Maruti Suzuki free essay sample

Industry Profile With the contribution of 22% to the country’s manufacturing GDP, the automobile industry has emerged as one among India’s major sectors. India has become a hub for many global players. Currently Indian automobile industry comprises of 15 manufacturers of passenger cars and multi-utility vehicles, 9 manufacturers of commercial vehicles, 16 manufacturers of two / three wheelers, 14 manufacturers of tractors, 5 manufacturers of engines. The Indian auto industry, comprising passenger cars, two wheelers and commercial vehicles is the seventh largest in the world with an annual production of 17.  5 million vehicles, of which 2. 3 million are exported. Two-wheelers dominate the Indian market; more than 75% of vehicles sold are two-wheelers. In 2009-10, Indian passenger car industry was one of the few markets globally that evaded the recessionary trend and it has been witnessing steady growth over the past few years. The industry’s growth is driven by various factors such as the economic growth of the country, rising disposable income, relatively low car penetration and availability of financing options. The sector’s potential has attracted various foreign OEMs to India and has also led many established domestic and foreign automobile players to adopt capacity expansion strategies. Many established foreign players in India, are also positioning themselves as key contenders to offer low-cost car manufacturing capabilities. However, the industry is struggling with various challenges such as of rising commodity prices, labour costs, interest rates and increased competition. According to the survey done by IBEF (Indian Brand Equity Foundation) by 2020, India’s share in global passenger vehicle market will reach 8% which was 4% during 2010-11. The passenger vehicle sales is expected to increase from 3. 2 million in FY2013to 9 million in FY2020E. There are so many reasons favouring this growth. Some of them are discussed below. Growing Demand Strong growth in demand due to rising income, middle class, and the young population is likely to propel India among the world’s top five auto manufacturers by 2015. Growth in export demand is also set to accelerate. Innovation Opportunities New players in ultra-low-cost car segment Innovation is likely to intensify among engine technology and alternative fuels. Rising Investments Significant cost advantages; auto firms save 10 to 25 per cent on operation compared with Europe or Latin America Large pool of skilled man power and growing technology base. Policy Support Government aims to develop India as global manufacturing as well as RD hub. There has been wide array of policy support in form of sops taxes and FDI encouragement. Finance Availability Improved Infrastructure Rising Family income Favourable Duty Structure Poor Public Transport System Low Car Penetration Exchange of Cars Changing Life Style The Automotive market is split into four segments The performance of each segment is given below (Source: SIAM, Aranca Research) From the graph it can be evidently seen that production of automobiles increased at a CAGR of 12. 2 % over FY05-13. Also it is very clear that passenger vehicles was the fastest growing segment, representing a CAGR of 15. 4%. Let’s focus towards passenger car industry. Passenger vehicles are projected to grow 5-7 per cent in FY14. Passenger car segment is estimated to expand 3-5 per cent. SUVs are projected to increase at 11-13 per cent. Indian luxury car market expanded at a CAGR of 30 per cent, with 23,000 units in 2011 (about 1 per cent of passenger car market in India). The market is dominated by players such as BMW, Mercedes, Audi, and Jaguar. India has world’s 12th largest HNI (High Net-worth Individual) population, with a growth rate of 20. 8 per cent (highest among top 12 countries), with expansion in education and realty sectors, and increasing income of IT professionals, more customers aspire to own luxury cars these all are some of key factors in the emergence of luxury car market. The Indian car market is expected to expand at a CGAR of 25 per cent during 2012-20 and reach 150000 units by 2020 (accounting for 4 % of estimated 6. 8 million-unit domestic car market). The luxury SUV segment is growing at about 50%, while luxury sedans are increasing 25-30 per cent. (Source: World Wealth Report (2011) of Merrill Lynch Wealth Management and Capgemini, Aranca Research) As a result of decreased product life cycle market players are forced to employ quick product launches. As a result a large number of products are available to customers across various segments. For accounting this Indian passenger car industry has witnessed increased RD investments from both government and private sector. Private sector innovation also contributed a lot to the industry example Tata Nano and Tata Pixel. In FY11 CNG market was worth more than USD330 million. CNG taxis and cars are expected to register a CAGR of 28% over FY11-14. The CNG network in India is expected to increase to 250 cities by 2018 from 30 cities in 2009. Car makers such as BMW, Audi, Toyota, Skoda, Volkswagen and Mercedes have started providing customised finance through NBFCs. Major MNC and Indian corporate houses are moving towards taking cars on operating lease instead of buying them. These all created a new trend in passenger car industry. Global car majors have been ramping up investments in India to cater to growing domestic demand. Also these manufacturers plan to leverage India’s competitive advantage to setup export-oriented production in hubs. The market share of major passenger car manufacturers in India is given below. Contribution to export Quick facts The first automobile in India rolled in 1897 in Bombay. India is being recognized as potential emerging auto market. Foreign players are adding to their investments