20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company
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Booz & Company December...
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China and India ha...
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…and both of them ...
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For the automotive...
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Within Asia pacifi...
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2009 Market Size ...
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In China, local ve...
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In India, the mark...
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Service
Sales &
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And the distinct ...
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For example, R&D ...
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JV partnership an...
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Chinese Auto Mark...
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Emerging Auto Markets China & India

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Emerging Auto Markets China & India

  1. 1. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company 1 Booz & Company December, 2010 Kuala Lumpur
  2. 2. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 2 China and India have witnessed stunning economic growth over the past twenty years…   Shift of global centers of gravity for some industries –  e.g., China is now the largest automotive market and producer in the world, and India is among fastest growing countries   “Must Consider” gaming dynamics for some others –  e.g., both China and India are low cost souring countries for most international manufacturers   Breeding ground for innovations driven by market demand and/or local competition –  e.g., Coke does more product innovations in China than any other markets except Japan   Emergence of real wealth (HNWI’s and middle class) and grand-scale urbanization –  e.g., China soon to become the world’s largest luxury goods market   Huge infrastructure still ongoing –  US$300 billion plan to build a nationwide high-speed rail network by 2025   Increasing prominence of local companies on a global scale –  Resources, capabilities, market positions, etc.   Significant capital flow to China and India, in particular private equity funds Key Shifts 20 Years Ago Now 20 Years Ago Now Beijing New Delhi
  3. 3. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 3 …and both of them are predicted to continue their growth momentum and become the most important economies in the world China (2007) GDP growth vs. GDP/capita (2007 – 2015, 2050) GDPgrowth(2007–2015and2050) GDP Per Capita India (2007) UK (2007) China (2050) India (2050) United States (2050) United States (2007) Brazil (2050)Brazil(2007) Russia(2007) Russia (2050) Note: Size of bubble is proportional to GDP of the economy Source: EIU; Goldman Sachs BRIC Report 2003
  4. 4. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 4 For the automotive market, Asia pacific represents the greatest opportunity for global growth in PV sales 4 = Area Reflects Size Of 2009 Actual PV Sales = Area Reflects Size Of 2020 Forecasted PV Sales 1000 Units Market 2009 PV 2015 PV 2020 PV Asia Pacific 17,233 28,518 33,249 NAFTA 10,794 17,319 18,461 Western Europe 13,638 14,183 14,512 Eastern Europe 2,907 5,214 6,392 Latin America 3,311 4,886 6,027 Africa/Middle East 2,693 3,864 4,245 NAFTA Growth thru 2020: 7,667K CAGR (2009-2020):5% Latin America Growth thru 2020: 2,716K CAGR (2009-2020): 6% Asia Pacific Growth thru 2020: 16,016K CAGR (2009-2020): 6% Africa/Middle East Growth thru 2020:1,552K CAGR (2009-2020):4% Eastern Europe Growth thru 2020: 3,485K CAGR (2009-2020): 7% Western Europe Growth thru 2020: 874K CAGR (2009-2020):1% Source: Global Insight Data
  5. 5. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 5 Within Asia pacific, the greatest growth opportunities are China, India, and ASEAN New Zealand Australia Mongolia China Japan Indonesia Malaysia Philippines Vietnam Thailand Myanmar Laos Cambodia Taiwan South Korea North Korea Bangladesh Bhutan India NepalPakistan China: Growth thru 2020: 11,461K CAGR (2009-2020): 8% India: Growth thru 2020: 2,947K CAGR (2009-2020): 10% Japan: Growth thru 2020: -170K CAGR (2009-2020): 0% ASEAN: Growth thru 2020: 994K CAGR (2009-2020): 7% South Korea: Growth thru 2020: 132K CAGR (2009-2020): 1% Taiwan: Growth thru 2020: 110K CAGR (2009-2020): 3% Australia: Growth thru 2020: 293K CAGR (2009-2020): 4% = Area Reflects Size Of 2009 Actual PV Sales = Area Reflects Size Of 2020 Forecasted PV Sales 1000 Units Note: ASEAN figures include top 6 ASEAN member countries, including Thailand, Malaysia, Indonesia, Singapore, Philippines, and Vietnam Rest of Asia-Pacific includes Hong Kong and Pakistan Source: Global Insight Data Market 2009 PV 2015 PV 2020 PV China 8,672 16,840 20,133 Japan 3,922 4,131 3,752 India 1,533 3,271 4,480 ASEAN* 925 1,548 1,919 South Korea 1,235 1,349 1,367 Australia 536 732 829 Taiwan 250 327 361 New Zealand 54 80 85 Rest of Asia Pacific 104 236 321 Total 17,233 28,518 33,249
