Global competitiveness of the car industry: A double diamond approach of Volkswagen and Toyota
India has already become one of the fastest growing automobile markets in the world.
Automotive industry in the United States
The Indian automobile industry is going through a technological change where each firm is engaged in changing its processes and technologies to maintain the competitive advantage and provide customers with the optimized products and services. Starting from the two wheelers, trucks, and tractors to the multi utility vehicles, commercial vehicles and the luxury vehicles, the Indian automobile industry has achieved splendid achievement in the recent years.
In the Indian economy, auto industry maintains a high-flying place. Automobile industry has a strong multiplier effect and is capable of being the driver of economic growth. A sound transportation system plays an essential role in the country's rapid economic and industrial development. The well-developed Indian automotive industry skillfully fulfils this catalytic role by producing a wide variety of vehicles: The automotive sector is one of the core industries of the Indian economy, whose prospect is reflective of the economic resilience of the country. Continuous economic liberalization over the years by the government of India has resulted in making India as one of the prime business destination for many global automotive players.
The automotive sector in India is growing at around 18 per cent per annum. The auto industry is just a multiplier, a driver for employment, for investment, for technology. The Indian automotive industry started its new journey from with delicensing of the sector and subsequent opening up for per cent FDI through automatic route. The automobile sector has been contributing its share to the shining economic performance of India in the recent years.
With the Indian middle class earning higher per capita income, more people are ready to own private vehicles including cars and two-wheelers. Product movements and manned services have boosted in the sales of medium and sized commercial vehicles for passenger and goods transport. Side by side with fresh vehicle sales growth, the automotive components sector has witnessed big growth. The domestic auto components consumption has crossed rupees crore and an export of one half size of this figure. India is on the peak of the Foreign Direct Investment wave. It is commonly believed that soon India will catch up with China.
India is up-and-coming a significant manufacturer, especially of electrical and electronic equipment, automobiles and auto-parts. The country is expected to witness over Rs 30, crore of investment by Over the next one year, some 20 new cars will be seen on Indian roads. Maruti Udyog has set up the second car plant with a manufacturing capacity of 2.
Hyundai and Tata Motors have announced plans for investing a similar amount over the next 3 years. Hyundai will bring in more than Rs 3, crore to India, Tata Motors will be investing Rs 2, crore in its small car project. General Motors will be investing Rs crore, Ford about Rs crore and Toyota announced modest expansion plans even as Honda Siel has earmarked Rs 3, crore over the next decade for India - a sizeable chunk of this should come by since the company is also looking to enter the lucrative small car segment. Commercial vehicle segment, Ashok Leyland and Tata Motors have each announced well over Rs 1, crore of investment.
Hero Honda is about to establish its fourth manufacturing plant. The growth of the Indian middle class along with the growth of the economy over the past few years has attracted global auto majors to the Indian market. Moreover, India provides trained manpower at competitive costs making India a favoured global manufacturing hub.
The attractiveness of the Indian markets on one hand and the stagnation of the auto sector in markets such as Europe, US and Japan on the other have resulted in shifting of new capacities and flow of capital to the Indian automobile industry. Global auto majors such as Japanese auto majors Suzuki, Honda and Korean car giant Hyundai are increasingly banking on their Indian operations to add weight to their businesses, even as numbers stay uncertain in developed markets due to economic recession and slowdown.
Moreover, according to a study released by global consultancy firm Deloitte, at least one Indian company will be among the top six carmakers that would dominate the global auto industry by According to the study, the car industry would see a massive capacity building in low-cost locations like India as manufacturers shift base from developed regions.
Although the sector was hit by economic slowdown, overall production passenger vehicles, commercial vehicles, two wheelers and three wheelers increased from Passenger vehicles increased marginally from 1. In recent times, India has emerged as one of the favourite investment destinations for automotive manufacturers. Across all categories, total sale of vehicles increased The Indian auto industry is likely to see a growth of per cent in sales in , according to a report by the global rating firm, Fitch.
1. INTRODUCTION
According to its report, Indian Auto Sector Outlook, competition in the country's auto sector is likely to increase due to increasing penetration of global original equipment manufacturers OEM. The average person can't come along and start manufacturing automobiles. Rather than looking at the threat of someone buying a different car, there is also need to also look at the likelihood of people taking the bus, train or airplane to their destination. The auto industry is considered to be an oligopoly. The bargaining power of automakers are unchallenged. Consumers are very price sensitive, they don't have much buying power as they never purchase huge volumes of cars.
