Case Study: Michelin’s supply chain strategy Essay

Michelin is the forefront of the radial tire as well as a leader on the world tire market; they occupied almost 20% market share in the world. It’s  realized that the trend towards globalization as more intense competitions that obtain to lower cost and improve the efficient operations. Meanwhile, Michelin have its strong vision, because they have already established a global mission since 1900s, and built 35 factories around the world between 1960 and 1975. Michelin can be gain the competitive edge in the global market through various manufacturing strategies, refer to (2000, Geoff Buxey) indicates that it’s generally classify into a several evolve levels, _Domestic, Market access, Low cost and Global ._Furthermore, in order to cope with the challenges under several competitions such as Goodyear and Bridgestone, they have setting a position as successful in the †Quality assurance.† Also there are comparison and contrast the global operations between Michelin and Bridgestone in the latter sector. Q1. _THE MANUFACTURING STRATEGIES ADOPTED BY MICHELIN IN ORDER TO GAIN COMPETITIVE ADVANTAGE IN GLOBAL MARKET._ Michelin have 69 production sites in19 countries and their commercially available in 170 countries. This successful is not only base on the ability to coordinate the whole entities in the global supply chain network, but also depends on their manufacturing strategies to obtain Michael Porter (1985) a sustainable Competitive advantage. GLOBAL In 1906, Michelin built its first plant outside of France in Turin, Italy and United States, that’s implicated that they begin to develop and access to the international market. More recently, Michelin have dispersion to six target markets: Europe, North America, South America, Asia Pacific, China, Africa and the Middle-East. MICHELIN’S MANUFACTURING STRATEGIES TO SUPPORT THE COMPETITIVE ADVANTAGES Michelin’s Tire manufacturing is consist the nature of labor-intensive and capital-intensive, therefore they need to adopting different strategies between advanced countries and emerging countries, mix of _low cos_t and _market access_ strategies to enter into the global market, as (2000, Geoff Buxey) points out that the _global manufacturing strategy_ is consist of low cost and market access strategy. DOMESTIC Europe is the industrial base of Michelin, their products are provides to two main markets to the world: Original Equipment Market and Replacement market. In Europe, they keen to keep its competitive advantage in providing high technical products and offer a high-quality and innovative products and services; also a R&D department act as a major role in providing a continuous support to their manufacturing strategy. Besides, Increase the productivity can be directly reduce their operation cost, as the case mentioned, Michelin tend to be through reduced the production size to increase the productivity in Europe. FOCUS ON HIGH QUALITY & TECHNICAL PRODUCTS PRODUCED IN EUROPE. This is no doubt that, Michelin is leadership in advanced technologies, not only in _Safety_, _Energy efficiency_, but also in _Environmental friendliness_. For instance, develop a low rolling resistance tires for the purpose of reducing vehicle fuel consumption as the public is more consider about environmental friendliness. The powerful evidence to prove that the quality of Michelin’s products are recognized, World trade Magazine to award of †Manufacturer of Honor† to Michelin in 2007, because they provide vehicle tires to U.S. military throughout the world. ACCESS INTO THE EMERGING MARKET AND DIFFERENTIATION Meanwhile, the increases in the demand of emerging market and the y realized that the transportation cost is involves a large percentage of their net sales, therefore, establishing a plants in the oversea market and let the production close to the marketplace, it can not only reduce the inventory and transportation cost, but also able to fulfill the customer needs immediately and response to the market change. From the annual report in 2006, there are 3 fields of strategies need to be implement, that including †_Differentiation through innovation and expansion in emerging countries to stimulate growth_.† Martin Christopher (2005) discusses that, in today’s marketplace where customers seek individuality and where segments are getting smaller, a major source of competitive advantage can be gained by linking production flexibility to customer need for variety. It’s agreed that provides a diversity of products might grab the market share in the emerging market. Moreover, Michelin establishes more plants in different areas can be fulfilling the sharp increases in demand. SPECIALIZED /FOCUSED FACTORIES To achieve the major strategic productivity gains, Michelin concentration on industrial capacity and specialization of plants. Michelin expect to through †_The Michelin Manufacturing Way_ (MMW) † to increase their productivity, which is a management tool shared by all Group plants and able to reduce their purchasing costs Besides, owing to cater for specific and unique local demands, Michelin adopted specialized/focused factories strategy as so to fulfill various  customer needs and achieve local customization . Martin Christopher (2005) points out that, Focus Factories means † limiting the range and mix of products manufactured in a single location the company can achieve considerable economies of scale.† It allows Michelin to enjoy lower operation cost because the significant scale economics can be achieved in manufacturing if greater volumes are produced on fewer sites and it allow each factory on a specific product range. As a global company, Michelin adopting a different strategy in various markets and fulfill the customer needs at full steam. Through achieve a products differentiation to capture the new customer in the emerging market; also, they have its strong local presence to adapt to the specific features of the world markets. In addition, further develop the technical products which depend on their ability to offer a high-quality and innovative products and services can be maintaining a sustainable competitive advantage in the global market. Q.2 EVALUATE MICHELIN’S GLOBAL SUPPLY CHAIN MANAGEMENT STRATEGY (GSCM), ANY ISSUES THEY NEED TO COPING WITH AND PROVIDE RECOMMENDATIONS FOR THE FUTURE DEVELOPMENT. With increased globalization, GSCM strategy is becoming an important issue for Michelin, the flow between and among all firms engaged in offering a good or service to the final customer. FROM UPSTREAM TO THE DOWNSTREAM OF THE GLOBAL SUPPLY CHAIN GLOBAL SOURCING The GSCM in Michelin is very complicated, because different markets also have its own characteristics in the customer needs and the sales network is covering over 170 countries. From the upstream supply chain, Michelin adopted a _Global sourcing_ as a strategic approach to reduce the raw-material cost and mix of the  manufacturing inputs available anywhere in the world and gain access to the oversea markets, which supported by †The Factor-Input Strategy† and †The Market-Access Strategy† OEMS AND REPLACEMENT From the downstream supply chain, Michelin have established 11 specialized business units to monitor and co-ordinate the operation among entities into the GSCM. Besides, they have two different business models, OEMs and Replacement market. But it’s interrelated, because the original equipment sector sales will make a direct contribution by boosting demand for replacement tires. The tire dealers obtain the inventory of new replacement tires through Michelin’s Distribution Centres and the demand is come from different customers and it’s less certainty than OEMs market. Therefore, the Lead time in the OEMs can be reduced, because the orders are placed by the major vehicle manufacturers in a short period of time. For instance, Michelin was also OEMs supplier to _General Motor’s_ and _Honda’s_ vehicles Bob Ulrich (2007) until recently. Therefore, these two types of market segments have to using different strategy to control the downstream supply chain. EFFICIENT SUPPLY CHAIN AND RESPONSIVE SUPPLY CHAIN Fisher (1997) suggested two distinctive strategies, Efficient supply chain (ESC) and Responsive supply chain (RSC), and presented a model which links supply chains to products. There are two distinctive supply chain approaches; Replacement products represent an ESC and the lead time is longer, the OEMs products represent a RSC because it’s able to flexible in handling variance in customer demand.  Huang, Uppal et al. (2002) presented a _hybrid supply chain_, demonstrate that some automobile components may contain innovative features, and the hybrid supply chain may therefore be appropriated in Michelin. Nonetheless, Michelin also tend to integration of the global supply chain network to maximum their profitability and the core factors to determine their global supply chain strategy is depending on the market and product’s characteristics. POTENTIAL ISSUES FACING BY MICHELIN The increases in the cost of raw-materials and which are resulting in a negative overall impact on operating income. The OEMs market is growing show in advanced market, however, there are growing rapid in emerging market in both OEMs and Replacement, and it has increased 15% tire sales from 60% in 2005 to 75% in 2006 in Replacement market. As the sharply increase the demand in Replacement market, Vollmann(2005) states that †the Customer order decoupling point† which position in the †Finished stages† of the supply chain in replacement market, therefore, achieve an optimize inventory and avoid stock out is very difficult, meanwhile, product life cycle become shorter and the product variety continuous increase will force the demand more difficult to forecast. Michelin need to face several potential issues, Increases in the cost of Raw-Material( rubber), OEMs market growing slow, Increases in lead time, Increases in the inventory related- cost, It takes a high cost in transportation because of shipping across boundaries, The supporting activity to develop in the emerging country, especially in technological aspects. Replacement products require a forecast driven supply chain, the demand is variety and the inventory will be increase continuously, because the lead time is very long, dealers have to make a buffering stock to reduce the risk in stock out, also, a increasing in distribution cost is a considerable issue as well. RECOMMENDATION FOR THE FUTURE VENDOR MANAGED INVENTORY (VMI) PRACTICES AND VERTICAL INTEGRATION Working closely with key supplier can be reduce the in-bound lead times, that’s allow the upstream supplier planning and monitoring the inventory control systems for the downstream parities. There are allow information sharing between both parties, inventory could be replaced by information, the more accurate information you obtain, the less the inventory you hold. Meanwhile, it ensures the raw-material supply certainty and the reduction of the procurement cost to offset the increased in the price of raw-material. The major benefits will be gained from a great deal of reduction in inventory and the reduction of lead time, not only in the ordering processing stages but also in the distribution stages. In addition, although Michelin have its own natural rubber plantations, and there are only supplies a part of the raw-materials, moreover, a dual supplier to reduce the risk in disruption of supplies is necessary. STRATEGIC ALLIANCES WITH THE THIRD-PARTY LOGISTICS PROVIDERS (3PLS) To cope with the increases in the distribution cost, the global tire company decided that outsourcing its distribution network was the right way to leveraging new capabilities for competitive advantage, because Manufacturing firms and 3PLs can specialize on there area of competences, Thomas A. Foster  (2004) points out that, Michelin decided to transform its North America business to TNT in 2004 based on their well local experience. It’s suggested that, Michelin can be take the same action in the emerging market to directly reduce their operations costs, transportation costs as well as handling costs, additionally, Michelin can increase the cash flow because running a DC will tied up a million of dollar. RE-ENGINEERING OPERATIONS Actually, OEMs is a best approach to reduce the total lead time and reduce the inventory as well, therefore, they should more concentrate on this market. Charles J. asserts that †manufacturers can obtain the largest decreases in lead times through _re-engineering operations.