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The Rise of the Indian Automobile Industry
Transcript of The Rise of the Indian Automobile Industry
Seoul, South Korea: Hyundai Motors Headquarters
Brief description of the case
Indian automotive industry stats
Brief description of case
1998: Hyundai started greenfield investment in Chennai, India, where it would produce small cheap cars for India.
This proved successful but there was excess capacity, so Hyundai started exporting vehicles.
By 2004, Hyundai was largest exporter, shipping 70K cars/year overseas.
2010- Hyundai was exporting roughly 250K out of the 650K vehicles produced in India.
2004-2011 Automobile exports from India jumped from 50,000 to 450,000.
Increased attraction from other motor vehicle comany's like Nissan, Toyota, GM, Ford, BMW, Suzuki, Renault, Mitsubishi, Daimler, Caparo, Mini, and Datsun
What are the drawbacks of basing manufacturing in a country such as India? What other locations might be attractive?
If Hyundai, Nissan, their suppliers, and other automobile enterprises continue to make investments in the Chennai region of India, how might this region evolve over time? What does this suggest about manufacturing location strategy?
What are the attractions of India as a base for producing automobiles both for domestic sale and for export to other nations?
Current Auto Stats
Automobile Production growth of 12.9%
Automotive industry produced 17.5 million vehicles in 2013-14'.
The industry accounts for 22 % of the country's manufacturing GDP
India expected to be he fourth largest automotive market by volume, by 2015
Both Hyundai and Nissan made their investments in the southern Indian city of Chennai. What is the advantage to be had by investing in the same region as rivals?
There are several advantages for establishing a facility in the same location. These are:
Hiring qualified employees that live nearby, as well as supporting industries nearby (A.K.A. Externalities).
Ex: Porter's 4 Forces: factor of endowments and related/supporting industries)
Fact: Chennai itself has 30% market in automobile industry, 40% market in the auto components industry, and accounts for 60% of country's automotive exports.
Competition can lead to innovation
Helps prevent total control (monopoly)
India offers several attractions including:
Rapidly developing country with large domestic market
Friendly goverment policies
Reduction in excise & customs duties
Increasing R&D activites in the auto industry
Low labor costs
Low design, development, and production costs
Large number of engineers that are innovative!
4th largest producer of steel (expected to be 2nd largest by 2015)
Demand higher than Minimum Efficient Scale
Increase in working age population
Rising prosperity (income)
For Chennai, proximity to port is crucial for exporting to Europe
Raising Capital & Scaling Capacities
Skilled auto employees turnover
Moving to local competitors for higher wages
Other Locations may include:
- politically stabile, continued economic growth, low inflation, desirable port locations to Europe. EX: Renault http://www.fairobserver.com/region/europe/tanger-med-renaults-investment-morocco-01765/
- Specifically southern regions: Due to lower salaries, few unions, economic stability, sound infastructure, R&D, etc.
Current Auto Manuafacturers include: Kia, Volkswagen, Nissan, Toyota, and BMW.
Increased investment in a region can lead to:
Increased education/knowlege (global learning)
Improved processes (technological)
EX: Manuafacturer's held to ISO 9000
Lower production costs = higher profits
Aids with design, development, and manufacturing operations.
Stonger economic growth
Lower risks can be tied to all of these determinants.
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