STRATEGIC MANAGEMENT ASSIGNMENTASSIGNMENT ON ANALYSIS OF THE SECTOR USING PORTERS DOUBLE DIAMOND MODEL ON INDIAN AUTOMOBILE INDUSTRY Submitted To Prof. A. K. Kher Submitted By Rameez Bagban 03 Shahanawaz Mujawar 11 For the academic year 2014-15 measurements favorable for national or industry competitiveness. the starting point must be a nation’s underlying sources of productivity. . which analyses national (or industry) competitiveness through four major dimensions: factor conditions. capital and natural resources. developing economies by producing better products. which will gain rapid importance. Michael Porter has defined competitiveness as productivity with which a nation utilizes its human. How to sustain momentum in improving competitiveness over time is one of the greatest challenges countries are facing. is measured by productivity. he proposed the diamond model with four major (and two additional) determinants of competitive advantage in a particular industry. Though Indian automobile manufacturers are manufacturing innovative products and leading India to a new summit. and related and supporting industries. then. Porter (1990) concluded that due to various national characteristics. a roadmap is needed to steer.INTRODUCTION: The Indian automobile industry is one of the key drivers of industrial growth and employment. demand conditions. According to Porter (1990) nations are most likely to succeed in industries or industry segments where the diamond factors are mostly favorable. there are various roadblocks. firm strategy structure and rivalry. and developed economies by producing innovative products continuously. Exogenous and endogenous factors affecting industry also affects the competitiveness of the firms. Productivity is also dependent on the ability of an economy to mobilize its available human resources. nations cannot succeed in all industries. which prevent this industry from being a global player. and thus it is important to identify and develop their internationally competitive industries. Therefore. True competitiveness. not a sprint. COMPETITIVENESS DEFINED: Competitiveness has emerged as a paradigm towards the economic development. 3. Improving competitiveness is a marathon. Productivity depends both on the value of a nation’s products and services –measured by the prices they can command in open markets – and by the efficiency with which they can be produced. PORTER'S DIAMOND MODEL: Porter (1990) contributed the diamond model on competitiveness. coordinate and synergize the efforts of all stakeholders. To understand competitiveness. Porter’s diamond model provides an analytical framework with multi. because there is no single policy or grand step that can create competitiveness. In order to accelerate and sustain growth in the automotive sector. Underdeveloped economies tend to be competitive by producing cheaper products. Competitiveness is a special challenge. Competitiveness captures the awareness of both the limitations and the challenges posed by global competition as an exogenous factor. • Capital resources: Capital availability and cost to finance industries. health care.” • Knowledge resources: Market. including communication system. Capital resources can be affected by the rate of savings and national capital market structure. hydroelectric power sources. • Physical resources: “The abundance. technical knowledge residing in a nation’s research institutions. about the advantages arising by having sophisticated and demanding local customers or customers with unusual need for specialised varieties that are in demand. Demand Conditions: The nature of buyer needs. and the transferability of domestic demand into foreign markets. fishing grounds. accessibility. or timber deposits. water. cost of personnel. • Infrastructure: Availability and quality of infrastructure.Factor Conditions: For production are the inputs and infrastructure necessary for competition. and labour skill variety. transportation system. . Porter has also described in his location competitiveness study.2. the size and growth rate of home demand. and other physical traits. and so forth 3. scientific. mineral. which include: • Human resources: Quality and quantity of skilled labour. payment or funds transfer. quality. and cost of the nation’s land. firms would build on the strengths provided by the source(s) of competitive advantage and invest in improving the less competitive factors. refineries. by either consuming it or supporting in logistics. Moreover. Thus. logistics. The Indian tyre industry. Related and Supporting Industries: Include parts and service suppliers and distributors in the supply chain. 1 million commercial vehicles. rapid. the most significant benefit of homebased suppliers lies in the ability to accelerate innovation and upgrade in the overall auto industry. Based on the availability and efficiency of supporting industries. glass. The industry is producing about 3.3.managed. and supporting industry situations. 15. etc. cement. the industry has a strong and positive multiplier effect and thus propels the progress of any economy. Moreover. and Rivalry It discusses the context in which firms are created. which is an integral part of the Indian automotive industry. and operated.7 million two wheelers and about 0.3 million passenger vehicles. factor conditions. Present Landscape of the Indian Auto Industry India is emerging as one of the world’s fastest growing passenger car markets and second largest two wheeler manufacturer. In a developed industry. and preferential access to inputs”. paper. Due to its strong forward and backward linkages with almost every segment of the economy. It is home for the largest motor cycle manufacturer and fifth largest commercial vehicle manufacturer. The automobile industry has achieved a turnover of US $65 billion and the auto component industry has reached a turnover of US $35 billion. the geographic proximity with internationally competitive suppliers in the home nation helps build coordination and a communication network. strong local and global competition not only sharpens advantages at home turf but also compels firms in the domestic market to sell abroad as growth strategy. has registered a turnover of almost US $ 6 billion. As Porter stated. the fierce domestic competition forces firms to innovate constantly and improve productivity and hence increase national competitiveness in the industry. 3. competitive supplier industries can provide “efficient. 4.3. as per his research. AUTOMOBILE INDUSTRY The automobile industry plays a pivotal role in country’s rapid economic and industrial development. 