This report analyses the external environmental

Executive Summary Something here This report analyses the external environmental factors affecting the automobile manufacturing industry in India. Moreover, it uses the Porter diamond model to analyse the different factors which can be used to explain the international competitiveness of the said industry. Furthermore, it applies the International Product-Life cycle theory to the global automobile manufacturing industry growth pattern. In addition to the above, it also highlights essential factors which directly impact the industry. These include the cultural dimensions of the Indian society, ease of doing business ranking, corruption levels and country of origin effect. Lastly, it presents a decision matrix comparing relevant factors against another emerging economy (Brazil) and concludes with a risk-cost-benefit analysis and a set of recommendations for the government on how to continue attracting investors. EXECUTIVE SUMMARY This report was commissioned to examinewhy the sales volume of Choice Chocolate has dropped over the past two years since its peak in 1998 and to recommend ways of increasing the volume. The research draws attention tothe fact that in 1998, the market share of Choice Chocolate was 37%. The shares of their key competitors such as Venus and Bradbury were 22% and 18% respectively. The size of the chocolate market then was $36 million. Over the next two years, although Choice Chocolate retained its market share the volume of sales in the whole market decreased to $29 million.Further investigations revealthat this market shrinkage coincided with an increase in health awareness amongst consumers who regard the milk and sugar ingredients in chocolate as negative; moreover,since the second half of 1999, an increasing number of rival health candies had appeared on the market. These claimed to offer the consumers a healthy alternative. These factors appear to be the major causes of the decreased sales volume of Choice Chocolate. Slim Choice is the latest chocolate range put forward by the R & D Department of Choice Chocolate.The report evaluates this range and concludesthat it would be an ideal candidate to meet the challenge presented by the market and could satisfy the new consumer demand since it uses significantly reduced milk and sugar ingredients and is endorsed by renowned health experts. According to 97% of the 2000 subjects tested recently, it also retains the same flavour as the original range. It is recommended: that Choice Chocolate take immediate measures to launch and promote Slim Choice alongside its existing product range; that Slim Choice adopt a fresh and healthy image; that part of the launch campaign contains product endorsement statements by renowned health experts; that Slim Choice be available in health food shops as well as in traditional chocolate retail outlets Contents 1.0. Introduction 2 2.0. PESTEL analysis 2 2.1. Political factors 2 2.2. Economic factors 3 2.3. Social factors 3 2.4. Technological factors 3 2.5. Environmental factors 3 2.6. Legal factors 4 3.0. Porters diamond model 4 3.1. Firm strategy, structure and rivalry 4 3.2. Factor conditions 4 3.3. Demand conditions 5 3.4. Related and supporting industries 5 4.0. Vernons international product life cycle 5 5.0. Hofstede cultural dimensions 6 5.1. Power Distance 6 5.2. Individualism 6 5.3. Masculinity 6 5.4. Uncertainty avoidance 6 5.5. Long term orientation 7 6.0. Recommendations 6.1Level of corruption 7 7.0. 6.2 Ease of doing business 7 8.0. 6.3 Country of origin effect 8 9.0. Comparative analysis 8 10.0. Conclusion and recommendations 9 10.1. Overall market attractiveness 9 10.2. Recommendations 10 References 12 Introduction India is categorised as a leading emerging market economy. It is one of those former developing economies which have achieved significant industrialisation, modernisation and rapid economic growth (Hamilton and Webster, 2015). Regarding the automobile sector, at present, the country ranks 4th in Asia and 9th worldwide among the worlds largest automobile manufacturers. Several leading automobile manufacturers including ISUZU Motors, Ford Motors, Honda and Suzuki Motors have heavily invested in Indias automobile manufacturing industry. Thereby, establishing new assembly lines, manufacturing, and greenfield units. With the current pace of growth, India aims to become the third largest automobile manufacturer in the world by the year 2020 (India Briefing, 2017). This report analyses the external environmental factors affecting the automobile manufacturing industry in India. Moreover, it uses the Porter diamond model to analyse the different factors which can be used to explain the international competitiveness of the said industry. Furthermore, it applies the International Product-Life cycle theory to the global automobile manufacturing industry growth pattern. In addition to the above, it also highlights essential factors which directly impact the industry. These include the cultural dimensions of the Indian society, ease of doing business ranking, corruption levels and country of origin effect. Lastly, it presents a decision matrix comparing relevant factors against another emerging economy (Brazil) and concludes with a risk-cost-benefit