Business Futures - Lab Report Example

BUSINESS FUTURES NO 21510 LECTURER: DR JOCHEN SCHWEITZER IAL: (Enter ial number) (Enter STUDENT NAME: (Enter your name) STUDENT ID: (Enter your student number) Overall word count: 3,382 words Special consideration: None (Note here if you were granted special consideration, e.g. Extension of submission date etc.) The Future of Car Manufacturing Industry in Mumbai, India Introduction and Executive Summary This report serves to analyse the Car Manufacturing industry in Mumbai, which is a city in India by focusing on the past, current and future trends in the different facets of the industry. The major issues discussed in this report range from the overview of the industry to some of the ethical concerns associated with the industry. Understanding the industry at an in-depth level using parameters such as its contribution to the Indian and global economies will play a significant role in developing best strategies to boost its growth and significance. The data in the report has been acquired from different sources most of which are published books and governmental reports. These sources are highly reliable since they are published by prominent authors and the government of India hence they satisfy international standards of credibility and relevance. This report can serve as a preliminary reading before one embarks on an intensive research into the car manufacturing industry in India. Industry Overview and Relevance on a Global Scale Manufacturing is the labour-intensive and machine-applying process through which raw materials are converted into finished products on a large scale either for use or for sale (Brown, 2001). Manufacturing also entails the formulation of merchandise through the manipulation of chemical and biological processes. The uses of the output of the manufacturing industry are very diverse. For instance, some of the products from the manufacturing industry can be used for other complex manufacturing processes such as aircraft manufacturing, for sale to wholesalers who then sell to retailers, or direct sale to end consumers (Brown, 2001). In free markets, the manufacturing industry focuses on mass production of good for sale to end-consumers at a profit while in collectivist markets, the manufacturing industry is used to supply the government’s planned economy. In mixed markets, manufacturing is conducted under governmental regulation (Raj put, 2008).  Since the manufacturing industry is one of the most potent wealth generating industry, there have been several variations in this industry depending on the products, machinery, technology and objective (Raj put, 2008).  One of the facets of the manufacturing industry is automobile or car manufacturing sector (Peters, 2011). The car manufacturing is a sub-sector of the manufacturing industry, which houses a wide range of companies with their common activity being the designing, manufacturing, advertising and selling of automobiles (Peters, 2011). It excludes the organizations or companies involved with the maintenance, delivery and repair of motor vehicles such as fuel filling stations, garages and repair shops. This sub sector is one of the most important sectors of the global economy by revenue (Baker, 2007). Considering the fact that motor vehicles are the primary mode of transportation across the globe especially in developed countries, the car manufacturing industry plays a significant role in the global economy. In fact, as of 2008, the number of cars and light trucks in the world stood at 806 million (Odaka, 2001). The car manufacturing industry in India encompasses passenger vehicles, commercial vehicles, two-wheeled vehicles and three-wheeled vehicles (See Appendix 1) (Odaka, 2001). The growth of the automobile industry in 2004 was dominated by two-wheeled vehicles which recorded an annual growth rate of 12.9 percent which translates to a sale of about 13.5 million units annually (See Appendix 1) (Odaka, 2001). The passenger vehicle followed suit with an annual growth rate of 10 percent then the commercial vehicle sector with an annual growth rate of 8.6 percent (See Appendix 1) (Odaka, 2001). The car manufacturing industry contributes to about 22 percent of India’s manufacturing industry GDP (Anderson Consulting et al., 2003). It is one of the most potent job creating sectors both directly and indirectly; estimates indicate that one job in the automobile industry creates three to five ancillary jobs indirectly. The Boston Consulting Group predicts that two years from now, more than a third of the global demand for motor vehicles will be in the Brazilian, Russian, Indian and Chinese markets (See Appendix 2) (Stern and Stalk, 2001). The predictions also stipulate that the car manufacturing industry in developed countries will decline since the younger generation prefer other modes of transport which are less common. This means the car manufacturing