What is the scope of entering as a new players in an industry which already has many established players in place?

1. Potential of Survival after
entering the Automobile
Industry in India
- An analysis using Porter’s
five forces
Abhilash Agrawal
Roll no. 1054
National Law University, Jodhpur

2. What does Porter say?

3. Porter five forces analysis
• A framework to analyse level of competition within
an industry and business strategy development
• It draws upon industrial organization (IO)
economics to derive five forces that determine the
competitive intensity and therefore attractiveness
of a market
• Attractiveness in this context refers to the overall
industry profitability

4. We’ll now understand
these five forces in the
context of the
automobile industry

5. Briefly-
The Automobile Industry in India
• Comprises of the automobile and the auto component
sectors.
• India is the world's second largest manufacturer of two
wheelers , fifth largest manufacturer of commercial vehicles as
well as largest manufacturer of tractors. It is the fourth largest
passenger car market in Asia as well as a home to the largest
motor cycle manufacturer

6. In continuation…
• It facilitates the improvement in various
infrastructure facilities like power, rail and road
transport.
• After delicensing in 1991, at present we have 15
manufacturers of passenger cars and multi-utility
vehicles, 9 manufacturers of commercial
vehicles, 16 of two/ three wheelers and 14 of
tractor, besides 5 manufacturers of engines.

7. Indian Market: Status Quo and
Potential

9. Relevance of Porter’s analysis
• Norms for foreign investment and import of
technology have also been liberalised over the
years for manufacture of vehicles.
• As has been stated in the previous slide, there
are numerous manufacturers already present
in the market.
• In such a scenario, how profitable will it be
for an entity to venture into the Indian
markets?

10. Brief Analysis of Porter’s Five Forces
and the Automobile Industry
Force Industry Response
1. Threat of new entrants High level of entry barriers.
2. Power of suppliers Hold very little real power.
3. Power of buyers Hold very little buying power.
4. Threat of Substitutes Availability of both alternate offerings and
alternative mode of transportation.
5. Competitive Rivalry Less reliance on price based competition

11. Threat of new entrants
• In the auto manufacturing industry, this is
generally a very low threat. Factors to examine
for this threat include all barriers to entry such
as upfront capital requirements, brand equity,
legislation and government policy, ability to
distribute the product. It's true that the
average person can't come along and start
manufacturing automobiles. Automobile
industry is very specific industry, thus it has
higher level of entry barriers.

12. Bargaining power of suppliers
• The bargaining power of suppliers is very low
in the automobile industry. There are so many
parts that are used to produce an automobile,
that it takes many suppliers to accomplish
this. When there are many suppliers in an
industry, they do not have much power due to
that industry manufactures can easily switch
to another supplier if it is necessary.

13. Bargaining power of buyer
• While consumers are very price sensitive, they
don't have much buying power as they never
purchase huge volumes of cars. Generally,
however, it's safe to say the customers have
some buying power, but it depends on the
market.

14. Threat of substitute products
• We are not just talking about the threat of someone buying
a different car. You need to also look at the likelihood of
people taking the bus, train or airplane to their destination.
The higher the cost of operating a vehicle, the more likely
people will seek alternative transportation options. The
price of gasoline has a large effect on consumers' decisions
to buy vehicles. Trucks and sport utility vehicles have higher
profit margins, but they also guzzle gas compared to
smaller sedans and light trucks. When determining the
availability of substitutes you should also consider time,
money, personal preference and convenience in the auto
travel industry. Then decide if one car maker poses a big
threat as a substitute.

15. Industry Rivalry
• The automakers understand that price-based
competition does not necessarily lead to
increases in the size of the marketplace;
historically they have tried to avoid price-based
competition, but more recently the
competition has intensified - rebates,
preferred financing and long-term warranties
have helped to lure in customers, but they
also put pressure on the profit margins for
vehicle sales.

16. An Example
• Volkswagen has maintained its position as one
of the world’s highest-selling vehicle
manufacturers, and is in fact bidding to
replace Toyota as the single largest automaker
this year itself.
• Despite its success in various countries,
including over neighbor China, it’s story in
India has been of a major debacle.

17. Volkswagen sales in BRIC

18. • What has happened with Volkswagen is not a
case in isolation but has happened or is
currently happening to a lot of country that
have entered the Indian market and haven’t
achieve much success.
• Another striking example would be that of
Nissan, Renault and Fiat, all having failed to
capture a substantial market share.

19. Reasons for the same
• Volkswagen has positioned itself as a relatively
premium brand, and thus doesn’t compete in this
high growth segment.
• Moreover, Volkswagen’s sedan offerings such as
Skoda Octavia and Superb and Volkswagen Vento
haven’t been able to compete strongly with
models such as Maruti Swift Dzire and Honda
Amaze. With high growth for entry-level compact
cars, and strong brand recognition of Maruti,
Hyundai and Honda, which have vast dealership
networks across India

20. Future Prospects for Volkswagen
• As part of its mid-term strategy, the group
announced that it will launch a new product
every year in India starting 2015, and
launched the new facelifted model of its
Vento sedan this month.
• While protecting its relatively premium brand
image, Volkswagen aims to enter high growth
segments such as SUVs and compact sedans,
rather than smaller hatchbacks.

21. • Volkswagen will also invest around $250
million in India through the decade, to
increase local content sourcing and
production and introduce new models.
• Volkswagen aims to expand its production
base in India, starting with building engines
and gearboxes in the country itself.

22. Conclusion
• The prospect of growth in the Indian markets as far as automobiles are
concerned is tremendous. With the liberalisation of the economy, many
new producers have entered the market and were competing with home
producers such as Maruti. The situation now is completely different from
what it was in the beginning of the 90’s. Now, the players who had entered
the Indian automobile industry then have deep entrenched roots in terms
of market share. Newer players are finding it hard to enter these markets
regardless of the huge quantum of funds that they invest in order to
establish themselves. the case of Volkwagen that we have taken here is
the perfect example of this phenomena. We have analysed how despite
the rigorous impositions of sanctions, Volkswagen was able to succeed in
China and has not been able to do the same in India. This has been due to
the various other factors that exist now that did not exist then, such as
available of substitutes and market competition among others. In
conclusion, we see through the application of the five forces given by
Porter how difficult it is to enter the market and establish yourself than it
was earlier. However, we also concede that it is too early and many
predictions may prove later.