The Future of Luxury Cars in India for Companies Coming from Europe - Term Paper Example

 The Future of Luxury Cars in India for Companies Coming from Europe Abstract This paper analyses the Indian luxury car market for European car manufacturers. The primary focus of this paper is to figure out the influencing factors of Indian luxury car market. The PESTLE analysis indicates the impact of macro-environmental on luxury car market of India. The consumer behaviour is another major factor that affects the entire automobile industry. In recent years, the consumer behaviour for luxury car buying has changed due to economic recession and downturn. Identification of cultural dimension of Indian customers is helpful for the European automobile manufacturers. This analysis facilitates operational activities of multinational companies in India. The discussion on major opportunities and challenges of Indian luxury car market point out the future this industry for European car manufacturers. The Indian luxury car market is growing, and European automobile companies must realize the key influencing factors and develop the organisational culture as per exiting market trend of India. Table of Contents Introduction 3 Analysis and Characteristics of Indian Luxury Car Market 4 PESTLE Analysis of Indian Luxury Car Market 4 Consumer Behaviour in Indian Luxury Car Market 7 Characteristics of European Automobile Companies 8 Difference in Indian and European Business Culture and Automobile Industry 12 Future of Indian Luxury Car market for European Automobile Companies 15 Opportunities 15 Challenges 17 Conclusion 18 Reference 19 Introduction The global automobile industry has been continuously growing with ‘changing’ time. The term ‘changing’ denoted to the change in nature and characteristic of the world economy, society lifestyle of people, technology, international trade etc. However, the change in the world is uneven as it varies according to different country and regions. The difference in cultural aspects affects the entire international trade and business. This has impacted the operational activities of multinational corporations operating in different countries. They have to analyse the market potential, consumer behaviours and other cultural and economic aspects. In this respect, they need to identify factors influencing the underlying challenges and opportunities. The multinational automobile companies are also impacted by difference in cultural and economic dimensions. There are four primary factors that affect the automobile industry. These factors include technological advancement, consumer behaviours, standard of living of consumers and business policies imposed by government. Most of the leading automobile companies are multinational companies and they have expanded their business in global markets. The companies like Ford, Fiat, Audi, Honda, Nissan, and Mercedes etc. are leading multinational companies from different countries regions like Europe, USA, and Japan etc. In order to sustain in the new markets, these companies have to understand influencing factors of their target market. This paper will attempt to deal with future of Indian luxury car market for the European companies like Audi, Volkswagen Mercedes etc. The European companies have their own business culture and a specific way of management that differs from the Indian business culture. Therefore, it is necessary to analyse the characteristics of Indian luxury car market. Next, this paper will present difference in Indian and European automobile industry followed the key challenges and opportunities of Indian luxury car market for the European automobile companies. Finally, the conclusion will present important findings of the analyses and discussions. Analysis and Characteristics of Indian Luxury Car Market Indian is the largest democratic country in the world and it is also considered to be one of the largest growing markets in the world. Indian automobile industry has been experiencing a continuous growth since last decades. PESTLE Analysis of Indian Luxury Car Market There are several factors has influenced this industry. PESLTE analysis of Indian automobile industry is helpful in identifying the factors influencing this industry. The PESTLE analysis includes six important factors i.e. political, economic, social, technological, legal and environmental. These factors are discussed below. Political: the stable political condition of India is perhaps the most vital attraction for the multinational companies entering in the Indian market. The Indian Government is managed by the elected Prime Minister with its political parties for the term of five years. The Indian Government is federal republic and the head of the state is President (CIA, 2010). The Ministry of Commerce & Industry of India strives to bring improvement in economy by encouraging trade and business. The Indian Government has facilitated the international trade by implementing various foreign trade policies (Department of Commerce-a, 2006). The multination companies in India receive significant support for the central and state Government of India as the Government aims to increase the FDI for improving economic strength. Economic: India is a developing country with “open-market economy” (CIA, 2010). The economic policies aims bring liberalization in Indian business market. The Indian economy has been experiencing significant growth since last 15 years after the implementation of free trade policies. The GDP of the country according to per capita is $3,100 with real growth rate of 6.5% (U.S. Department of State, 2010). The increasing disposable income of the Indian consumer has led to increase the overall sales revenue of Indian automobile sector. A large number of Indian automobile consumers are now able to afford luxury cars. The economic condition