Indian automobile industry has achieved splendid achievement in the recent years.
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India is on the peak of the Foreign Direct Investment. India is a significant manufacturer of automobiles and auto-parts. Global auto majors such as Japanese auto majors Suzuki, Honda and Korean car giant Hyundai are increasingly banking on their Indian operations to add weight to their businesses.
The car industry would see a massive capacity building in low-cost locations like India as manufacturers shift base from developed regions. Although the sector was hit by economic slowdown but it doesn't effect the overall production of automobiles. The Indian auto industry is likely to see a growth of per cent in sales in Competition in the country's auto sector is likely to increase due to increasing penetration of global original equipment manufacturers.
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Medicine essays Miscellaneous essays Psychology essays Religious studies essays Science essays Sociology essays Essays menu. Apply the Porter's five forces model on Automobile Industry and analyse the attractiveness of the Industry for Investment purpose Evolution of Porter's Five Forces Model Five forces is a framework for the industry analysis and business strategy development developed by Michael E. Porter's five forces include: Barriers to entry Barriers to entry measure how easy or difficult it is for new entrants to enter into the industry.
This can involve for example: Cost advantages economies of scale, economies of scope Access to production inputs and financing, Government policies and taxation Production cycle and learning curve Capital requirements Access to distribution channels Patents, branding, and image also fall into this category. Threat of substitutes Every top decision maker has to ask: The following needs to be analyzed: How much does it cost the customer to switch to competing products or services?
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How likely are customers to switch? What is the price-performance trade-off of substitutes? Competitive Rivalry In this,we have to analyze the level of competition between existing players in the industry. Are there exit barriers? How fast does the industry grow? Does the industry operate at surplus or shortage? How is the industry concentrated? How do customers identify themselves with your brand? Is the product differentiated? How well are rivals diversified? Bargaining power of buyers Now the question is how strong the position of buyers is.
Porters five forces model Automobile Industry & analyse investment - Free Business Essay - Essay UK
The following is a list of other examples: Buyer volume and concentration What information buyershave Competitive price How loyal are customers to your brand Price sensitivity Threat of backward integration How well differentiated your product is Availability ofsubstitutes Having a customer that has the leverage to dictate your prices is not a good position. Bargaining power of suppliers This relates to what your suppliers can do in relationship with you. How strong is the position of sellers? Are there many or only few potential suppliers? Is there a monopoly? Do you take inputs from a single supplier or from a group?
Can you easily switch from one supplier to another one? Are there other suppliers with the same inputs available? Automobile Industry The auto manufacturing industry is considered to be highlycapital and labor intensive. The major costs for producing and selling automobiles include: The major areas of auto parts manufacturing are: Rubber Fabrication - This includes everything from tires, hoses, belts, etc. Indian Automobile Industry The Indian automobile industry is the tenth largest in the world with an annual production of approximately 2 million units.
The passenger car segment in the Indian auto industry is growing by percent. Second, the three-year average of GDP. Third, the four-year average of real GDP growth rates and finally the sold car unites in As VW sells its products in countries and Toyota in , international demand conditions are necessary to measure competitiveness accurate in this framework.
For the international size of demand, I use market size as variable. It contains of the two-year average of sold units overseas in and the three-year average of international sales ratio. International sophistication is composed of customer satisfaction and diversification of markets. Diversification of markets is explained through the ratio of numbers of countries of sales over the two year average of total export amount.
A high ratio of diversification of markets may indicate a highly sophisticated international market Moon and Lee, , Table 3 goes about here. Porter defines related and supporting industries as those where companies coordinate and share activities in their value chain or involve products that are complementary. In addition through a smooth interaction with suppliers forward and backward linkages , firms can raise their competitiveness. Moreover, sharing information between end-users and suppliers can create innovation and upgrading Moon and Lee, As domestic determinants I chose infrastructure and international competitiveness of education.
It examines the quality of information and communication technologies. Secondly, it is measured by the World Economic Forum overall infrastructure index. This index describes the quality of physical infrastructure, such as railroads or streets. The international competitiveness of education is composed of the OECD student assessment of Table 4 goes about here. For international related and supporting industries I took the determinants credit, international competitiveness of education and internationalization. The grade of internationalization is composed of the number of countries with branches and the number of component complexes Table 4 goes about here.
