1.

1 Brief History of Industry

Development started as early as the 17th century with the invention of the first steam-
powered vehicle, which led to the creation of the first steam-powered automobile capable of
human transportation, built by Nicolas-Joseph Cugnot in 1769. Inventors began to branch
out at the start of the 19th century, creating the de Rivas engine, one of the first internal
combustion engines and an early electric motor. Samuel Brown later tested the first
industrially applied internal combustion engine in 1826. Development was hindered in the
mid-19th century by a backlash against large vehicles, yet progress continued on some
internal combustion engines. The engine evolved as engineers created two- and four-cycle
combustion engines and began using gasoline as fuel. Production vehicles began appearing
in 1887, when Karl Benz developed a petrol or gasoline-powered automobile and made
several identical copies. Recent automobile production is marked by the Ford Model T,
created by the Ford Motor Company in 1908, which became the first automobile to be mass-
produced on a moving assembly line. The Indian automobile industry is one of the biggest
markets in the world, both in terms of usages of vehicles and production of the vehicles.
Speaking of the historical roots of the automobile market in India, The first time a vehicle
entered the road was in 1897. Until 1930, India had no manufacturing facilities and
automobiles were imported directly from other countries. The historical decade in the
manufacturing process was that of the 1940s, in which Indian companies sucndustan Motors
and Premier began manufacturing cars from other firms. The first car launched in the Indian
market after 1940. During the same decade, Mahindra & Mahindra also began to produce
utility vehicles.

A brief history of the Indian auto industry

Shortly after independence in 1947, the government of India tried to create an automotive
component manufacturing industry to complement the car fraternity. From 1960 to the
1980s, the Indian market was dominated by Hindustan Motors, which accumulated a large
amount of participation due to its Ambassador model. .However, from 1950 to 1960, the
industry grew at a slow rate due to the trade restrictions imposed on imports. Shortly after
this repressive phase, demand increased, but to a lesser extent, what was observed mainly
in the segment of tractors and commercial vehicles. It was in the 1980s that the two firms,
Hindustan Motors and Premier, were challenged by a new participant, Maruti Udyog Limited.
Shortly after the liberalization period, carmakers who were previously not allowed to invest
in the Indian market due to strict policies arrived in the country . Post liberalization, the
alliance between Maruti and Suzuki was the first joint venture between an Indian and a
foreign company. Slowly and steadily, economic reforms brought the entry of major foreign
companies such as Hyundai and Honda, which expanded their bases to the country. From
2000 to 2010, almost all major automotive companies expanded their presence in India by
establishing manufacturing facilities in different parts of the country.

As the manufacturing process in the early 2000s gained strength, car exports were quite
slow in that period. Maruti Suzuki was among the bestselling car brands and that began
sending vehicles to the main European markets.

Facts of Indian auto industry

• The 2wheeler contributes to 79.17% of the total automotive production in the

country.
• Constant growth in demand due to the steady increase in income, the middle class,
and a young population
• The Government of India takes initiatives to establish manufacturing plants through
Make in India
• India has a large pool of skilled labor and a growing technological base
• It has the 12th largest population in the world with a growth rate of 20.8%, which
increases the demand for luxury cars.
 • By 2021, India’s participation in the global passenger vehicle market is expected to
reach 8%.
• The evolution of the automotive industry contributed a lot to the economic growth of
the country. It also helped the finance and insurance sectors. Over time, vehicle
insurance was established and governed by the Motor Vehicles Act of 1988. It
announced mandatory insurance for vehicles driven on Indian roads.
•

The Historical Background

The first car that plied on Indian roads was as early as 1897 and the first Indian to own a car
in 1901 was Jamshedji Tata. It was in 1942, before India’s independence that Hindustan
Motors manufactured the first automobile in India. Soon after India’s independence, the
Government of India tried to boost the sector by encouraging manufacturing of automobiles.
Before that, the cars were imported directly.

The automobile sector formally came into being in the year 1952 when the Government
appointed its first tariff commission with the aim of indigenizing this industry. The year 1952
also marked the introduction of passenger cars in the country. Manufacturers like Hindustan
Motors, Premier Automobiles and Standard Motors came into the limelight.

Even SUV’s started being manufactured, cumbersome and medium commercial vehicles
were made by 7 manufacturers which included Ashok Motors, Simpsons and Co., Premier
Motors and more. Two- wheeler vehicles like scooters, motor bikes or mopeds were
manufactured by Bajaj Auto, Escorts Group, Royal Enfield, Automobiles Product of India,
Ideal Jawa, etc.
Motor Liberalization

It started from a phase where there were few options with automobiles. This phase
continued for an extended period until the phase of the liberalisation. It encouraged many
international players to foray into Indian markets. Many of them collaborated with the local
manufacturers to form companies to capture markets as per the needs of local customers.

Motor Insurance

During the early years of the Indian automobile industry boom, people were not keen on
getting their cars insured. This led to high risk on the roads with no financial aid to vehicle
owners and third-party liabilities .The Motor Vehicle Act of 1939 and its successor, the Motor
Vehicle Act of 1988, ensured every vehicle would have insurance. Thus, this reduced the
financial distress in case of accidents.