of India plays a vital role for the European multination automobile companies operating in India. Social: the social factors are important that influence the Indian consumers’ behaviours of luxury car market. India is culturally diversified country with different social characteristic of different regions. The progress in their economic condition is the prime influencing factor. The country stands second in terms of population after china. The total population is 1,173,108,018 and it indicates high availability of consumers for luxury cars (CIA, 2010). The lifestyle of people has changed significantly and popularity of luxury cars among the high income group people has also increased. However, the distribution of wealth is uneven in Indian society. In urban society is more developed than the rural areas and around 95% of the total luxury car consumers are from urban areas. India also enjoys a young workforce who earns decent enough to afford luxurious cars. Technology: the technological advancement in Indian automobile industry has enhanced this industry. The Indian automobile consumers demand latest cars equipped with the latest technologies. The domestics and international car makers are competing in Indian marker for capturing high market by offering technological innovation in their products. The technology for Indian automobile products includes “easily accessible controls, power window buttons, electric boot opener and electric adjust mirror making it easy to drive” and “third generation safety features like Dual Front Airbags and ABS (Antilock Brake System) with EBD (Electronic Brake-Force Distribution) that enhances the stability of the car and provides a comfortable driving experience” (Desouza, 2010). For luxury cars, the Indian consumers prefer the technologies that add value to the products. In addition to this, places like Pune have become local hubs for manufacturing of cars for some of the renowned global brands. Legal: the legal framework of Indian government aims to offers equal justice in the society. The Foreign Trade Policy 2009-2014 (FTP) of India includes the legal framework for the international trade and for multinational companies in India. The automobile industry heavily relies of import and export of goods. As per the FTP, the import and export is free of any hindrances (Department of Commerce-b, 2009). In India low cost labour is a vital resource. However, the labour regulation in automobile industry is inflexible that poses a challenges for automobile companies. Another major problem of Indian Government is that it is not effective in protecting the intellectual property rights that affects the efficiency of multinational companies operating in India (International Trade Administration, n.d.). Environmental: The global automobile companies are concerned with the environmental responsibilities. They are trying to introduce new technology for reducing the carbon emission from automobile products. However, the Indian automobile industry is less concerned regarding the environmental responsibilities. The domestic as well as the multinational companies do not pay much attention for increasing carbon pollution in India (Centre for Science and Environment, 2010). However, in future, it is expected that the Indian Government will impose strict laws on automobile industry for environmental. Therefore, the European companies must follow fair practices for environmental issues. Consumer Behaviour in Indian Luxury Car Market Consumer behaviours plays very important role in automobile industry. In India, the automobile companies offer wide ranges of automotive product as per the consumers’ taste and preference and their economic conditions. The consumer behaviour of Indian luxury car market is influenced by their age and economic condition, technological advancement, design of car, brand etc. The average age of the Indian population is 25 years and the demand for the luxury cars among this age group is higher in Indian market. They prefer latest design and high technology in their luxury cars. The household income of the Indian consumer is the most crucial factors affecting the luxury car market. The following table shows number of Indian household and their annual income. Figure 1: Indian Household Income in INR (Source: Dutta, n.d.) The high income group of households are able to afford luxury cars. The households with the income of INR 2,000,000 per annum and above are able to buy luxury cars. The consumers’ behaviour of Indian automobile industry is changing continuously. Their behaviour towards luxurious cars depicts their nature and buying behaviours. Characteristics of European Automobile Companies The European automobile sector is a matured industry and the leading players have extended their operations in the global market. The European automobiles companies have played very curial role in developing the European automobile sectors. The automobile industry of Europe is one of the major contributors to the economic growth of European Union. The leading car manufacturers of Europe includes the companies like Fiat, BMW Group, Renault, Volkswagen, Audi, Daimler, Mercedes etc. These companies have expanded their business in the major automobile markets of the world. They belong to the same region and they have certain similarities. Some of these have discussed below. The primary focus of the European car manufacturer is on technological advancement. Technological innovation is an integral part of their strategic process. In this respect, the use of information and technology communication (ICT) is prominent feature of the European automobile companies. In order to implement ICT in their organisations, the companies have restructured their strategies to apply network model. In this process, they have to restructure their organisations horizontally and