Portfolio Analysis Of
Submitted to Prof Prashant Salwan as a
part of Strategic Management –II
This project report is submitted as a part of curriculum followed in Strategic
Management-II course and is intended to analyze the Commercial Vehicles
Industry from strategy perspective.
Submitted by Group 8
Kannan G A
“India surpassed every other country in 2011, including China, in sales of commercial
vehicles, repeating its feat as the world's fastest growing truck and market for the second
successive year in a row.”- Economic Times
GE Matrix & Analysis
Strategy for TATA Ace
A commercial vehicle is a type of motor vehicle that may be used for transporting goods or
passengers. The European Union defines "commercial motor vehicle" as any motorised road
vehicle, which by its type of construction and equipment is designed for, and capable of
transporting, whether for payment or not: (1) more than nine persons, including the driver;
(2) goods and "standard fuel tanks". This means the tanks permanently fixed by the
manufacturer to all motor vehicles of the same type as the vehicle in question and whose
permanent fitting enables fuel to be used directly, both for the purposes of propulsion and,
where appropriate, for the operation of a refrigeration system. Gas tanks fitted to motor
vehicles designed for the direct use of gas as a fuel are considered to be standard fuel tanks.
In the United States a vehicle is designated “commercial” when it is titled or registered to a
company. This is a broad definition, as commercial vehicles may be fleet vehicles, company
cars, or other vehicles used for business. Vehicles that are designed to carry more than 16
passengers are considered a commercial vehicle.Examples of Commercial vehicles are Truck
Commercial vehicles influence the trade, commerce and industry of a country in a major
way. Vehicles falling under this category are buses, trucks, ambulance, jeeps and many
It comes in various uses such as transportation of goods, shipping and handling of various
commodities and so on. The future of companies manufacturing these vehicles is very bright
due to India's growing commercial sector. The export of commercial vehicles has gone up to
72% breaking all previous records.
One of the major sectors in India, Automobile sector has been called the “Sunrise” sector of
the Indian economy. This industry was de-licensed in 1991 with the announcement of the
New Industrial Policy. At present 100%, FDI route is available under automatic route in this
segment including the passenger segment. The import of technology causes a royalty
payment of 5% or a lump sum payment of 2 million USD. The CAGR of this industry for April
–December 2011 was 14.94% over 2010 figures. Production in December 2011 increased by
10.91% year on year.
The Indian domestic CV industry is concentrated with the top three players accounting for
86 per cent (in volume terms) as of 2010-11. Tata Motors continues to dominate the CV
industry with a nearly 58.2 per cent share, followed by Mahindra and Mahindra (M&M) with
15.4 per cent and Ashok Leyland with 12.4 per cent.
The CV industry can be broadly divided on the basis of usage into two product
Goods vehicles (trucks)
Passenger vehicles (buses)
These can be further segmented on the basis of gross vehicle weight into :
Light commercial vehicles (LCV) - Gross vehicle weight(GVW) of up to
Medium and Heavy commercial vehicles (MHCV) - Gross vehicle
weight(GVW) of more than 3.5 tonnes
In 2000-01, Tata motors and M&M were the main players in the LCV segment with Tata
Motors being the leader with a market share of 46 per cent and M&M with a market share
of 30 per cent. Tata Motors saw a substantial increase in market share in the LCV segment
after it launched Tata Ace in 2005, which also ate into sales of goods three-wheelers. In
2005-06 the share of Tata Motors jumped to 61 per cent from 51 per cent in 2004-05. As of
2010-11 Tata Motors and M&M held 57 per cent and 31 per cent of total market share
respectively. The LCV segment also includes players like Eicher Motors, Force Motors and
Swaraj Mazda who all together account for 8 per cent of the total sales as of 2010-11. Over
the years, only M&M and Tata Motors have managed to retain a significant hold on the
market. Piaggio Vehicles Ltd, a new entrant, held a 2.7 per cent share as of 2010-11.
