Chapter: 9 Changing Structure of Car Markets

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Chapter: 9 Changing Structure of Car Markets 187 CHAPTER: 9 CHANGING STRUCTURE OF CAR MARKETS Introduction 9. The greatest impact of reforms, apart from its effect on structural components of the industry has been on the way cars are being marketed today. Its is interesting to note how there has been a change in the way the whole gamut of marketing of cars has changed in a short span of ten years. The metamorphosis has been from a supply- constrained industry characterized by long booking periods, waiting lists, product stagnation, abysmal technology etc into a more dynamic and vibrant industry reactive to minor changes in the markets. The changes are glaring on almost all fronts. May it be the way consumer's attitude and preferences have changed or the way products are being differentiated and positioned or the way after sales support systems have come into place, the change has been considerable. To imderstand the way marketing has changed for the industry over the period of our study the study is hacked into various sections to analyse the change better. The study is composed of the following sections a) Environment b) Product c) Positioning d) Pricing e) Distribution f) Supply Chains Tliese sections represent the main areas of change, which the industry has undergone. There has been a change in the number of competitors, products, pricing policies, positioning policies, distribution networks, supply chains and their components and all these changes have had a great impact on the way industry handles its marketing today. Chapter begins with a study of the industry's competitive environment, different from the industry environment that has been defined earlier. SECTION: 1 DvnDUSTRIAL ENVIRONMENT Changes in the Industry Environment 9.1. To analyse the change of an emerging and growing industry is a difficult task as there are so many things that can be missed. The Indian Market has undergone an immense change following economic reforms and liberalization of the economy, which began in 1991. Growth has been rapid since then which will become very clear when we consider that gross turnover in the automotive sector has grown up from about RS 128 billion in 1991-92 to an estimated RS 450 billion in 1996-97. Production of all vehicles has almost doubled from two million a year to 3.98 million 188 a year and more than doubled in certain key sectors such as passenger cars and commercial vehicles. The basic boosters for this wildfire growth have undoubtedly been the heav>' influx of foreign companies, capital, technology and people who have jump-started the automobile growth in this country. More drastic is the change in attitude as it trudges towards a more dynamic view of the industry and trade. The move-in of the big players in the field of passenger cars has hiked up competition to drastic levels. These firms, though individual entities in themselves and as per their registration are mostly no different than an extension of their parent company and a part of the company's global strategy. Thus to understand the changes in the marketing environment in Indie and how it has effected the way business is conducted it is essential to understand and study the pattern of growth of the automobile industry. Changes in the Competitive Environment 9.1.1 The milestone year in the Indian car industry was 1983 when the Government of India got into an agreement to germinate Maruti Udyog. Though at that time there was still the shackle of regulation, which gripped the industry then, however the need to change and emulate the growth pattems of the West was most definitely felt. Maruti Suzuki was a runaway success prompting the government to reconsider its activities on similar lines. The great economic contraction was the shove needed to p'ize open the economy. Thus in 1991 the government opened the doors to reforms to have a more controlled and organized change. It had important implications for the car industry as there was a great rush of manufacturers lining up to sign Memorandums of Understanding despite the existence of certain controls like domestic content requirements and export commitments that emerging countries so desperately need. Demand projections for the industry shot up as can be seen fi-om Chart9.1.1. Chart9 .1.1- Vehicle Demand Projections to 2000 - Various Reports Source of Report Nos. of Vehicles in Millions DRI - Mc Graw Hill' 5.1 McKinsey-EU^ 4.7 AIAM Data^ 5.1 INFAC" 4.0 Morgan Stanley^ 5.5 CII (Cars only)" 0.6 ENCONS' 8.0 The major reason for the influx of these global manufacturers were a) Globalisation - manufacturers wanted an increasing integration of their global activities and building a presence in most markets as a part of their overall global strategies b) Outsourcing- was soon becoming an important tool for achieving vital global cost advantages all over the industry 189 c) Labour Costs - to take advantage of the labour