analysis and a set of recommendations for the government on how to continue attracting investors. PESTEL analysis There are several macroeconomic factors which have helped in India becoming a prime market for automobile manufacturers. These factors as discussed in the PESTEL analysis as follows. Definition (take from textbook) Political factors Positive government outlook The government has played an active role in developing the automobile manufacturing sector. First and foremost it adopted a liberalisation policy and allowed 100% Foreign Direct Investment in the industry. Moreover, it introduced several policies and measures to boost sector growth. One such plan was the Auto Policy implemented in the year 2000. The policy aided the development of vehicles driven by alternative energy sources, raised production and availability of auto components, and developed safety methods aligned with international standards (Invest in India, n.d.). Recently, the government implemented two plans including the Automotive Mission Plan and National Electric Mobility Mission Plan (NEMP). The former aims to triple industry revenues by 2026 whereas the latter aims to raise local emission standards to be at par with global standards (Gupta et al., 2018). Revision of Goods and Services Taxes (GST) structure The government is also planning to exercise a revision in the current GST structure. This is likely to have a positive impact on the automobile manufacturing sector. This reform is expected to positively impact vehicle pricing, sourcing strategies, distribution costs and dealer profit margins. The elimination of the tax on movement of goods across interstates is expected to lower logistics costs for manufacturers. Moreover, it will increase transparency and ease tax compliance and administration and lastly it would reduce the cost of doing business for automobile distributors (EY, 2016). Ranking political stability Economic factors Low labour costs One of the most lucrative factors for foreign manufacturers is the low average wage rate in India and an abundance of labour. As compared to other BRIC countries such as Brazil and China the average monthly and minimum monthly wages in India are considerably lower. For instance, the per hour wage rate in India is only $0.9 as compared to $12 in Brazil and $2.8 in China (EY, 2016). 2 Ranking Social factors Rapid urbanisation Owing to rapid urbanisation over the next decade over 500 million people are expected to be living in cities. This is likely to rapidly increase the demand for passenger cars (EY, 2016). Rising income levels By the year 2025, over 60 million Indian households will enter the consuming class having an annual income higher than $8000. Furthermore, the workforce participation rate is expected to rise to 67% by 2020 with more women and youth being employed thereby increasing the demand for mobility (EY, 2016). Technological factors Incentives for development of hybrid vehicles In 2015, the Indian Government launched a scheme for the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) to incentivise the development and manufacture of hybrid/electric, full hybrid and pure electric vehicles. The plan is expected to achieve a penetration rate of 6 to 7 million cars by 2020 (India Briefing, 2017). Ranking Environmental factors Legislation for cleaner transport Owing to the global trend of switching to cleaner modes of transportation, the Indian Government has decided to skip the Bharat Stage (BS) V emission standards and directly adopt the BS VI norms by the year 2020. This initiative will align Indian motor vehicle emission regulations with the more stringent European Union emission standards for light-duty cars and commercial vehicles (International Council on Clean Transportation ICCT, 2016). Furthermore, the government is expected to introduce a formal end of life policy for vehicles which were manufactured before the BS I standard was launched. This initiative will provide consumers with incentives and tax rebates for scrapping old cars and replacing them with greener and more fuel-efficient new age vehicles (Khan, 2017). Ranking Legal factors Compliance with international safety standards The Indian government has drafted several policies to ensure that all manufactured vehicles adhere to international standards. For instance, crash tests were made mandatory for all new models post 2017. For this purpose over seven world class testing centres have also been set up (EY, 2016). 2 Rankings Porters diamond model Porters diamond model also referred to as the theory of international competitive advantage of industries can be used to explain the success of the Indian Automobile manufacturing industry globally. Definition (take from textbook) The key factors include: Firm strategy, structure and rivalry This factor refers to the degree of internal competition within the industry. The higher the degree of competitiveness the higher is the likelihood of companies developing unique and sustainable competitive advantages. India has a highly competitive market landscape with several local and international players vying for market share. In the passenger vehicle segment, the major players include Maruti Suzuki, Hyundai, Mahindra, Honda, Toyota, Ford and General Motors. Moreover, the