Pestel Analysis Of The Auto Ancillary Industry Economics Essay
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Published: Mon, 5 Dec 2016
Auto ancillary industry is an important segment of the economy in any country. The Indian auto industry has the potential to emerge as one of the largest in the world. Presently, India is
The largest two wheeler manufacturer in the world.
The largest three wheeler market in the world.
Second largest two wheeler market in the world.
The fourth largest commercial vehicle market in the world.
Auto ancillary company comprises of
OEM (original equipment manufacturers).
The automotive sector in India contributes to 5% of the nation’s GDP. This envisages the
Auto ancillary sector “output reaching a level of $145 billion accounting for more than 10% of the GDP” by 2016.
There are many factors Consists of internal environment and external environment will affect the decisions of the managers of any organisation. This analysis is essential for all organization before beginning its marketing process.
Investments in Industry
India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 per cent lower than their western counterparts. Seeing the growing popularity of India in the automotive component sector, the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next seven years to increase India’s share in the global auto components market from the existing 0.9 per cent to 2.5 per cent by 2015.
· French tyre major, Michelin, has gained clearance from the Foreign Investment Promotion Board (FIPB) for its US$
2.26 billion Foreign direct investment (FDI) proposal to set up a manufacturing facility in Tamil Nadu.
· Ford motor car is investing about 500$ million (Rs. 2,445 cores) to double capacity at its India plant, which will
Become a strategic global production hub.
· Bosch will continue to maintain its focus in India in spite of global recession as it is planning to set up manufacturing units for electronic control units (ECU) by investing US$ 26.76 million.
· Renault in association with Nissan is to source USD 440 million worth of auto components from India in the coming years.
· Italian car manufacturer Fiat is planning to increase sourcing to USD 330 million by 2010 and make India its global sourcing centre.
· Volkswagen has set target to capture 8-10 percent of market share in the passenger car segment in India by 2014 with a series of launches and by doubling the number of dealers.
The market is so large and diverse that a large number of players can be absorbed to accommodate buyer needs. The
Sector not only has global players looking to invest and expand but leading domestic component companies are also pumping in huge sums into expanding operations. Indian tyre makers are rolling out investment plans worth US$ 1.24 billion, due to the rising popularity of radial tyres in the commercial vehicles segment.
Some other investments include:
· Hero Motors will invest US$ 19.84 million in association with Austrian firm BRP Power train for manufacturing
Automotive transmissions in India.
· Indian arm of Swedish automotive component maker SKF is investing US$ 30 million in new ball bearings
manufacturing plant at Haridwar.
· Mahindra & Mahindra will invest approx US$ 400 million for setting up an integrated auto facility in
· an auto park is coming up near Hyderabad with investments worth over US$ 409.30 million from around 34
automotive ancillary units.
A lower labour cost gives Indian auto ancillary companies an absolute cost advantage. ACMA numbers suggest that wage cost accounts for 3% to 15% of revenues for Indian manufacturers as compared to 20% to 40% for US players. Historically,
India’s strength in exports lies in forgings, castings and plastics. But this is changing with more component manufactures investing in up gradation of technology in recent years.
DEMAND SUPPLY SCENARIO
Demand – supply scenario
Demand is generated from two segments namely OEMs and replacement markets.
The volume of demand varies by product segments.
The replacement market has 45 percent of its sales coming from unorganized players.
There are no regulatory standards prevailing in the market.
The level of technology is not sophisticated in the replacement market.
The replacement market is a safe bet even when the economy faces a slowdown. Hence, it looked as an area of focus by major players of the auto component industry.
The margins in the replacement market are generally higher because of low cost operations and counterfeit sales.
Success in the organized market depends on the presence of an established brand name and a wide distribution network.
Unorganized sector enjoys huge advantages over the organized players in terms of excise duty exemptions and lower overheads.
The suppliers to OEMs have to adhere to requirements of high quality, tight delivery schedules and lower margins.
Duty structure & Regulations
Reduction in excise duties in select segment of automobiles.
Extension of tax holiday for 100 per cent export oriented units (EOU) until 2010-11 will benefit only players with established EOUs.
Scheme to provide enhanced Export Credit and Guarantee Corporation (ECGC) cover at 95 per cent has been extended up to March 2010. This scheme will assist players to mitigate risk of payment defaults in the export market.
Automatic approval for foreign equity investment up to 100 per cent of manufacture of automobiles and components is permitted.
The automobile industry has been delicensed.
There are no restraints on import of components.
Free Trade Agreements:
The growing number of FTAs (Free Trade Agreements) that are being signed by India with countries like Thailand, Singapore, China etc is likely to hurt the domestic players as they pay a relatively higher duty of around 25% as compared to 1%-10% being paid by its Asian counterparts.
P- POLITICAL FACTOR
Political factors the most important influence on the regulation of any business.
How stable is the political environment
Influence the Government Policy / Law on your business
Government’s position on Marketing Ethics
Government’s policy on the economy
Government’s view on culture under religion
Political System is responsible for Law Making.
Immediate laws which affect any business in general are Central Excise, Sales Tax/ VAT, Corporate Income Tax, Personal Income Tax & Service Tax
Controls if any on Marketing Strategies
Like Marketing / Advertising of Cigarettes, Tobacco, Alcohol etc.
Government Policies on the Economy
Role of Public Sector
Role of Private Sector
Role of Joint Sector
E- ECONOMIC FACTOR
Energy availability and cost
Government outlook towards
Exchange Rate Mechanism
Incentives for Exports
Restrictions for Imports
Level of Government Spending
Avenues for Capital Creation
Size of the Capital Market
Role of the Regulator
Type of the Instruments
Nature of the Investors
Cost of Energy
S- SOCIO CULTURAL FACTOR
Distribution of income
Levels of education
Demographics & Distribution of Income
Division of population – Male / Female
Age Group of the Population
Disposable Family Income
Disposable Income in the hands of the different Age Groups
Education Level of the Age Groups
Life Style Changes & Consumerism
Attitude to living
Different Age Groups
In tune with available disposable income
Thrust on taking care of present needs by spending than saving for the future.
Joint living and nuclear families
Availability of various media tools
Reach of the media to the population
T- TECHNOLOGICAL FACTOR
New discoveries and innovations
Speed of technology transfer
Rates of obsolescence
Advantage of Technology
In terms of Economies of Scale
Environmental factors include the weather and climate change. Changes in temperature can impact on many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a significant issue for firms to consider. The growing desire to protect the environment is having an impact on many industries such as the travel and transportation industries (for example, more taxes being placed on air travel and the success of hybrid cars) and the general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities
Health and safety law
The auto ancillary industry is in the growth phase. As, the auto sector grows, the auto ancillary sector also grows. The industry is graduating towards the world-class technology by implementing TQM, TPM and Six-Sigma. India is becoming the global manufacturing hub for the small cars. European companies are expressing interest in India for sourcing their needs. Many other companies are looking to consolidate their global operations; India is now a supplier of high value and critical automobile components to global auto makers such as General Motors, Toyota, Ford and Volkswagen. India is expected to soon become a destination for sourcing the auto components. The Automotive Mission Plan 2016, states to increase the turnover to $145 billion and increase the export revenue to $35 million by 2016 and also to provide employment to 25 million people.
With investments around US$ 15 billion slated for the sector over the next few years, the prospects for India’s auto market are bright. The results for the month of November and December’2009 of the auto sector and the improved sentiments have already resulted in the BSE Auto Index outperforming the Sensex over the last one year. Therefore, the auto component industry is expected to grow in the near future.
SUBMITTED BY: PANKAJ KUMAR YADAV
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