†_ Many new terms describe the re-engineered production methods that companies are adopting, for instance Just-In-Time manufacturing, lean/agility manufacturing. And there are two major benefits gain from re-engineering operation, Company can use the short lead times to drive down its costs as well as generate increased sales. Nevertheless, before implement this approach, it’s very important to synchronize and standardize the technological standard so as to transfer the high technical product line to the emerging market. Q 3. COMPARISON AND CONTRAST THE GLOBAL OPERATIONS BETWEEN MICHELIN AND BRIDGESTONE Michelin is a French company and Bridgestone is a Japanese company, both of them also got award in the Fortune global 500 in 2006, former ranked in 335, and latter ranked in 245. Nonetheless, if based on the market share, Bridgestone is currently ranked as the second company in the global tire market, Michelin is the first. GLOBAL STRATEGY The global strategy in both companies is very similar; they also serving two major markets in the worldwide: Original Equipment Market (OEMs) and  Replacement market. In the previous stage, they strengthen their operation in domestic market (France and Japan) and gradually access into the different countries and the production belt shifting from host countries to new areas. Owing to penetrate the advanced-market such as United-state, Michelin acquires a U.S. tire manufacturers B.F. Goodrich in 1988 and Uniroyal Company in 1990. Meanwhile, Bridgestone acquires the second largest tire manufacturer in United States in 1988 and acquires a US-based Bandag, Inc., in recently. They can directly grab a part of market share in U.S. market, and achieved a synergy effect. To allow an effective to implementation of the global operation, Michelin have establish 11 specialized group services to make sure that they are consistent on a global scale, meanwhile, Bridgestone also have 8 strategic business units (SBUs) to support their global operation, Each SBU has substantial autonomy to focus on satisfying customer needs within the policy framework. GLOBAL SUPPLY CHAIN Michelin is adopts a global sourcing strategy in the upstream of the supply chain, in contrary, Bridgestone adopts vertical integration with the raw-materials suppliers and maintain the sources steadily. In the sales networks, there are totally different; Michelin through dealer to sale the products, and Bridgestone combines dealer operations together with company-owned facilities, and acquires Bandag, inc., to capture the global network of about 850 franchised dealers in over 86 countries. However, in the distribution network, Michelin have outsourced the U.S. distribution operation to TNT and layoff the own-DCs in 2004, it can reduce the cost directly. LOCATION OF PRODUCTION AND THE TARGET MARKETS The global distribution network is very sophisticated in both companies, and  there are the comparisons between two companies. The target markets also focus on six geographic areas; however, there is little bit difference. Because Bridgestone is a Japanese company, therefore, the domestic market (Japan) capture a great deal of percentage of their total sales, in contrary, the total sales of Michelin have 49% is account for Europe’s business. Generally, their geographic coverage is almost similar, it covering Europe, Japan, North America, South America, Asia Pacific, China, Africa and the Middle-East. In Michelin, the Group’s growth in Asia will be significant, and along with the increase volume in demand and they have ability to enhance industrial performance at their plants to achieve cost reduction. But in the Bridgestone, they increase the capital investment in Europe and increase the production capacity in strategic product line while keen to develop in the emerging markets. PRODUCTS DIFFERENCE Michelin represents a leader of advanced technologies in safety, energy efficiency, as well as environmental friendliness. Also, they have offering a tour guide books and online mapping services. In contrary, Bridgestone is emphasis on high-value added products and it’s divided into two types of products, Tires and Diversified Product. Tires account for 80 % of sales in 2006 and the rest is the others. _CONCLUSION_ Michelin based on persistent strong brands, quality and services, to pursuing a targeted growth strategy that is worldwide, until now, the global footprints has been significant increased, as a leader in an advanced technological and providing high quality products, Michelin need to balance and co-ordination their operation between industrial base countries and the emerging countries for the purposes to maintain a sustainable competitive advantages. In the emerging market, with the sharply increase growth in the replacement sector, Michelin need to concentrate on this sector as well as increase the productivity to fulfill the large volume in demand, meanwhile, the supply chain performance always is a critical element to achieve the cost reduction as the main objectives in Michelin in recent years is focus on raising their productivity and implementing the cost reduction programs, it enable sufficient to compensate for any sharp increases in raw material costs. Last but not least, it’s recognized that that, Michelin is a very successful tire manufacturer in providing a high quality products and which are beyond to its value. _REFERENCES_ Martin Christopher (2005), 3rd Ed † Logistics and Supply chain management creating Value-adding Networks† Great Britain: Person Education Limited 2005, p194,p212-213,p235 Geoff Buxey, Deakin University, Geelong, Victoria, Australia (2000) † Strategic in an era of global competition† International Journal of Operaions & Production Management, Vol. 20 NO. 9 2000, pp. 997,1003 Vollmann/Berry/Whybark/Jacobs( 2005), 5th Edition † Manufacturing Planning and Control for Supply Chain Management† McGraw-Hill/Irwin: The McGraw-Hill Companies, Inc., p.20-21 Porter, M. (1985) _Competitive Advantage_, Free Press, New York, 1985. Steermann, H (2003) â€Å"A practical look at CPFR: the Sears – Michelin experience.† _Supply Chain Management Review_, July/ august 2003, pp. 46-53. Fisher, M. L. (1997). â€Å"What is the right supply chain for your product?† _Harvard Business Review_ (March-April 1997), p.105-116. Donald F. Wood Anthony P. Barone, Paul R. Murphy, Daniel L. Wardlow (2002) International Logistics 2nd Edition. AMACOM: American Management Association p.368-371 Huang, S.H., M. Uppal, (2002), â€Å"A product driven approach to manufacturing supply chain selection† _Supply Chain_ 11 _Management: An International Journal_, Vol. 7, No. 4, pp. 189-200. The Michelin group, Annual Report of Michelin in 2006, pP.4,5,8,16,20,22,25,26, 31-36,43, 49,61 The Bridgestone Group, Annual Report of Bridgestone in 2006, pp. 1, 2-7, 10, 13-15, 18-20 Fortune Global 500, 2006. From the July 24, 2006 issue [online] Available at: http://money.cnn.com/magazines/fortune/global500/2006/full_list/ [Accessed 5th November 2007] Charles J. Murgiano (no date) Short Lead Times = Tall Profits [online] Available at: http://www.waterloo-software.com/leadtime.html [Accessed 7th November 2007] Thomas A. Foster (2004) The Trends Changing the Face of Logistics Outsourcing Worldwide [online] Available at: http://www.supplychainbrain.com/archives/06.04.3pl.htm?adcode=90 [Accessed in 8th November 2007] Neil Shister (2007) Manufacturer of the Year for Global Supply Chain Excellence [online] Available at: http://www.worldtrademag.com/CDA/Articles/Cover_Story/BNP_GUID_9-5-2006_A_10000000000000095846 [Accessed in 11th November 2007] _Koo, Sunglim(2005) Tire industry strategy [online] Available at:_ _http://www.kumhotire.com/download/TireIndustryStrategy_Aug05.pd f_ [Accessed in 20th October 2007] Bob Ulrich (2007) What vehicles? O_E tires stole the show in Cleveland_ [online] Available at:http://www.moderntiredealer.com/t_pop_pdf.cfm?link=research/April%20OE.pdf [Accessed in 18h November 2007] Africa, the Middle-East, South America and Asia Pacific 16% Europe 49% North America 35% Donald F. Wood Anthony P. Barone, Paul R. Murphy, Daniel L. Wardlow (2002) †International Logistics †2nd Edition. AMACOM: American Management Association p.368-371 US-based Bandag, Inc., a leading manufacturer of tire retreading materials and equipment.

Indian Auto Industry

The Indian Mid-Segment Passenger Car Industry Nitin Gupta* and Vaibhav Shekhar** The Indian automobile industry is one of the fastest growing automobile industries in the world. The low penetration level of cars in India coupled with rise in the disposable income of its working population has made it an attractive destination for global automobile manufacturers. This case deals with the mid-size car segment of the passenger car industry in India. In 2009-10, this segment accounted for approximately 12. % of the total passenger cars manufactured in India and its Year-on-year (YoY) growth rate was approximately 15%. The major players in this segment include Tata Motors, Maruti Suzuki, Hyundai Motors India, Ford India, General Motors India, Honda Siel India, Mahindra-Renault and Hindustan Motors. In addition to the existing players, various new players like Volkswagen, Nissan, Fiat, etc. , have either already entered in this segment or are about to enter. The case highlights various iss ues being faced by current as well as new entrants in this segment. The case provides exhaustive contemporary data on the mid-size car segment of the passenger car industry in India. Analysis of the case can be done using Porter’s five forces model. Many people buy compact cars today because they do not have the money to buy a sedan. So there is a high aspirational value attached to mid-size cars and newer cars at lower prices will only make more people think of buying them. – Pradeep Saxena, Head of the Auto Research Division at Consultancy Firm TNS1 Introduction Automobile Industry is considered to be one of the key sectors of any economy; it is capable of being the driver of economic growth because of both its backward as well as forward linkages with other sectors of the economy. According to the Automotive Mission Plan (2006-16), India is one of the fastest growing automobile industries in the world. The sector’s share in Gross Domestic Product (GDP) rose from 2. 8% in fiscal year 1992-93 (April 1992-March 1993) to 5% in fiscal year 2005-06 2 and it has been rising every year since then. In the year 2009-10, Indian automobile industry produced more than 2 million passenger cars and more than 0. 