Globalised Automobile Industry

Abstract This review was carried out to give an overview of the vast automotive industry. The automobile industry in the 21st century is filled with competition, innovations and new strategies (operational strategies, functional strategies, manufacturing strategies etc) which differentiate it from all other leading industries.

The collaborations and joint ventures have played an important role in the development of the automobile industry which is further divided into two parts i.e.: (1) the production of parts, and (2) the final assembling. This research also shows how the recession has affected the automotive industry globally and its impact on the Indian automotive industry (the Maruti Suzuki case).

Keywords: automobile, automotive, recession, integration, globalization Introduction and features

The automotive industry is distinctive because of its extremely concentrated firm Structure: a small number of giant companies exert an extraordinary amount of power over smaller firms. Eleven lead firms from three countries, Japan, Germany and the USA, dominate production in the main markets. Global vehicle production has more than doubled since 1975, from 33 to nearly 73 million in 2007. The opening of new markets in China and India has helped to drive the pace of growth. Extremely concentrated firm structure in the industry creates high barriers to entry and limits the upgrading prospects for smaller firms.

A new vehicle design typically requires more than 30,000 engineering hours, takes 3–5 years to complete and needs several billion dollars of up-front investment. While seven countries accounted for about 80% of world production in 1975, 11 countries accounted for the same share in 2005.World vehicle production grew at an annual average rate of around 2% in the period 1975-1990, rising to around 3% in 1990-2010. Low rates of motorisation and huge populations resulted in a surge of new investment in China and India, where market growth – and, accordingly, production – has been increasing very rapidly.

In this context, the ability to increase or maintain their share of global automotive production since the entry of China and India in 1990-2010 can be seen as a real success for some countries. Volume of automobile sector has increased over the years. North America is dominating the market with 26 per cent share in the world market followed by West Europe with 25 per cent share. This also reveals that the North American market has shown the minimum growth.

Nevertheless growth will remain respectable considering the vast size of this market. A second distinctive feature specific to the automotive industry is that final vehicle assembly. Market saturation, high levels of motorisation and the tendency for automakers to ‘build where they sell’ have also encouraged the dispersion of final assembly, which now takes place in many more countries, than it did 30 years ago. This has created the need for close collaborations, which has raised the costs for suppliers that serve multiple customers and concentrates most design work into a few geographic clusters, typically near the headquarters of lead firms.

The work of vehicle design and development continues to be concentrated in, or near, the headquarters of lead firms. Because centrally designed vehicles are tailored to local markets and parts are manufactured in multiple regions to the degree possible, design activities and buyer–supplier relationships typically span multiple production regions. This has resulted in local, national and regional value chains in the automotive industry being ‘nested’ within the global organisational structures and business relationships of the largest firms. From a geographic point of view, the world automotive industry is in the midst of a profound transition.

Since the mid-1980s, it has, like many other industries, been shifting from a series of discrete national industries to a more integrated global industry. Global integration embeds firms in larger regional and global-scale systems of production, consumption, innovation, sourcing, command and control. These global ties have been accompanied by strong regional structures at the operational level.

Market differences sometimes require automakers to alter the design of their vehicles to fit the characteristics of specific markets (e.g., right vs. left hand drive, more rugged suspension and larger fuel tanks for developing countries, pick-up trucks for Thailand and Australia, etc.). While many vehicles are designed with global markets in mind, an increasing number are developed with inputs from affiliated regional design centres, where designers and engineers help to tailor vehicles to national and regional markets. Nevertheless, full production is not required at each location.

Suppliers with a global presence can concentrate volume production of specific components in one or a few locations and ship them to plants close to their customer’s final assembly plants where modules and sub-systems are built up and sent to the final assembly line as needed. The automobile industry is typically considered to be the forefront of globalization. No doubt, the automobile industry is technically advanced, but the increasing integration of low income countries into the global division of labour has put competitive pressure on traditional automobile producing countries.

The multinational companies are investing in low income countries, resulting increase in Foreign Direct Investment which further leading to emergence of new automobile producers and exporters in different parts of the world including India. The sector is not only progressing in terms of production, sales etc. but also adopting the moderate work system and human resource polices like (a) Personal focused comprising job satisfaction, health system and social support, (b) Organizational focused comprising organization commitment and perception of organizational justice.

The Indian automotive industry

Indian automobile industry currently contributes 5% to India’s current GDP of $1.4 trillion. The projected size in 2016 of the Indian automotive industry varies between $ 122 billion and $159 billion including USD35 billion in exports. This translates into a contribution of 10% to 11% towards India’s GDP by 2016, which is more than double the current contribution. At present, India is the second largest producer in the two wheelers segment and also the largest motorcycle manufacturer in the world. India is the fifth largest manufacturer of commercial vehicles.

India is also the fourth largest car market in Asia. Presently, this sector is growing at 14-17 per cent per annum with domestic sale growth of 12.8 per cent. The current growth indicates that by 2020 India will overtake Germany and Japan in sales volume. The sector also employs more than 7 lakh skilled workers and further generating huge employment opportunities for professionals and non-professionals. The Indian automobile industry has produced a wide variety of vehicles including 17 lakh four wheelers (passenger cars, light, medium and heavy vehicles, multi-utility vehicles such as jeeps) and over 80 lakh two and three wheelers (scooter, motorcycle, moped and three wheelers) in 2010-12.