With the compulsion, people bought insurance policies on a broad scale. In time, people
realised the need for insurance not only because of the law but also for their financial safety.
Soon, the insurance sector tapped on this mindset. They started introducing offers and
discounts to gain customers they made gaining a motor insurance easy and affordable

Motor insurance came to be of 2 types. One is third party insurance, where the insurer would
reimburse the third-party liability charges, which covered damages caused to the third party.
Two, the comprehensive policy, where damages caused to the third-party, and the policy
holder’s vehicle was covered.
Comprehensive plans are wide in nature, making it possible for individuals to insure their
cars’ expensive parts and accessories too. Riders to insurance policies could enhance their
features. These include accidental death cover or zero depreciation cover. With the
evolution of computer technology, online insurance purchase and renewals are possible.
Apart from the ease of buying online, it is paperless and hassle-free too. The discounts
offered by various companies can help you get a plan with an affordable premium.

1.2 Business process of Industry

The automobile industry is an important driver of the economic growth in India and one of
the successful sectors in which the country has high participation in global value chains
(GVCs) This chapter analyzes the role of government policy, infrastructure, and other
enabling factors in the expansion of the automobile and automotive component sectors and
the direction they are likely to take for growth path in the next few years. The analysis in this
chapter is organized into seven sections: The first section discusses the structure and
makeup of the Indian automobile industry. The second section analyzes the growth of the
sector over the past decades, while the third section discusses the role of government. The
fourth section deals with other enabling factors in the growth of the industry. The fifth
section analyzes initiatives in upgrading and innovation. The sixth section includes a
discussion of the future scenario and the seventh section concludes.

Structure and makeup of the Indian automobile industry

The Indian automobile industry – comprising of the automobile and the auto motive
components segments – is one of the key drivers of economic growth of India. Being deeply
integrated with other industrial sectors, it is a major driver of the manufacturing gross
domestic product (GDP), exports, and employment. This sector has grown on account of its
traditional strengths in casting, forging and precision machining, fabricating (welding,
grinding, and polishing) and cost advantages (on account of availability of abundant low-cost
skilled labor), and significant foreign direct investment (FDI)inflows. India was the sixth
largest producer of automobiles globally with an average annual production of about 29
million vehicles in 2017–2018, of which about 4 million were exported. India is the largest
tractor manufacturer, second largest two-wheeler manufacturer, second largest bus
manufacturer, fifth largest heavy truck manufacturer, sixth largest car manufacturer, and
eighth largest commercial vehicle manufacturer. The contribution of this sector to GDP has
increased from2.77%in1992–1993to about 7.1% now and accounts for about 49% of
manufacturing GDP (2015–2016). It employs more than 29 million people (direct and
indirect employment). The turnover of the automobile industry is approximately US$ 67
billion (2016–2017) and that of the component industry is US$43.5 billion (2015–2016) As
per the OICA statistics, the Indian industry accounted for 4.92%of vehicle production
globally in 2017 (5.38% of production in the car segment and 3.48%of production in the
commercial vehicle segment).

India is a prime destination for many multinational automobile companies with aspirations
of business expansion in Asia. It attracted about US$ 14.48 billion (5.2%of total) in
cumulative FDI equity inflows between 2000 and 2015.The basic advantages that the
country provides as an investment destination include cost-effectiveness of operations,
efficient manpower, and a fast-growing dynamic market. In the past, major investments have
come from Japan, Italy, and the USA followed by Mauritius and Netherlands. The industry
manufactures a wide range of products to meet both domestic and international demands.

Table 1 shows the market share of different segments of the motor vehicles industryin2015–
2016.Irrespective of any policy regime, the two-wheelers segment has dominated the
market share. Its share in production increased from around 54% in 1970–1971 to 80%in
1990–1991, closeto75%in the 1990s and 80% now
Table 1

Indian Automobile Market and Market Share (%) by segment, 2017–2018

Three wheelers 3
Passenger vehicles 13
Two wheelers 18

Till The 1980s, the commercial vehicles were the second largest segment (after two-
wheelers)holding around 20% share in production. After the mid-1980s, passenger
vehicles emerged as the second dominant segment, increasing its share from 7% in 1985–
1986 to around 15%in2011–2012and 14% in 2015–2016. Sales of passenger cars touched
1.2 million units in 2006 and3millionunitsin 2016–2017 to maintain the second largest
market share in the industry

Growth path of the Indian automobile industry

India’s indigenous passenger car industry was launched in the 1940s with the establishment
of Hindustan Motors and Premier Automobiles Limited. The two companies together
garnered most of the market share till the 1970s. The market for automobiles was not large
given the low rate of economic growth in the country at this time, and thus the industry had
a very slow-paced grow till the 1980s. Efforts to establish an integrated auto component
industry were initiated in the 1950s. The industry was protected by high import tariffs, and
the production was catered to the demands of local automobile manufacturers.
Manufacturing was licensed, and there existed quantitative restrictions on imports of
automobiles and automotive components. However, a significant demand for passenger cars
was emerging as the country’s population and per capita income began to grow. The
government felt the need to introduce modern, fuel-efficient, and low-cost utility cars that
could also be affordable for “the common man”

First Wave of FDI from 1981 to 1991

FDI in automotive assembly was allowed in two major waves in 1983 and in 1993. This FDI
was mainly “market-seeking” in nature Government policies such as import barriers and
local content requirements contributed to the influx of FDI and helped the industry to
compete with international players.