in Indian auto industry. Within two-wheelers, motorcycles contribute 80% of the segment size. 2/3rd of auto component production is consumed directly by OEMs. India is the largest three-wheeler market in the world. India is the largest two-wheeler manufacturer in the world. India is the second largest tractor manufacturer in the world. India is the fifth largest commercial vehicle manufacturer in the world. The number one global motorcycle manufacturer is in India. India is the fourth largest car market in Asia recently crossed the 1 million mark. Porter’s Five Forces Model Michael Porter developed a framework that models an industry as being influenced by five forces. The key factors that influence the performance of the industry cited below:- Bargaining power of buyers: Buyers exert influence on the suppliers pertaining to: 1 Cost of product to that of total product: The price of the product plays an important role in the buying behavior of the customer. The ownership cost of the product, with respect to the total products available in the market plays an important role in the buying decision of the customer. Product Differentiation: The different products available at the market influence the buying decision of the customer. The differentiation with respect to the features, offers and services influence the buying decision of the customer. For example a customer while deciding of a car in A2 segment looks into the different products available like Wagon R, A star, i10 the features attached to it, warranty and other services offered by the companies. 3 Buying switching costs: The switching cost associated with respect to the product influence the buying decision of the customer. The ownership cost associated with the different product influences the buying decision of the buyer. 4 Incentives: The discounts available on the various models influence the decision making. Various schemes like free insurance, cash discount, loans at economical rate of interest influence decision making in terms of purchase of car. 5 Size and concentration of buyers relative to the products: It also influences the bargaining power of the buyers. If the demand for a product is high and the product is in a waiting period, the buyer loses out in terms of the discounts or other promotional schemes. Bargaining power of suppliers 1 Strategic Suppliers: Steel is a major input in the automobile industry and the suppliers are a few in number. Any revision of prices by these players may influence the profitability of the manufacturers. 2 Substitute inputs: They are restricted to non-critical or additional components like electronic gadgets and interior design components and thus the suppliers of the same have a major influence on the decision making power. 3 Switching costs of suppliers: The cost of switching plays an important role in terms of deciding the power of suppliers. If the switching cost is low, the suppliers have huge influence in terms of decision making. MSIL being the largest manufacturer enjoys considerable influence over its suppliers. 70 % of the suppliers are within the range of 100 m from the Gurgaon plant. 4 Competition between suppliers: The number of suppliers for the particular product also influences the decision making power of the suppliers. If there are large numbers of suppliers for a particular product, the manufacturer has a say in decisions. Industry Competitors: 1 Number of Players: The number of firms operating in the market plays a major role in the industry. If the degree of competition is high, then buyers have a say in decision making. 2 Products and Price: The product range offered by the company and the target segment chosen by the company influences the decision making power. Maruti Suzuki manufactures 14 models catering to different segment. The price and the features associated with respect to the product influence the decision making. For example we have the Alto competing with respect to the Hyundai i10. Thus the buyers while purchasing the product look for the substitutes available in the market and the segment they are planning to purchase. Fixed and the variable cost base: The fixed and the variable cost base in terms of research and development and other expenses also play a major role as companies try to benchmark itself with respect to that of its competitors . Threat of New Entrants 1 New Entrants: The new entrants and the future course of action of these entrants influence the automobile sector. The new players willing to enter the Indian automobile industry and the government policies with respect to it influences the decision making power of the existing players. The new products launched by the existing player also play a major role in decision making of other players in the automobile sector. 2 High startup costs and economies of scale: The initial investment in terms of capital requirement, the economic condition of the country influences the number of new entrants. The other geographical factors with respect to location of the units, the ancillaries industries required influence the decision making. 3 Industry trends: The industry trend influences and the other factors influences the decision making in terms of the future investments to be made by the companies. The entry and exit cost associated with the automobile industry influences the decision making. 4 Government and legal barriers: The policies with respect to the automobile sector, the rules and regulation too influence the decision making of the automobile player. For example the new automotive policy of 2010 has made manufacturers to come up with new engines to meet the new emission norms Threat of substitutes: 1 Number of substitutes: The number of substitutes influences the buying decision of the customer. With the substitutes being high, the buyers have an influence the decision making power.