5 million commercial vehicles. 3 According to the Eleventh Five Year Plan4 (2007-12), after liberalization in 1991, Indian * ** 1 2 3 4 Assistant Professor, IBS, Hyderabad, Andhra Pradesh, India. E-mail: prof. [email  protected] com Research Scholar, IBS, Hyderabad, Andhra Pradesh, India. E-mail: vaibhav. [email  protected] com http://timesofindia. indiatimes. com/articleshow/2888603. cms http://www. oppapers. om/essays/India-Automobile-Industry/155618 Society for Indian Automobile manufacturers, available at http://www. siamindia. com/upload/AMP . pdf Report by the Working Group on Automotive Industry, Eleventh Five Year Plan (2007-12), Department of Heavy Industries, Ministry of Heavy Industries and Public Enterprises, India (August 2006). The IUP Journal of Business Strategy, Vol. VII, No. 3, 2010  © 2010 IUP All Rights Reserved. . 60 Automotive Industry had registere d a spectacular growth of 17% during five fiscal years ranging between 2000-01 and 2005-06. Till 2002-03, it had achieved an investment of INR6 50,000 cr (US$10. 99 bn7) which went up to INR 80,000 cr in 2007 (US$17. 58 bn8) with a turnover of INR 165,000 cr (US$36. 26 bn). Moreover, an investment worth INR 35,000 cr (US$7. 69 bn) was in the pipeline. 9 According to the Annual Report (2007-08) of Ministry of Heavy Industries and Public Enterprises, Government of India, India is the second largest two-wheeler manufacturer in the world, fifth largest commercial vehicle manufacturer in the world, largest manufacturer of tractors in the world and fourth largest passenger car market in Asia. This achievement of the Indian automotive industry could be attributed to the Indian government’s decision to de-license the sector followed by up to 100% foreign direct investment through automatic route which enabled the industry to embark on a new journey since 1991. The above initiatives resulted in setting up of manufacturing facilities by major global players. It resulted in the massive enhancement of the production level of automobiles (which included passenger vehicles, commercial vehicles, two wheelers and three heelers) from 2 million in 1991 to 11. 17 million vehicles in 2008-09. 10 The above measures taken by the Indian Government made India the new launch pad for global car manufacturers like Honda, Ford, Hyundai, General Motors, etc. Rising level of income of the Indians, availability of easy credit facility, relaxations in regulations by the Indian government in terms of import tariffs and equity regulations could be attributed as major reasons for this upsurge. The case concentrates on the mid-size car segment in India. It analyzes the reasons for the growth of this segment and the contemporary growth trends that it shows. The important issues that the case raises are: How is the impact of various external factors shaping this segment and what would be the future of this segment? Mid-Size Car Segment in India A mid-sized car11 is referred to as an automobile whose size lay between a small-sized car (Mini and Compact) and a full-sized car (Premium and Luxury). 12 It is generally priced between INR 3 lakh13 (US$6,953. 41) and INR 8 lakh (US$17,582. 2) with a carrying capacity of 4 passengers (2 adults and 2 children). The major players in this segment include Tata Motors, Maruti Suzuki, Hyundai Motors India, Ford India, General Motors India, Honda Siel India, Mahindra-Renault and Hindustan Motors (HM). Between the financial years, 2004-05 and 2009-10, the production of passenger vehicles in India rose from 1,027,858 units to 2,078,392 units, a phenomenal rise of more than 100% in production in just fi ve years. But during the same time period (2004-05 to 2009-10), the 5 6 7 8 10 11 12 13 Indian Automotive Industry includes Automobile Industry and Auto Component Industry. INR = Indian Rupee. Exchange Rate: 1 US$ = INR 45. 50 (applicable as on March 20, 2010). Figures of 2007 has been taken from Annual Report 2007-08, Ministry of Heavy Industries and Public Enterprises, Government of India. Figures as on 2006-07. Source: Annual Report 2007-08, Ministry of Heavy Industries and Public Enterprises, Government of India. http://www. ibef. org/industry/automobiles. spx Refer to Appendix for details on classification of passenger cars. http://auto. indiamart. com/cars/mid-size-cars. html 1 lakh = A Hundred Thousand. 61 The Indian Mid-Segment Passenger Car Industry production of the mid-size cars could not keep pace with the massive increase in the passenger vehicles in India and it increased by just 40. 5% (see to Table 1). As a result, the share of mid-size cars with respect to the total passenger vehicles produced dropped from more than 18% in 2004-05 to less than 13% in 2009-10 (see Table 2). Table 1: Total Production of Passenger Vehicles in India Indicator Total Production Total Mini Cars Production Total Compact Cars Production Total Mid-Size Cars Production Total Executive Cars Production Total Premium Cars Production Total Luxury Cars Production MUVs Production Figures in Units 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 1,027,858 1,112,794 1,322,739 127,175 614,137 187,345 26,673 5,017 140 67,371 98,047 714,985 200,019 27,660 5,333 89 66,661 99,400 881,665 212,763 39,478 4,477 249 84,707 ,531,545 1,619,095 2,078,392 81,179 245,972 44,166 5,745 525 105,333 62,323 229,239 33,526 7,527 543 102,128 69,195 263,352 42,293 9,092 375 151,908 1,048,625 1,183,809 1,542,177 Source: Center for Monitoring of Indian Economy: Industry Analysis Services Database Table 2: Segment-Wise Share in Production of Passenger Vehicles in India Indicator Total Mini Cars Production Total Compact Cars Production Total Mid-Size Cars Production Total Executive Cars Production Total Premium Ca rs Production Total Luxury Cars Production MUVs Production Figures in Percentages 2004-05 12. 7 59. 75 18. 23 2. 60 0. 49 0. 01 6. 55 2005-06 8. 81 64. 25 17. 97 2. 49 0. 48 0. 01 5. 99 2006-07 7. 51 66. 65 16. 09 2. 98 0. 34 0. 02 6. 40 2007-08 5. 30 68. 47 16. 06 2. 88 0. 38 0. 03 6. 88 2008-09 3. 85 73. 12 14. 16 2. 07 0. 46 0. 03 6. 31 2009-10 3. 33 74. 20 12. 67 2. 03 0. 44 0. 02 7. 31 Source: Center for Monitoring of Indian Economy: Industry Analysis Services Database A sign of growing economy in India is that since 2004-05 the sale of passenger vehicles always exceeded the production of passenger vehicles (except in the year 2007-08) (refer to Tables 1 and 3). Between 2004-05 and 2009-10, the sale of passenger vehicles also showed phenomenal growth of more than 100% (refer to Table 3). Of the total vehicles sold between 2004-05 and 2009-10, the share of mid-size cars dropped from just less than 20% to just over 14% (refer to Table 4). These trends have begun to cause substantial worry among the producers of the mid-size cars and they have started to explore the factors that are influencing such a trend. 62 The IUP Journal of Business Strategy, Vol. VII, No. 3, 2010 Table 3: Total Sales of Passenger Vehicles in India Indicator Total Car Sales Total Mini Car Sales Total Compact Cars Sales Total Mid-Size Cars Sales Total Executive Cars Sales Total Premium Cars Sales Total Luxury Cars Sales MUV Figures in Units 2004-05 1,047,109 124,447 617,837 206,888 25,646 5,876 155 66,260 2005-06 1,119,657 1,00,422 7,00,046 217,849 27,529 6,261 91 67,459 2006-07 1,353,574 96,103 890,504 235,355 40,964 5,978 249 84,421 2007-08 2008-09 2009-10 1,516,716 1,659,777 2,120,366 87,003 249,152 42,195 6,209 862 101,871 63,992 271,662 33,641 9,042 1,093 107,767 69,004 299,175 46,686 11,455 1,265 151,869 1,029,424 1,172,580 1,540,912 Source: Center for Monitoring of Indian Economy: Industry Analysis Services Database Table 4: Segment-Wise Share in Sales of Passenger Vehicles in India Indicator 2004-05 Total Mini Car Sales Total Compact Cars Sales Total Mid-Size Cars Sales Total Executive Cars Sales Total Premium Cars Sales Total Luxury Cars Sales MUV 11. 88 59. 00 19. 76 2. 45 0. 56 0. 01 6. 33 2005-06 8. 97 62. 52 19. 46 2. 46 0. 56 0. 01 6. 02 Figures in Percentages 2006-07 7. 10 65. 79 17. 39 3. 03 0. 44 0. 02 6. 24 2007-08 5. 74 67. 87 16. 43 2. 78 0. 41 0. 6 6. 72 2008-09 3. 86 70. 65 16. 37 2. 03 0. 54 0. 07 6. 49 2009-10 3. 25 72. 67 14. 11 2. 20 0. 54 0. 06 7. 16 Source: Center for Monitoring of Indian Economy: Industry Analysis Services Database The major players in the mid-size segment of the passenger car industry in India has seen lot of upheaval between 2004-05 and 2009-10. As far as production figures, in 2004-05 are concerned, Tata Motors emerged as the market leader with the production of 41,103 u nits. It was closely followed by Honda Siel, Maruti Suzuki and Hyundai Motors. But, by 2009-10, Tata Motors not only lost its leadership position, it was nowhere near the top three players as far as the production of mid-size segment passenger cars in India were concerned. With the production of 99, 877 units or nearly 38% of the total mid-size cars produced in India, Maruti Suzuki had taken over the market leader’s position in this segment. It was followed by Hyundai Motors and Honda Siel (refer to Tables 5 and 6). Sales figures of mid-size segment passenger cars showed a completely different scenario from what was seen at the production front. In 2004-05, Ford India was the market leader with sales of 47,431 units, which translated into a market share of nearly 23%. It was The Indian Mid-Segment Passenger Car Industry 63 Table 5: Company-Wise Production of Mid-Size Cars in India Indicator Ford India Pvt. Ltd. Production Mid-Size Cars (4001-4500 mm): General Motors India Pvt. Ltd. Production (Mid-Size Cars) Hindustan Motors Ltd. Production (Mid-Size Cars) Honda Siel Cars India Ltd. Production (Mid-Size Cars) Hyundai Motor India Ltd. Production (Mid-Size Cars) Maruti Suzuki Ltd. Production (Mid-Size Cars) Tata Motors Ltd. Production (Mid-Size Cars) Mahindra Renault Pvt. Ltd. Production (Mid-Size Cars) Figures in Units 2004-05 25596 11036 14371 33036 30712 31491 41103 NA 2005-06 25294 4202 14909 37924 42288 31062 44247 NA 2006-07 39431 10337 12456 40147 41071 30465 37625 580 2007-08 33139 5574 10797 41901 47040 50596 30272 26653 2008-09 22439 2858 6940 36840 58873 73928 12957 14404 2009-10 28062 3832 9063 45980 46741 99877 23572 6225 Source: Center for Monitoring of Indian Economy: Industry Analysis Services Database Table 6: Company-Wise Share in Production of Mid-Size Cars in India Indicator Ford India Pvt. Ltd. Production Mid-size cars (4001-4500 mm): General Motors India Pvt. Ltd. Production (Mid-Size Cars) Hindustan Motors Ltd. Production (Mid-Size Cars) Honda Siel Cars India Ltd. Production (Mid-Size Cars) Hyundai Motor India Ltd. Production (Mid-Size Cars) Maruti Suzuki Ltd. Production (Mid-Size Cars) Tata Motors Ltd. Production (Mid-Size Cars) Mahindra Renault Pvt. Ltd. Production (Mid-Size Cars) Figures in Percentages 2004-05 13. 66 5. 89 7. 67 17. 63 16. 39 16. 81 21. 94 NA 2005-06 12. 65 2. 10 7. 45 18. 96 21. 14 15. 53 22. 12 NA 2006-07 18. 54 4. 86 5. 86 18. 88 19. 31 14. 33 17. 69 0. 27 2007-08 13. 47 2. 27 4. 39 17. 03 19. 12 20. 57 12. 31 10. 84 2008-09 9. 79 1. 25 3. 03 16. 07 25. 8 32. 25 5. 65 6. 28 2009-10 10. 66 1. 46 3. 44 17. 46 17. 75 37. 93 8. 95 2. 36 Source: Center for Monitoring of Indian Economy: Industry Analysis Services Database 64 The IUP Journal of Business Strategy, Vol. VII, No. 3, 2010 followed by Tata Motors, which had a market share of 19. 