4. sugar.4 Firm Strategy. capital equipments. fertilisers. rubber.2. which are basic production needs. given the domestic demand conditions. . Structure. It caters to the requirement of equipment for basic industries such as steel. early. plastics. textiles. shipping. which in turn improves production efficiency. petrochemicals.7 million tractors per annum. nonferrous metals. which means that 130 million people will get added to the working population between 2003 and 2009. Higher disposable incomes coupled with availability of easy finance options have driven the passenger vehicle segment. 70 per cent. India has the highest proportion of population below 35 years.Major automobile clusters in India: Halol Pune-Nasik Aurangabad • General Motors • Skoda • Tata Motors • Mahindra & Mahindra • Bajaj Auto • Volkswagen • Mercedes-Benz • Eicher Motors • Force Motors Delhi-Gurgaon-Manesar • Maruti Suzuki • Honda Motors • Hero Honda • Eicher Motors • Yamaha Jamshedpur Kolkata Chennai Bangalore Hosur • Hyundai • Ford • Hindustan Motors • Ashok Leyland • BMW Drivers of Growth Rising per capita income and the changing demographic distribution are conducive inclusive for growth. The marketlinked exchange rate and availability of trained manpower at competitive cost have further added to the attraction of the Indian domestic market. The growth of the Indian middle class with increasing purchasing power along with strong growth of the economy over a past few years have attracted major auto manufacturers to the Indian market. Roadblocks: . (potential buyers). The SUV (Small Utility Vehicle) market is expected to develop rapidly in future. The trends indicate that small and medium cars would remain dominant and a shift towards high end cars is expected at a faster rate. and poor road conditions • High interest rates of finances. low cost vehicle for the rural market.Factor Condition • Less productivity because of skill shortages and skill mismatches • Wages and salaries of labour • Low Quality. excessive taxes and fees. and safety • Low penetration level • India basically a small car market SUGGESSTIONS • Lower financing and single window operations • Measures for demand creation. • Fleet Modernization to be encouraged Demand conditions • Low demand because of traffic congestion. Establishment of world class testing. • Expenditure Infrastructure as percentage of GDP especially around automotive clusters. features. homologation and certification facilities. • Cost effective small carriers. • Poor brand image of Indian cars parameters of performance. poor connectivity • Immense port congestion and excess lead time SUGGESSTIONS • Wages and salaries of labour as per world standards to increase productivity • Flexible and investor friendly labour laws • Cheap raw material & land to promote competitiveness • Reliable and quality power supply. rugged. brand building (Made in India) should be promoted • Measures for demand creation. Alternative cheap fuel to enhance demand Related and supporting industries • Highly fragmented and counterfeit auto component Industry. strong. Centers for automotive manufacturing excellence to be created • R & D for product. • R & D expenditure should be as percentage to sales ratio. and red tapes in vehicle purchasing and registration. processes and technology to be incentivized. credit constraint and lack of skilled manpower . inconsistent supply of raw material and land • High costs. inconsistency and low quality of power • Low investment in R&D expenditure as a share of turnover • Does not possess good design facilities • Poor and insufficient infrastructure. Small firms to adopt better technologies and minimize wastage of power/fuel. operational restrictions. inconsistent supply of raw material and land • Contractual nature of labours • Low Quality. • Demand uncertainty. brand building (Made in India) should be promoted. Added to this. A KPMG report found that senior auto executives are also concerned about India's eroding cost advantage and the increasing challenges of rewarding and retaining talent. They also believe that global automakers will continue to allocate a rising proportion of their foreign direct investment into India. the overall impression is that India’s auto sector has passed a critical turning point. but to manage it. and the slow pace of improvement in road. growing auto manufacturing first and later auto engineering and R&D services. Nevertheless. reward and retention. But even as the sector grows. Setting up of virtual SEZ and Auto Parks for auto component industry Policy measures to reduce the indirect taxes on all input materials Capacity building. some concerns are becoming more pressing. The inherent strengths of India’s manufacturing economy – an exceptional human resource base. The report also expresses concern about the pace of consolidation in some parts of the industry and the challenges firms face in building Indian auto brands. Indian companies recognise that to achieve global scale they will need to meet the challenge of building persuasive global brands. the capacity to deliver high quality engineering products. the fact that the automotive industry lags behind other sectors such as IT and financial services in management training. . capability augmentation. The opportunity for India’s automotive companies to emerge as leading participant in the global industry is clearly present: the challenge is no longer to create the opportunity. and the strategic geographical positioning – have been reinforced by a strong domestic economy and a new readiness on the part of global auto manufacturers to make key investments in India. Above all. The leading concern is the continuing cost imposed by India’s relatively poor physical infrastructure.SUGGESSTIONS Joint ventures with foreign suppliers. rail and port facilities. competency profiling by suppliers Reduce the vulnerability to oil prices by designing lower fuel consumption vehicles Firm strategy. and rivalry • Unused Production capacity • Laggard nature in outsourcing • MNEs and indigenous automaker strategic Difference SUGGESSTIONS Increase latent demand Anti-dumping mechanism to be strengthened Increases penetration in the international markets Firms should benchmark their performance against best in the industry manufacturing practices and production techniques To identify rivalry & partner strategy differences & adopt best CONCLUSION The industry expects the growth in the automotive sector to continue. structure. fuelled by rising disposable incomes and increasing consumerism.
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Report "Diamond Model of Porter With Reference to Indian Automobile Industry"