costs in India which are very low as compared to other countries (about I/IO**" of Japanese costs) d) Emerging Market - India was at that time and still is one of the most potent emerging countries like China with an almost unlimited market for goods. The market characteristics were very promising. A growing income rich middle class, dismal quality local goods, awareness and latent demand for foreign-made goods and a crumbling economic system. e) Impetus on development and growth supported by the government. Eiecause of these major reasons, there were a lot of tie-ups and investment proposals for setting up plants and manufacturing facilities in India. The government's insistence on production facilities and not an assembling base led to a large number of serious entrepreneurs setting up shop in the country. The Indian car industry today has about 14 market players competing over a whole array of products. Maruti thou^ not being the pioneer, enjoys almost pioneering competitive advantages over vast multitudes of variables. The Indian car industry, especially post reforms, can hardly be called Indian. Ownership is the key to Indianisation. Profit destination and not employment generation, technology transfer, resource development or vendor network should determine it. When investment influx started from foreign car companies, protectionism, bureaucratic fiinctioning and business sense led to the formation of a large number of Joint ventures for manufacture of passenger cars with each having large share participation by the Indian partner. However industry immaturity, weak infrastructure, a distinctly different consumer attitude, long gestation periods and a host of other factors have changed the scope of the industry. Joint ventures crumbled as business kept absorbing investments with no immediate profitable returns, which the foreign partner could afford but not the Indian partners. Indian holdings declined to negligible levels as equity patterns crumbled when more money was required to be pumped in to facilitate product launch, increase working capital or a host of other factors associated with a cost intensive business and though the proposals for shareholding pattern change incorporates a buy back period, it seems difficult to happen. The Indian market has become an emerging arena for the multinational companies and to understand the forces at play it is vital to study the corporate missions, companies other business in the market, the shareholding patterns, companies performance otherwise in the world etc. Here the major market players are analysed. The Market Players 9.1.2 An analysis of the market players as they have existed in the market and even those that have given concrete plans for establishing base in India is carried out as given under. a) Daewoo Motors -Daewoo was founded in 1967 by the 31 year old, Kim Woo Chung and three of his associates. The Company was founded on the 12 October 1994 in India*. Daewoo Motors is a part of the US$ 72 billion Daewoo Group of Korea and in 1998 was ranked as 18*^ on the Fortune 500 list of companies. Currently the Daewoo group is present in 123 markets and has investments in China, Poland, Czechoslovakia, Romania, Uzbekistan and India to name a few countries. Out of its global production plans for 2.5 million cars 190 this year (2000), Daewoo proposes to produce 1.5 million cars at its overseas production bases. Daewoo recognizes the economic potential of India and wants to develop India as a base for outsourcing its world-class products. Daewoo manufactures products, which conform to international safety and environment norms. Its present range of cars has been environment friendly and conforming to Euro-1 and Euro-11 emission norms, well ahead of the deadline of the Supreme Court of India. This is because Daewoo has been maintaining the same international quality standards across the world including India. Daewoo motors started producing its world-class cars in its state-of-the-art plant at Surajpur (UP) near Delhi. Daewoo commenced its operations in July 1995, with the production of its Cielo and expanded its range to the Matiz in the small segment, Cielo Executive and Nexia in the mid-size segment' and Royale&Caravan buses in the light commercial vehicle segment. Daewoo motors endeavour is to introduce a product in every segment of the Indian passenger car market. Daewoo Motors India Limited has technical collaboration with only Daewoo Corporation of Korea for producing passenger cars in India. Daewoo Corporation is also the financial partner holding about 92% equity in this venture. Daewoo started with a 51% stake in the company by pumping US$ 38 million, which has been upped, to 90% through a rights issue. Daewoo is looking for investment of RS 5000 crores to meet its vision. The company has RS 2951 crores at its disposal despite an equity of RS 511 crores and the RS 2000 crores already pumped in bv Daewoo in the form of equity.
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