Competitiveness of the four wheeler automobile industry in India

Abstract

anticipation of rapid growth, the passenger car market in India is crowded with 18 companies trying to establish themselves. Most companies have joint ventures with Indian partners and have entered the market in the last two years. The number of new entrants over a narrow time window of two years is unprecedented. Demand forecasts vary and analysts expect anywhere between 2 and 3.5 million cars to be sold in the next five years. Equity holding for the international partner is usually over 50% and they retain significant managerial control. Most of them have introduced cars in the $13,500 to $33,000 price range, which is viewed as a luxury segment in India. Automobile companies have also chosen to establish exclusive dealerships. Initially, companies have chosen to import completely knocked down (CKD) kits and assemble them in India. However, this strategy is not effective in the long run since such imports attract 50% duty. The major implications are that a shakeout is likely and that companies would need to have alternate plans, including introduction of cars in other market segments, lower prices, and exports from India if they cannot establish themselves in the domestic market. The supplier industry is very small and needs to develop simultaneously on all fronts including rapid capacity expansion, acquisition of technology, improvement in manufacturing practices, quality and productivity, adoption of lean manufacturing, and developing product design capabilities to meet the needs of assemblers. Therefore, a critical requirement for rapid growth of the industry is adequate assembler involvement in the suppler industry. Although opening up of the economy in early 1990’s gave the much-awaited impetus, the Indian automobile industry has grown in last five years as never before. Well supported by the changing economic conditions particularly in the financial sector and in foreign direct investment, increasing number of global players are entering Indian economy by way of joint ventures, collaborations with the domestic firms or wholly owned subsidiary, which has led to increase in competition among firms in the industry.