Auto Industry - Country Risk Analysis

13,135 views

Published on

Auto Industry - Country Risk Analysis

  1. 1. OPPORTUNITY­RISK  ANALYSIS Automobile Sector
  2. 2. AUTOMOBILE SECTOR  Automobile sector is one of the worst hit sector  due to the present recession. Across the world  the it is looking for bailout packages. In this  situation, we are trying to find out which is the  best country to operate in this sector.  Future growth will be driven by developing  markets (Source: BCG Report).  It needs proximity to suppliers and customers.  We have taken an hypothetical auto  manufacturer catering to B and C segment  cars
  3. 3. GROWTH IN PASSENGER CAR  MARKET WORLDWIDE Source:OICA
  4. 4. COUNTRIES UNDER  CONSIDERATION  India  China  Brazil  Thailand
  5. 5. FRAMEWORK FOR  EVALUATING COUNTRIES  Market potential  Political scenario  Infrastructure  Credit availability  Entry barrier  Employing workers  Protecting investors  Trading across border  Exit barrier  Availability of skilled labour  Raw material availability  Vendor availability
  6. 6. MARKET POTENTIAL ­ BRAZIL Year Cars % change 2001 1,501,586 - 2002 1,520,285 1.25% 2003 1,505,139 -1.00% 2004 1,862,780 23.76% 2005 2,009,494 7.88% 2006 2,092,029 4.11% 2007 2,388,402 14.17% Source: OICA
  7. 7. MARKET POTENTIAL ­ CHINA Year Cars % change 2001 703,521 - 2002 1,101,696 56.59% 2003 2,018,875 83.25% 2004 2,480,231 22.85% 2005 3,078,153 24.10% 2006 5,233,132 70% 2007 6,381,116 21.93% Source: OICA
  8. 8. MARKET POTENTIAL ­ LNDIA Year Cars % change 2001 654,557 - 2002 703,948 7.54% 2003 907,968 28.98% 2004 1,178,354 29.77% 2005 1,264,000 7.26% 2006 1,473,000 16.53% 2007 1,707,839 15.94% Source: OICA • By 2015 developing markets will contribute to 30% of new car sales (BCG). • India (72% of total sales is small cars and mid size)
  9. 9. MARKET POTENTIAL ­ THAILAND Year Cars % change 2001 156,066 2002 169,321 8.49% 2003 251,691 48.64% 2004 299,439 18.97% 2005 277,603 -7.29% 2006 298,819 7.64% 2007 315,444 5.56% Source: OICA
  10. 10. POLITICAL SCENARIO China Brazil – Stable Govt. – Relatively stable – Autocracy – But, Highly publicized – Policies Implemented scandals quickly – Reforms are slow • No time for companies to adjust
  11. 11. Thailand India • A new constitution was • Either congress or BJP drafted and promulgated coalition govt. in late 2007 • Both support • Political turmoil in 2008 development of • PPP government facing economy pressure to step down • Power will receive amid mounting civil encouragement disobedience and unrest • Stable policy lead by the PAD
  12. 12. INFRASTRUCTURE ­ BRAZIL Sector Sub Projects Total Sector Investment Energy Electricity 130 63,590 Natural 15 6,624 Gas Total 145 70,214 Energy Transport Railroads 16 8,572 Roads 39 12,121 Seaports 37 2,768 Total 92 23,461 Transport Per capita investment in transport= $122.2 Source: World bank group Per capita investment in energy = $365.8
  13. 13. INFRASTRUCTURE ­ CHINA Sector Sub Projects Total Sector Investment Energy Electricity 157 31,416 Natural 177 4,135 Gas Total 334 35,551 Energy Transport Airports 17 2,766 Railroads 7 5,314 Roads 130 21,941 Seaports 55 12,426 Total 209 42,447 Transport Per capita investment in transport= $31.9 Source: World bank group Per capita investment in energy = $26.7
  14. 14. INFRASTRUCTURE ­ INDIA Sector Sub Projects Total Sector Investment Energy Electricity 93 33,133 Natural 4 776 Gas Total 97 33,909 Energy Transport Airports 6 4,514 Railroads 3 218 Roads 133 9,862 Seaports 24 4,327 Total 166 18,922 Transport Source: World bank group Per capita investment in transport= $16.4 Per capita investment in energy = $29.5
  15. 15. INFRASTRUCTURE ­ THAILAND Sector Sub Projects Total Sector Investment Energy Electricity 52 10,894 Natural 3 1,350 Gas Total 55 12,244 Energy Transport Airports 2 455 Railroads 3 2,772 Roads 2 782 Seaports 11 199 Total 18 4,208 Transport Source: World bank group Per capita investment in transport= $ 67.4 Per capita investment in energy = $196.3
  16. 16. CREDIT AVAILABILITY Source: www.doingbusiness.org
  17. 17. ENTRY BARRIER Source: www.doingbusiness.org
  18. 18. EMPLOYING WORKERS Source: www.doingbusiness.org
  19. 19. PROTECTING INVESTORS Source: www.doingbusiness.org
  20. 20. TRADING ACROSS BORDERS Source: www.doingbusiness.org
  21. 21. EXIT BARRIER Source: www.doingbusiness.org
  22. 22. AVAILABILITY OF SKILLED LABOR Thailand India  Shortage of skilled labor deterring   Skilled labor shortage new FDI  Problem is not quantity but quality  Now companies reevaluating   High turnover rates and steep wage  Thailand’s attractiveness. inflation have eroded the   Shortfall of 580000 by 2010. competitiveness. China Brazil  Rising wages and turnover.  Dearth of highly skilled labor.  Only a small portion of the total labor   Average level of education is very low force qualified to work in a foreign   Foreign skilled labor also limited  company. because of the language barrier.