5%. Honda Siel was at the third position with market share of around 16%. Just five yea rs down the line, in 2009-10, Maruti Suzuki took the coveted position of the market leader with market share of more than 33%. Tata Motors continued to enjoy the second position (market share = 19. 23%), followed by Hyundai Motors (Market Share = 16. 2%) (refer to Tables 7 and 8). Ford India tumbled from the first spot in 2004-05 to the fifth spot in just five years. This shows the increasingly dynamic nature of the mid-size segment of the passenger car industry in India. Table 7: Company-Wise Sales of Mid-Size Cars in India Indicator Ford India Pvt. Ltd. Sales Mid-Size Cars (4001-4500 mm): General Motors India Pvt. Ltd. Sales (Mid-Size Cars) Hindustan Motors Ltd. Sales (Mid-Size Cars) Honda Siel Cars India Ltd. Sales (Mid-Size Cars) Hyundai Motor India Ltd. Sales (Mid-Size Cars) Maruti Suzuki Ltd. Sales (Mid-Size Cars) Tata Motors Ltd. Sales (Mid-Size Cars) Mahindra Renault Pvt. Ltd. Sales (Mid-Size Cars) Figures in Units 2004-05 47,431 10,650 14,609 32,767 29,828 29,702 40,454 na 2005-06 43,154 4,710 14,893 37,586 41,683 32,006 43,363 na 2006-07 62,808 10,726 12,334 40,489 39,003 29,781 39,462 0 2007-08 31,569 5624 11,005 40,550 48,171 49,402 36,859 25,891 2008-09 23,927 3,010 7,098 38,284 56,538 76,039 51,732 15,034 2009-10 28,004 3,874 9,039 45,082 49,412 99,854 57,532 6,332 Source: Center for Monitoring of Indian Economy: Industry Analysis Services Database What is interesting to note is that just eight players are active in this segment, though the intense rivalry is limited to the top four or five players only. More and more international players like Volkswagen, Renault (without Mahindra and Mahindra (M&M)), Skoda and Fiat are introducing their products in this segment. This indicates a further increase in the intensity of the competition among the existing and the new players in the near future. To survive in such a highly competitive scenario, the existing players in the mid-size passenger cars segment will be forced to invest a considerable portion of their sales in research and development in order to produce new and better variants. This will be greatly beneficial for the Indian consumers. Indian Passenger Car Industry – An Attractive Destination According to the Indian Commerce Minister Kamal Nath, India is an attractive destination for global automobile manufacturers despite not having any specific trade The Indian Mid-Segment Passenger Car Industry 65 Table 8: Company-Wise Share in Sales of Mid-Size Cars in India Indicator Ford India Pvt. Ltd. Sales Mid-Size Cars (4001-4500 mm): General Motors India Pvt. Ltd. Sales (Mid-Size Cars) Hindustan Motors Ltd. Sales (Mid-Size Cars) Honda Siel Cars India Ltd. Sales (Mid-Size Cars) Hyundai Motor India Ltd. Sales (Mid-Size Cars) Maruti Suzuki Ltd. Sales (Mid-Size Cars) Tata Motors Ltd. Sales (Mid-Size Cars) Mahindra Renault Pvt. Ltd. Sales (Mid-Size Cars) Figures in Units 2004-05 22. 93 5. 15 7. 06 15. 84 14. 42 14. 36 19. 55 NA 2005-06 19. 81 2. 16 6. 84 17. 25 19. 13 14. 69 19. 91 NA 2006-07 26. 70 4. 56 5. 24 17. 21 16. 58 12. 66 16. 78 0 2007-08 12. 67 2. 26 4. 42 16. 28 19. 33 19. 83 14. 79 10. 39 2008-09 8. 81 1. 11 2. 61 14. 09 20. 81 27. 9 19. 04 5. 53 2009-10 9. 36 1. 29 3. 02 15. 07 16. 52 33. 38 19. 23 2. 12 Source: Center for Monitoring of Indian Economy: Industry Analysis Services Database agreements in this regard. 14 This is because there is an extremely low penetration level of cars in India (7 cars per thousand). 15 In addition, majority of the Indian population consists of youth having a median age of approximately 25 years16 and the population that fell in the working age g roup is 58% (approximately) which is estimated to increase to around 60% in the future. 7 This indicates an increase in the disposable income, which is likely to raise the penetration level of cars in India (as is evident from the current trend in the passenger car production and sales in India). These developments have made India an attractive destination for the global automobile companies. Auto majors18 like Ford, Honda, Hyundai, etc. , have not only entered into the mid-size segment of the Indian Passenger car industry but has also set up their manufacturing base in India. India’s liberal policy in terms of regulation has lowered the entry barriers for new entrants in the mid-segment of the passenger car industry. This has induced severe competition marked by high aspirations and new launches by existing players like M&M, which in tie up with French car manufacturer Renault has launched Logan. Since this offering is not doing very well in the Indian market, Renault has decided to introduce new model of cars in India on its own, without any partner. Ford India is 14 15 16 17 18 http://www. surfindia. com/automobile/industry-investment. html Auto Motive Mission Plan (ibid). https://www. cia. gov/library/publications/the-world-factbook/geos/in. html#People http://populationcommission. nic. in/facts1. tm (Here the working age is considered between 15 years to 60 years), Figures as in 2001. Center for Monitoring of Indian Economy: Industry Analysis Services Database. The IUP Journal of Business Strategy, Vol. VII, No. 3, 2010 66 targeting to improve its position through aggressive marketing and by increasing its investment in manufacturing. 19 Moreover the existing players like Tata Motors, Maruti and Fiat are also planning to launch new models in this segment. 20 Intensifying the competition, Fiat India has launched Linea and Grand Punto in the Indian mid-size car segment. The Indian Customers A study on Indian consumers, conducted by Mckinsey Global Institute, 21 discusses the income level of the Indian consumers with the growth in the Indian economy. The report predicts that if India’s growth continues unabated, then the rise of over 291 million people over desperate poverty line by 2025, will make it the fifth largest consumer market in the world. 22 Moreover, the reports forecast a massive rise in the number of Indian middle-class to 583 mn by 2025. The report also discusses a rise in the average household disposable income from INR 113,744 (US$2,499. 7) in 2005 to INR 318,896 (US$7008. 70) by 2025. These results indicates a rise in the consumption level of the Indian consumers and shift in the consumption pattern from necessities towards discretionary consumption which include expenditure on transportation in the form of passenger cars. The findings of the report also reveal a change in spending habits of the rich urban households which con verges with that of their counterparts in developed countries and their priority expenditure includes purchase of branded apparels, foreign vacations and purchase of passenger cars. Other reasons (apart from economic growth) cited by the report include availability of easy consumer financing, tendency of the people to rely more on their personal vehicles and reduction in the prices of the passenger cars. Population commission report indicates that majority of the Indian population consists of youth with increasing disposable income. 23 According to the findings of CSMM-BW Customer Survey 2006-07, Indian consumers are discerning and are of highly demanding nature, which make them a tough nut to crack for the marketers. 4 The survey measures the attitude of the Indian customers towards various companies using two key dimensions viz. Customer Experience (how the customers rate the firm’s performance) and Customer Loyalty (extent of customer’s goodwill a firm enjoys) covering 16 products and services. The results of the survey reveal the rising expectations of the Indian consumers which the marketers are finding difficult to meet on a consistent basis. The above result is attributed to the churn that has taken place post liberalization in the Indian economy. 19 20 21 22 23 24 http://www. hinduonnet. om/businessline/2000/06/24/stories/192402fr. htm http://auto. indiamart. com/cars/mid-size-cars. html www. scribd. com/doc/47945/McKinsey-MGI-india-consumer-full-report Desperate poverty has been defined in the study as people with an annual income of less than INR 90,000 (US$1850. 33). Source: http://populationcommission. nic. in/facts1. htm (Here the working age is considered between 15 years to 60 years), Figures as in 2001. Customer Satisfaction Management and Measurement (CSMM) A Specialized Unit of Market Research Firm IMRB International (BW – Business World): Marketing White Book 2001-08). 7 The Indian Mid-Segment Passenger Car Industry The report also discusses about the availability of new and better choices for Indian consumers due to opening up of the Indian economy post liberalization. This development, according to the report, coupled with increase in their income level is the major reason for the rise in consumer expectations about various products and services that they purchased. The inability of the marketers to meet their customers’ expectations and the availability of newer and better alternatives could be seen as one of the ajor reasons for the decline in consumer loyalty towards various players operating in the market. Rising disposable income of the working population and increase in the number of car models introduced by different companies operating in India, has increased the array of choice for the Indian consumers. With new players entering into the lucrative Indian domestic market and with the current players introducing new models in different segments, the bargaining power of the Indian customers is increasing. This has resulted in a decline in consumer loyalty towards a particular player. In order to compete in the Indian market, car-makers need to manufacture and sell products that carry the highest customer value. To achieve this goal, they need to provide European-quality cars at Asian prices. Price is cosidered as the crucial selling point in the market. 25 However, rise in the purchasing power of the Indians, increasing competition in the Indian market, stress on driving comfort and life-cycle costs (especially costs related to fuel) are also becoming important factors for potential car buyers in India. The Indian Auto Component Industry The Indian auto component industry, apart from IT industry, is believed to have the potential to be globally competitive. Robust growth in the Indian automobile industry seems to have triggered an upsurge in the Indian auto component industry. The Indian automotive component industry supports the automobile manufacturers by supplying them with automobile parts like engine parts, electrical parts, brakes, steel equipments, etc. It is characterized by the presence of around 500 organized manufacturers and 1,000 unorganized manufacturers. 6 Similar to the passenger car industry, the Indian auto component industry too has witnessed a robust growth between 1995 and 2005, which has made it one of the fastest growing industries in India having achieved a growth rate of 28% during the period ranging between 1995-98, 24% in 2003, 16% in 2004 and 15% in 2005. 27 This trend is expected to continue in the future as well. The Automotive Mission Plan (2006-16) reports that the turnover achieved by Indian auto-component industry would be over US$14 bn in 2005-06 and US$16 bn in the financial year 2006-07. 