FDI IN AUTOMOBILE SECTOR IN

INDIA: A CASE STUDY

Name: SHRUTI ROYCHOUDHURY

17X6CMD030
Subject: International Business
Dynamics
RRIAS
 INTRODUCTION
• PRE- INDEPENDENCE SCENARIO
• First assembly plant in Mumbai in 1928 by
General Motors from US.
• Ford Motors Company 1930 in Madras and
1931 in Calcutta.
• Hindustan Motors in 1942.
• Premier Automobile in 1944.
 POST INDEPENDENCE
• Government didn't give high priority to
Automobile Sector.
• Duopoly in passenger car manufacturing :-
Hindustan Motors and Fiat by Premium
• Cars were expensive.
• Poor Mileage.
• Volume of sales was slow.
 INVESTMENT FRAME WORK
• Import Substitution Phase (1947-1981)
Restriction of 25000 cars in a year
• Resulted in:-
• Slow growth.
• Little Competition.
• Lack of technology.
• Industrial disputes.
• High Tariff barrier and import restriction.
 INVESTMENT FRAME WORK
• Maruti Suzuki Era (1981-1991)
• 50-50 joint venture between Suzuki Motors
and Maruti Udyog Ltd.
• Revolutionary change in Technology.
• Supply Chain Management.
• Tariff Protection.
• 75% market in 1991.
 POST LIBERALISATION (1991-
PRESENT)
• Paved path to FDI in Automobile sector.
• 100% FDI was allowed, Manu. And import
were made free which resulted in
• Competition.
• Reduced Cost.
• Increased efficiency.
 FDI IN AUTOMOBILE SECTOR
• Automobile sector accounted for 3.7 percent
of FDI inflows in India during April 2000 to
December 2007.
• Increased competency due to reduction of
import tariffs.
• Reduction from 30 per cent in 2001-2002 to
7.5 – 10 per cent in 2007-2008.
 ADVANTAGES IN AUTOMOBILE
SECTOR
• Availability of skilled manpower with
engineering and design capabilities.
• Huge domestic market with high growth
potential.
• Rising income levels of target customers.
• Increased demands in new segments due to
rapidly changing lifestyles.
• Strong base for supporting industries such as
auto components.
• Presence of strong industry associations.
 INDIAN AUTOMOBILE MARKET
• Two wheelers had 75.13 per cent of market
share followed by passenger cars having 16.04
per cent, commercial vehicles with 5.05 per
cent, three wheelers 3.78 per cent.
• Major domestic players were Tata Motors Ltd,
Mahindra and Mahindra Ltd, Hindustan
Motors, Ashok Leyland etc.
• Foreign players include Maruti Udyog Ltd,
Hyundai Motors India Ltd, Fiat Motors, Ford
Motors Ltd, General Motors Ltd etc.
 FDI LIBERALISATION AND INDIAN
AUTO INDUSTRY
• Growth of production capacity by the end of
1993.
• Highest growth of 30 percent in 2005.
• India is currently the fastest growing passenger
car market.
• India has also become the key sourcing for
automobile parts.
• Increased proficiency in understanding global
automotive standards and technical designs.
• Increased automation led to cost economies in
production.
 CONCLUSION
• FDI in Indian automobile sector has resulted
in:
Investing substantially in increasing
production capacities.
Committing substantial resources in
indigenous R&D.
 Forging strategic alliances in India and abroad
so as to enhance their competitiveness.
Investing overseas by way of acquisition as
well as establishing greenfield manufacturing
facilities.
 Questions and Answers
1. Critically evaluate impact of protectionist
measures restricting foreign direct
investments in India’s automobile sector.
Ans:- Import Substitution phase resulted in:
Slow growth.
 Little Competition.
 Lack of technology.
 Industrial disputes.
 High Tariff barrier and import restriction.
 Questions and Answers(contd…)
2. Find out the strengths and weaknesses of Indian
automobile industryunder different frameworks of
investment policy regimes.
Ans:- STRENGTHS
• Domestic market is large.
• Government provides monetary assistance for
manufacturing units.
• Reduced labour cost.
• WEAKNESSES
• Infrastructural setbacks.
• Low productivity.
• Too many taxes levied by the government increase the
cost of production.
• Low investments in research and development
 Questions and Answers(contd…)
3. Identify and discuss the reasons that a foreign firm
should invest in India for manufacturing automobiles
or its components.
Ans:-
• Availability of skilled manpower with engineering and
design capabilities.
• Huge domestic market with high growth potential.
• Rising income levels of target customers.
• Increased demands in new segments due to rapidly
changing lifestyles.
• Strong base for supporting industries such as auto
components.
• Presence of strong industry associations.
 Questions and Answers(contd…)
4.How did FDI liberalization contribute to Indian
firm’s enhancing their competitiveness?
Ans:-
• Investing substantially in increasing production
capacities.
• Committing substantial resources in indigenous
R&D.
• Forging strategic alliances in India and abroad so
as to enhance their competitiveness.
• Investing overseas by way of acquisition as well
as establishing greenfield manufacturing facilities.
THANK YOU