  23. 23. RELATIVE HOURLY COMPENSATION  COSTS(US100) Source: Key indicators of the labour market
  24. 24. RAW MATERIAL (STEEL)  AVAILABILITY AND COST  India  China  Good availability of iron ore.   Steel industry under the  Companies investing in more  control of Govt. Consolidation  efficient production methods.  going on in the domestic  steel  Currently Per capita  industry. consumption low  Shortage of iron ore might  increase domestic prices in  H.R Coil Year Price the long run. (Rs/kg) Year Production  Current lack of demand has  2002 18.50 2003 23.57 resulted in low prices of steel. 2004 32.41 1990 17MT H.R Coil 2005 33.87 Year Price (RMB/ 2006 33.65 kg) 2003 36MT 2007 38.09 2008 43.42 2006 4.3 2011 66MT 2007 4.7 2009 36.20 2008 4.8 2009 4.1 Source: Indiastat * Source: chinaesteel.com
  25. 25. RAW MATERIAL (STEEL)  AVAILABILITY AND COST  Thailand o Brazil  There is a domestic shortfall  • Abundance of iron ore, coke. in steel production. • Availability of cheap labour  Country dependant on steel  • Availability of modern  imports. (40% of total  production techniques. consumption) • Steel industry is mainly  export dependant H.R Coil Price H.R Coil Price Year Year (THB/kg) (USD/kg) 2004 18.5 2004 0.78 2007 18 2007 0.71 2008 38 2008 1.2 2009 28 2009 0.933 * Source: steelguru.com * Source: steelguru.com, financial express
  26. 26. VENDOR AVAILABILITY  India  China  Has got a good vendor   Good vendor base low  base for automobile  technology intensive  sector. components  The vendor bases are   Have a good base for  developed by existing  companies like Maruti,  forging and casting  Tata etc. products.  Estimated Rs 26,000 Cr   Have a good supplier  to be pumped into auto  base auto electronic  vendors by 2010. components  ­ future   Country has developed  trend as a supplier base for  auto vendors for Global  Auto Majors
  27. 27. VENDOR AVAILABILITY  Thailand  Brazil  Competitive vendor base   New vendors developed by  for manufacturing casting  European car manufacturers  & forging parts, stamping  after 2000. body parts, rubber and  glass.  Good supplier base available  for exhaust control   Cost competitive suppliers  components – future demand. for auto electronic  components. These   Steel components are  components are exported to  available at a cheaper price. Japan.  Supplier base developed  due to assembling plants of  major automobile MNCs  like Ford, GM, Chrysler,  Mitsubishi, Honda, Toyota  etc.
  28. 28. AVERAGE OPPORTUNITY SCORE
  29. 29.                            ANALYZING THE RISK
  30. 30. SOCIO­ ECONOMIC & POLITICAL  RISKS  INDIA •  Uncertainties surrounding in the coming general  election. •  Rising communal violence and terrorism incidents  •  slow­down in government decisions due to political  instability •  Labour unrest and industrial action •  Corruption and bureaucratic inefficiency •  Unexpected delays and cost­overruns due to •  Overlapping governmental jurisdiction •  Fluctuation in interest, inflation and currency rates
  31. 31. SOCIO­ ECONOMIC & POLITICAL  RISKS  CHINA •  The environment could see conservatives increase in influence in  the government. •  security threats along the border as a major vulnerability. •  Public demonstrations and protests  •  Unemployment •  Three Disparities (gaps between rich and poor, east and west,  and rural and urban) •  Public security & safety. •  Excessive discretionary authority of the customs administrative  systems. •  Inadequate patent policy and poor supervision of counterfeit  goods have prevented many brand from entering the Chinese  market    
  32. 32. SOCIO­ ECONOMIC & POLITICAL  RISKS  THAILAND •  Political fighting is aggravating social unrest, driving  a wedge between urban inhabitants and rural farmers. •  Political turmoil is seriously hurting key national  institutions.  •  Political chaos damaged its image as a stable place to  do business. •  Terrorist activities •  Accelerating inflation due to commodity prices will be  a key economic negative factor. •  Domestic demand declined
  33. 33. SOCIO­ ECONOMIC & POLITICAL  RISKS  BRAZIL •  Corruption scandal weakening Lula and his  government •  Policy paralysis of Administration on the defensive and  fighting off corruption allegations  •  The public debt burden is very heavy with maturities  too short. •  The external debt level is unsustainable over the long  haul. •  External financing needs are too great in comparison to  currency earnings due to the debt amortization burden. •  The low level of savings which government financing  needs essentially gobble up has been impeding private •
  34. 34. AVERAGE RISK SCORE
  35. 35. OPPORTUNITY RISK MATRIX 4 2.73 3 India Thailand Decreasing Risk 2.58 Brazil China 2 1 1 2 3 4 Increasing Opportunity
  36. 36. THANK YOU!!! Made by:­  08FN­13 Anirudh Singh   08FN­19 Aravind Menon.M   08FN­25 Ayush Gupta   08FN­27 Biswajit Mohanty   08FN­37 Jatin Sehgal   08FN­44 Kshitij Jain 

×