8 The supreme capability of Indian auto manufacturers is evident, from the launch of indigenized passenger vehicles like Tata Indica, Tata Nano, Mahindra Scorpio, etc. , by various Indian automobile players. Moreover, global auto majors like Ford 25 26 27 28 Source: http://findarticles. com/p/articles/mi_m0KJI/is_3_118/ai_n16118939 Report by the working group on Automotive Industry, Eleventh Five Year Plan (2007-2012), Department of Heavy Industries, Ministry of Heavy Industries and Public Enterprises, India (August 2006). According to ACMA – Mckinsey Vision 2015, the industry has reported a growth rate of 20% between 2000-05. According to ACMA – Mckinsey Vision 2015. The IUP Journal of Business Strategy, Vol. VII, No. 3, 2010 68 Motors, Honda Siel, Hyundai Motors, etc. , are also setting up their manufacturing base in India. They are leveraging the support of high quality auto component supplier’s base in India in order to reduce their cost of production. 9 The presence of high quality component suppliers is one of the major reasons for global majors for setting up manufacturing facilities and make India their export hub. The potential for the Indian auto component industry, according to The ACMAMcKinsey Vision 2015 document is estimated to be US$40-45 bn by 2015. 30 India’s auto component industry had the capability to manufacture the entire range of autocomponents, such as engine parts, drive, transmission parts, suspension and braking parts, electrical parts, body and ch assis parts, with engine parts making nearly a third of all exports. Therefore, the contribution made by exports is likely to play a significant role in achieving the aforesaid potential, which is evident from the fact that the industry achieved growth rate (in exports) of 25% during 2000-05 and is expected to grow at 34% during the following decade. 31 Availability of a Wide Array of Choices for the Indian Customers Compact cars have emerged as a dominant player (refer to Table 4) in the Indian passenger car industry controlling more than 60% of the units sold in the last five years. 32 The sales of the small car (particularly compact size cars) in India has exceeded the sales of cars in any other segment. So the biggest threat in terms of substitutes for the mid-sized cars is the small cars especially the compact size cars. With the coming of Tata Nano, which is priced at about US$2500-US$2800 per unit, the threat from the small cars was expected to be further magnified. The booming market of passenger cars in India was facing threat from a multitude of factors, one of them being the Multi-Utility Vehicles (MUVs) (refer to Table 9). The MUVs, as the name suggests, are the vehicles with multi-usage capabilities. Popular especially with the large families, the concept of a MUV no doubt has many takers Table 9: Increase in Sales of MUVs Between 2004-05 and 2009-10 Years Total Units of MUVs Sold Percentage Increase 2004-05 180,865 – 2005-06 198,991 10. 02 2006-07 224,705 12. 92 2007-08 251,567 11. 95 2008-09 228,655 –9. 11 2009-10 275,556 20. 51 Source: Center for Monitoring of Indian Economy: Industry Analysis Services Database 29 30 31 32 Ford India awarded Q1supplier status to 10 suppliers to help them export their products to Ford worldwide. Reported by a report on Indian automotive industry by Indian Brand Equity Foundation- http://www. ibef. org/ download/Automotive_sectoral. pdf) http://www. ibef. org/industry/autocomponents. aspx According to ACMA-McKinsey vision 2015, exports by auto components manufacturers are expected to contribute 50% of their growth (http://www. ibef. org/industry/autocomponents. aspx) Compact cars and mini cars have been taken together and are consi dered to be part of small cars. 69 The Indian Mid-Segment Passenger Car Industry in India. All the leading automobile players in India, including the indigenous ones such as the Tata Motors, HM, M&M as well as the foreign ones are expanding their presence in the MUV segment of the Indian automobile market. MUVs with their multi-usage potentiality has been able to gain immense popularity in India. In the recent years many of the automobile companies have engrossed themselves in the manufacturing of MUVs, eying the huge potential market in India and abroad. Automobile firms such as the likes of Maruti Udyog, Tata Motors, M&M and HM have come up with some of the finest models of MUV. HM, one of the oldest auto makers in India, has launched MUVs like Pajero, Pushpak, and Trekker, in the Indian market, with technical collaboration with foreign automakers. 33 The first two could not make substantial headway in the markets while the Trekker is getting some semblance of popularity in the rural pockets of the country. M&M too has come up with a range of MUVs like Mahindra Voyager, Mahindra Hard Top Range, Mahindra CL Range and variants of Mahindra MM Range comprised the MUVs from the M&M stable. Mahindra Scorpio, an SUV (Sports Utility Vehicle) that had been conceptualized and designed by automotive division of M&M, has been quite successful not only in India but also in other countries like Russia, France, Spain, and Portugal. 34 This success could be attributed to its contemporary design and technology. An upgraded version of Scorpio known as ‘New Scorpio’ was launched with additional features. Tata Motors has also modified its versions of Tata Safari and Tata Sumo and has come up with its own range of MUVs. Chevrolet, Hyundai, Ford and Toyota, the foreign auto majors too have their own share of MUVs in the Indian MUV segment. Another threat to the passenger car market is that international car rental firms are making a beeline for the Indian shore with almost a dozen car rental brands expected to enter the market soon. 35 Several International players like Hertz, Europcar, Leaseplan and Avis among others have already established their presence in the country, while others like, Thrifty, Dollar, Enterprise and Vanguard’s brands like Almo and National among others are also said to be firming up their Indian plans. This sudden rush to India has been attributed to a slump in the US and European market. However, in spite of being US$2. 4 bn, car rental industry in India is highly unorganized. The market share of organized players in car rental industry is just 3%. 36 However, the industry, on the whole, has been seeing a buoyant growth of about 35-50% in the last two years (ibid). Public transport like buses and railways also form an important means of transportation in the Indian cities especially in t he urban areas. 37 Despite the growth in the number of private vehicle owners in middle income segments in the metro cities, a substantial number of commuters are still dependent on the public transport. Hundred 33 34 35 36 7 Source: http://auto. indiamart. com/hindustan-motors/ http://en. wikipedia. org/wiki/Mahindra_Scorpio Source: http://www. ibef. org/artdisplay. aspx? cat_id=60&art_id=16173 http://economictimes. indiatimes. com/News/News_By_Industry/Dozen_car_rental_brands_to_drive_into_India _soon/ articleshow/2225650. cms http://www. urban-age. net/10_cities/07_mumbai/_reflections/india_Tiwari. html The IUP Journal of Business Strategy, Vol. VII, No. 3, 2010 70 million out of 235 million people living in the Indian cities belong to lower income segment who cannot afford to own a private vehicle. Currently, many state governments have taken up various initiatives regarding improving the intra-city transportation by allowing private operators to run buses within the city, introducing new and better means of transportation like metro rail in Delhi, new buses, investment in road infrastructure like making new roads and widening of existing roads, etc. These initiatives, coupled with increase in the fuel prices, present a potential threat to the sales of the passenger cars. 38 The sales of luxury cars, though not significant in the current scenario, might pose a threat in the future. The average Indian is no longer satisfied with the normal automobile offerings, car enthusiasts wanted to feel precious and pampered and feel the need to enjoy a superior lifestyle. Perhaps these expectations are molding the new class of affluent Indians to possess top brand vehicles, regardless of their prices. In addition, the World Wealth Report 2005-06, published by Merrill Lynch and Capgemini, states that India recorded the world’s second fastest growth at 19. 3% in the number of high net-worth individuals in 2005. 39 Moreover, easy availability of credit financing40 has led to increased demand for bigger and better cars. Foreseeing the Indian market potential, major luxury automakers were setting up their offices in India to cater to the rich people’s fancy for trendy and luxurious cars. Mercedes and BMW have offered products at a starting price of INR 25-30 lakh (US$54,945-65,934), whereas the Maybach has lured the consumers to pay as much as INR 5 cr (US$1,098,901) to drive in the lap of luxury. Other motor giants like Volkswagen, Audi, Lamborghini, Rolls Royce Phantom, Bentley, and Porsche have already joined the luxury car revolution in India. Conclusion The mid-size passenger car segment is currently passing through a dynamic stage. Growth in the Indian middle-class and easy availability of credit coupled with new launches and attractive pricing by the players will ensure its availability and hence will facilitate the growth of this segment. However, what the future holds for it, only time can tell. ? 38 39 40 Figures as on November 2007. www. capgemini. com/industries/financial/solutions/wealth/wwr05_archive www. scribd. com/doc/47945/McKinsey-MGI-india-consumer-full-report 71 The Indian Mid-Segment Passenger Car Industry Appendix Classification of Passenger Cars41 Small Cars or Compact Cars Small cars are classified according to the price range which varies from 1 to 3 lakh. It has the capacity to carry 4 passengers—2 adults, 2 children. These are basically entry level cars which are preferred by service group and middle income group. These cars are manufactured by—Maruti Udyog, Tata Motors and Reva. While companies like Volkswagen, etc. , are yet to launch their models in the market. Mid-Size Cars A mid size car is an automobile with a size between that of compact and full size cars. The price range of mid-size cars is between Rs. to 8 lakh. The mid-size cars have the capacity to carry 4 passengers—2 adults and 2 children. The credit of manufacturing these cars goes to companies like—Fiat India, Ford, General Motors, Hindustan Motors, Hyundai Motors, Maruti Udyog, Tata Motors, etc. Executive Cars An Executive Car segment includes cars that lie between the mid-sized cars and premiu m cars in terms of price (range lies between Rs. 5 lakh to 10 lakh) and seating capacity. It includes cars from major manufacturers like Daimler Chrysler, Hindustan Motors, General Motors, Toyota Kirloskar, Skoda India, Hyundai Motors and BMW. Premium Cars Premium cars fall within the price range of Rs. 7 to 15 lakh. They have the capacity to carry 5 passengers. These cars mainly target higher income group. Premium cars were launched by Audi India, Ford Motors, General Motors, Honda Motors, Hyundai Motors, Skoda Auto, Mitsubishi and Toyota Motors. Luxury Cars Luxury cars are very expensive and their price range is above Rs. 20 lakh. These cars are preferred by the high income group. Luxury cars have the capacity to carry at the most 6 passengers. So far companies like BMW, Daimler Chrysler, Porsche, Rolls Royce, etc. , have introduced these cars in India. Reference # 33J-2010-09-04-01 41 www. auto. indiamart. com/cars (accessed on January 10, 2008). The IUP Journal of Business Strategy, Vol. VII, No. 3, 2010 72 Copyright of IUP Journal of Business Strategy is the property of IUP Publications and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.