For each determinant of the generalized double diamond model I took descriptive data to describe the competitiveness of VW and Toyota Table For both the domestic and the international diamond I translated the quantitative data into scores Table 5 goes about here. Therefore I weighted every proxy due to its importance.
The proxy with the higher amount, according to the descriptive data, is given full score and the other proxy is given a relative lower score. In order of making a score scale from zero to ten, I have multiplied a value of ten to each weight. For instance, there is the domestic market size proxy sold car units in As Japan has the higher amount with 3.
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In Germany there were 3. After drawing the domestic and international diamonds I merged both to explain the global competitiveness of VW and Toyota. The scores for each determinant of all three diamonds are summarized in Table 5. To keep in mind, it is not possible to separate national and international activities completely as most operations of companies are interrelated Moon and Lee, Moreover the weighting has to be considered.
In my calculations I weighted each proxy in the way it seems to be important. Hence, the weighting is the only subjective part of this research. Furthermore I think the weighting differs from case to case and I am not sure, if all four determinants of the diamond should be weighted equally. The domestic diamonds of VW and Toyota differ except related and supporting industries.
Concerning this determinant, both have a high level of education. Japan is stronger in information and communication technologies, Germany strikes in physical infrastructure. For domestic factor and demand conditions Toyota has advantages. Analyzing the factor conditions Toyota has benefits from its bigger size e. For demand conditions Toyota has one more time advantages due to its higher population.
GDP per capita, growth rates and the customer sophistication do not differ significantly. Both are leading car companies concerning future technologies. VW has benefits with highly fuel-efficient diesel engines, Toyota is market leader in hybrid cars. However, in the medium term hybrids with diesel engines will be the key technology. It has a hybrid diesel engine and needs only 2. The determinants for advanced international factor conditions are research facilities and new models.
Research facilities is described through the number of overseas research facilities and the proxy for new models is the number of new cars launched in and Table 2 goes about here. In this study demand conditions are distinguished by size and sophistication. Size is presented through the determinant market size and sophistication by customer sophistication and customer satisfaction.
There are four proxies for the market size. First, the population of the age group of 15 to Second, the three-year average of GDP. Third, the four-year average of real GDP growth rates and finally the sold car unites in As VW sells its products in countries and Toyota in , international demand conditions are necessary to measure competitiveness accurate in this framework.
For the international size of demand, I use market size as variable. It contains of the two-year average of sold units overseas in and the three-year average of international sales ratio.
International sophistication is composed of customer satisfaction and diversification of markets. Diversification of markets is explained through the ratio of numbers of countries of sales over the two year average of total export amount. A high ratio of diversification of markets may indicate a highly sophisticated international market Moon and Lee, , Table 3 goes about here.
Porter defines related and supporting industries as those where companies coordinate and share activities in their value chain or involve products that are complementary. In addition through a smooth interaction with suppliers forward and backward linkages , firms can raise their competitiveness. Moreover, sharing information between end-users and suppliers can create innovation and upgrading Moon and Lee, As domestic determinants I chose infrastructure and international competitiveness of education.
It examines the quality of information and communication technologies. Secondly, it is measured by the World Economic Forum overall infrastructure index. This index describes the quality of physical infrastructure, such as railroads or streets. The international competitiveness of education is composed of the OECD student assessment of Table 4 goes about here. For international related and supporting industries I took the determinants credit, international competitiveness of education and internationalization.
The grade of internationalization is composed of the number of countries with branches and the number of component complexes Table 4 goes about here. For each determinant of the generalized double diamond model I took descriptive data to describe the competitiveness of VW and Toyota Table For both the domestic and the international diamond I translated the quantitative data into scores Table 5 goes about here.
Therefore I weighted every proxy due to its importance. The proxy with the higher amount, according to the descriptive data, is given full score and the other proxy is given a relative lower score. In order of making a score scale from zero to ten, I have multiplied a value of ten to each weight. For instance, there is the domestic market size proxy sold car units in As Japan has the higher amount with 3. In Germany there were 3. After drawing the domestic and international diamonds I merged both to explain the global competitiveness of VW and Toyota.
The scores for each determinant of all three diamonds are summarized in Table 5. To keep in mind, it is not possible to separate national and international activities completely as most operations of companies are interrelated Moon and Lee, Moreover the weighting has to be considered. In my calculations I weighted each proxy in the way it seems to be important.