India started the process of integration with the global economy in 1991-92. Since then the policy changes have been taking place at national, regional and international level which are affecting the functioning and performance of the business. India, as a member of WTO is committed to liberalizing imports and lowering the tariff rates. This process has led to free movement of goods between countries including India. This has resulted in considerable freedom for enterprises to enter the market, expand and diversify their investment across the globe. Globalization changed the face of business practices across the world. India after liberalization process has recorded a tremendous growth.

Globalization has affected Indian industry and manpower directly and indirectly. With globalization India sees itself as one of the great nations of the world and as equally important to China and US, believing it has much to offer to the world. India clearly has access to important gateway of globalization, such as well established channels of media and commerce. But “The ultimate question is whether this gateway of globalization will bring real progress and modernity to India?

* At present, the impact of globalization is only benefiting the industrialized countries or multinational companies operating in developing countries like India. Globalization will bring prosperity to the country only if government and multinational companies are willing to adopt a code of conduct which permits their profit motives to be harmonized with the self-reliant interest of developing nations like India.

3. Global recession and its impact on the automotive industry

The global recession has hit the world economies badly. The growth prospects of companies were affected adversely. As companies aimed to survive or remain profitable they instituted severe measures to close down or realign businesses and operations and implement severe cost compression measures. In the United States, intensifying pressures for the domestic automotive industry are affecting the price of raw materials — up almost 50 percent — and the declining U.S. dollar. While U.S. exports have become very appealing, other countries are waging a currency war to prevent their currencies from dropping.

Another factor affecting domestic automakers is the growing demand for high-tech equipment –boosting growth in production and exports by 10 to 30 percent. Indian economy too faced the adverse impact of the global recession with reduced GDP growth and heightened liquidity crisis. The fiscal year 2008-09 represented one of the most excruciating years for Corporate India. Different companies, of course, were affected by the economic recession differently and also responded to the evolving situation differently.

4. The case of Maruti Suzuki

Maruti Suzuki India Limited, the leading passenger cars producer, currently holds a market share of about 40% in the passenger vehicles segment. The dominant share of the current 45% has primarily come from passenger cars that belong to the Mini/Compact hatchback or midsize sedan. Cheap, reliable, economical, fuel efficient and easy to maintain are the attributes that make them the most sought brand in India.

The Company offers 16 models and over 200 variants like :passenger cars(11), utility vehicles(3) and vans(2). Maruti is the "jewel in the Suzuki crown." It accounts for more than 50% of Suzuki Motor's turnover and profit. And the future is clearly in India, where GDP growth rates of 9%-plus are expected for the next few years Like any other company, Maruti Suzuki was buffeted by the adverse economic developments of 2008 and 2009.

Recession hits automobile markets rather instantly and intensively, with sharp curtailment of automobile finance and postponement of automobile purchases by individuals and institutions. Maruti Suzuki reported a 7% decline in sales due to rising cost of the materials and a falling rupee value. In April, Maruti, a Suzuki Motor Corporation subsidiary, issued a news release saying "the best-selling small car of India, the Alto, has beaten all cars in the world to become the No. 1 best-selling car in the world." The media gave the story a lot of mileage, only to discover it wasn't true: The Alto was the top-seller only in the compact segment. But the announcement gave a sense that Maruti sees the world as small.

Younger generations started getting a great affinity towards new foreign brands due to low interior quality inside the cars when compared to quality players like Hyundai, Volkswagen, and Nissan etc. The management and the company’s labor unions are not in good terms. The recent strikes of the employees have slowed down production and in turn affecting sales. It is very difficult to conclude that is “Maruti losing its identity”, or “It is deliberately seeking a new identity.”

It is no longer willing to be seen as a small-car manufacturer but as a complete car manufacturer. Government continuously slashing tax rates and the ever increasing fuel prices had an adverse effect on the automobile manufacturers, but Maruti is looking at broader trends and preparing for the next few years, not the next few months. Some shifts are already having an impact. Rural India has become a big market; it now accounts for more than 20% of Maruti's sales, compared with 3.5% two years ago.

4. Measures taken by Maruti Suzuki to overcome recession:

To compensate for the loss, Maruti now plans to tap the rural market, 60 per cent of which runs on cash. Also, the company is offering discounts ranging from Rs 3,000 to 8,000 on various models in the rural market. Maruti has appointed 2,000 sales executives to target customers in the rural areas and started special schemes for village Panchayat, rural teachers and rural officers. A mobile van has been put on standby to provide car servicing at the villagers' doorstep.

Maruti Suzuki is also building a modern R&D facility, complete with test tracks and crash test facilities at Rohtak. The company is rapidly increasing its engineering manpower, simultaneously persuading all its suppliers to also create the ability to design and develop new products in India, and to continuously upgrade component quality. Maruti is working closely with Suzuki on research and development. The Indian market will no longer accept products designed for foreign conditions. As it grows more important, Maruti must have indigenous research capacity.

5. Conclusion

Maruti Suzuki India Limited and Suzuki Motor Corporation need to develop a new global strategic plan for small car design and manufacture for global needs. The plan could also focus on the van segment which could lead a new revolution in intra-city movement of goods and passengers or the SUV segment where Maruti hasn’t proved itself like other players in the market. The company should start developing hybrid cars for the future tapping emerging markets across the world and building a global brand. Maruti should come up with new practical applications such as voice assisted driving directions, parking and braking assists, acceleration and vehicle failure detection.

Telemetric-driven infotainment services include Bluetooth wireless and satellite radio and vehicle-to-vehicle communications to ensure vehicles keep a safe distance from each other to avoid and perhaps eliminate collisions. Perhaps most critically, Maruti will need to embrace a long-term consumer vision to succeed, in the same way in which Apple has done with its differentiated products.

6. References

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