The Automotive Industry in India - General Motors Holden - Case Study Example

Market entry Institution Course Name Date of submission Introduction The automotive industry in India has been growing phenomenally over the last few years owing to rampant economic growth in the country. This paper explains six considerations which General Motors Holden brand need to make before making a hypothetical entry into the Indian market with a proposed exporting model. 1. Target market The Indian economy has been growing phenomenally in the last few years. Industries have strengthened in their product range and production methods. The automotive industry is one of the many that has been doing well and powering the economy. Since the de-licensing of the automotive industry in 1991, the industry grew by 17% for the next few years (Halcrow Group 2008). The potential of the market has seen global players such as Toyota through their Toyota Kirloskar Motor, India subsidiary, establish their subsidiaries there and gained a significant market share. Local auto manufacturers such as Tata and Mahindra have a considerable market share. These players target the lower income earners with a view on fuel efficiency and carbon emissions. However, with the growth of the Indian economy, there is a growing class of rich affluent people with a high disposable income. Currently, 31.4 million households (160 million individuals) are classified as middle class (The Economic Times 2011). According to theSociety of Indian Automobile Manufacturers, India had over 40 million vehicles as of September 2010 with monthly car sales being over 160 000 units (Gulati and Choundry 2010). The luxury car segment has been growing steadily in particular cities of India. Sales volumes of other luxury car models in India have been a witness to the growth in spending power among Indians. Some of the luxury car makers operating in India such as “BMW, Mercedes, Audi, Jaguar and Porsche have grown six-fold in the last three years” (Mahurkar 2011). This shows that the luxury car segment has potential for growth supported by a rapid expanding economy and high demand for high performance luxury vehicles. The economics of consumer behavior claim that a promising economic future tends to encourage consumers to spend more rather than hoard (Kotler and Armstrong 2009). GM Holden should thus capitalize on this element by targeting the luxury car segment in India. The company’s strong brand name gives it a high chance in competing effectively with the established players. The firm has a wide range of luxury car models that are considered icons of westernization. 2. Product Modifications With the growth of the Indian economy, infrastructure development has been impressive. Cities such as Surat have attained impressive infrastructure growth. As of October 2011, 72 flyover and underpasses were under construction or renovation in the city of Surat alone (Mahurkar 2011). Other cities have also moved ahead into creating modern roads and highways that can accommodate luxury automobiles with higher speeds. Indian luxury consumers are thus keen on high speed automobiles to enjoy the new infrastructure. However, there is a major issue that GM Holden must consider while making entry into this particular market. This is the modification of drive side from the left hand drive to right hand drive. The Indian government has banned all Left-hand drive vehicles except under special question. This was meant to ease traffic problems given that all traffic drives on the left hand side. Colours in India hold very varied meanings to the people according to the mainstream Hindu culture. For instance, the colour white, which is a common vehicle colour in the west in not very popular in India. White to Indians is viewed as the absence of colour, repels all colours and is mainly reserved for widows who ought to disconnect themselves from the pleasures and luxuries of life (Smith 2012). In that regard, colour coding of the products must be aligned with the indian culture of colour interpretation. 3. Promotion Successful entry of GM Holden into the Indian market will largely depend on how the firm presents its products and image to the target market. In so doing, the firm will require to adapt a promotion mix that achieves the objectives of the firm. In this respect, doing so will require adapting to the Indian culture so as to communicate effectively. Kumar (2009) writes that the Indian society is largely driven by a set of core values which dictate on many spheres of life. However, upcoming urban youths have adapted a rebellious culture inspired by westernization and the Hollywood lifestyle. To capture the western spirit in the Indian cultural context, GM Holden must be willing to promote its products locally. GM Holden must stick to its trusted promotional mix which heavily relies on motor shows and financial incentives to buyers. GM has been holding auto shows in different countries around the world with a lot of success. By introducing, an Indian auto show, the firm will be creating a platform on which to announce and establish its presence in the market. The auto-show must however be localized and be aligned to the Indian culture. For instance, given that the firm will target premium consumers, the promotion mix must target individuals in the higher castes. In particular, the promotion mix will include giving free vehicle maintenance service to buyers within the first one year. These free maintenance services will be carried out at selected dealer shops and during trade fares and motor shows. This in effect will give Holden free publicity in the mainstream media and help in creating a niche club of “Holden owners club” whereby membership is through purchase of one of the many Holden luxury models. With time, GM Holden will sponsor popular sporting events in the country to gain public attention. 