  6. 6. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 66 2009 Market Size (Million Units) CAGR 2001-2009, % US UKSpain Italy Germany France Brazil Argentina Saudi Arabia Iran Turkey RussiaThailand Korea Japan Indonesia India China Size and Growth of Global Passenger Vehicle* Market (Major Countries) Global Average :1.6% Bubble size: 2009 market size As a result, China and India have emerged as the world’s largest and fastest-growing automotive markets in recent years Note: * includes segment of A, B, C, D, E, F, MPV,SUV Source: Global Insight 2010; Booz & Company analysis
  7. 7. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 7Booz & Company DATE 7 Carsper1,000People GDP Per Capita (Logarithmic Scale) 0 100 200 300 400 500 600 1,000 10,000 100,000 Yet China and India are entering the accelerated growth phase typical of emerging markets Turkey India China Indonesia Iran Thailand Mexico Brazil Argentina Malaysia Russia Poland Australia Canada Germany U.K. U.S. Note: Each line of symbols represents a 19-year progression for one country, from 1990 through 2008, GDP Per Capita is in Purchasing Power Parity (PPP) Source: Booz & Company analysis The S- curve China Discussion   A country’s threshold of mobility lies near US $10,000 GDP per capita (PPP), where automobile ownership accelerates   China is at the early taking-off stage of the S- curve   India remains fairly distant from the mobility inflection point, but continues to make steady progress India
  8. 8. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 8 In China, local vehicle makers are significantly gaining market share but international OEMs still dominate International OEMs/Brands China PV sales 2008-2009 (incl. import, million units) Local OEMs/Brands International/local OEM’s Share of China PV Market Note 1): Excluding CV volumes from SAIC-GM-Wuling Note 2): Including AVIC Source: Global Insight China Report BMW 1.07% 1.14% MMC 1.01% 0.67% Suzuki 2.67% 3.14% PSA 3.19% 3.18% FORD 2.95% 2.96% Nissan 6.18% 6.46% Honda 6.73% 8.29% Hyundai 10.13% 8.47% GM1 9.19% 8.82% TOYOTA 7.81% 10.32% VW 16.63% 17.77% 1.54% 1.71% Chang an2 Greatwall 1.76% 1.08% Brilliance 1.45% 1.67% BYD 5.17% 2.86% Geely 3.66% 3.12% FAW 4.62% 5.67% Chery 5.11% 3.87% 5.7 71% 25% 29% 75% Local 20092008 8.6 International 2008 2009
  9. 9. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 9 In India, the market is dominated by a few OEM’s in the rapidly growing A/B segments Domestic OEMs International / Local OEM’s Share of India PV Market Domestic OEMs (Including Maruti) 933 (65.0%) 502 (35.0%) International OEMs/Brands 2009 Total Market Share, by Sales (Incl. import) 1.60% Ford 2.10% 1.90% Fia t 0.40% GM 4.00% 3.80% Honda 4.10% 4.30% Hyundai 20.30% 20.60% Toyota 0.70% 0.60% VW 1.50% 1.30% Renault 1.50% 0.40% SoM 2009 SoM 2008 Top 8 International OEMs/Brands HINDUSTAN MARUTI TATA 52.5% 51.0% 12.0% 13.2% 0.5% 0.5% Source: Global Insight SP08 Asia Market Forecast – India Total: 1,435K units
  10. 10. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 10 Service Sales & Distribution MarketingManufacturingSourcing Product Development R&D Service Sales & Distribution MarketingManufacturingSourcing Product Development R&D Stage 1 Circa early to mid 1990s Stage 2 Circa mid to late 90s   Start a few, isolated production facilities   Began to integrate production facilities   Began to use China and India as a procurement source   Built brand for the local market and local sales & distribution Service Sales & Distribution MarketingManufacturingSourcing Product Development R&D Service Sales & Distribution MarketingManufacturingSourcing Product Development R&D Stage 3 Early 2000s Stage 4 Present to 5-10 years hence   Build R&D and PD centers   Integrate China and India into global manufacturing network   Integrate China and India into global sourcing network   Transfer global best practice   Integrate China and India into global value chain To win in China and India, a general approach could be adopted by MNCs to integrate these markets into their global value chain Source: Booz & Company analysis
  11. 11. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 11 And the distinct characteristics China and India have shown in certain value chain elements are certainly beneficial to MNCs China India + Govt. support + Cost advantage ▬  IT skills ▬  Fin. skills ▬  English skills Str./Weak.Asses.Str./Weak. + IT skills + Fin. skills + English skills + Cost advantage (weaker than China) TrendAsses.Trend + Cost advantage + Govt. support ▬  Linkage to Univ. ▬  Major breakthrough + Cost advantage + Component development capabilities + Cost advantage + Quality of parts + Commodities coverage + Cost advantage + Competitiveness ▬  Quality ▬  Research ▬  Depth of customer understanding + Strength of learning curve ▬  No. of Major dealership groups + Level of customer orientation ▬  Expertise + Cost advantage + Engineering outsourcing experience + Engineering and low-cost- orientation + Systems integration skills + Cost advantage + Quality of parts + Commodities coverage ▬  Scale + Cost advantage ▬  Logistics ▬  Scale (with comparison to China) ▬  No. of major dealership groups ▬  Logistics + Level of customer orientation ▬  Expertise Service Sales & Distribution MarketingManufacturingSourcing Product Development R&D IT & Back-Office ▬  Research ▬  Depth of customer understanding