vertically (Antonio et al, 2001). This has facilitated the entire automobile industry of Europe. They also response as per the consumer demand and they follow technological innovations for bringing product development. In order to serve the existing consumers with high quality products, the companies heavily invest on their research and development programs. As per the European Automobile Manufacturers’ Association, nearly 6% of total turnover is invested in R&D every year (ACEA-a, 2009). The high quality services are another major feature of the European automobile companies. The after sales services are very important for consumer satisfaction. The car manufacturers are trying to offer higher and value added services to customers for achieving competitive advantages in market. ‘Mobility service’ offering is the latest trend of European car market (European Commission, 2002). The European car manufacturers are concerned with the environmental responsibilities. These companies include environmental issues in their sustainability strategies. They aim to bring new technology for reducing the negative impact on environment and society caused by their operational activities. These companies have developed proper method for controlling the air quality, carbon emission, noise pollution etc. They also focus on implementing the recycling process in their operational activities. Most of the companies are trying to develop fuel efficient cars for reducing carbon emission and fuel expenses (ACAE-b, 2010). The increasing demand of the automobile products in Europe has led to increase the degree of competition in this industry. The organisation culture and structure has been developed as per the competitiveness in the market. However, the organisations follow a fair rule of competition in the market. Their primary focus is on achieving competitive advantage in the industry to gain upper hand position. The car makers offer a wide range of car brand to serve large number of consumers. The following table shows some of the leading European car manufacturers and their brands. Table 1: European Car Manufacturers and their brands (Source: Lung, n.d.) The car manufacturers segmented their brands as per the demography of consumers. The following figure represents segmentation of European car market. Figure 2: Segmentation of European Car Market (Source: Lung, n.d.) As per the above figure, the demand of the upper middle range cars is very high in Europe. Most of the companies are trying to offer cars of upper middle ranges. However, the overall productions of European car manufacturers have reduced in 2009. Figure 3: Production of Passenger Cars in Europe (Source: ACEA-c, 2010) Difference in Indian and European Business Culture and Automobile Industry Before entering a new market, a multinational corporation must identify the basic difference between its existing market and new target market, particularly when they belong to different regions. There are many factors that causes difference like socio-cultural, economic, government and political, lifestyle etc. These factors affect the leadership and management present in two different regions. The multinational organisation has to set strategies as per the exiting market trend and characteristics of target consumers. The multinational companies need to understand the business intercultural communication of the different regions. “Intercultural communication can be defined as communication between people from different culture” (Brunsch, p.2). From the business perspective, ‘business intercultural communication’ is important for management and marketing in different cultural market. The cultural dimension plays very important role in difference in business culture. The European automobile companies must identify cultural difference between Europe and India. In India, the culture and the mentality of population affects structure of the society and business environment. It necessary to understand the term ‘culture’, and in this respect many scholars has explained their views regarding culture. According to Hofstede (1980), “the collective programming of the mind which distinguishes the members of one group from another” and it changes with time due to changing lifestyle of people (Belshek, p.3). The business culture also changes with time. However Greert Hofstede has identified five major dimensions of the culture that helps to identify basic features of a particular culture. These are power distant (PDI), individualism (IDV), masculinity (MAS), uncertainty avoidance index (UAI) and long-term orientation (LTO) (Mooij, p.33). The cultural dimensions influence the international trade by affecting leadership, personality traits, communication, motivation and the culture of business organisation. The cultural dimension of India will helps to understand the business culture automobile industry. The following figure depicts Hofstede’s five cultural dimensions for India. Figure 4: Cultural Dimensions of India (Source: Geert Hofstede – itim, 2009) In order to compare the Indian cultural dimensions with the average cultural dimensions, the following figure shows world’s average cultural dimensions. Figure 5: World’s Average Cultural Dimensions (Source: Geert Hofstede – itim, 2009) As per the above diagrams, the PDI of India is 77 comparing to world’s average 56.5 and this indicates that in Indian society the distribution of wealth and power is unequal. The LTO of India is 61 which is the second highest comparing to world’s average 41. The Indian employees seem to be parsimonious and perseverant. The MAS of India is 56 which slightly lower than world’s average of 51. This shows that the gap between the genders in India is more than average. This shows that the Indian female employees are competitive in spite of lower population. The UAI of India is the lowest