4. Distribution Channels with exporting being the preferred and most logical form of entry into a new market due to involved costs, GM Holden will require to establish distribution lines that will deliver the products to the market conveniently. Car dealers in India have in the past played a huge role for other GM brands such as the Chevrolet Optra and Chevrolet Tavera. Some of these distributors include Autovikas Sales and Services Limited and Regent Automobiles both in New Delhi. The use of such distributors has been criticized by a number of marketers citing increased prices which are transferred to consumers and sharing of profit margins. This in effect alters a marketer’s pricing strategy. For HM Holden, the best option will be to use direct marketing and indirect marketing. Direct distribution should be done online only, where potential buyers can view product specification or buy online. Indirect marketing on the other hand will use existing GM distributors in India. Direct distribution involves marketers selling directly to consumers. This ensures that the marketers pricing strategy is observed and maintained in the market. Some marketers over- charge consumers in search of larger profit margins. For GM Holden India, a direct distribution channel is preferable. This will largely depend on setting up several show rooms in the country that will also double up as service centers. The service centers will also be part of the promotion mix whereby new buyers will be given a free vehicle service maintenance service for the first year. 5. Price India’s foreign trade policies are loosely drafted on the guidelines of OECD countries. The country thus allows free repatriation of profits though imports especially on technological goods are heavily taxed to protect local industries. This therefore serves as a deterrent to foreign investors in the country opting for exporting to the county as opposed to setting up of subsidiaries in the country. Therefore, foreign direct investors are more welcome as opposed to importers who are viewed as a threat to the country’s budding vehicle export industry. Therefore, the high tax policy by the Indian government will imply higher prices for GM Holden’s products compared to local players some of who obtain subsidies from the government. Given that the company will be targeting the upper middle income and high income earners, the automotives must be of high value and premium priced, something that marketers call ‘connoisseur pricing strategy’. This strategy is usually practiced by marketers targeting high income earners who are keen on quality as opposed to price i.e. quality conscious consumers. As such, Holden brands will be offered on premium prices to premium customers. 6. Budget The proposed budgetary allocation for the entire venture is $ 2000 000 for the first one year growing to $ 5 million by 2017. For this amount, 80% of the expenses are to be dedicated to marketing activities. The expenses in marketing will be scaled down with time to around 30% of the total expenses in the fourth year depending on product performance in the market. This plan is based on two assumptions: The first is that there will be a steady decline in cost of sales in gross margin percentage as GM Holden builds and develop more resources where contractors and consultants will be eliminated and replaced by full time personnel and with integration of Holden into other GM networks in India. Nonetheless, the growth in sales will advise the level of additional investment in the market. Higher sales will encourage uptake of higher risks in the hope of higher returns in the future. This will include more investment into research and development to proposed 30% of total expenses in the fifth year. The second assumption is that there will be a decline in marketing expenses as a percent of sales. The proposed figure of 80% of total cost being dedicated to marketing is quite high for any venture. However, given that GM has existing and well established distributors in the country, expenses on such foundations are exempt. As such, further marketing of the product after the first year will be addressed through motor shows and after sales service and sponsorship of sporting events and other community projects. References General Motors, 2012 Retrieved online on 5.06.2012 from, http://www.gm.com/ Gulati, N and Choudhury, S 2010, ‘India Car Sales Touch Record High’ The wall street Journal, India business, Retrieved online on 5.06.2012 from, http://online.wsj.com/article/SB10001424052748703453804575480881344386638.html?mod=googlenews_wsj Halcrow Group 2008, Breaking the Trend: Visioning and Backcasting for Transport in India & Delhi, Retrieved online on 5.06.2012 from, http://www.vibat.org/vibat_india/pdf/vibat_india_report_final.pdf Kotler, P and Armstrong, G 2009, Principles of marketing management. London: Pearson Kumar, S R 2009, Consumer Behaviour and Branding: Concepts, Readings and Cases-The Indian Context. New Delhi: Pearson Education India. Mahurkar, U 2011, High on Speed, Retrieved online on 5.06.2012 from, http://gujaratinformation.net/downloads/guj_news_high_on_speed_20111104.pdf Smith, K 2012, India, a country of symbolic colours, Retrieved online on 5.06.2012 from, http://www.sensationalcolor.com/color-messages-meanings/color-around-the-globe/india-a-country-of-symbolic-colors.html The Economic Times 2011, Retrieved online on 5.06.2012 from, http://articles.economictimes.indiatimes.com/2011-02-06/news/28424975_1_middle-class-households-applied-economic-research Read More