  12. 12. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 12 For example, R&D and engineering centers established in China and India have assured Hyundai’s local adaptation and sales success Hyundai Motors Worldwide R&D Centers Namyang, Korea Central R&D Headquarter Hyderabad, India Hyundai Motor India Engineering Pvt. Ltd (R&D Center) Chiba, Japan Hyundai R&D Center Russelsheim, German European R&D Center / Design Center Chino, California, US America Technical Center Detroit, Michigan, US America Technical Center Irvine, California, US America Design & Technical Center Kia Design Center America Technology & Design Technology Headquarters Design Frankfurt, German Kia Design Center Europe   Korea R&D center: R&D headquarters, the overall R&D planning, the main vehicle design   China and India R&D center: localization support, local product adaptation and modification   U.S. R&D Center: model design for the U.S. market   Germany R&D center: product design for the European market, focusing on R&D of powertrains   Japan R&D center: the next generation of vehicle design and development of electronic systems Beijing, China Beijing Hyundai Technical Center 1 Example - R&D Function of R&D facility Source: Literature research; Booz & Company analysis
  13. 13. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 13 JV partnership and acquisition provide solutions for GM to gain access to China market, and to strengthen its presence in India GM’s Partnership with SAIC   SAIC and GM formed 50:50 R&D JV in August 2010 to: –  Jointly develop fuel-efficient engines and transmission –  Deliver new power-train systems within 3 years   Products include small engine and front-wheel-drive transmission that are 10% more fuel-efficient and reduce emissions by 20%   A Chinese automaker and a foreign partner share intellectual property rights on a core technology for the first time   Nov.,2010, SAIC announced to acquire 1% GM share through investment of $500M during GM’s IPO   GM and SAIC also announced to set up a GM-SAIC Motor Investment Co. to purchase 100% shares of GM India   YTD Oct. 2010, GM’s sales in India grows up almost 79% and will surpass 100,000 year end   Nov. 12, 2010, GM formally inaugurated the flexi-engine plant in Talegoan, Pune. The plant will take total Talegoan output to 300,000 cars and 300,000 engines annually.   The automaker has developed local suppliers and awarded component supply contracts worth $500million. It plans to source components worth $1bn in the next two years for its global operations. Implications to GM’s Expansion into India “We are bringing in four passenger cars and two commercial vehicles in the next two years in 14 fuel variants,”…“We are planning to invest US $250m more in the Indian market.” - Karl Slym, President of GM India Source: Literature research; Booz & Company analysis India 2 Case study
  14. 14. 20101124_Emerging Auto Market - China & India_Panel Discussion_Bill Russo_v4.0.pptBooz & Company DATE 14 Chinese Auto Market India Auto Market Market Environment   Very large market with significant regional variation in demand patterns   Demand shifting from more developed coastal cities to lesser developed interior markets   Deteriorated cost advantage due to surge in labor and material cost   Insufficient investments in alternative energy vehicles   Huge income gap and low purchase power limit the room of product price & OEM profitability   Poor infrastructure and increased fuel price could not support medium to large size vehicles   Deteriorated cost advantage due to surge in labor and material cost Competitive Environment  Currently the most competitive automotive market in the world  Highly complex network of JVs and other partnerships  Significant industry consolidation already underway  Predominant local VMs based on Japanese technologies are hard to challenge  Newcomers have to overcome later comer disadvantage due to time consuming supply base building and volume ramp up Regulatory Environment  China government tend to slow down auto production growth to tackle social problems such as energy crisis, gas emission and traffic jam  Barrier still exist in foreign ownership and IP protection being controlled by the Chinese government  Increasingly stricter fuel economy and emission requirement  Local content and investment requirement  High taxation rate on materials and less supportive policies Summary of Major challenges in China and India Auto Market Yet, with evolution of economy and regulation, China and India pose new challenges and risks to vehicle makers-- success is not a given Source: Literature research; Booz & Company analysis

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