In February 1981, an Indian company called the Maruti Udyog Limited (MUL) was
incorporated as a government company with Suzuki Motor Corporation as a minor partner
to make an efficient people’ scar for middle-income class in the country. In October 1982, the
company signed the license and joint venture agreement with Suzuki. Suzuki took up 26%
equity in the company and made an investment of US$ 260 million. MUL created history by
rolling out its first vehicle in 13 months, the Maruti 800in1984. This was the first
domestically produced car in the country with completely modern technology. MUL made
significant strategic moves including building a very strong ancillary vendor network around
it and achieved an installed capacity of one lakh unit garnering about 62%of market share in
a decade. In 1989, Suzuki increased its equity stake to 40% and in 1992 to 50%. However,
private sector participation was still restricted in the passenger car segment with only three
major players–MUL, Hindustan Motors, and Premier Automobiles Limited.
Second Wave of FDI Since 1992

In the middle of 1991, the Indian Government made significant changes to its economic and
industrial policies leading to the liberalization of the markets. This provided the impetus for
the Indian automobile industry to flourish further. A new automobile policy was launched
in1993, facilitating the entry of global assemblers. Auto licensing was abolished in 1991, and
the weighted average tariff was lowered from 87% to 20.3% in 1997. The PMP policy ended
in 1992. The Indian Government introduced a memorandum of understanding (MOU)
system that continued to emphasize localization of components, up to 50%, for approving
financial collaboration proposals on a case-by-case basis, which was raised to 70% later.
Mass emission regulatory norms for vehicles were introduced, and a national highway policy
was announced in this decade.

In 1997, automatic FDI approval of JVs with a 51% majority share for the foreign partner
was allowed. Liberalized policies and the attraction of a huge unsaturated market made
many globally competitive automakers to enter the passenger car market. The most common
route of entry was through JVs with Indian firms. Some manufacturers also left the market
due to increased competition. Table 2 illustrates the entry of major assemblers in the Indian
market and their mode of entry for the period between 1983 and 2007.

Table 2
Mode of entry of selected companies, 1983–2007

Company Mode of entry Year

(a) Before 2000

Suzuki JV with government (Maruti) 1983

Mercedes-Benz JV with Telco 1995
PAL-Peugeot JV with Premier Automobiles 1995
Daewoo Motors JV with DCM 1995
 Honda Seil JV with Shriram 1995
Ford Motors JV with M&M 1996
General Motors JV with Hindustan Motors 1996
Hyundai 100% subsidiary 1996
Toyota Kirloskar JV with Kirloskar 1997
Motors
(b) Post-2000

Skoda (Volkswagen) 100% subsidiary 2001

Renault JV with Mahindra 2005
Nissan 100% subsidiary 2005
BMW 100% subsidiary 2007

Japanese participation in the Indian automobile industry brought significant changes to the
structure of the passenger car market, including utility vehicles. Gradually, established
players such as Telco entered the commercial passenger car segment capitalizing on their
engineering capabilities, and economies of scale , and domestic players in the commercial
vehicle segment started developing passenger cars on a limited scale. Indian companies such
as Telco, M&M, Hindustan Motors, Premier Automobiles, and DCM entered into JVs with
Ford, Mercedes, General Motors (GM), and Peugeot for assembly of medium-sized cars from
knocked-down units. This increased the market competition and restructured pressures on
existing players.

The role of foreign presence in the passenger vehicle segment grew much more than all the
other segments of automobiles, followed by the multi-utility vehicle segment. Thus, foreign
partners now hold all or a greater share of the equity in most of these cases even though
most of them initially formed JV of equal sharing of equity .The inability of the Indian
partners to contribute toward capacity expansion allowed foreign partners to increase their
stake or take total control by buying out their Indian partners.

In both the waves of FDI that occurred in 1983 and post-1992 period, a significant amount
of FDI by the multinational corporations (MNCs) flowed into the country to build modern
plants. Maruti Suzuki’s investment in the early 1980s was made possible mainly due to its
willingness to invest capital. Subsequently, various MNC manufacturers have made
investments of millions of US dollars in the country. In the post-2000 period, Indian firms
such as Maruti Suzuki slowly started moving toward building its own design and
development capabilities. Tata Motors made rapidst rides toward developing an advanced
level of technological capability by launching the first indigenously developed Indian car,
“Tata Indica” (1998). In 2002, M&M launched “Scorpio” as a sport utility vehicle(SUV)–a
product of in-house design and development effort. In 2004, Tata Motors signed a JV with
Daimler-Benz for manufacturing Mercedes-Benz passenger cars in India. The Mercedes-
Benz India Limited plant assembled completely knocked-down units imported from abroad.
Increased competitionnled tore structuring and cutting of costs, enhanced quality, and
improved responsiveness to demand. MNC automakers such as Hyundai, Nissan, Toyota,
Volkswagen, and Suzuki which had established production plants in India eventually started
using India as an export platform for the iroverseas networks. The small car segment did
particularly well, and India’s potential as a global hub for manufacturing small cars began to
be recognized.

In the last decade again, various trade and investment restrictions were removed to speed
up momentum for large-scale production. As of today, the government encourages foreign
investment and allows 100% FDI in the sector via the automatic route. The industry is fully
de-licensed, and free imports of automotive components are allowed. India is the second
fastest-growing market for automobiles and components globally (after China) With an
outward vision of component makers, and competitive pressures from international firms,
the component industry had to upgrade process and product qualities and technology
standards to gain and sustain capabilities. Many manufacturers now adhere to the global
environmental norms regarding emission/technological standards and quality
certifications. The industry grew by around 20% annually in the 1990s, and the average
annual growth of exports was around 15% during that period. Over the years, it has been
able to modernize its technology and improve quality and has developed capabilities to
manufacture components for new-generation vehicles. Indian companies maintained their
traditional strengths in casting, forging and precision machining, and fabricating (welding,
grinding, and polishing)at technology levels matching the required scale of operations. .
However, calculations have been made by other authors for earlier periods and different
segments. In the passenger car segment, there are more than 30 international quality models
in the market, some of which are now being exported to MNCs’ home markets. Leading
Indian manufacturers are in the process of transforming from local players to global
companies. India’s domestic carmakers, viz., Tata Motors, M&M, and Ashok Leyland ,have
developed manufacturing facilities, significant R&D, technology development, and
companies have bought capacity or made alliances with other manufacturers in East Asia,
South America, Africa ,and Europe.