at 40 and the world average is 65. This indicates a negative feature of Indian culture. The culture of India is unstructured, and rules and regulation is ineffective in avoiding the uncertainties. The above discussions also depict the business culture of Indian automobile industry. The automobile companies in India less structured comparing to the global automobile mobile companies. For example, the automobile companies presented in Indian market are less responsible towards corporate and environmental responsibility. Their marketing strategy basically focuses on cost effective strategy for offering small budget cars. However, the multinational companies in India are specialized in offering luxury cars. Therefore, the European companies have enough scope in the Indian automobile market. The Indian luxury car consumers also have an aspiration for the international brands like BMW, Mercedes, and Audi etc. The business culture of European market is highly developed than the Indian organisational culture. The management style and motivational process of European companies strives to develop competitive advantage as per international standard. Future of Indian Luxury Car market for European Automobile Companies The future prospect of Indian luxury car market is curial for European car manufacturers. The Indian luxury car has certain challenges as well as opportunities that will help European companies for operational activities. The European automobile companies must identify the underlying opportunities as well as challenges for serving the market in a better way. The opportunities and challenges of Indian luxury car market are discussed below. Opportunities The increasing popularity of international brands in Indian car market is the most vital strength for the European companies. Due to increasing in the number of wealthy Indians, the luxury car market is expanding at higher rate. The following table shows the number of rich people available in India. Table 2: The Indian Wealth League (Source: Mishra, p.5) The above figure shows that high number of the rich people in India prefers to buy luxury more cars. The Luxury car brand, DiamlerChrysler has already entered in the market and other luxury brands like Rolls Royce, Audi, Porsche etc has entered into the market. The companies like Mercedes Benz and BMW is two major luxury car providers in Indian market. According to Paul de Voijs, the Managing Director of Volvo Car India, “improving economic condition of the people is going hand in hand with an increase in the purchase of luxury goods” (Oommen, p.50). The Indian automobile market is cost effective market where low cost labour and low cost suppliers are easily available. The European car manufacturer can easily acquire sufficient number of skilled and unskilled labours at lower cost that will enhance their economies of scale. The domestic and international automotive component suppliers and assemblers are efficient as well as cost effective. The following diagram represents the availability of various automotive component suppliers. Figure 6: Availability of Various Automotive Component Suppliers (Source: OESA, 2010) The Indian Government have also implemented plans for improving the automobile industry. In this respect, “Automotive Mission Plan (AMP) 2006-2016” is important and its vision is “to emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of U.S. $145 billion accounting for more than 10 percent of the GDP and providing additional employment to 25 million people by 2016” (International Trade Administration, n.d.). This plan will also lead to growth of European automobile manufacturers in India. Challenges The uninformed structure of Indian automotive market is the main challenge for European Automotive market. The European car manufacturers are well structured and their core strategy is meant to operate in matured and well structured market. The political parties for labours’ union are the greatest threats for the multinational companies in India. Many companies had to face severe losses due to interference of political parties for labour related issues. The domestic suppliers are inefficient in product development and multinational suppliers are less experienced in the market. The use of innovative technologies in Indian automobile sector is poor comparing to European market. The European multinational automobile companies may face difficulties due to this factor (Krishnan, p.6). The lack of proper and developed infrastructure is another major challenge for Indian automobile industry. The markets like Europe, US and Japan has better infrastructure for industrial growth, and the European car manufacturers are successful in these markets. They have to adjust themselves in Indian market as per the available infrastructural resources. Lesser parking facility, poor road constructions, shortage of electricity etc may hamper the production and sales of luxury cars (International Trade Administration, n.d.). Having realized the increasing demand for luxury cars in India, the domestic car manufacturers like Tata, Maruti-Suzuki, Mahindra etc are offering luxury cars. The European multinational companies will face intense competition from these domestic players. The difference in business culture of European and Indian market is great another challenge for European multinational companies. Conclusion The Indian automobile industry has been growing since last decades due to development in economic condition and industrialization. The rapid growth in this Indian automobile industry has attracted a number leading multinational automobile companies. The leading players like Ford, GM, BMW, Fiat, and Toyota have entered in the market. This paper has dealt with future of Indian luxury car market for European car manufacturers. 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