industry will see a paradigm shift in terms of clientele (Stern and Stalk, 2001). The larger portion of the market is expected to be from developing countries mainly in Africa (Stern and Stalk, 2001). If India maintains the 17.5 million vehicles per year level of production and, the skilled and semi-skilled labour remains constant, the car manufacturing industry will grow from the current seventh-largest in the world to the fourth-largest (Government of India and Automotive Mission Plan (India, 2006). The governmental projection of the future of the car manufacturing industry places India as the global destination of choice for both design and manufacture of motor vehicles and auto components. This prediction stipulates that the level of output will range between 140 and 145 billion US dollars per annum thus about 10 percent of the global GDP and creation of 25 million jobs (Government of India and Automotive Mission Plan (India, 2006). Mumbai, India as an Emerging Economy and Fast-growing City/Country The republic of India, located in South Asia, is the seventh-largest country, the second-most populous country with a population of about 1.2 billion people and, the democracy with the highest population in the world (Cohen, 2002). Its economy by nominal GDP is the tenth-largest in the world and, the third-largest by Purchasing Power Parity since it contributes to about 6 percent to the global GDP (Cohen, 2002). The reforms in the economy in 1991 have rendered the Indian economy the fastest growing economy hence the country is now considered an industrialised country (Nissam, 2009). India’s economy contributes to about 8 percent of the global economical growth with its domestic economy growing at an average rate of 6.4 percent per annum (Nissam, 2009). India contributes to the global economy is several ways. First, India has a population of more than one billion people (Winters and Yusuf, 2007). This population is a key player in the global economy since it avails human resources to other countries in the world (Winters and Yusuf, 2007). With a median age of about 26 years, most of the Indian population offers skilled and semi-skilled labour to the industries in other countries (Winters and Yusuf, 2007). Second, the population also offers a vast market for products originating from other countries especially low-cost computers and gadgets and mobile phones (Roy, 2012). Additionally, India is currently a major exporter. India’s share of the global exports tripled to about 1.5 percent over the last 20 years (Roy, 2012). To encourage the continuity of India’s contribution to the global economy, the government of India has initiated several programs to boost its economic capacity (Roy, 2012). India’s most potent economic asset is its population. The governmental pre-Budget Survey 2013-14 indicates that the working population of India could increase from 58 percent to about 64 percent by the year 2021 (Stern and Stalk, 2001). This population will be mainly comprised of people in the age group of 20-35 years (Stern and Stalk, 2001). To ensure the maximal harnessing of this resource, India has initiated a campaign to boost the quality standards of education. The government has boosted the percentage GDP expenditure on education to 3.3 percent from 2.9 percent in 2009 (Leeuwen, 2007). The additional financial allocation is focused on addressing quality issues in order to ensure skill development is optimum. This will boost the supply of skilled and semi-skilled labour thus improving the economy through production (Leeuwen, 2007). Moreover, the National Skill Development Corporation has approved more than 150 business proposals (Sood, 2003). This move has ensured that close to twenty million persons have job-oriented skills. 60 percent of the twenty million people have been deployed to different industrial sectors in India and this has not only boosted the economy but also reduced the levels of poverty, unemployment and illiteracy (Sood, 2003). The country has also boosted local economic development programs. Such programs have attracted investments from multinational enterprises hence, they have boosted the availability of capital and technology (Sood, 2003). The current efforts and programs have also led to the development of future plans of action to boost the efficiency of current efforts. With the development of the manufacturing industry due to the availability of skilled and semi-skilled labour, India is likely to face an unprecedented level of urbanization. Projections indicate that about 350 million Indians are bound to move to urban areas in the next decade (Sood, 2003). This necessitates the development of other cities to accommodate the population and avoid the existing cities from turning into slums. The government of India plans on developing new cities which will act as centres for economic growth and innovation. This will ensure the Indian economy