competition is expected to increase with automakers planning to invest a cumulative value of INR 6,000 billion in the sector within the next few years. Factor conditions This factor refers to the natural, capital and human resources present in a country/region. First and foremost, India has an abundant labour pool with low labour costs specialising in labour-intensive manufacturing. With the rapid increase in the scale of operations, demand for skilled labour is also likely to increase. Hence, the government has initiated the Skills India program to dispatch skill development schemes for over 500 million youth by the year 2020. Moreover, the National Skills Qualification Framework (NSQF) has also been developed to standardise the competency framework and standards for different trades in the industry. Furthermore, leading OEMs are also investing in collaborations with universities for employability skill enhancement programs, externship programs and joint certification from training centres (EY, 2016). Another critical factor is the governments focus on enhancing the industrys Research and Development (R&D) and innovation capacity. At present 8% of Indias total R&D expenditure is dedicated to the automotive sector, and over 30 private automotive R&D centres are active in the region (EY, 2016) Demand conditions This factor refers to the nature of consumer demand which encourages manufacturers to improve their quality of production, Due to increasing population, rising income levels and rapid urbanisation India is likely to experience a surge in demand for vehicles. At present only 20.3 out of every 1000 Indians own a car, and this figure is expected to increase to 29.5 per 1000 by the year 2021 (National Auto Policy, 2018). Moreover, according to the Indian Governments Automotive Mission Plan, 2016-2026 vehicle sales are expected to reach 66 million units by the year 2026 (EY, 2016). Furthermore, the new Goods and Services Tax (GST) structure is likely to stimulate demand since tax rates would be reduced for small cars by 2% and SUVs by over 12% (Thoppil, 2018). Related and supporting industries This factor refers to the presence of supporting industries including key component manufacturers. The entry of global Original Equipment Manufacturers (OEM) has helped local manufacturers gain exposure to global standards and advanced technologies for manufacturing. Moreover, tie-ups with local companies have helped foreign OEMs achieve a high degree of localisation in the Indian market. As a result, the auto parts industry experienced a stable growth of 11% in the year 2015. Furthermore, the increase in demand for vehicles is likely to propel the growth of the auto component sector by a Compound Annual Growth Rate (CAGR) of 13% (EY, 2016). Chance Government Vernons international product life cycle Another theory which can be used to explain the widespread growth of the automobile industry in India is Vernons International Product-Life cycle theory. The model claims that each product passes through various stages in its lifecycle. In the first stage, the product and all its components are only produced in the inventing country, the second stage involves expansion of production facilities and exports, and the final step involves production being shifted to developing countries with the inventing countries acting as importers. Textbook definition This model can be used to analyse the Indian automobile industry. Initially, in the year 1928, General Motors set up its first assembly plant in India and produced Indias first assembled car. Other manufacturers including Ford Motor Co. and Addison and Co. followed suit. However, owing to the nationalisation and adverse licensing policies the growth of the manufacturing industry remained slow. However, in the 1980s with the liberalisation of Foreign Direct Investment (FDI) policies Asian companies including Suzuki were allowed to form joint ventures in the market. Finally in 1993, when new entrants were given free entry to the market several leading companies including Daewoo, Kia and Honda entered the market. Furthermore, in 2001 the government allowed manufacturers to import car parts for assembly which further led to more German companies such as Mercedes, BMW and Audi to expand to India (Aghinotri and Chaturvedi, 2013). Over the last five years, the number of automobiles manufactured in India has experienced a CAGR of 7.06% and has increased to 29.07 million units as of 2018 (India Brand Equity Foundation, 2018). Moreover, the rise in consumer demands and increase in expenditure on R&D has encouraged auto manufacturers to shift towards manufacturing green vehicles, including electric cars. As a result of these advancements, India has now become a leading exporter of automobiles. Few of the leading exporters from India include Ford, Maruti Suzuki and Honda. This increase in exports has helped major players improve their capacity utilisation and achieve economies of scale (Modi, 2018). Over the past five years, the number of automobiles exported has increased by a CAGR of 6.86% from 2.9 million in 2013 to 4.0 million in 2018. Hofstede cultural dimensions Textbook definition The culture of the country also has a significant impact upon the industrial sector. Regarding India, the