In the MHCV segment, despite the longstanding presence of players like Eicher Motors and
Swaraj Mazda and the entry of new players like Asia Motor Works, Tata Motors continues to
be the market leader, followed by Ashok Leyland. Between 2001-02 and 2006-07 both Tata
Motors and Ashok Leyland together held a market share of around 91 per cent with the
former holding a market share of around 63 per cent. Between the same period Eicher and
Swaraj Mazda increased their market share marginally from 5 per cent to 8 per cent and 1
per cent to 3 per cent respectively. Asia Motor Works which entered the market in 2007-08
garnered a market share of around 2 per cent. Between 2007-08 and 2010-11 though Tata
Motors maintained its market share, Ashok Leyland lost market market share to Eicher
Motors and new entrants such as Asia Motor Works and Mahindra Navistar.
TECHNOLOGICAL DEVELOPMENT IN CV INDUSTRY
Success in the CV industry largely depends on technological innovations, which is why
leading CV manufacturers have significantly enhanced their focus on moving up the
technology ladder. They are engaged in actively developing the next generation of trucks
and buses that will possess superior technology, conform to international standards and
emission norms and will compete with products from leading international CV
manufacturers (thereby boosting exports). Thus, domestic CV companies are forming JVs to
bring about a technological revolution in the industry, which would in turn fuel competition
and accelerated product development. Accelerated product development may also lead to
faster replacement of vehicles, thereby boosting sales volumes. At the same time, it will
increase product development costs and selling expenses, thereby putting margins under
Between 2008-09 and 2010-11 the industry witnessed the entry of foreign players through
tie-ups, joint ventures and MoUs to set up manufacturing and assembly plants. The major
steps taken by foreign players include joint ventures such as MAN-Force, Eicher-Volvo,
Mahindra Navistar , entry of Hino Motors in both the passenger and goods vehicles
segments and Beiqi Foton, China's largest commercial vehicle maker, planning to set up
manufacturing plant near Pune . Conversely, Daimler pulled out of the Hero-Daimler
venture and Hino and Ashok Leyland also broke technological tie-ups.
PATTERN OF DEMAND
Demand for commercial vehicles is driven by a country's overall economic growth as
transportation is associated with all sectors of the economy. Hence, the CV industry in a way
reflects the overall performance of an economy. The industry transports over 55 per cent of
the total freight handled in the country. The correlation of freight movement with the
aggregate GDP (industrial and agricultural) was significantly high at 0.98 times from 1970-71
The CV industry is cyclical in nature as demand is driven by various factors such as growth in
industrial and agricultural production, freight movement, share of roadways in freight
movement, changes in freight rates and fuel prices, profitability of truck operators and STUs
and government policies.
A moderate level of competition exists in the industry as number of players is limited. The
CV industry is relatively concentrated with Tata Motors, Ashok Leyland, Eicher Motors and
M&M accounting for around 92.3 per cent of industry volumes.
At present, there are eight players in the medium and heavy commercial vehicles (MHCV)
segment ' (Tata Motors, Ashok Leyland, Eicher Motors, Swaraj Mazda, Asia Motor Works
Ltd, Mercedes-Benz, Tatra and Volvo) and eight players in the light commercial vehicles
(LCV) segment (Tata Motors, M&M, Ashok Leyland, Piaggio Vehicles Pvt Ltd, Force Motors,
Swaraj Mazda, Eicher Motors and Hindustan Motors)
KEY SUCCESS FACTORS FOR CV SECTOR:
Ability to diversify product range
Due to the highly cyclical nature of the CV industry, it is important for the manufacturers
to be able to diversify their product mix. This helps them offer a wide variety of
transportation solutions across different load levels and also build a strong brand loyalty
Widespread distribution and service set-ups
A wide distribution network and service set-ups are crucial for success in the CV industry
as they enable CV manufacturers to ensure a geographically diversified client profile
Availability of CV finance
Easy availability of finance is another important factor. Banks and NBFCs traditionally
provided finance for CVs
Use of new technology and innovation
Up gradation of technology is important to compete with new and advanced vehicles
launched by competitors and to avoid obsolescence
Balance between outsourcing and in-house production
The CV industry entails heavy fixed costs. This, combined with high integration levels,
further pressurises a company's cost structure, thereby pushing fixed costs upwards.