is competitive to the city level which is the current trend with globalization; competition for resources is at city level and not country level anymore (Sood, 2003). One of the major urban schemes in India is the Jawaharial Nehru urban renewal mission. This will be a major step in addressing the projected shortage of 30 million housing units, 200 water connections, and sewage facilities to 350 million people due to rapid rural-urban migration (Stern and Stalk, 2001). The need for city-oriented economies is a result of globalization (Stern and Stalk, 2001). Globalization has opened up world trade, communication and financial markets (Valan Arasu, 2008). Through globalization, multinational enterprises can tap into foreign markets since the erosion of boundaries has led to the increase in mobility of people, goods, capital and data (Valan Arasu, 2008). Globalization as opened up the economy of India to foreign direct investment by availing investment faculties to foreign companies and reducing or completely removing obstacles for the entry of multinational enterprises. Globalization has also allowed Indian companies to collaborate with foreign companies. This has boosted the formation of joint ventures, and cross border Mergers and Acquisitions (Valan Arasu, 2008). Globalization has also facilitated import liberalization since quantitative restrictions have been replaced with import duties and import tariffs (Valan Arasu, 2008). For India to maximize on globalization, the competence of the economy at city level needs to be boosted. The city of Surat contributes about 40 billion US dollars in GDP, Visakhapatnam contributes 48 billion US dollars, Pune contributes 50 billion US dollars, Ahmedabad contributes 64 billion US dollars, Chennai contributes 66 billion US dollars, Hyderabad contributes 74 US dollars, Bengaluru contributes 83 billion US dollars, Kolkata contributes 150 billion US dollars, New Delhi contributes 167 billion US dollars and Mumbai contributes 209 billion US dollars to the GDP of India in terms of Purchasing Power Parity. Mumbai accounts for about 6 percent of India’s economy by contributing 10 percent of employment in factories, 30 percent in income taxes, 60 percent collections in customs duty, 20 percent in excise tax and 40 percent in foreign trade (Valan Arasu, 2008). However, Mumbai is still not in the top 100 cities in the world in terms of GDP. This is because most of the economy is informal and dependent on agricultural activities. This makes it very difficult for the government to monitor the activities hence the loss of revenue that would have been acquired from taxation (Valan Arasu, 2008). Therefore, more needs to be done to boost the economy of Indian cities considering Mumbai is the main contributor to the country’s GDP. The Car Manufacturing Industry in Mumbai/India as a Competitive Industry The car manufacturing industry in India is the one of the fastest growing industries in the country (Peters, 2011). In fact, it is placed in the eleventh position globally in the rank of passenger car producers (Peters, 2011). It is placed first and second respectively in the motorcycle and scooter sub industry in the car manufacturing industry. The high rates of success and productivity attracts a lot of competition in the industry. In the 80s, Maruti Udyog Limited dominated the car manufacturing industry. However, the progressive dynamism of the open market and high deregulation led to the rise of joint ventures between local stakeholders and foreign manufacturers. This move created the existing competition. The elimination of licensing in 1993 paved way for an additional competitive force when 17 new joint ventures in the car manufacturing industry were established. Since then, the main driving force for the competition has been the acquisition of higher value segments of the market especially for passenger vehicles (See Appendix 3) (Peters, 2011). Ford tapped into the mid-range market and was later joined by Daewoo, Hyundai and Honda. Suzuki commands 33 percent market share in the four-wheeled vehicle segment of the industry hence it is the most dominant in this segment (See Appendix 4) (Peters, 2011). Suzuki is followed closely by a local company by the name Tata Motors which holds a 26 percent market share (United Nations Conference on Trade and Development, 2008). The third-largest market share is occupied by Hyundai at 15 percent leaving the rest of the market to two dozen manufacturing companies. Therefore, the competition in the four-wheeler segment of the car manufacturing industry is majorly international (United Nations Conference on Trade and Development, 2008). Conversely, the competition in the two-wheeler segment of the car manufacturing industry is mostly local even though international manufacturers command some market share. The largest market share is held by Hero Honda Motor Co. at 40 percent, followed by Bajaj Auto