different cultural dimensions can be analysed using the Hofstede model. chart Power Distance India scores unusually high on this dimension thus indicating a strong preference for hierarchy and a top-down structure within organisations. In India, the hold of power within organisations is highly centralised, and employees expect to be closely monitored and directed by their managers. Moreover, the style of communication is very formal whereby employees avoid sharing negative feedback with the top management (Hofstede-Insights, n.d.). Individualism India maintains an intermediate score for this dimension whereby the society can be categorised as having both collectivistic and individualistic traits. The collectivist aspect is reflected by the efforts of team members to be accepted within the extended social framework and acting in favour of ones defined in- group. On the other hand, individualistic tendencies are displayed by each individual accepting the responsibility for his/her actions (Hofstede-insights, n.d.) Masculinity India scores very highly on this dimension and can be considered a masculine society. Whereby, individuals focus on the accumulation of material wealth and display of signs of success and achievements (Hofstede-Insights, n.d.). Uncertainty avoidance India has a median score of 40 on this dimension, thus indicating a medium-low preference for uncertainty avoidance. Hence, people are comfortable with status quos and norms and are not driven to take action initiatives to change set routines (Hofstede-Insights, n.d.) Long-term orientation India scores a median score of 51 on this dimension. Hence, it exhibits traits of both normative societies which prefer to preserve time honoured traditions and pragmatic societies which encourage efforts in modern education to form new traditions for the future (Hofstede-Insights, n.d.). 2 from other source Recommendations Level of corruption India has been ranked 81st out of 180 countries on the global corruption index by Transparency International. The index ranks countries based on the perceived level of corruption in the public sector. Indias latest score out of 100 was 40 which reflects a high degree of corruption (Economic Times, 2018). Moreover, the high degree of corruption dissuades foreign investors from investing in the country. According to Krolls global fraud report, nearly 20% of foreign investors/companies are discouraged from doing business in India owing to corruption, unstable corporate governance and high risk to the security of assets. Furthermore, the country is also touted to have the highest bribery rate across the Asia Pacific region. Whereby, businesses are expected to pay handsome bribes to avail public services (The Hindu, 2017). Regarding the automobile industry, bribery and corruption were found to be rampant in several avenues. Across several instances monetary and non-monetary benefits were seen to be extended to government officials in exchange for fake emission test results, unfairly negotiating fleet sale contracts, unjustly obtaining bulk sale orders and overlooking non-compliance to government regulations (Singh, 2016). However, the country still promises a relatively higher growth rate as compared to other emerging market economies. Furthermore, the recently elected government has initiated several programs to curb corruption levels. These include the introduction of regulations including the Insolvency and Bribery Code (IBC), real estate and regulatory act (RERA) and revised GST rates (The Hindu, 2017). Ease of doing business In the past few years, India has substantially improved its ranking for ease of doing business on the World Economic Forum ranking. As of 2018, India has improved its ranks by 30 points is now among the top 100 countries for ease of doing business (EY, 2016) According to the World Economic Forum India is ranked 30th across more than over 100 countries on the global manufacturing index, which compares and contrasts the manufacturing capabilities of different countries. This is primarily due to the Make in India initiative pursued by the government which helped India improve on 9 out of 10 critical parameters on the ease of doing business. Few of these include the new trade policy which removed import taxes on small volumes of goods and offers incentives to export-oriented units (EY, 2016). Moreover, improved labour laws provide single window operations for companies to process provident fund, pension and employee insurance processes. Furthermore, regulatory compliance processes have also been simplified, and companies can now issue environmental approvals and licences online (EY, 2016). Country of origin effect Consumers all around the world are found to have a preference for brands originating from a particular country also referred to as the Country of Origin of the Brand (COB). Likewise, they may also have positive or negative perceptions of the Country of Manufacturing (COM) of the brand. According to research conducted on the global automobile industry, consumers have an unfavorable opinion of cars manufactured in developing countries (Fetscherin and Toncar, 2010). Hence, most companies in India still take pride in their Country of Origin and benefit from the positive impact of COB on consumers. However, over time Indias perceived image is also improving, and it now ranks 35 out of 75 countries on the Country Brand Index (Future Brand, 2015). 