1.3 MARKET DEMAND AND SUPPLY-Contribution to GDP-Revenue Generation

As mentioned in the discussion of economic benefits and costs concerning clean cars, just
2.2%oftheglobal automobile market in 2010 consisted of these alternative vehicles (JD
Power andAssociates2010). The clean technology portion of the auto industry thus has a
long way to go in order to capture sustained market share from traditional producers.
Several factors contribute to this inhibited market demand and supply for clean cars.

Gasoline prices have been pointed to on multiple occasions as the primary determining
factor of market demand for “clean cars” (Gallagher and Mueh legger 2008, Beresteanu and
Li 2011). But variability in gasoline prices may not always produce positive spillovers within
the clean car industry .In their 2007 analysis, three Rand researchers found that the
calculated net present value of vehicles employing the three most popular alternative
technologies (hybrid, diesel, and an E85mixture)would decrease for all three technologies if
gasoline prices were to decrease after switchover (Keefeetal.2007). Gasoline prices can thus
work in both ways. Besides gasoline prices, there are several other factors that can (and do)
dampen demand for clean cars. The most basic one concerns the prices of both the clean
vehicles themselves. At present, median clean car prices are well above their conventional
counterparts. (Granovoskii et al. 2006, 1187). Until demand for these clean cars increases,
prices are likely to remain high. Economies of scale have yet to kick in vis-a-vis the majority
of clean car production (with the Prius being an exception), so marginal costs of production
remain extremely high. Indeed, most car companies with “clean” product lines claim that
they need government support in order to embark on large-scale production and marketing
campaigns(JD Power and Associates 2010, Beresteanu and Li 2011). The table below,
adapted fromGranovskiietal.2006, illustrates these price disparities among car types

Vehicle Fuel Price ($

Thousands)
Conventional Gasoline 15.3
Hybrid Gasoline 20.0
Electric Electricity 42.0
Fuel Cell Hydrogen 100.0

The inputs and service required to maintain and power them constitute the second factor
inhibiting demand for clean cars (Brownstone et al. 1994, 2-3). Transporting a typical vehicle
inputs, such as hydrogen, requires new infrastructure and modes of transportation to be
built and employed to ensure and meet standardization, compatibility, and safety measures.
Even when these inputs are dispersed, employing them requires new training of station
employees in handling and facilitation, not to mention the new methods and knowledge that
need to be distributed to service these vehicles. While this latter aspect may certainly create
jobs, one must keep in mind that individuals may prefer to remain in typical
service/mechanic professions due to higher, steadier rents at present. Until a large-scale
switchover occurs, such infrastructural conditions are likely to persist.

The third factor inhibiting market demand is the scant infrastructure available to support
and maintain these alternative automobile technologies (Keefe et al. 2007). Returning to the
hydrogen fuel-cell example: the fact that the majority of refueling stations are concentrated
in California significantly impacts the extent to which this technology can be adopted by and
adapted toother parts of the United States (and the world overall). If one resides in
Massachusetts and must travel to New York in order to refuel, purchasing this vehicle is out
of the question from the point of view of a rational consumer.
The fourth inhibiting factor concerns typical clean car features, especially among hydrogen
fuel-cell and electric vehicles (Andrews and De Vault 2009). For the former, previously
discussed issues concerned the transportation of hydrogen and the scant number of fueling
stations at present. For the latter, short battery life, and by extension limited driving range,
are some of the main drawbacks for consumers. These concerns only increase with
acknowledgment of the a for mentioned limited infrastructure and service knowledge
existing to support these models. On the supply side, the potential market for clean cars
seems bleak from the standpoint of producers, as multiple factors inhibit both innovation
and production vis-a-vis clean cars. Because of the above demand side factors ,auto
companies have witnessed limited large-scale purchases of these clean cars (JD Power and
Associates 2010). These low levels of consumption prevent manufacturers from scaling up
their production processes for these vehicles, subsequently perpetuating reliance on
government subsidies to produce vehicles that, it seems, no one wants. These subsidies have
the secondary effect of perpetuating production inefficiencies and inhibiting innovation and
research that might result in lower production costs for these auto companies, outcomes that
can potentially lead to market stagnation and/or failure.

Contribution of GDP in automobile industry

A long-term regulatory roadmap is required for the automobile industry to grow and
increase its contribution to GDP to 12 per cent from the current 7 per cent, according to a
report by Nomura Research Institute Consulting and Solutions India (NRI India). While the
government plans to bring Indian automotive industry at par with developed nations in
safety and emission regulations, the report said there is a need to study regulations in Indian
context as conditions in the country are different from developed nations in many aspects.
The Indian automotive industry has kept pace with these changes and in recent years has
undergone a number of changes in the domain of passenger safety, emission control and
connected technology.
"One such highlight is leapfrogging from BS-IV to BS-VI emission norms and hence achieving
parity with Euro emission norms," the report said.