Ability to offer wide variety of models
The ability to vary the product mix and manufacture a wide variety of models in the
same facility has assumed significance of late. This ensures better utilisation of available
resources, reduces capital costs and enables the company to improve its asset turnover
THE “INDIA” ADVANTAGE:
Favourable government policies
Greater affordability of automobiles
Increasing disposable income in rural areas
Favourable demographic distribution with rising working population and middle class
Rising per capita income
Easy finance schemes
PEST ANALYSIS FOR THE CV SECTOR:
POLITICAL: Government’s increased spending on the infrastructure will increase the
demand. Stringent emission norms and safety regulations might push the production
costs higher. FDI investment cap increased to 100% in India now.
ECONOMIC: High material costs might push the profit margins lower. The commercial
loans are on the verge of getting costlier.
SOCIAL: The rural consumers’ disposable income is increasing. Owing CV is perceived as
a status symbol. Growth in the number of SMEs in the rural segment will also add to the
TECHNOLOGICAL: Constant up-gradation needed by the players to retain the market
share. High R and D investment needed in future. Emission control technology need to
be up-graded to meet BSIV requirements.
PORTER 5 FORCES ANALYSIS FOR THE SECTOR:
Industry rivalry: We see high level of industry rivalry in the segment due to
oligopolistic nature of the industry.
Bargaining power of the suppliers: The bargaining power of the suppliers is also
moderate as companies are going global for minimizing the cost of production.
Bargaining power of the customer: The switching cost of the customers is less as the
LCV and MHCVs are long-term usage products. Due to the entry of many foreign
players, the competition is set to get more intense and the customers bargaining
power – in terms of the cost of vehicles are set to increase from the current
Threat if substitutes : This is low-medium for the industry
Threat of new entrants: since this industry has high entry barriers in terms of R and
D cost, Distribution channel and production facilities. Only established foreign
players can enter this segment in India .Worldwide also there are a limited players in
COST DRIVING FACTORS
Raw material costs of CV manufacturers depend upon the product mix, vehicle weight and
the extent of outsourcing of auto components. The main raw materials used to manufacture
CVs are auto components/ ancillaries, steel and steel products, tyres and tubes.
Raw material costs, as a percentage of net sales, have demonstrated an upward trend since
2003-04 and increased further during 2008-09. However in 2009-10, raw material costs as a
percentage of net sales declined in tandem with the decline in prices of key inputs. Prices of
fuels and commodities like aluminium, copper and rubber, which were on a rising trend in
2007-08, began falling from the second half of 2008-09.
Hence, raw material costs for the industry, which peaked at around 73 per cent in 2008-09,
declined to around 68 per cent of sales in 2009-10. Additionally, to reduce raw material
costs, the industry started focusing more on vendor rationalisation, e-sourcing, value
engineering and better supply chain management. In 2010-11, prices of basic raw materials
increased by around 15 per cent mainly due to increase in prices of metals and tyres. The
effect of increase in raw material prices was limited by partial pass-through of increase in
costs through vehicle price increases to the extent of 6-8 percent.
MAJOR PLAYERS OF THE SEGMENT:
The industry is oligopolistic in nature, major players being Tata Motors, Ashok Leyland,
Swaraj Mazda, Eicher, Volvo and Mahindra and Mahindra. The market shares are
As of 2000-01, Tata motors and M&M were the main players in the LCV segment with Tata
Motors being the leader with a market share of 46 per cent and M&M with a market share
of 30 per cent. Tata Motors saw a substantial increase in market share in the LCV segment
after it launched Tata Ace in 2005, which also ate into sales of goods three-wheelers. This
was a new segment created by Tata Motors, which provided low cost ferrying across the
narrow streets of Indian semi urban areas.