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Unit 3 Proposal designs Assignmnet - Essay Example The organization has offices in 19 countries across the world, and this includes Africa, Asia and the Americas. For purposes of achieving efficiency in fighting hunger, this organization developed a multi-purpose food product. This food product is rich in proteins, and is always used a relief food substance. The organization also developed the applied nutrition programs, aimed at improving the health condition of mothers and their children (Karsh and Fox, 2009). The motivating factor that made the organization to tackle problems of hunger and poverty is based on the notion that hunger and poverty limit an individual desire to achieve his or her goals (Freedom From Hunger, 2014). To achieve this objective of fighting hunger and poverty, the organization has introduced five main programs which it believes are useful in fulfilling its mission and objectives. These programs are, saving for change, the malaria initiative, reach initiative, credit with education, and health protection and micro-finance initiative (Freedom From Hunger, 2014). Under Malaria initiative, the organization provides anti-malaria drugs to poor women and their children. It also treats them for free and educates them on how to prevent the emergence of the disease. Under Credit with education, the institution offers small loans to women for purposes of starting small businesses that can make them self-sufficient (Gregory, 2013). Saving for change on the other hand is an initiative aimed at providing financial services to areas where micro-finance institutions cannot reach. The reach initiative on the other hand promotes the development of innovative ideas that can help to fight poverty, while the health and micro-finance protective initiative helps to create health policies that can help improve the health status of the vulnerable (Zunz, 2012). In conclusion, my interest in this foundation stems from the fact that it is concerned with improving the

Role of Parliament in the British Government Essay

Role of Parliament in the British Government - Essay Example Therefore, it is paramount to determine the extent of this influence in the present day context in order to draw relevant conclusions. Most members of the cabinet of Britain sit in the House of Commons (Campbell & Peters 1988, p. 168). This house has been previously criticized for its compositions with a large number of sitting representatives hailing from a single party. This means that the decisions that may be arrived at in many cases may not be representative of the professional opinion of those undertaking the decision but may be reflective of a stance taken by the party rather than the individual representatives. The majority of those in the House of Commons who may be hailing from the same party are also bound to be supportive of the executive’s decisions which may not be in the best interest of democracy. This kind of trend that is reflective of a majority of representatives following the same course and having the same characteristics and backgrounds reflects a very u nhealthy trend in the course of representatives who are in the legislature providing checks and balances to the executive. Discussion In the recent past, there has been an increase in the attempts by the executive to increase controls of measures of parliament. The effects have been that parliament has been compelled to support the decisions that the executive makes. The result has been a dominance of parliament by the executive that has seen the latter’s power wane the executive has become the decision maker in parliament.... 168). This house has been previously criticized for its compositions with a large number of sitting representatives hailing from a single party. This means that the decisions that may be arrived at in many cases may not be representative of the professional opinion of those undertaking the decision but may be reflective of a stance taken by the party rather than the individual representatives. The majority of those in the House of Commons who may be hailing from the same party are also bound to be supportive of the executive’s decisions which may not be in the best interest of democracy. This kind of trend that is reflective of a majority of representatives following the same course and having the same characteristics and backgrounds reflects a very unhealthy trend in the course of representatives who are in the legislature providing checks and balances to the executive. Discussion In the recent past, there has been an increase in the attempts by the executive to increase cont rols of measures of parliament. The effects have been that parliament has been compelled to support the decisions that the executive makes. The result has been a dominance of parliament by the executive that has seen the latter’s power wane. The perception among policy makers, other experts and the public in general has been that the executive has become the decision maker in parliament. Already, this depicts that something is wrong since parliament cannot effectively put checks and controls on the executive while the executive is dominating decision making (Knight 2010, p. 331). Recognition is given to the fact that parliament in Britain does not consist of a single house. Rather, it is constituent of two with the House of Commons

Applied managment & theory - xerox case study Assignment

Applied managment & theory - xerox case study - Assignment Example In order to analyse the change of management in Xerox, it is necessary to adopt many management theories to analyse friction by friction. PEST analysis, comprising of Political, Economical, sociocultural and technological factors, according to which the marketing environment is made up of three aspects, internal environment, micro environment, macro environment etc. The internal environment consists of staff that is also called internal customers, office technology, wages and finance etc. Micro environment is external customers, agents and distributors, suppliers, out competitors etc. Macro environment consists of Political and legal forces, economic forces, sociocultural forces and technological forces etc. PEST is concerned only with the Macro Environment, which is concerned with the production of the company. "The first is efficiency in the production of a given set of outputs. That is, with a given capital stock a given technology and a given set of resource prices, firms should be producing goods and services with a minimum expenditure of the economy's resources," (Cyert, 1988, p.36). Xerox had to overcome many problems while going through Change Management. It could not compete with the Japanese competitors because of high manufacturing cost. Internal culture and leadership suffered due to mindsets bordering towards complacent inertia. But later, leadership went through an immense transformation that led to the present enviable state of the company. It improved the quality of its products and the organisation turned the corner. In 1990s, Xerox introduced digital photocopiers, high-end laser printers with attached scanners and these products made Xerox march ahead of its competitors in this mercurial field. "Xerox worked to turn its product into a service, providing a complete "document service" to companies including supply, maintenance, configuration and user support." http://en.wikipedia.org/wiki/Xerox Xerox created excellent name for itself in the employment front as well. Company received 100% rating on the first Corporate Equality Index from the Human Rights Campaign in 2002. "They have maintained this rating in 2003, 2004, 2005. Xerox has been recognized by a number of other organizations for its diversity leadership as well." Ibid. As far as the political factors are concerned, the political scenario has a very large influence on business. It depends on the stability of the political environment, how could the tax regulation going to affect the company, what could be the Government's stand in marketing ethics, government's economic and industrial policy etc. It also depends on its religious or secular policies and if they are religion oriented enough to disturb other cultures or if there are any regional or international agreements and compulsions. Xerox did not face many problems due to political problems in home country, but it must have faced problems in other countries like Asian Specific countries, and to some extent, in India. "But, according to a recent article (Cordtz, 1974, "Xerox is moving into an awkward agethe company resembles a muscular adolescent who has grown so fast that he finds it difficult to coordinate his newly acquired strength" (page 117)" (Burke, 1977, p.22). In economic factors deal with market trends, economic predictions, theories of long and short term both, international market trend, any upcoming national and

Risk Assessment for Vertex-Speed Ltd. Durham County, UK Essay

Risk Assessment for Vertex-Speed Ltd. Durham County, UK - Essay Example Sunderland won the contract for the Micra with the promise of a 40m government grant. General Motors (GM) manufactures cars in the UK under the name Vauxhall and they also indicate that the strong British pound is making it difficult to see a profit. 5m grants ensured that the new Vectra model was produced in Ellesmere Port. This created 1,200 jobs in that city, but the old Luton plant loss 1,900 jobs when the facility moved to Ellesmere Port. Vauxhall required 5m in government grants for production to occur in the UK and not at the Antwerp, Belgium plant. GM also finds the strong pound a challenge for profitable business. Toyota has two factories in the UK at Burnaston and Deeside with over 3000 employees. The Deeside plant produces car engines. The other car markets doing well are the luxury classes such as Rolls Royce and Bentley, which are not as affected by the varying exchange rates. The UK has over 40 vehicle manufacturing plants with 40 billion of the Gross National Product with the majority of producers being foreign owned. The industry is vital to the UK and means that diversification, expansion and other adaptations are required to compete in a global market Management Focus. The plants closed or consolidated (Luton for example) have provided a method of beginning business for companies that could not afford the start up costs from the ground up (zero based production sites). Vertex-Speed Ltd has seen impressive growth and development in the last twenty years in spite of a changing market and the pound so strong against the Euro. County Durham is an ideal location with cooperation from local governments and a good reputation with consumers. 35% of our production is in the Vertex Gamma, a luxury sedan popular with the executive class. A study was ordered by Vertex-Speed Ltd regarding the feasibility of establishing an automobile factory in either Brazil or Malaysia since the majority of the Gammas produced are exported to Brazil and Malaysia. The move to a horizontally integrated Multinational Corporation (MNC) is a complicated one and many aspects of such expansion must be taken into consideration. The following assessments investigate the political, economic states of Brazil and Malaysia as well as a number of other factors such as the level of corruption and the attitudes toward foreign investors, which could determine whether it is best to consider Greenfield investment or an acquisition. A reliable supply chain and component makers are mandatory and more important than cheap labour costs (Management Focus). Risk Assessment for Brazil Country Risk- Financial Brazil has the largest economy in South America and is a country of contrasts. While not a poor country with

Steps for improvement in future for flipkart Essay Example for Free

Steps for improvement in future for flipkart Essay The e-Commerce market in India has enjoyed phenomenal growth of almost 50% in the last five years. Although the trend of e-Commerce has been making rounds in India for 15 years, the appropriate ecosystem has now started to fall in place. The considerable rise in the number of internet users, growing acceptability of online payments, the more number of internet-enabled devices and favorable circumstances are the key factors driving the growth story of e-Commerce in the country. The number of users making online transactions has been on a rapid growth trajectory, and it is expected to grow from 11 million in 2011 to 38 million in 2015. Flipkart is a leading e-Commerce company which has established itself now as the fastest growing mid-sized company. Backed by a funding of $31 million, the company is set to grow from five warehouses and 35 delivery centers to 35 warehouses and more than 60 delivery centers across the country. But, with wide expansion in various sectors, greater range of challenges also come across. By large, major challenges that the company faces are :- 1. Customer Satisfaction. 2. Market Expansion. 3. Best Economic Use of Funds. Keeping in mind the above challenges, few steps that can be taken by the company to improve upon its brand value in future according to me are :- Making Customer Satisfaction #1 priority In a market where even a single customer plays an important role, it becomes very important to make sure that the customer is treated in the best possible way. But, in practicality, this is very difficult and we have experienced it ourselves. How many times has it happened that you didn’t get your order on time? I guess many!! So, here are 4 key factors that can heavily influence customer satisfaction which need to be taken care of if flipkart wants to keep ahead of its competitors. 1. Accuracy (Right Product): In accordance with Wyatt Earps belief that â€Å"fast is fine, but accuracy is everything†, we can understand the pivotal role that receiving the right product plays in determining customer satisfaction. In a recent survey, approximately one out of every three respondents (29%) said that they would abandon shopping altogether with a retailer if they received one incorrect delivery. This equates not only to one lost customer for life, but combined with the impact of social media and word of mouth, this could seriously impact brand image and performance. Therefore, it is immeasurably important to run multiple accuracy checks, run by multiple employees to reduce the risk of errors. 2. On Time Delivery: According to a survey from Comscore, 42% of shoppers have ABANDONED an online shopping cart because of the delivery date. Communication of the expected delivery date of the order is critical to setting the correct expectation of the consumer. Conversely, 41% of shoppers RECOMMENDED a retailer when they received their product when expected which can lead to increased loyalty and new customers. Speed is crucial to ecommerce operations. The ability to turnaround orders within the same or next day is highly recommended. 3. Order Tracking: has in recent years become a necessity for online retailers with 75% of customers believing it is a service that every retailer should offer. These primarily include email notifications containing a unique tracking number as well as having the ability to check directly on the retailers website for the tracking information whether it is pending, en route or arrived 4. Discounts and Coupons: Many consumers these days come to online shopping sites only because of vast number of discounts and coupons and this can highly influence customer loyalty. According to Comscore, 95% of respondents have recommended a retailer due to the availability of discounts and coupons. Retailers should clearly state their terms and conditions for discounts and coupons on their website so it’s clear to the consumer before they checkout. CHANGING TRENDS IN INTERNET USE The mobile internet user base is growing, aided by the introduction of 3G data plans and declining smartphone prices. Several smartphone models are available at less than Rs. 8000 in the Indian market. Mobile internet users are expected to account for more than 60% of the user base in India, considering that their number is forecast to reach 200 million by 2015. Telecom operators are incentivizing mobile internet usage by reducing tariffs and providing unlimited usage facilities. They are offering unlimited internet browsing plans at a lowly price of Rs. 200 per month to their GSM customers. Within six months of the launch of 3G, the number of connections reached 10 million, closely matching the number of broadband subscribers. UNDERDEVELOPED USER EXPERIENCE The growth of mobile internet is encouraging. However, experience on e-Commerce websites also needs to be improved, since most of these sites are not optimized for use on mobile devices. Furthermore, not all e-Commerce sites have developed mobile apps. Given that an increasing number of people would access internet on their mobile devices, e-Commerce players need to step up and develop mobile websites and apps for major mobile platforms. MAKING YOUR PRESENCE FELT ON 3rd PARTY WEBSITES It is one of the major solutions for your e-Commerce business as you should list your complete range of products on 3rd party sites in order to get more attention and visitors. However, 3rd party shopping sites are highly popular on the web and visited by lots of visitors. Today, there are lots of shoppers, who are visiting these websites in order to compare the products, so it is highly important for you to make your products visible. You always try to make your products as visible as possible so that people come to know about your products and services. When it comes to talk about some popular 3rd party shopping sites, Google shopping, eBay and Buy.com are some most popular sites to increase incremental revenue. ENHANCING PAGE LOAD SPEED Then it comes to enhance page load speed, you should consider pictures and images that you have on your page. However, it is a common problem with e-Commerce websites as the websites have lots of images of products, so this problem is quite difficult to face, but retailers can easily resize their product images and use different formats like .pang that surely help. All the e-Commerce websites try to enhance page load speed so that their customers easily visit their website and load each and every page without nay hassle. Giving what the Indian customers really want and understanding their mindset. ‘Touch and Feel’ factors: Indian customers are more comfortable in buying products physically. They tend to choose the product by touching the product directly. Thereby, Indian buyers are more inclined to do ticketing and booking online in Travel sectors, books and electronics. Companies dealing with products like apparel, handicrafts, jewelry have to face challenges to sell their products as the buyers want to see and touch before they buy these stuffs. Cash On Delivery: Cash on Delivery (COD) has evolved out of less penetration of credit card in India. Most of Indian E-commerce companies are offering COD as one of mode of payment for the buyers. 30%-50% of buyers are also taking advantage of this mode of payment while making purchase of any product and service over internet. COD has been introduced to counter the payment security issues of online transaction, but this mode has been proving to be loss and expensive to the companies. It is seen that majority of the customers denied to make the payment at the time of delivery of the product. Hence, companies tend to lose the sale along with product transit fees. In order to curb the problem of COD, online companies should take some judicial steps; otherwise basic logic behind the ecommerce business will be at risk. Online Transaction: Most of Indian customers do not possess credit card, debit card and net banking system, which is one of the prime reasons to curtail the growth of ecommerce. Nevertheless, in recent years, some of the nationalized banks have started to issue debit cards to all its account holders. Third-party online payment solution China’s leading third-party online payment solution allows individuals and businesses to execute payments online in a secure manner. Its escrow service has made consumers confident about conducting online transactions without being concerned about product delivery and quality. This is because payment is only released to sellers when consumers confirm the delivery of orders. Expansion of market instead of taking market share from the competitors. One more area where flipkart can expand its market is into the Online Travel Market. Some encouraging points of online travel market are :- Indian travel industry among the fastest growing in the world Growth in India’s travel and tourism industry is the second fastest worldwide. According to a Deutsche Bank report, the industry would grow at a CAGR of 10% to reach US$111 billion by 2020. The growth of the services sector (thereby leading to rising household income, an expanding middle class and more inbound and outbound tourism) is responsible for this rapid growth. Decade of air travel The civil aviation sector in India has witnessed favorable developments in the last decade. India is the ninth-largest civil aviation market in the world and is poised to feature among the top five global markets over the next decade. Airline passenger traffic rose rapidly from 59.3 million in 2005 to 162.3 million in 2012. Indians now travelling more†¦ Inbound and outbound travel for both business and leisure has increased. Spending on domestic and international travel by Indian travelers is forecast to touch US$1.4 billion and US$426 million, respectively, by 2013. This has prompted domestic full service carriers and LCCs to expand their networks by offering connectivity to near-shore destinations such as Hong Kong, Singapore, Malaysia, Thailand, Dubai and Nepal, thus aiding in the growth of online travel.