In addition to the positives these changes have brought to the Indian market, they have also
brought Indian automotive industry at par with the developed regions like Europe, Japan
and the USA. Further, the much needed amendments to the Motor Vehicle Act (MVA) have
been commend able steps by the government of India, it said. Despite being one of the biggest
automobile markets globally, automobile penetration in India is still only around 3 per cent
as compared to China with 18 per cent, Japan around 60 per cent, andover80per cent and 90
per cent in the UK and the US respectively. "This low penetration indicates India's growth
potential. Implementing multiple regulations at a time will increase the prices of the vehicles
leading to subduing growth in the price sensitive Indian market, which can be detrimental
for India's overall economic growth," the report pointed out. To avoid such a scenario, it said,
"A visionary roadmap with clearly laid out timelines will provide clarity to the entire
automotive industry. It will provide sufficient time for infrastructure development and
enable OEMs (original equipment manufacturers) and suppliers to plan the development
time and costs judiciously."

Revenue generation of automobile industry

The automotive sector is expected to generate up to $300 billion in annual revenue by 2026,
contributing over 12 per cent to the nation’s gross domestic product and creating 65 million
more jobs, shows a document prepared jointly by the industry and government. The
Automotive Mission Plan 2016-26 seeks to make the automotive industry the engine of the
'Make in India' initiative. It was unveiled on Wednesday amid concerns that high taxes and
the absence of key reforms like the goods and service tax in a sluggish economy could prove
to be major impediments to growth. Never the less ,the document projects India’s
automotive industry to grow to over 70 million units a year by2026, taking it into the league
of China and the US. The AMP is aimed at mapping the progress of the country’s automobile
industry and setting its goals over the next decade. Around 23 million vehicles were
produced in India in the year ended on March 31, 2015. The industry is
estimatedtobeworth$74 billion now. “I think a little too ambitious, if we look at the current
infrastructure The second Automotive Mission Plan unveiled by the Society of Indian.

Automotive Manufactures has targets for various segments of the industry, in terms of size
and contribution to the economy. There are speed breakers in the form of slow government
policies with no clear roadmap on GST and high taxes imposed on the auto industry … the
cumulative burden of taxes to customers on cars goes up to 84 per cent, making the industry
highly uncompetitive Others raised concerns over delayed reforms. Mahindra & Mahindra
Executive Director Pawan Goenka said political stalemate was pushing several initiatives
and this could derail economic recovery. Hero MotoCorp Chairman Pawan Munjal said: “We
hope the government policy frame should improve in tune with time as we move ahead and
is move in the right direction in the long-term with key reforms being addressed at the
earliest To achieve the new targets, the government must deliver on its promises, such as on
ease of doing business, said YS Guleria, senior vice president for sales and marketing at
Honda Motorcycle and Scooter India.

1.3 Level and Type of Competition – Firms Operating in the Industry

Although perfect competition cannot be possible as it is idealistic, but near to perfect

competition industries do occur. We shall discuss the automobile industry in Pakistan. All
those companies that provide spares and locally assembled manufactured cars are a part of
the auto mobile industry of Pakistan, Toyota, Honda, Suzuki, Mitsubishi Hyundai etc. to name
few. As in perfect competition there is no asymmetric information i.e. the prices of the
vehicles, their performance, their specifications and their availability at dealers is known to
all.

There is a huge demand for vehicles and so there are a huge amount of dealers spread
throughout Pakistan. As nothing is hidden from the customer it is safe to assume that there
is perfect knowledge in the market. Perfect knowledge is a key ingredient for perfect
competition, reflecting that automobile industry is near-perfect competition.

Cell phones today are made from cutting edge technologies and the pace of their
development is very fast, research and development costs are high but because as
production techniques are enhanced and technologies become cheaper so a particular cell
phone becomes cheaper and new cell phone models will be highly priced. A communication
has globalized, boundaries have been removed and with new Information technologies
coupled with the web has helped streamline the way company information is transmitted
and perceived, helping in effectively manage and provide up-to-date support on products
and bridge business to business and business to consumer gaps.

The ability of a company to identify and then customize its product for a particular niche is
segmentation strategy. Here a company will provide a product in accordance to the
requirements and needs of a particular area, income class, age, gender, etc. and then provide
them with the product. This “rifle” approach helps companies achieve the optimum supply
and demand production. Samsung in Pakistan have differentiated themselves from their
competitors by providing not only the largest variety of cell phone but also their cell phones
are marketed as the best value for money in reliability ,availability of peripherals (chargers,
headphones etc.) and re-sale as opposed to that of Sony Ericsson which markets it
technology but are perceived as fragile cell phones. Samsung provides one of the largest
varieties of cell phones which can be classified in to one of many categories intended for
different kinds of users.

There are both cheap cell phones and high end cell phone for different income classes and
there are categories of business class cell phones. Such as the E-series and the high end smart
phones the N 16series. The new C-series are intended for the younger generation with either
dual SIM options or social networking cell phone options.

International trade is exchange of capital, goods, and services across international borders
or territories. In most countries, it represents a significant share of gross domestic product
(GDP). An import is the purchase of a good or service made overseas. An export is the sale of
a good or service overseas. Industrialization, advanced transportation, globalization,
multinational corporations, and outsourcing are all having a major impact on the
international trade system. Increasing international trade is crucial to the continuance of
globalization. Without international trade, nations would be limited to the goods and
services produced within their own borders and would all be much poorer.International
trade is in principle not different from domestic trade as the motivation and the behavior of
parties involved in a trade do not change fundamentally regardless of whether trade is across
a border or not.