In 2005-06, the share of Tata Motors jumped to 61 per cent from 51 per cent in 2004-05. As
of 2010-11, Tata Motors and M&M held 57 per cent and 31 per cent of total market share
respectively. The LCV segment also includes players like Eicher Motors, Force Motors
and Swaraj Mazda who all together account for 8 per cent of the total sales as of 2010-11.
Over the years, only M&M and Tata Motors have managed to retain a significant hold on
the market. Piaggio Vehicles Ltd, a new entrant, held a 2.7 per cent share as of 2010-11.
For the LCV segment, market shares are as follows:
For the MHCV segment, market shares are:
1) TATA MOTORS LIMITED:
Tata Motors Limited (TML) leads the Indian commercial vehicles industry and dominates
both the LCV and MHCV segments with close to 60% market share in 2011. It reported
standalone revenues of Rs 353.6 billion in 2009-10.it leads the export segment of Indian
LCVs with 65.5% share.
Tata's cars, buses and trucks are being marketed in several countries in Europe,
Africa, the Middle East, South Asia, Southeast Asia and South America.
Tata Motors' international ventures include:
Tata Daewoo Commercial Vehicle Company Limited in South Korea
Hispano Carrocera, a Spanish bus and coach manufacturing company, in which Tata
Motors has a 21 per cent stake
A joint venture with Marco polo, a Brazilian manufacturer of bus and coach bodies
A joint venture with Thonburi Automotive Assembly Plant Company of Thailand to
manufacture and market pick-up vehicles in Thailand.
With the introduction of its new vehicle the Ace, Tata Motors has sent a message to the
world, it doesn’t hurt to go old school. Pioneering a vehicle with no air conditioning, power
brakes, or radios may seem absurd to US auto manufacturers whose thought process of
innovation focuses on breakthrough technologies and more specifically, patents, but with
Ace and its appeal has risen to a broader market which has helped defined Tata’s
distribution strategy. Tata’s “open distribution” model focuses on a low price high volume
method that allows entrepreneurs to establish an assembly operation that Tata would train.
Tata’s focus on poor and rural customers holds an important lesson, find a niche in the
marketplace and cater to their needs as a ground for innovation. With globalization as it is
today, it is important for organizations to find emerging markets and act quickly upon them
as many foreign companies have already done so. More importantly, it is imperative for
many western companies to focus on not innovating a product or procedure, but by
innovating distribution channels to target a broader array of customers.
2) ASHOK LEYLAND:
Ashok Leyland Limited (ALL) began operations in 1955 and is the second-largest
manufacturer of commercial vehicles in India. It manufactures heavy trucks and buses
and is present mainly in the MHCV segment with a market share of 25.8%. It is the first
Indian auto company to receive the latest ISO/TS 16949 Corporate Certification (in July
2006), which is specific to the auto industry.
The differentiation of Ashok Leyland is in terms of its very strong dealer network. Good
mileage has always been a strong trait of Ashok Leyland’s engines in any case. Ashok
Leyland, which entered into an agreement to produce light commercial vehicles (LCVs)
with Nissan, is gearing up to launch the Stile MPV into India sometime during the third
quarter of the year.
The Ashok Leyland Stile will share much of the Nissan Evalia’s chassis, but will have a
different “face” and will use different engines. The Stile will be available with both petrol
and diesel powerplants. Further, the petrol engine will be a dual-fuel version, which
could run on either petrol or CNG
3) MAHINDRA & MAHINDRA
Mahindra & Mahindra (M&M) manufactures and sells utility vehicles and light
commercial vehicles, including three-wheelers. The company was created in 1994
following an organisational restructuring and has a product portfolio that caters to rural
and semi-urban customers, defence and urban requirements. Apart from India, the
company operates in Europe, Africa, South America, South Asia and the Middle East.