and TVS Motor at 27 percent and 18 percent respectively (United Nations Conference on Trade and Development, 2008). The rest of the market is split amongst other manufacturers that include: Yamaha Motor, Greaves Ltd, Kinetic Engineering, LML Limited and other foreign manufacturers. The car manufacturing industry in India is also competing with other international manufacturers who import their products into the Indian market (United Nations Conference on Trade and Development, 2008). Considering India is ranked twenty ninth globally in terms of motor vehicle exports, it means the industry is still not a comfort zone even for local manufacturers who command a huge market share. Projections on the Car Manufacturing Industry in Mumbai/India The car manufacturing industry is not completely independent (United Nations Conference on Trade and Development, 2008). The amount of profits secured from this industry depends greatly on other industries. One such industry is the oil industry (Peters, 2011). Motor vehicles need fuel to operate. Therefore, the changes within the oil and petroleum industries affect the demand for cars. When the fuel prices are very high, there is less demand for motor vehicles and when the fuel prices are low, most people purchase motor vehicle due to the low costs of maintenance (Peters, 2011). The fuel industry in conjunction with the industries concerned with environmental quality also affects the car manufacturing industry. For instance, rising fuel prices and environmental concerns have compelled car manufacturers to design and manufacture small cars and cars which use both electricity and fuel (Peters, 2011). The mining industry also affects the car manufacturing industry since it avails the required raw materials for car manufacture. The Indian market is consumer-driven with a distinction between rural and urban markets (Valan Arasu, 2008). Since India’s population is mostly people between the age of 18 and 35, the country has a high level of disposable income. Since the economic environment in the car manufacturing industry depends on the number of units sold, the number of people capable of purchasing a motor vehicle dictates whether the economic environment in this industry is good or bad for business (Valan Arasu, 2008). If India maintains the current economic growth rates, then the average household income is expected to double in the next decade due to population increase and improved educational systems. This means that in 2015, India will be among the five largest consumer markets in the world. These projections have compelled the Government of India to enact policies that encourage foreign direct investment with the aim of boosting economic growth (See Appendix 5) (Government of India and Automotive Mission Plan (INDIA), 2006). Some of the foreign investements include the Emami Group which acquired 67 percent of Fravin in Australia to stand at 1.6 billion US dollars, the Spanish brand Custo Dalmau who entered India and opened two flagship stores and, the US-based company Freescale which has a research and development facility in India. The Effects of the Socio-cultural Environment in Mumbai/India to Car Manufacturing India is one of the religiously diverse countries in the world. Religion and culture play a very significant role in defining the lives of Indians (Gesteland and Gesteland, 2010). Most of the businesses in India are family-administrated thus major management roles are held by the most responsible family members (Gesteland and Gesteland, 2010). The economy in India, specifically in Mumbai, is dominated by the non-corporate sector which is directly involved with the service and manufacturing industries. Additionally, the main business language in Mumbai and, India in general, is a combination of English and local language. Since the highly easternized middle class dominates the economy, the introduction of western ideas is not easily acceptable (Gesteland And Gesteland, 2010). The culture in Mumbai and India in general, affects the car manufacturing industry in several ways. Car manufacturers have to bear in mind the aforementioned cultural beliefs during product production. The lifestyle of Indian people is noble hence extremely expensive cars do not sell that much (Gesteland and Gesteland, 2010). Additionally, since the economy is dominated by the middle class, high end products are not common. In fact, due to the high populations in Mumbai, most Indians prefer using scooters and motorbikes as the main means of transport to avoid traffic jams and enable navigation in the crowded streets (See Appendix 2) (Gesteland And Gesteland, 2010). Innovation and Technology to Curb Environmental Concerns within the Car Manufacturing Industry The dominant raw material for the car manufacturing industry in India is steel. However, technology conferences and forums aimed at finding alternative materials have identified a