive Testing and R&D Infrastructure project (NATRIP) to encourage growth of the auto industry.

Reforms slowly being phased in restrictive labor laws still on the books.

Still few real economic or legislative incentives for development. Too much bureaucracy, esp. for foreign investors.

Infrastructure (roads, rail, power, water) lags China.

Planning and direction setting through the 5Year Plan to control the growth of the market.

Limitation on foreign investment (joint venture requirement) and restriction of financing.

Entrepreneurship support and promotion of local industry.

Shift from State’s direct intervention to State’s coaching of the industry.

Fewer regulations, less red tape. Specific auto industry policies to

enhance R&D capability. On-going privatization of state-

owned enterprises. Support of innovation (through

joint ventures).

The role of government in India

The role of government in China

A story of change

203% vs 2000

423% vs 2000

Source: Internal elaboration on International Organization of Motor Vehicle Manufacturers data, 2008

Based in Mumbai, the company has been established in 1945.

Largest automobile manufacturer in India 23,000 employees World’s fifth largest manufacturing

company of medium and heavy trucks 2006 revenue: $6.7 billion 2006 vehicle sales: 579,378 (inc. 53,540

exports)

Tata Motors

Chery

Founded by local government in 1997 to prop up the local economy.

China’s first car exporter in 2001. 20,000 employees In 2007, Chery sold 381000 units

complete cars, inside which 119800 units were sold to foreign markets.

2007 revenue: $2.4 billion

Tata motors

Strengths

• Well-known brand with good reputation•Planned and smart international strategy•Smart approach in responding to the market demand.•Alliances with key players•Fast product development ability

Weaknesses

• Low level of infrastructures• Lack of experience in certain new sectors.

Opportunities

• Luxury brands (Land Rover and Jaguar)• Acquisition of Daewoo Motor• New long-awaited product (Nano)• Government support• Emerging markets high demand for passengers cars at low costs

Threats

• Downturn of the world economy• High level of competition• Sustainability and environmentalism• Oil rising prices

Chery

Strengths

• Sophisticated engine technology• High strategic management skills• Strong R&D capabilities•Well-known brand with good reputation in China.• Fast product development and growth.

Weaknesses

• Small scale• Narrow product line• Weak after-sale service

Opportunities

• Diversified customer demand•Increasing purchasing power in emerging markets.• Government support• Foreign market expansion

Threats

• Downturn of the world economy• Credit and financial facilities for purchasing

How did they overcome the disadvantages of being newcomers?

STRATEGY INSTITUTIONS

State Compensatory role

New institutions for exploiting capital and technology

Understanding the character and driving forces

behind the industrial dynamics

Exploiting latecomer advantages!

Assessing existing resources

The speed up for Chery and Tata

How did TATA create initial resource complement to overcome the disadvantage of being newcomers?

STRATEGY INSTITUTIONS

Government support (10Year Plan)New institutions for

trade promotion, technology up-

gradation, quality enhancement (ACMA:

Automotive Component

Manufacturers Association, SIAM: Society of Indian

Automobile Manufacturers )

R&D

Acquisitions

The speed up for Tata Motors

Strategic partnerships

Joint ventures

Intensive management development

International strategy based on the competitive advantage: New product (eg. Tata Nano, the cheapest car in the World). Acquisitions (eg. Land Rover and Jaguar brands from Ford

Motors). Partnership with established companies (eg. Alliance with

Fiat since 2006) to enhance the product portfolio and knowledge exchange.

Facilities for learning from other companies. Developing programmes for intensive management

development. Consolidate position in India by exploiting

opportunities: New mobility of young Indians. Government’s substantial road-building program GDP growth

Tata Motors, the road so far…

How did Chery create initial resource complement to overcome the disadvantage of being newcomers?

STRATEGY INSTITUTIONS

Government support and control

(5Year Plan)

New institutions for the exploiting of

capital and technology

Foreign consultancies

R&D

The speed up for Chery

Financial partnerships

Joint ventures

International strategy Joint ventures to access financial resources

(Quantum LLC and Huishang Bank) State support

Take use of the matured global value chain and focus on independent innovation

Exploit key strengths: leverage on competitive advantage (eg. its independent technology)

Manage key weaknesses: Acquire resources: buy product line, equipment

and technology from outside at proper time; find proper people from other joint ventures

Access to capabilities: work with foreign consultant firms

Create capabilities: learning by doing, enterprise-based R&D system, international market expansion

Chery, the road so far…

Look down the road

INNOVATION

Environmental friendly technology and alternative fuels development

Environment and safety standards

INSTITUTION

Road Map for Auto Fuel Policy by the government to support strategies

Reforms and regulations to sustain growth (eg. Labour reform)

The two key factors to become the new Henry Ford!

Change gear

The competitive advantages need to be leveraged in a manner to attain the twin objective of ensuring availability of best quality product at lowest cost to the consumers on one hand and developing and assimilating the latest technology in the industry on the other hand.

The concept of attaining competitiveness on the basis of low cost and abundant labour, favorable exchange rates, low interest rates and concessional duty structure is becoming inadequate and not sustainable.

The government’s role is to create a policy environment to help companies gain competitive advantage. The government policies target is to encourage growth, promote domestic competition and stimulate innovation.

EU China Trade and Investment Relations – Transports, Automotive, EU Commission, 2007

Organisation Internationale des Constructeurs d’Automobiles, OICA, 2008

Automotive Mission Plan 2006-2016, Ministry of Heavy & Public Enterprises, Government of India

Selling China’s cars to the world, An interview with Chery’s CEO, McKinsey&Company report, 2008

A global road map for China’s automakers, McKinsey&Company report, 2008

Timeline: India’s automotive industry, BBC News, 2008 Leading change: An interview with the managing director of Tata

Motors, McKinsey&Company report, 2008 http://www.worldbank.org www.imf.org www.eximbankindia.com www.en.ndrc.gov.cn http://www.gov.cn/english/ http://www.india.gov.in/

Bibliography