Gregory Framework Of Technology Management

Gregory Framework Of Technology Management There are several technology management models. The Gregory frame work has been proposed in 1995 by M. J. Gregory. This process has been built based on previous work on technology management. There are several elements have been identified previously link to the technology management within organizations. Competence and capability are important to be analyzed within the organization to understand the strength and weakness. They also reflect how well the organization can satisfy the customers and how fast the organization may response the market. According to this analysis, the company can identify the suitable technology strategy. Organization learning is also widely used concept in technology management. RD development and new product introduction are the processes which technology is applied in. Innovation activities are taken to deliver the customer satisfaction. [Gregory, 1995] However, there is no agreed framework for technology management has been proposed. Based on the literature research on previous work and the development of technology management in many companies, Gregory proposed the 5 processes frame work for technology management. The 5 processes have been identified as below: Identification Selection Acquisition Exploitation Protection It aims to identify the suitable technologies can be used now or in the future in the identification phase. The identification will be conducted through a systematic review of existing technology, emerging technology and in-house developed technology. [Leonard, 1992] The information needed in this phase to conduct review includes external drivers, marketing analysis, stakeholder information, and futurology understanding, etc. A group of approaches may be applied here, such as PESTEL. Selection is the process to determine the technology can be developed within the company. The process will be aligned with companys strategy. The criteria in this phase are usually from different sources. Technology audit, SWOT analysis, and RD portfolio analysis are the approaches usually can be used in this process. It aims to find out the suitable method to acquire the technology and applied in the organization in the acquisition phase. There are several means to obtain the technology. Companies may choose to develop the technology by itself by RD activities or organizational learning. They also may choose to collaborate with others as suppliers, or partners. Technology may also be purchased via brokers or licenses, etc. The acquisition means should be considered to be suitable with company strategy by considering the complexity of RD, risk management, and financial limitation, etc. The exploitation process is to convert the obtained technology into the practical production to gain the financial profit. The key point here is to apply the scientific technology into products can gain the maximum profit. Technology fusion is an important concept here to explore new function. The exploitation is the only process in this framework able to generate profit to cover all the technical investment. The protection phase is about how to protect or maintain the knowledge and relative expertise in the manufacturing process. The traditional way to protect the technology is the legal method as licensing or patenting. [Gregory, 1995] This process framework is a general model for technology management to be used in organizations. This process is not a defined model but comes from the process those companies apply the technology. It reflects the routine the management takes to manage technology within the company. The framework also associates all the relative activities which include innovation, product technology, production technology, etc. into the model. This framework also enables the company to align the technological considerations with business strategy. Every process in this framework needs a set of activities and criteria to implement. Thus this framework also enables the management to evaluate the whole processes and manage the relative dimensions. Furthermore, a process-based model can make the technology management process in company visible and transparent. [WMG, 2010] However, few companies may apply this model into their business. The process framework includes a variety of activities in different process and related to different function. But in many companies, the activities have been included in other business process as new product introduction, marketing strategy setting, etc. Thus there is a challenge for companies to apply this model entirely. [WMG, 2010] Holistic approach in technology management Management of technology links engineering, science, and management disciplines to address the planning, development, and implementation of technological capabilities to shape and accomplish the strategic and operational objectives of an organization [National Research Council, 1987] Refer to the definition of technology management, it requires collaboration of the RD, manufacturing, service and operation function, marketing, finance, and HR function in the company. Thus a holistic approach needs to be taken to manage technology in the company. It will be divided to several reasons to explain in below paragraph and what are the benefits. Firstly, technology management involves multi-functions within the organization. In a company, not only engineering department or RD department is responsible for technology management, all the functions within the organization are more or less related to technology. [WMG, 2010] Thus technology management requires a system of integration within the organization. For example, the product development and design process has been considered as a traditional technical activity. Engineers and designers can work individually towards the goals. However, this kind of isolated work can result an unsatisfied output. The engineering department may complain the marketing department for the poor data; the production department may complain engineering department for design need rework. Without crosscutting functions, it will not only raise the cost but also cause the friction between departments. Secondly, technology management requires broad knowledge within the organization as business strategy, marketing, customers, competitors, existing product and service, SWOT, etc. Thus it is important to understand the overall sense to manage technology effectively. Furthermore, it is important to consider technology relative issues with the internal information and external information: how technology may influence the operation within the business; how the limitations and requirements of the business may affect the technical decision. If the technology management cant achieve the system integration, it may lead to products cant meet the markets requirements and customers expectation since the technology management hasnt been associated with marketing activities; project may last for long time with back and forth process because necessary technical information hasnt been input; as well as cost will be increased; company may response to the market slower. Consequently the company may gain fewer profit compare to it could gain. [Steele, 1989] Thirdly, technology is not the isolated content within technology management. The key elements in technology management are management of innovation process, development of technology, technology utilization to obtain profit. [Badawy, 2009] The activities of technology management include development and research; design; manufacturing and operation; organizational learning; technology transfer, etc. Based on this perspective, technology management is not only a process to be applied in RD but in a broad range of functional area. All the activities within technology management are used to align the technology strategy with company strategy. The company structure and business strategy are the important factors to determine the technology strategy. [Pavitt, 1999] The technology strategy may be set to align with companys long-term profitable project or short-term project to compete with other companies on the market. The technology management would consider all the parts inside of the or ganization to ensure it can align with business strategy. Fourthly, Technology is a method instead of objective. [WMG, 2010] Technology can only be applied through a fundamental structure instead of existing alone. [Wyk, 2005] Alternatively, the technology has to be implemented to enable the firms profitability and growth. The process to utilize technology is insisted of a set of cross function activities. Thus the technology would not be existed isolated or developed without business objectives. As above analysis, it can ensure the maximum profitable though a holistic approach in technology management. For example, the operation management aims to drive the whole processes as quick as possible while eliminating mistakes, delays, etc. The effective operation management not only requires the output can satisfy customers but also generates profits to company. A proper technology strategy here can enable the operation processes to proceed faster and effective by avoiding unsuitable product strategy has been processed. Holistic approach can also ensure the output is marketable by avoid the lack of external information, which cause high risk to fail in the market. The holistic approach also can ensure the technology strategy to align with the overall business strategy. Furthermore, it also helps the company to identify the proper way and pace to adopt the technology. The collaboration case study between Sony and Ericsson Nowadays, its very common for companies from different countries and sector to work together. In 2001, a joint venture company Sony Ericsson Mobile communication has been established by a Japanese electronics company Sony Corporation and Swedish telecommunications company Ericsson. [Caroline Sanja, 2007] The aim of this cooperation is to produce the mobile phone with multimedia communication solution to customers all over the world. The initial for this collaboration is to associate the Sonys multimedia consumer electronics expertise and Ericssons technical knowledge in telecommunications. Once Sony Ericsson established, both of the companies stopped their individual mobile business. The Sony Ericsson Mobile Communications is a London-based 50:50 joint venture business. Before the collaboration, Ericsson ran its mobile business in the market for years and obtained 10.7% in the handset market in 2000. It has a great loss when faced the cheaper mobile phone producer as Nokia. Mobile phone is one of the core businesses in Ericsson. Thus they cant abandon this part of business. Ericsson had the advantage of the leading infrastructure. Meanwhile, Sony had just 10% market share in Japanese handset market and 1% in all over the world. However, Sony obtained the multimedia technology enable to enter the global market. Sony Ericsson employed 2500 stuff from Ericsson and 1000 stuff from Sony. [III-Vs Review, 2001] Sony and Ericsson both obtain 50% of the capital. And each of them obtains half of the boards positions. This business had been expected to take over all the mobile phone technology from the parents and to be able to compete with Nokia and Motorola in the market. How does the collaboration between Sony and Ericsson conducted The initial of Sony is to look for a partner to explore the GSM and CDMA technologies. Sony had soft alliance with Qualcomm and Siemens in the 1990s. In the experience with Qualcomm, Sony developed CDMA technology together with Qualcomm, but products have been sold separated under two brand name. The competition leaded this soft alliance to the end as well as the collaboration with Siemens. However, Sony realized its a huge investment to conduct RD alone in telecom technology. Before Sony and Ericsson arrived a Memorandum of Understanding, many partner candidates as Motorola, Alcatel and Nokia had been considered. At that time, Ericsson gained a big operation loss in 2000. And it was looking for a partner to take over the handsets operations. There were many potential candidates had been chose. Sony was one of them. Sony held the advantage of the multimedia consumer electronics expertise but had been limited on designing and innovations. Initially, Sony want to take over all the oper ation include the core technology, design, distribution and marketing. However, the top management of Ericsson didnt want to abandon the core technology of handset, which was developed in Ericsson Mobile Platforms (EMP). Thus Ericsson proposed soft alliance which had been turned down by Sony who insisted the joint venture deal. Ericsson Sony Original staff numbers in 2001 in Joint venture 3000 1500 Market knowledge Telecom operating valuable Limited Market Knowledge multimedia consumer electronics limited valuable Handset technology valuable Dont want cash contribution Fig1. Sony-Ericsson partnership when merge According to the Fig1, Ericsson obtained the core handset technology, however Sony at that moment dont want any cash contribution. In that time, Ericsson played the major role in that deal according to its global market share and handset technology. Thus the Ericsson Mobile Platforms has been excluded in the joint venture deal. Thus EMP has to reduce the operating cost and sell technology to other company as LG. The final agreement was finalized in the end of 2000 between the two companies. Then followed a group of discussion on how to conduct this collaboration in terms of management, manufacturing, Research and Development, and governance, etc. The board of the joint venture was formed 50-50 from two companies, and with a president to be named by Sony. 1,500 staff came from Sony and Ericsson brought its organization of products, sales and marketing. The