The main difference is that international trade is typically more costly than domestic trade.
There might be a few restrictions, but not to many. These firms are not “perfectly” mobile as
with perfect competition, but they are largely unrestricted by government rules and
regulations, start-up cost, or other substantial barriers to entry. In the automobile market
the mobility of the resources is easy during the operation but there are certain rules and
regulations, permission needed by the firm in the starting of business.

There are many barriers which can prevent the business to enter into an industry, they can
be economies of scale, product differentiation, investment requirements, switching costs,
access to distribution channels, etc. All of these factors can decrease the competition inside
an industry as it prevents other firms from entering it, however small firms are the ones
which are mostly affected by it. But if these barriers are eased, than new organizations can
enter the industry and there for increasing the competition in it. So, if any new firm or
organization enters into the industry and for an organization to address these issues they
can easily handle the market activities by differentiating their products or by lowering their
cost of production which would hence lead to decreased prices of the products, thus making
the new firms or organizations to face difficulty in being able to operate in that particular
industry.

These products are products that a customer can choose over an existing product in that
industry. Customers usually do so when the other product is not available in the market or
the prices of that product are too high for them to afford. Therefore they then look for an
alternative product which is then known as a substitute product. They are usually cheap as
well. For example, there are two products tea and coffee in an industry.
We assume that majority of the people are using tea and its price goes up and the price of the
coffee remains the same, then people would shift to the alternative which would in this case
be the coffee. This act can be said to be an act of choosing a substitute (an alternative) over
their existing product. So, the suppliers have a control over the organizations or firms
operations over some degree, because if the supplier increases the prices of those raw
materials then it will lead to an increase in the price of that product. However, this can only
happen or take place when there is only one supplier of a particular good or product, hence
he would know that no matter what the organization or firm would have to buy from him,
thus he would look for more profits and increase his prices. To address this issue the
organization or firm should establish a strong and a close relationship with their suppliers
or they should extent their business by backward integration in order to take that power
from the suppliers.

When the numbers of sellers increase in the industry, then the level of competition in
industry increases at the same time as well. The level of competition in the industry also
defines the situation in the market. It’s comparatively easy to gain a competitive advantage
in an industry when there are just a few large firms in it. But in a large market where many
firms operate, achieving a comparative advantage would be a much difficult thing to do. That
is a customer should get a good return for their money. The place where the product is
available should be easy enough for the customers to reach, providing them with
convenience. The promotion of the product should be them by communication, for example
the advertising of the products via newspapers, billboards, television. This would make an
awareness of your product which is a positive sign for attracting customers towards your
products.

Firm operating in automobile of industry

The automobile (automotive companies) sector has mushroomed over the years into a
mature and well-established industry. Innovation and manufacturing of vehicles has helped
the industry to grow into a profitable one. Automobile companies have contributed
significantly to the development of the world’s economy by creating jobs paying lots of taxes
and earning loads of foreign exchange. There are several automobile manufacturing
companies in the world that produces vehicles in a large quantity.

Here we have listed the top 10 largest automobile manufacturing companies in the world.

1) Tata Motors:
Tata Motors is the Asia’s largest and 17th largest automobile manufacturing
company in the world. This company is known for its production of cars, trucks, vans,
coaches and so on. TataMotorsrecordthe highest sales and is widely popular across
the country in 2017 Tata Motors can be found on and off-road in over 175 countries
around the globe. Cars, buses and trucks of Tata Motors roll out at 20 locations across
the world, seven in India and the rest in the UK, South Korea, Thailand, South Africa
and Indonesia.

2) Mahindra & Mahindra Ltd:

Mahindra & Mahindra Ltd is a US $19 billion global federation of companies. This
company is the world’s largest tractor manufacturing company and also India’s
second largest vehicle manufacturing company. Mahindra & Mahindra is India’s top
SUV manufacturing company that product wow heelers, bus, pickup, tempo, trucks,
and commercial vehicles. This company commits to invest in technology and grow
global presence. Mahindra & Mahindra aims to multiply output both in quantity and
quality with a major focus on manufacturing excellence. This company has created
several industry-leading and category-defining brands.

3) Maruti Suzuki:
Maruti Suzuki had brought a big revolution in the automobile industry. This is one of
the old companies that expertise in the field of production of cars. This company has
manufactured cars such as Alto, Omni, Estilo and so on. The total annual production
capacity of this companyisabout14,50,000 units. Maruti Suzuki works with a mission
to provide a car for every individual, family, need, budget and Way of Life. For this, it
 offers 15 brands and over 150 variants ranging fromAlto800tothe Life Utility Vehicle
Maruti Suzuki Ertiga.

4) Hero MotoCorp Ltd:

Hero MotoCorp Ltd is one of the best companies in India. Hero MotoCorp Ltd.
(Formerly Hero Honda Motors Ltd.) is the world's largest manufacturer of two -
wheelers, based in India. This company achieved the coveted position of being the
largest two-wheeler manufacturing company in India in 2001 and the 'World No.1'
two-wheeler company in terms of unit volume sales in a calendar year. Hero
MotoCorp two wheelers are manufactured across 4 globally bench marked
manufacturing facilities.