10.2. Other Recommendations To ensure continued investment in the automobile sector, it is critical that the Indian government keeps itself abreast of the latest trends in automobile manufacturing. Moreover, to continue attracting foreign investors the government should. Develop infrastructure The government should improve the planning of rural road networks to stimulate demand for automobiles in other regions of the country (Mathur, Sen and Kidambi 2013). Support innovation According to industry estimates leading auto suppliers spend around 5% to 10% of their revenues on R&D activities, however, in India, the rate is less than 1%. Hence, the government should provide incentives to auto suppliers and assemblers to invest in such initiatives. This will help meet current industry demands as well as future demands by electric and alternative fuel vehicle manufacturers (Mathur, Sen and Kidambi 2013). Develop human capital With the rapid increase in the scale of operations across the automobile industry, the demand for skilled labour is expected to increase substantially. Hence, it is necessary that the government ensures that adequate human resources are available at affordable rates. Thus, in addition to implementing the on-going initiatives like Skill India, it is recommended that the government focuses on creating a wider talent pool. This can be done by targeting rural India along with Tier 2 and 3 cities through offering automotive-focused courses in collaboration with regional universities and vocational centres (Mathur, Sen and Kidambi 2013). Introduce sustainability initiatives To make India an attractive manufacturing hub with the potential of catering to several export markets, it is necessary that the government pursues sustainability initiatives. These include road safety policies, improved vehicle safety systems and efficient emission controls which are aligned with global standards (Mathur, Sen and Kidambi 2013). Introduce a long-term policy roadmap The government should introduce clear and precise short, medium and long-term policy roadmaps for the automotive industry, to help automobile and parts manufacturers plan their capacities and future investments accordingly. The few recent abrupt policy changes such as the adoption of the BS-VI emission norm instead of BS-V severely impacted the production plans of several leading manufacturers. Moreover, a comprehensive plan aligning future technologies would also be beneficial in encouraging OEM and component manufacturers to invest in R&D initiatives (Money Control, 2018). Comparative analysis A comparative analysis of two emerging market economy countries is performed using a decision matrix as shown in Figure 2. The weight is allocated on a scale of 0 (least important) and 5 (most important). Whereas, the relative scores are assigned on a scale of 0 (lowest) to 100 (highest). As shown in the figure, India outweighs Brazil in numerous avenues such as the capacity for innovation, pay and productivity, and strength of investor protection. Hence, the cumulative total indicates that it is a better alternative for automobile manufacturing companies. Figure 1 Country comparison table Conclusion and recommendations Overall market attractiveness The overall attractiveness of India as an international automobile manufacturing hub can be assessed by evaluating the relevant benefits, costs and risks associated with doing business in the country. As shown in figure 3, few of the most significant costs of doing business in India include the high degree of corruption, inadequate supply of infrastructure, inflation and restrictive labour regulations (World Economic Forum, 2018). Furthermore, the degree of political risk is low since the present government has been consistent with its programme of reforms which included the effective demonetisation policy launched to tackle the black economy (Societe Generale, n.d.). Likewise, the degree of economic risk is also moderate since mostly positive changes to the countrys business environment are expected in the near future (Global Edge, n.d.). On the other hand, numerous benefits such as ample supply of cheap labour, growing consumer demand and increasing technological advancements have made India a lucrative ground for foreign automobile manufacturers. Figure 2: Overall market attractiveness References Aghinotri, D. and Chaturvedi, P. (2013). Indian Automobile Industry: A Life Cycle. VSRDInternationalJournalofBusinessandManagementResearch,3(8). Economic Times Auto (2018). India ranks 81st in global corruption perception index [Online]. Available from: https://auto.economictimes.indiatimes.com/news/industry/india-ranks-81st-in-global-corruption-perception-index/63028329 [Accessed 21 October 2018]. EY (2016). Making India a world class automotive manufacturing hub [Online]. Available from: https://www.ey.com/publication/vwluassets/ey-making-india-a-world-class-automotive-manufacturing-hub-1/$file/ey-making-india-a-world-class-automotive-manufacturing-hub.pdf [Accessed 21 October 2018]. Fetscherin, M. and Toncar, M. (2010). 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