M&M and International Truck and Engine Corporation (ITEC) entered into a joint venture
(51:49) in 2005 to create Mahindra International Limited, which has three businesses:
Manufacturing trucks and buses in India for domestic as well as export markets
Providing engineering services for the design and development of trucks and buses for
ITEC globally. Enabling ITEC to use India as a significant supply base for sourcing
components and materials.
In the last three years, the spend on digital media, including social, has gone from nil to
10 per cent of media spends, according to the marketing head. Digital has also been a
key platform for launches, including that of the XUV 500.
The company claims 3.5 million fans on Facebook for its brands. All brand teams have
been trained on social media. At some point, integration started to kick in and fuelled
the digital drive further — each on-ground event for Mahindra owners, such as the
Mahindra Great Escapes, are now advertised on social media and on the Web site. All 20
Great Escape events and the ‘Specials' to Leh and Kerala, among others, are running full.
4) EICHER MOTORS
Eicher Motors Ltd (EML) was founded in 1982 to manufacture a wide range of
commercial vehicles. In 1986, the company entered into a technical and financial
collaboration with Mitsubishi Motor Corporation of Japan to manufacture the Canter
range of vehicles. The technical assistance ended in March 1994. EML's product range
includes trucks with models like Eicher 10.50, Eicher 10.75, Eicher 10.90, Eicher 11.10,
Eicher 20.16 and 30.25 and buses with models like Eicher Skyline, Eicher Cruiser and
Eicher School Bus. In 2008, the Volvo group and Eicher formed a 50:50 JV, called VE
Commercial Vehicles Ltd (VECV), to make the complete range of Eicher trucks and buses
as well as sales of Volvo trucks.
Eicher has an extensive service reach and no matter where you are, Eicher Service is
never too far away. Eicher provides its customers the benefit of an extensive sales and
service network, customized solutions and an efficient cost of ownership. Eicher's
manufacturing capabilities are backed by a sales and service network of over 950
Contact Points across India and over 8000 private mechanics trained by Eicher ensuring
that your vehicle is in safe hands.
The manufacturing facility of Eicher Motors is located in Pithampur (Madya Pradesh).
This state-of-the-art plant has a total area of 72 acres with 18000 sq. meters as the
covered area. The plant houses some top-of-the-line equipments, a robust infrastructure
and has an annual production capacity of 30,000 vehicles.
Leveraging its in-house expertise, Eicher Motors has successfully developed a wide range
of Commercial Vehicles to meet the varying customer needs. These vehicles deliver
value by providing low cost of ownership and increased profitability to the customers.
The range offered includes fully built up Trucks which range from 6T to 25T, Buses and
Chassis. All these products can be offered in BS II Compatible options. Eicher Motors
arguably have the best CNG Technology in the world in their CNG Buses.
GE MATRIX PARAMETERS
Aggregate demand supply trend
EXCEL FILE SNAPSHOT FOR GENERATION OF MATRIX
GE MATRIX GENERATION
The GE matrix is an alternative technique used in brand marketing and product
management to help a company decide what product(s) to add to its product portfolio, and
which market opportunities are worthy of continued investment.
The Y-Axis comprises industry attractiveness measures, such as Market Profitability, Fit with
Core Skills etc. and
The X-Axis comprises business strength measures, such as Price, Service Levels etc.
Each product, brand, service, or potential product is mapped as a piechart onto this industry
attractiveness/business strength space. The diameter of each piechart is proportional to the
Volume or Revenue accruing to each opportunity, and the solid slice of each pie represents
the share of the market enjoyed by the planning company.
The planning company should invest in opportunities that appear to the top left of the
matrix. The rationale is that the planning company should invest in segments that are both
attractive and in which it has established some measure of competitive advantage.
Opportunities appearing in the bottom right of the matrix are both unattractive to the
planning company and in which it is competitively weak. At best, these are candidates for
cash management; at worst candidates for divestment. Opportunities appearing 'in
between' these extremes pose more of a problem, and the planning company has to make a
strategic decision whether to 'redouble its efforts' in the hopes of achieving market
leadership, manage them for cash, or cut its losses and divest.