feasible technology alternative for the Indian car industry (Soni, 2015). Currently, steel requires cutting, stumping, welding, assembly and painting (Soni, 2015). This not only requires a lot of time but also a lot of energy and manpower. The most feasible alternative would be carbon which is a composite hence only requires weaving, pressing, injection and filling; all of which are less timely and result to less pollution relatively (Soni, 2015). The adoption of automated paths and relay chains also assist in saving time and maintaining the safety of workers in the manufacturing plants. All these efforts are geared towards waste reduction and efficient use of energy (Soni, 2015). Alternatives sources of fuel for vehicles like electricity and solar-powered car batteries are also being looked into in the verge of reducing Greenhouse Gas Emissions from the highly populated India. India also encourage the setting up of foreign research and development firms as this will boost the relevance of technology suggested by such firms to the Indian economy (Soni, 2015). From the relevant suggestions, the government can select specific technology and products that boost the industry’s growth. Ethical Issues The prevailing ethical issue in that of road accidents especially since India had the highest number of road accidents globally in 2013 (Ladkin, 2015). The road accidents can be blamed entirely on the drivers and other motorists but in some cases, accidents are a result of faulty mechanisms in the vehicles. This is because safety precautionary measures like installation of airbags and anti-lock braking systems result to the hiking of the motor vehicle prices (Ladkin, 2015). Since most of India’s population is middle-class, the hiked prices certainly result to a decline in sales. To curb this, some companies either install substandard air-bags and anti-lock braking systems or do away with them completely thus increasing the risk of road carnages (Ladkin, 2015). Conclusion The car manufacturing industry is a highly potent industry to the economy of India. The contribution of this industry to the development of the country should not be ignored. Even though several things could be done to ensure the industry is at its maximal potential, the current status of the industry in very encouraging. As the trends indicate, this industry has grown tremendously over the years and as the government invests more time and resources into the industry, India could potentially be one of the best car manufacturers in the world. References Anderson Consulting, Indian Institute Of Management, Lucknow, & Indian Institute Of Technology 2003. Indias manufacturing sector: policy framework. New Delhi, Academic Foundation. Baker, K. J. 2007. Economic tsunami: India’s car industry will sweep away western car makers. Dural, N.S.W., Rosenberg Publishing. Brown, J. A. 2001. Modern manufacturing processes. New York, N.Y., Industrial Press. Cohen, S. P. 2002. India emerging power. Washington, D.C., Brookings Institution Press. Gesteland, R. R., & Gesteland, M. C. 2010. India: cross-cultural business behavior : for business people, expatriates and scholars. Copenhagen: Copenhagen Business School Press. 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Peters, N. 2011. The impact of the global downturn on the car manufacturing industry. München, GRIN Verlag GmbH. Rajput, R. K. 2008. A textbook of manufacturing technology: (manufacturing processes). New Delhi, Laxmi. Roy, T. 2012. India in the world economy: from antiquity to the present. Cambridge, Cambridge University Press. Soni, H., B. 2015. Proceedings of International Conference on Emerging Trends in Industries. Copenhagen Business School Press Sood, N. 2003. Management of school education in India. New Delhi, A.P.H. Pub. Corp Stern, C. W., & Stalk, G. 2001. Perspectives on strategy from the Boston Consulting Group. New York, J. Wiley. United Nations Conference On Trade And Development. 2008. World investment report, 2007: transnational corporations, extractive industries and development. New Delhi, Published for and on behalf of the United Nations by Academic Foundation. Valan Arasu, J. G. 2008. Globalization and infrastructural development in India. New Delhi, Atlantic Publishers & Distributors. Winters, L. A., & Yusuf, S. 2007. Dancing with giants : China, India, and the global economy. Washington, DC, World Bank : Institute of Policy Studies. Appendices Appendix One: The Breakdown of the Car manufacturing Industry in India Appendix Two: The Projections for Motor Vehicle Production Appendix Three: The Leading Indian Automobile Firms, their Products and Market Value Appendix Four: The Commercial Vehicle Market Share with respect to Automobile Firms in India Appendix Five: The Financial Direct Investments in the Indian Car Manufacturing Industry Appendix Six: The Projected Vehicle Production in the Indian Car Manufacturing Industry Read More