5) Bajaj Auto Limited:

Bajaj Auto Limited is one of the leading business houses and the company’s flag ship
company, Bajaj Auto, is ranked as the world’s fourth largest three and two-wheeler
manufacturer. The Bajaj brand is well-known across several countries in Latin
America, Africa, Middle East, South and South East Asia. Their flagship company
produces Chetak scooters which were the top seller in the Indian market. The
company even made the bikes like pulsar and now they are still working on it.
6) Toyota Motor Corporation:
Toyota Motor Corporation is one of the top most automobile manufacturing companies in
the world. This company designs, manufacturers and markets various automobile product
ranges from SUVs, minivans, luxury & sport utility vehicles, trucks and buses among others.
Toyota Motor Corporation has other vehicle manufacturing subsidiaries which include
Daihatsu Motor for the production of mini-vehicles and Hino Motors for the production of
buses and trucks. Toyota car engines are fixed with either combustion or lately the hybrid
engines such as the one in the Prius.

7) Chevrolet: Chevrolet is an American division of the General Motors. The company has an
array of trucks, automobiles and commercial vehicles as the products it offers with its
services including oil changing, vehicle insurance, vehicle financing, vehicle sales and
 vehicle repairs. Chevrolet has the reputation of being a car of all the purses and all the
purposes. Its wide range of vehicles includes sub compact automobiles and medium duty
commercial trucks among others.

8) Mitsubishi Motors Corporation:

Mitsubishi Motors Corporation develops design, and manufacture, sale and purchase auto
mobiles and component parts, replacement parts. This company manufactures component
parts, replacement parts and accessories of said used automobiles. Mitsubishi helps to
bring higher productivity and quality to the factory floor. In addition, extensive service
networks around the globe provide direct communication and comprehensive support to
customers.

9) Honda Motor Co Ltd. Company: Honda Motor Co Ltd. Company is a world leading
automaker and the largest motor cycle producer in the world. Its motorcycle lines feature
everything from super bikes to scooters, with the company also being dedicated to the
production of personal watercrafts and ATVs. The models of this company include seven
luxury vehicle models as well as SUVs and others. Within its lines are also Honda Power
products and machinery such as snow blowers, tillers, lawn mowers, outboard motors and
portable generators. Engine quality, durability and economic fuel consumption are the
main reasons why customers prefer Honda machines.

10) Ford Motor Company:

Ford Motor Company is one of the leading automobile manufacturers in the world that
ranks high among the top automobile companies. Some of its most staple brands include
Lincoln, Taurus, Focus, Mustang, and Fiesta etc. The company’s automobiles are
characterized with luxury under the Lincoln Marque brand, with other brands being good
for sports and off-road performances. In the past, Ford manufactured some of the best,
trucks, buses and tractors.
 1.5 Pricing strategy in Industry

Effective pricing strategies shall help a company sell its products in a competitive market to witness
a profit. So, what are price strategies? Well, it is a way or literally an approach to find the competitive
price of service or a product in that particular market. This strategy is one of the other marketing
strategies followed in the system of every management. It is indeed a known fact that a company's
ultimate goal is to maximize their turnover. In order to maximize the profit, one has to choose the
right strategy for price setting.

Business magnate might use different combinations of price strategies to increase sales, but finding
the right strategy is a crucial step in the journey towards success. Often, the misconceived thought
on price setting is, sales volume is directly proportional to profit. An increase in sales volume is
expected to increase a company's profit. There are different strategies one can depend on in the
process of price setting. A few significant factors are given below.

Penetration & psychological pricing strategies

In order to gain a great market share, many companies embrace the penetration pricing strategy. The
company aims to set up a customer-based price in the market. This is primarily achieved by providing
a free to low price for their products or services to a limited period of time. This later on, with a
revised version comes into the market as a premium product with a little raise in the price. This
strategy is implied to meet the expectation that consumers will hop on to new brands when they'
repriced low. On the other hand, a psychological pricing strategy is a method that embraces a
consumer's emotional response rather than considering their rational one. Here consumer ignores
the quality of a service/ product but sticks on to the costing price.

Product line & economy pricing strategies

The product line pricing strategy is nothing but, providing service with an option to upgrade upon
choosing higher value packs. Consumers are pushed to compare the packages and choose a wise plus
cost-effective product or service. The other purpose of the product line strategy is to bring a
productor service to the spotlight which had low visibility or recognition earlier. Whereas, economy
pricing strategy embraces no to the low marketing cost in product or service promotion. It's more
like the budget pricing of a product or service. A great example would be promoting only a certain
range of products or services that shall gain specific and quick attention among people.
Customer value-based pricing strategy

This is the most effective method that is followed by many successful companies. Value-based pricing
is a nothing but, price setting strategy that exclusively focuses on consumer perceived value of a
service or product. This is entirely based on how consumers value the product or service and how
they find it worth buying. Many companies that offer unique and high-value products choose this
strategy in setting the price. The value-based pricing embraces customer's abilities to buy a product
by considering the unparalleled experience upon buying a particular service or a product. Many
luxury automakers find customer-value based pricing strategy an effective method of approach. A
value-based strategy will enable manufacturing companies to extend the life-cycle of existing
products and will help to establish a great bond with value-added suppliers.

Pricing analytics

Manufacturers and service providers predict the future well enough to carry out a price optimization
system. They approach the Auto be Consulting Group for a detailed analysis of pricing strategies for
automobiles. We evaluate the past performance with a specific set of market conditions and suggest
the state of conditions for the probability of profit for your product or service in the market. This will
help the automotive industry to gain an insight into pricing strategy. Pricing analytics include the
process of finding the underperformers of a particular industry. It's highly crucial to analyze why
certain product lines become your cause of down economy. We develop reports exclusively after
researching the probabilities and will let you understand the customer value definition with facts and
figures.