STRATEGY BY TATA ACE: A CASE FOR STRATEGY
Before the launch of Ace, Tata Motors had to pay attention to one important aspect. "We
could not go into the market with the mindset of selling a medium and heavy commercial
vehicle," says Tata Motors' Mani.
For instance, medium and heavy commercial vehicles typically cover hundreds of kilometres
at a stretch - even the 207 DI travels an average distance of more than 200 kilometres a day.
Not so for the Ace. The operators of the vehicle travel for a shorter distance as it is primarily
used for last mile transport between the outskirts of a city to the centre (60-100
kilometres). One fallout: it would be too much to expect owners to drive a longer distance
to get to an after-sales outlet.
So, while focusing on maximum reach it tried to benchmark itself broadly with motorcycles.
Typically, motorcycle manufacturers have a sales or service outlet every 10-20 kilometres.
That scale of reach was not required for selling the Ace.
Nevertheless, Tata Motors had to augment distribution. To increase the number of service
outlets, the company trained automobile garages and branded them Tata-certified service
At present, the company claims to have a sales or authorised service station at every 50-70
kilometres in the states where the Ace is sold.
Now, Tata Motors was ready for the acid test in choosing its entry and market strategy. One
choice was to follow a tried and successful route taken by the 207 DI during launch. The 207
DI made its foray in a smaller market such as the north-east.
At that time, this region was out of market leader, Mahindra & Mahindra's radar and
through this deliberate strategy, Tata Motors managed to create a market for pick-ups in
But this time, Tata Motors took the battle straight to the enemy camp. With an aggressive
pricing strategy, it launched the Ace in Tamil Nadu, Kerala [ Images ], Karnataka [ Images ],
Andhra Pradesh and Maharashtra [ Images ] - 70 per cent of three- wheeler sales happen in
these five states.
At a value price point of Rs 220,000, the Ace was targeted to attract buyers who would
otherwise buy three-wheelers at price points from Rs 120,000-Rs 190,000.
Clearly, if the price and product were in place, positioning could not afford to be behind. But
the advertising was careful that it did not hype-up the looks of the Ace. "There was a danger
of being seen as a delicate vehicle that could not carry a heavy load," says another Tata
executive. Hence, the company positioned the Ace as a Tata truck in a mini-size.
The Ace effect
In the future, to broaden its customer base, the Ace will also position itself now as a
passenger vehicle. "The Ace will soon ferry passengers from the outskirts of a village to
small towns," declares Mani.
Carrying passengers is un-chartered territory for the Ace. And that's also a strategy that has
its inherent dangers. While transporting passengers, the Ace might also cross the lane of
Tata's own multi-utility vehicle, the Sumo, which is used as a vehicle by tour operators.
Then, the advantage that the Ace has over three-wheelers (it can travel on highways and
expressways because of the stability offered by four wheels) could hurt the prospect of pickups including Tata's own 207 DI.
But Tata executives argue that for applications like transporting milk or vegetables over a
distance of 200 kilometres, the 207 DI cannot be replaced. That's because its top speed is
100-120 kmph - roughly twice that of the Ace.
To be sure, three-wheelers are far from being dislodged on Indian roads. According to SIAM
estimates, during the period April 2005-March 06, the three-wheeler goods carrier segment
grew by 8.05 per cent, when the entire automobile segment in India grew at 12.82 per cent.
“Commercial Vehicles Exports”, Crisil
“Key International Markets for Commercial Vehicles”, Crisil
“Overall export Market for Passenger Vehicles”, Crisil
“Demand for exports of Passenger Vehicles”, Crisil
Auto Monitor, 19 Jan 2012
CRISIL report on Commercial Vehicles segments and plater profiles
“Annual Report 2010-11”, Maruti Suzuki India Ltd.