1. Who is the next henry ford?
India & china Automobile Industry
International Business
Group members:
Marco Fossati,
Davide Di Labio,
JiHong He,
Iman Alalawi,
Viola D’Andrea,
Harpreet Singh

2. Outline 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
Introduction through the analysis of the outline – 1 minute

3. 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).
Why is this topic interesting? Because of its dimensions and global importance.

4. Is the handbrake on? Economic downturn Credit crunch
Cultural delay of global players
GLOBAL CRISIS OF THE AUTOMOTIVE SECTOR
Oil price
High costs of factors
Why is this topic interesting? Because it’s a current affair topic.
State intervention in US and Europe

5. The countertrend +329,3% vs 2000 +187,9% vs 2000
Why is this topic interesting? Because India and China represent a countertrend!
Source: Internal elaboration on International Organization of Motor Vehicle Manufacturers data, 2008

6. Indian Automobile Industry Chinese Automobile Industry
A global road map
Indian Automobile Industry
Chinese Automobile Industry
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 (+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 (+22 vs 2006) – four wheleers mainly.
1,6 million people – direct employment.
Comparison between India and China’s automotive industries

7. A look at the engine Indian Manufacturing Companies
Chinese Manufacturing Companies
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)
Composition and structure of the companies.

8. 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
Similarities in the strategy of the firms within the industries of china and india.

9. 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
Porter’s diamond – automotive industry in India

10. China - The competitive advantage
FACTORS CONDITIONS
DEMAND CONDITIONS
RELATED AND SUPPORTING INDUSTRIES
STRATEGY, STRUCTURE & RIVALRY
Low cost labour
MSC direct investment
Manufacturing all the Auto- Components of the value chain
Joint venture with MNC
Sufficient capital
Domestic 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
Porter’s diamond – automotive industry in India

11. The role of government in India The role of government in China
In the driver’s seat
The role of government in India
The role of government in China
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.

12. A story of change 423% vs 2000 203% vs 2000
Why Tata Motors and Chery? Because they are emerging giants.
Source: Internal elaboration on International Organization of Motor Vehicle Manufacturers data, 2008

13. Tata Motors 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)
Overview and results of Tata Motors

14. 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 units complete cars, inside which units were sold to foreign markets.
2007 revenue: $2.4 billion
Overview and results of Chery
Founded a research and development organization
Hired a Japanese engineer to head lean/six sigma production systems
In 2008, a joint venture was set between Chery and Quantum LLC with Chery’s technology and Quantum’s fund
Chery Huiyin Auto Finance Co. Ltd., an auto finance company was set by Chery in cooperation with Huishang Bank, the 10th auto finance company in China but the first exclusive domestic joint venture

15. Tata motors Strengths Weaknesses Opportunities Threats
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
SWOT – actual situation

16. Chery Strengths Weaknesses Opportunities Threats
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
SWOT – actual situation

17. The speed up for Chery and Tata
How did they overcome the disadvantages of being newcomers?
STRATEGY
INSTITUTIONS
Understanding the character and driving forces behind the industrial dynamics
State Compensatory role
Gerschenkron approach valid for automotive industry of both countries.
institutions, as we already seen previously, play a essential role in the development of the industry for both the countries and firms.
New institutions for exploiting capital and technology
Assessing existing resources
Exploiting latecomer advantages!

18. The speed up for Tata Motors
How did TATA create initial resource complement to overcome the disadvantage of being newcomers?
STRATEGY
INSTITUTIONS
R&D
Government support (10Year Plan)
Strategic partnerships
Joint ventures
New institutions for trade promotion, technology up-gradation, quality enhancement (ACMA: Automotive Component Manufacturers Association, SIAM: Society of Indian Automobile Manufacturers )
Acquisitions
Intensive management development

19. Tata Motors, the road so far…
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
Past and present strategies of Tata Motors. Leverage on competitive advantage through a resource based view (link to the Porter’s diamond).

20. The speed up for Chery
How did Chery create initial resource complement to overcome the disadvantage of being newcomers?
STRATEGY
INSTITUTIONS
Foreign consultancies
Government support and control (5Year Plan)
Financial partnerships
New institutions for the exploiting of capital and technology
Joint ventures
R&D

21. Chery, the road so far… 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
Past and present strategies of Chery. Leverage on competitive advantage through a resource based view (link to the Porter’s diamond).

22. Look down the road The two key factors to become the new Henry Ford!
INNOVATION
Environmental friendly technology and alternative fuels development
Environment and safety standards
INSTITUTION
Conclusions.
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!

23. 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.
First conclusions. First change.

24. Bibliography
EU China Trade and Investment Relations – Transports, Automotive, EU Commission, 2007
Organisation Internationale des Constructeurs d’Automobiles, OICA, 2008
Automotive Mission Plan , 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