Customer satisfaction

When a pricing system includes detailed pricing analytics, it will definitely boost the customers'
satisfaction. The system of achieving maximum profit with minimum wasted effort shall only be
obtained upon consulting the business consultants. ACG shall help you find not only the best pricing
strategy for your company but also identify the substitute product or service that might better fit in
a customers' budget. This will help your sales team create a budget-based service or product that
shall come with a package deal to the customers which in turn allows you to enhance customer's
ability to purchase. Almost everything in business aims for justification for the value of a specific
price. Customers do not buy a product or service by just seeing the price tag, they meticulously
research before buying it. With much of comparisons, they find the right choice that will fit in their
budget and lifestyle. Our business consulting services shall help you understand how customers
understand the value of a service or product. We consider a lot of factors, impacts on buying decisions
with that of other parameters before drawing the conclusion

1.6 Industrial Performance- Global

Contrary to this notion though, is that the path to and timing of the sector recovery has been highly
diverse between regions and even countries within a region. The automotive sector in each country
faces a range of varying factors particular to their individual market conditions, and even the most
pronounced growth markets in recent years are now experiencing contraction, including Brazil (-
8.9%), Russia (-7.2%), India (-0.8%), Thailand (-23%) and Argentina (-34.3%). On the other hand,
the three largest automotive production regions of the world are enjoying growth that is keeping the
global topline afloat, including NAFTA (+5.1% or 823 thousand units), Europe (+6.7% or 1.1 million)
and China (+10.1% or 1.9 million). Accommodating this growth has become a strategic challenge for
auto motive manufacturers within these regions. Contrary to this notion though, is that the path to
and timing of the sector recovery has been highly diverse between regions and even countries within
a region. The automotive sector in each country faces a range of varying factors particular to their
individual market conditions, and even the most pronounced growth markets in recent years are now
experiencing contraction, including Brazil (-8.9%), Russia (-7.2%), India (-0.8%), Thailand (-23%)
and Argentina (-34.3%). On the other hand, the three largest automotive production regions of the
world are enjoying growth that is keeping the global topline afloat, including NAFTA (+5.1% or 823
thousand units), Europe (+6.7% or 1.1 million) and China (+10.1% or 1.9 million). Accommodating
this growth has become a strategic challenge for auto motive manufacturers within these regions.
The macroeconomic environment in China has remained tepid headed into the final quarterof2014,
with talk of stimulus measures to help revive the market. Given this context, the sustained growth in
new light vehicle sales is even more impressive, reaching 13.6 million units through August. MPV s
continue to drive much of the momentum, growing 47.5% year to date when compared to the first
eight months of 2013.

The country’s debt default remains in international headlines, and the resulting inflation and
financial aftermath has left consumer demand depleted. The auto sector is forecasted to remain
stagnant until late 2015, when presidential elections will hopefully usher in a new suite of fiscal and
monetary policy to jumpstart the economy. As the nation comes out of the World Cup frenzy and
looks forward to a conclusion to a dramatic presidential campaigning season at the end of October,
Auto fact expects as light recovery, with sales finishing 2014 with a -6% decline while production is
forecastedtoreach3.2 million units for a -10% drop. Looking ahead, Brazil is expected to recover in
both sales and assembly in 2015, although at amutedpace given the dependency on interregional
exports, particularly to Argentina

With the ongoing, unresolved tensions that remain in the Eastern European region, it comes as no
surprise that sales within the individual markets continued to decline in third quarter. Russia is
expected to reach 2.4 million units in sales, declining ~13.3% for the full year. Western sanctions
combined with an already weakened economy have contributed to a hesitant consumer base. A new
scrappage scheme aimed at stimulating new vehicle sales should help counteract the downward
trend. Similarly, assembly is anticipated to finish the year at 1.8millionunits, marking a decrease of
~11.7%. Next year and beyond, assembly is expected to bring relief with more stabilized growth as
OEMslookto continue localizing production.

1.7 Prospects and Challenge in the Industry

The automobile market is growing at about 25% for the last three years. The number of persons per
car is 200, which is very large compared to other emerging markets like Korea and Brazil which have
about 12 persons per car. There is therefore a very huge untapped market. Uncertainty exists about
the extent of growth, but a minimum growth rate of 20% is expected until the year 2000. Sales are
expected to rise to anywhere between 850,000 to 1.5 million vehicles by the year 2000. Markets are
highly price sensitive since a car is about 18 to 24 months’ salary for the average middle-class buyer.
However, incomes are rising and the economy has been growing steadily at nearly 6%. Import duties
on CKDs and components is 50%. Reduction of prices because of lower duties and taxes and
progressive indigenization, and rising middle class incomes are likely to further increase industry
growth rates. Penetration in rural and semi urban areas is extremely low and could provide fresh
markets. New entrants will have to deal with uncertainty of demand, different and evolving customer
needs, a relatively poor supplier base, a market crowded with competition and industry wide
capacity shortages. However, if there is a shake out as many analysts expect, further opportunities
for survivors will open up. Another implication is that India could emerge as a significant
manufacturing base for exports. The supplier industry is also going through massive growth,
although from a small initial base. Except for Telco, indigenous product development capabilities are
very low, and the industry has some way to go before it becomes world class.

Challenges Facing the Auto Manufacturing Industry

• Overcapacity. Like all industries, automobile manufacturing experiences ups and downs.
• Sustainability. Consumers are increasingly concerned about sustainability
• Globalization
• Urbanization.
• Attracting talent.