new joint venture has been named Sony Ericsson Mobile Communications. There were many challenge issues for two big companys collaboration. The intellectual property rights (IPR) is one of the critical issues. Since it was very difficult to identify how much the two companies should transfer IPR to the joint venture at the beginning. Sony built up a team called Functional Integration Team to tackle the joint venture issues. Sony decided to take over the management of manufacturing by controlling the Sony-Ericssons own production plant with C hinese partners. And Sony also is in charge of the supply chain management which Ericsson had long-term operational experience in. Thus Sony took many important positions in Sony-Ericsson management: Sony executives had been transferred to take over the business units and supply chain management. While Ericsson ex-executives took over HR and other departments. The operation of the joint venture started at Oct-1 2001. [Sigurdson, 2004] There are three main issues occurred at the beginning of collaboration in Sony-Ericsson. Design is one of the issues. Sonys designers had different understanding on the outlook and functions with the Ericssons designers. For example, the Sony designers proposed that streamline shape of mobile phone is better than straight line mobile phone. However, its difficult for Sonys designers to explain this concept to Ericssons designers. In Sony, the information of design philosophy is tacit instead of explicit, thus in the joint venture, designers from each company cant understand the in-house words from each other. This was solved by re-designing a new set of internal terms in Sony-Ericsson. The few number of published mobile phone model lead to a big loss in the first two years. However, another side, the conflicts between the two types of culture also enabled Sony-Ericsson to enter the international market. There was an argument on the product design in Japanese market. The Sony designer s claimed that design is the most important part and Japanese market need attention due to the customers high standard needs. Japanese market is the most advanced mobile phone market and more than 10 major mobile phone manufacturers existed in the market at that time. Sony-Ericsson obtained a lot of important experience, and also able to learn the technology trends from Japanese market. The second issue in Sony-Ericsson is the supply chain management, which didnt work well. Firstly, the manufacturing had been divided into three manufacturing facilities in Sony-Ericsson: Ericsson manufacturing contracts with EMS, Sony manufacturing company, Ericsson manufacturing plant in China. There was a huge challenge on managing the manufacturing since its very difficult to manufacture products ordered and meet the requirement of quality. Especially the outsource supplier EMS, which met great challenge on delivering qualified products on time. The different type of manufacturing source brought Sony-Ericsson a critical problem. Secondly, Time to market is a very important criterion in mobile phone market due to the fierce competition. The management of platform in Sony-Ericsson is a weak point compare to the other competitors as Samsung and Nokia. Due to lack of management, in the platform, it was found the new orders were laid without organization. This became worse when the ma rketing strategy had been set to increase the market share. The issue occurred because Sony-Ericsson lack the knowledge on management of production process and supply chain management. The third issue was technology transfer. Sony contributed the screen and camera technology to Sony-Ericsson. All the related technology was explored in Japan and transferred to Europe. It took a long time for the technology can be applied based on the telecom infrastructure in Europe. The core handset technology came from Ericsson. EMP combined the software and chip as product, which is a new business model. As above information indicated, EMP didnt be included in the joint venture deal. And the cost of EMP was really high because of the exploration of 3G and GSM at the same time. Thus EMP served Sony-Ericsson as customer, as well as Siemens, LG, and Samsung. In the first year of the joint ventures operation, Sony-Ericsson lost 292 million and didnt made profit until 2003. Sony and Ericsson were not satisfied with the performance of the joint venture. However, they still tried to inject capital into Sony-Ericsson in 2003. The Sony-Ericsson walkman branded mobile was doing well at the beginning. However, it had been over taken by music mobile from other manufacturer as iPhone and other brand recent years. The collaboration between the two big companies has been considered as one of the most complex one. It took long time to implement and consolidate. Compare to the previous soft alliances, Sony aimed to build a stable collaboration to expand the mobile business. In summary, the joint venture is able to combine the technical strength from both sides. As identified before, Sony is good at the multimedia customer electronics. The first series of products is walkman portfolio. Sony transferred their multimedia technology to Sony-Ericsson. While Ericsson contributed the core handset technology and telecom infrastructure which enable Sony-Ericsson to release series of mobile phone based on cooperation with telecom operators. But due to Sony dont want to invest at the beginning. The core handset technology still has been kept in EMP. This is one of the mistakes of Sony in this collaboration. EMP was focusing on integration of software to system. And it became one of the advanced research cen ter on GSM and 3G. However the operation cost of EMP kept on increasing. Sony-Ericsson purchased chip with software from EMP, which was a high-cost component. Even though, EMP couldnt balance the cost and income. It had to supply other mobile companies for sustaining. Sony-Ericsson cant involve the management of the EMP. This will become a weak point in the future. The managers of Sony-Ericsson initially came from Sony and Ericsson, but the management was isolated from Sony and Ericsson. The challenge issue here is the different culture of the two companies. Globalization is a common phenomenon everywhere. Even difference of culture can be solved in personal level. Its quite difficult to merge a big group of people with totally different culture. Sony is a big international company. However, it still holds a perspective of business strategy, marketing, design, and product development, etc different with other western companies. Compare to Sony, Ericsson is a low masculinity organization which has low work stress, high gender quality, equality between employees, and team work. In traditional Japanese company, staff cant question the bosss instruction which is observation in western company. Thus Sony-Ericsson created their own company value as Passionate, Innovation and Responsive. [Caroline Sanja, 2007] Phase1 Culture Awareness Phase2 Creating new culture Phase3 Managing SEMC Culture Seminar Workshop Leadership Programs Fig2. Developing Sony-Ericsson culture [Caroline Sanja, 2007] The Fig2 indicates how Sony-Ericssons own culture has been developed. The difference of business strategy between the two organization cause many friction in the collaboration. The CEO of Sony mentioned this issue in 2008, that if the Sony-Ericsson cant work towards the same goal, its very difficult for this collaboration to continue. Generally speaking, the joint venture ran with several issues at the first two years. This directly affected the financial performance of Sony-Ericsson. Due to this bad performance, it almost leaded to an end of the collaboration. However, finally both Sony and Ericsson injected a certain amount of capital to the joint venture. Sony-Ericsson performs relatively well. But this collaboration didnt enable Sony-Ericsson to compete with Nokia and Samsung in the market. Discussion on outcome from Sony and Ericssons point of views in terms of success and failure of this collaboration From both of Sony and Ericssons point of views, it is benefit to look for a partner to establish a joint venture. This alliance can bring advantage as risk reduction, international expansion, technology transfer, sharing capital facilities and equipment. Once the joint venture establishes, the tangible and intangible assets will be transferred from parents to the joint venture. The tangible assets include capital facilities and equipment, technology and patents. The intangible assets may include the brand name, explored market, reputation of company, etc. Sony was in a reasonable good place in Japan before the collaboration. And they found the mobile business is a growing business. However, Sony was not a major player in GSM market in the global market. However, Sony is very excellent on product design. It wouldnt be difficult for Sony to gain more market share from the initial 2%. But if Sony want to be a major player, its not enough to rely on product design and multimedia expertise only. According to the previous experience on soft alliance, Sony realized joint venture would be the best choice to work with partner in this business. The benefit to conduct this collaboration with Ericsson is Ericsson is experienced in European market; It obtains the infrastructure of telecom and it has handset technology; in 2000, Ericsson rank number 3 in mobile phone market. Sony can enter European market easily with this partner and also can built the brand name for other business of Sony as TV. Sony doesnt have to invest on infrastructure and tec hnology on this deal. However, the failure of this collaboration to Sony is the EMP. Sony didnt want to invest in EMP initially in 2000. Consequently Sony is not able to learn from the Ericsson for the core handset technology. Furthermore, EMP is one of the most advanced research center for GSM and 3G technology. To sustain the operation, EMP sells products to Sony-Ericsson, Samsung, and Nokia. And Sony-Ericsson didnt have any advantage from it. From Sonys point of view, its able to enter the international mainstream market of mobile phone via the joint venture. In this collaboration, Sony can utilize the advantage of product design. Sony also learn a lot from western company on business management for example supply chain management, which contributes a lot on Sonys global expansion. The experience of collaboration also has been considered as internal good practice . After collaborated with Ericsson, Sony also collaborates with companies as DoCoMo in other business. [Sigurdson, 200 4] The performance of Sony-Ericsson compare to the initial purpose isnt so good. Especially in 2008, Sony and Ericsson had to inject 1.8 million Euro to Sony-Ericsson again to overcome the economic crisis. And Sony showed disappoint on this collaboration in terms of disagreement on business strategy. Up to now, even Sony entered the mainstream market. It still cant compete with other major competitors in the market. Before the collaboration, Ericsson obtained 10% market share in the mobile phone market. But Ericsson kept on losing money and market share. Meanwhile, the high operation cost of EMP drive the company to seek for a partner to share or take over the operation cost. Ericsson has a good base in terms of infrastructure, handset technology, and operator relationship. However, the mainstream of mobile phone became multi-functional mobile. Ericsson has no experience and strength on that. Sony became the best choice to cooperate. The initial idea of Ericsson is to sell all handset business include the core technology. But top management didnt want to abandon the mobile business and then its very important to keep the technology within the company. The collaboration with Sony enables Ericsson to focus on 3G technology development. From Ericssons point of view, the collaboration with Sony brought them technology of multimedia expertise which Sony is one of the advanced companies in the world. However, all the Research and Development of screen and camera are conducted in Japan directly. Ericsson has not been involved in it. The success point of this collaboration to Ericsson, its able to produce the mobile phone to satisfy customers increasing needs. Through the collaboration, Ericsson also learned product design from Sony, which is different with Ericsson. And the Japan-based company enable the company understand the trends from the advanced mobile market. Furthermore, Ericsson also learned management skill from the Japanese company. But according to the performance of Sony-Ericsson, the market share cant catch with Nokia and Samsung. They have fiercely competition with Motorola and LG in the main market. From both of their view, this collaboration is not easy to be conducted. Due to many issues and conflicts, Sony-Ericsson cant achieve a maximum profit and increase the market share as expected. Technically, Sony Ericsson combined the core technology from Ericsson mobile business and Sonys multimedia technology. This form of collaboration worked well in the first 3 years. Walkman mobile phone was released very successful. However, todays mobile phone has been expected a lot from customers. Sony-Ericsson didnt cooperate well to work on the RD on new technology. The two companies still have a lot of conflicts on the business concept, and the inefficacy management on that may lead to an end of the cooperation. From the point view of the profitability, this collaboration didnt achieve the expectation in the first two years until the third quarter of 2003. During the economic crisis period, Sony-Ericsson experienced tough time. The parent companies have expected payback in the last 10 year s. The further research can be conducted to discuss whether Sony-Ericsson can be more successful. And it also can be compared to the collaboration between Siemens and BenQ.