Presentation on theme: "Who is the next henry ford?"— Presentation transcript:
1Who is the next henry ford? India & china Automobile IndustryInternational BusinessGroup members:Marco Fossati,Davide Di Labio,JiHong He,Iman Alalawi,Viola D’Andrea,Harpreet Singh
2Outline The World automotive industry Is the handbrake on? The countertrendA global road mapA look at the engineDriving on the same laneThe competitive advantageIn the driver’s seatA story of changeAn emerging raceLook down the roadIntroduction through the analysis of the outline – 1 minute
3The 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.
4Is the handbrake on? Economic downturn Credit crunch Cultural delay of global playersGLOBAL CRISIS OF THE AUTOMOTIVE SECTOROil priceHigh costs of factorsWhy is this topic interesting? Because it’s a current affair topic.State intervention in US and Europe
5The 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
6Indian Automobile Industry Chinese Automobile Industry A global road mapIndian Automobile IndustryChinese Automobile IndustryWorld’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
7A look at the engine Indian Manufacturing Companies Chinese Manufacturing CompaniesPrivate companies.India’s major automakers are part of larger, family-controlled conglomeratesProfit 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 governmentEmployment is the number-one priority12 major makers (SAIC, FAW, DFM, BAIC, GAIC, Chang’an,Chery, Geely, Brilliance, Great Wall, Hafei, BYD)Composition and structure of the companies.
8Same lane (similarities) Attracting attention from global automakers and suppliersLow 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 themMajor multinational suppliers have forged strong relationships with localsWell-developed supply infrastructure in both countriesRapidly improving qualityGrowing R&D capabilitySimilarities in the strategy of the firms within the industries of china and india.
9India - The competitive advantage FACTORS CONDITIONSDEMAND CONDITIONSRELATED AND SUPPORTING INDUSTRIESSTRATEGY, STRUCTURE & RIVALRYAvailability of trained manpower at competitive costDomestic industriesEntire range of auto-componentsGround up strategyFairly well developed credit and financial facilitiesMultinationals outsourcingR&D investments and capabilitiesHomegrown entrepreneurshipLocal availability of almost all the raw materials at a competitive costRapidly growing middle-classAuto ClustersHigh competitionStrong engeeniring skillsFavourable foreign policyHigh technological internal resourcesPorter’s diamond – automotive industry in India
10China - The competitive advantage FACTORS CONDITIONSDEMAND CONDITIONSRELATED AND SUPPORTING INDUSTRIESSTRATEGY, STRUCTURE & RIVALRYLow cost labourMSC direct investmentManufacturing all the Auto- Components of the value chainJoint venture with MNCSufficient capitalDomestic demand(State Owned industries)After-sale servicePrice competitionBasic industrial infrastructureExternal demand(exportation)Dependent on foreign technologyTop down structureRaw materialsDemand of labor intensive productionGood infrastructure systemDomestic brands are relatively weakInsufficient innovative technologies (technology outsourcing)Increasing domestic purchasing powerGrowing competition (between JVs)Sufficient skilled engineersMore sophisticated customersHigh level of burocracyPorter’s diamond – automotive industry in India
11The role of government in India The role of government in China In the driver’s seatThe role of government in IndiaThe role of government in ChinaStrong 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.
12A 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
13Tata Motors Based in Mumbai, the company has been established in 1945. Largest automobile manufacturer in India23,000 employeesWorld’s fifth largest manufacturing company of medium and heavy trucks2006 revenue: $6.7 billion2006 vehicle sales: 579,378 (inc. 53,540 exports)Overview and results of Tata Motors
14CheryFounded by local government in 1997 to prop up the local economy.China’s first car exporter in 2001.20,000 employeesIn 2007, Chery sold units complete cars, inside which units were sold to foreign markets.2007 revenue: $2.4 billionOverview and results of CheryFounded a research and development organizationHired a Japanese engineer to head lean/six sigma production systemsIn 2008, a joint venture was set between Chery and Quantum LLC with Chery’s technology and Quantum’s fundChery 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
15Tata motors Strengths Weaknesses Opportunities Threats Well-known brand with good reputationPlanned and smart international strategySmart approach in responding to the market demand.Alliances with key playersFast product development abilityWeaknessesLow level of infrastructuresLack of experience in certain new sectors.OpportunitiesLuxury brands (Land Rover and Jaguar)Acquisition of Daewoo MotorNew long-awaited product (Nano)Government supportEmerging markets high demand for passengers cars at low costsThreatsDownturn of the world economyHigh level of competitionSustainability and environmentalismOil rising pricesSWOT – actual situation
16Chery Strengths Weaknesses Opportunities Threats Sophisticated engine technologyHigh strategic management skillsStrong R&D capabilitiesWell-known brand with good reputation in China.Fast product development and growth.WeaknessesSmall scaleNarrow product lineWeak after-sale serviceOpportunitiesDiversified customer demandIncreasing purchasing power in emerging markets.Government supportForeign market expansionThreatsDownturn of the world economyCredit and financial facilities for purchasingSWOT – actual situation
17The speed up for Chery and Tata How did they overcome the disadvantages of being newcomers?STRATEGYINSTITUTIONSUnderstanding the character and driving forces behind the industrial dynamicsState Compensatory roleGerschenkron 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 technologyAssessing existing resourcesExploiting latecomer advantages!
18The speed up for Tata Motors How did TATA create initial resource complement to overcome the disadvantage of being newcomers?STRATEGYINSTITUTIONSR&DGovernment support (10Year Plan)Strategic partnershipsJoint venturesNew institutions for trade promotion, technology up-gradation, quality enhancement (ACMA: Automotive Component Manufacturers Association, SIAM: Society of Indian Automobile Manufacturers )AcquisitionsIntensive management development
19Tata 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 programGDP growthPast and present strategies of Tata Motors. Leverage on competitive advantage through a resource based view (link to the Porter’s diamond).
20The speed up for CheryHow did Chery create initial resource complement to overcome the disadvantage of being newcomers?STRATEGYINSTITUTIONSForeign consultanciesGovernment support and control (5Year Plan)Financial partnershipsNew institutions for the exploiting of capital and technologyJoint venturesR&D
21Chery, the road so far… International strategy Joint ventures to access financial resources (Quantum LLC and Huishang Bank)State supportTake use of the matured global value chain and focus on independent innovationExploit 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 venturesAccess to capabilities: work with foreign consultant firmsCreate capabilities: learning by doing, enterprise-based R&D system, international market expansionPast and present strategies of Chery. Leverage on competitive advantage through a resource based view (link to the Porter’s diamond).
22Look down the road The two key factors to become the new Henry Ford! INNOVATIONEnvironmental friendly technology and alternative fuels developmentEnvironment and safety standardsINSTITUTIONConclusions.Road Map for Auto Fuel Policy by the government to support strategiesReforms and regulations to sustain growth (eg. Labour reform)The two key factors to become the new Henry Ford!
23Change gearThe 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.
24BibliographyEU China Trade and Investment Relations – Transports, Automotive, EU Commission, 2007Organisation Internationale des Constructeurs d’Automobiles, OICA, 2008Automotive Mission Plan , Ministry of Heavy & Public Enterprises, Government of IndiaSelling China’s cars to the world, An interview with Chery’s CEO, McKinsey&Company report, 2008A global road map for China’s automakers, McKinsey&Company report, 2008Timeline: India’s automotive industry, BBC News, 2008Leading change: An interview with the managing director of Tata Motors, McKinsey&Company report, 2008