Automobile Companies Compete to Win Promising India Market

Osaka – Sunday, September 5, 2010




Nikkei, Japanese newspaper specialized in business and economy, reported today that Suzuki Motor, a Japanese automobile company strong in small cars, has made a policy of investing approximately 30 billion yen in India to construct new car plant, with the annual production capacity of 250,000 cars. The plant may start its operation as early as 2013, and the annual production capacity is expected to expand to 1.7 million cars at the maximum, which is far greater than that of Japan.



Suzuki is the leader in India with market share of nearly 50%. Other automobile giants such as Toyota and Nissan are also aggressive in entering India market. Therefore, Suzuki aims to make the most of “first mover advantage” strategy and to establish a system for stable supply in the rapidly growing promising market before the competition gets tough.



1. What is Suzuki’s strategy to remain leading India Market?



Suzuki was the first foreign affiliate company in India to start production in 1983. The company plans to expand its annual production capacity to 1.45 million cars in 2012. With the construction of the new plant, the annual production capacity in India will be the largest in the world, which is much more than the total annual production capacity of 3 plants in Japan combined (1.4 million cars).



The new plant is to be constructed in Manesar in Haryana, the suburb of New Deli. In this area, Suzuki has already constructed the first plant with the annual production capacity of 300,000 cars (to be increased to 350,000 cars by the end of this year) that started its operation in 2007. Suzuki also is constructing the second plant with annual production capacity of 250,000 cars, to start its operation in 2012. Suzuki is to start construction of the third plant simultaneously and to install equipments depending on the demand trend. The types of cars to be produced are assumed to be primarily the best selling line products in the local market.



One main reason for consecutive construction of the plants in Manesar in Haryana is that the plant in Gurgaon in Haryana is getting old, although its annual production capacity is to be increased to 850,000 cars by the end of this year. Mr. Suzuki, the Chairman and President of Suzuki group, says that the company would like to preserve available production capacity in Manesar to establish a network that is capable of stable production and supply even when the Gurgaon plant needs to be renovated.



Suzuki, the pioneer of passenger car market in India, still enjoys market share of almost 50%. Two thirds of Suzuki’s consolidated operating profit is regarded as from business in India. Suzuki would like to make haste in establishing its leading position and improve its profitability in India business when the competition is expected to get tough, and leverage the know how from India business in strengthening businesses in other markets in Asia and Europe.



2. How are other automobile companies doing business in India?



Other global and local automobile companies have recently been entering India market, with their own respective strategy.



1) Toyota (Japan)



Toyota is to start local production and sales of small, strategic cars from the end of 2010.



2) Honda (Japan)



Honda is to start business of small cars with the price range below 500,000 rupee (approximately 900,000 yen) in 2011.



3) Nissan (Japan)



Nissan has started business of small cars with the price range below 400,000 rupee in July this year.



4) Volkswagen (Germany)



Volkswagen started its operation of its new plant with annual production capacity of 110,000 cars in March 2009, and started its business of small cars.



5) General Motors (the U.S.)



GM started its business of small cars with the price of approximately 300,000 rupee in January this year.



6) Tata Motors (India)



Tata Motors started operation of its plant that exclusively produces Tata Nano, its low price range car, in June this year.



3. Why worldwide automobile companies are aggressive in starting and expanding business in India?



The reasons are the fact that India is a promising market and that success in India business will a requisite for global companies to expand their business in other emerging markets.



1) India is a promising market



With its economy growing, India’s automobile market is expected to grow. From statistics, it is generally said that popularization of automobiles start when GDP surpasses 1,000 USD and India is currently at that stage. It is estimated that 4 million cars will be used in India in 2015, when 40% of China’s automobile production capacity is to be excess in 2015, according to the estimation of China government. The pace of automobile market expansion in India is expected to accelerate when middle-income group gets big.



2) Success in India business determines success in other emerging market



In India, approximately 80% of new cars are passenger cars, and over 60% of passenger cars are small cars with engine size below 1200cc. Volume price range in India is 300,000 – 450,000 rupee (approximately 550,000 – 800,000 yen), and is regarded as the most competitive market in the world for cars with low price range.



With this background, India business is the core of their global strategy of small cars, and success of India business is likely to determine their business success in worldwide emerging markets. This is because automobile companies are to accumulate know how of development, production and marketing of low price range cars through their business in India then expand their business in other emerging markets.