Changan Automobile Ltd Investment in India - Case Study Example

Changan Automobile Co., Ltd investment in India Author’s name Institutional affiliation EXECUTIVE SUMMARY This report focuses on Automobile Company in China and its entry to a new country- India. Changan Automobile Co., Ltd is the best automobile company in China and has subsidiaries in other nations such as Pakistan, The United States, Egypt, Iraq, United Arab Emirates Indonesia and many others. It has many operations such as manufacturing of cars, car sales, Motorcycle sales, technological devices and spares parts. Therefore, it can act as a production company and a supplier to other enterprises that need car parts. It can also offer these services to consumers who purchase cars from them in future when they need to change some car parts. It is a factor that can earn the company a high competitive advantage. The company has high technological innovations and quality cars with new models which conserve the environment for sustainable development. India is a highly populated country with diverse culture and democratic principle. Its high economic development, huge population, high skilled labor and vast technological innovations attract many foreign investors to tap into its development. The entry strategy for the company to be successful is through joint ventures with the already existing businesses in India like Maruti Suzuki Ltd. India. It is an approach which reduces most entry barriers as highlighted in Michael Porter's five forces framework. Besides, it increases the company's establishment due to the already existing market for the partner company. The marketing strategy entails marketing mix, target population and segmentation to increase competitive advantage. INTRODUCTION Brief background of the company Changan Automobile Co., Ltd commonly referred to as Chana is an automobile firm, which has its headquarters at Chongqing in China. It is a Chinese based company and the largest aspect for saloon cars in the country (Roberto et al., 2011 p.5). It is the oldest automobile company yin China and is state owned. It has been providing the country with cars for the past years at affordable prices. The company was founded in the year eighteen sixty-two in Shanghai as which was later renamed ChangAn in nineteen ninety-seven. It has three production stations in the north, east and southeast of China (Hktd.com, 2016). The company values the power of collaboration with other companies and thus has cooperated with such automobile companies like Suzuki, Mazda and Ford. The company has established research institutes in the faculty of engineering in not only in China but also in Italy and Germany. The company manufactures cars and motorcycles with high emphasis on environmental conservation, efficient fuel consumption and highly functionality level (Google.com 2016). The company manufactures and sells not only cars and motorcycles but also automobile and motorcycle parts. It also ventures in selling telecommunication devices, electronic and night vision devices. Reason behind selecting Changan is the best Automobile Company in China. It has high quality cars which are designed to reduce environmental pollution (Globalchangan.com, 2016). In the current world where Climate Change has become one of the greatest Megatrend affecting economic developments, it is essential to expand companies which help reduce pollution, which is the highest contributor to adverse Climate change. Been the best in China, it stands a higher competitive advantage if it ventures in India with a good marketing strategy. Rationale behind the company going to India The company has had low incomes in its country over the past few years. Therefore, due to the increasing economy growth in India, the company needs to tap on the market to increase its profits and production since it has a potential to offer the tastes of Indians at affordable prices. DETAILED ANALYSIS OF THE EXTERNAL ENVIRONMENT OF THE HOST COUNTRY Economic dimension India is a country with a high economic growth in the recent years. Most companies seek out to invest in the country especially due to its high population since it stands as the second highest populated country in the world after China. The country as an investment body which facilitates the establishment of foreign countries- Invest in India. Although it is a government body, it neither seeks any profits from the services it offers all investors nor does it make use of any agents to conduct businesses on their behalf (India.incorporation.com, 2016). It conducts such roles as identification of new company location, scheduling of meetings with the particular industry authorities, facilitation of regulations and exploring solutions for any challenges faced in future by the company. It is one factor which makes doing business in India easy and attracts more investors from across the world. The firm gets promotion sponsorship from various Indian Government Ministries and departments such as Ministry of Commerce and Industry and the Department of Industrial and policy promotion. India's population, especially the middle class and the booming young generation are the primary target markets for most businesses. Their response is tremendously motivating since they pose a high demand for new products. The country's economy ranks at the twelfth position in the entire world and third in Asia. India's had economic reforms established in nineteen ninety-one, which has been a catalyst for its tremendous growth in economic development (Ahluwalia, 2002 p.96). It also has an advantage due to the new increased power Delhi has on international institutions and high negotiating skills to secure trade areas at no cost. In addition, the country has a high affinity for adopting the fairest prices in manufacturing commodities. From the year two thousand and twelve to the year two thousand and seventeen, India’s Gross Domestic Product is likely to grow to eight percent (Kaur & Kaur, 2016). The realization of the targeted Gross Domestic Product is likely to be achieved since the country was ranked tenth position globally in the year two thousand and thirteen. Despite the current economic fluctuations to due to Climate Change and other factors, India still affords to accrue a six percent economic growth. Socio-cultural opportunities in India The Indian culture is one of the friendliest in the world. It is the pioneer of Chess- an important game among all generations and Yoga, a mind relaxing exercise used worldwide by many people. It is a sovereign country which values democratic principle (Unf.edu, 2016). About thirty percent of its population inhabits cities and towns while the rest lives in the rural areas. Its language culture is fascinating since it has approximately eighteen official languages as stated in its constitution. However, English is the main language used in business and Judicial matters. The country’s religion has no specific philosophical theory or religious affiliation although Hindus form the largest religious group with a percentage of eighty percent (Banerjee, 2008 p. 369).The country is has a huge diversification regarding culture, race,, language, and religion. India's population has a high reputation for excellent labor skills and is conversant with most of the Western culture (Banerjee, 2008 p.372). The latter a gets a reference from the democratic principle which governs most of the dimensions and activities of life. Political and legal dimension in India India is one of the countries which gained its independence without violence and thus has been a state of peace. It is also a country of democracy which does not discriminate against any other nations and blends well in adopting globalization (Unf.edu, 2016). Although its legal procedures are lengthy, the country has Invest in India not for profit Company which ensures that companies find it easier to register and curb any possible impending challenges. The state's regulations are favorable for foreign investors, which is a significant opportunity. It has a quasi-federal structure of Judiciary which is independent. The Government policy on Foreign Direct Investment is categorized into three main sectors: those prohibited for example retail trade in agriculture and atomic energy, those who do not require any government permission (Ahluwalia, 2002 p.103). Finally, those which operate concerning various caps for example in Telecommunications, Foreign Direct investment mainly goes up to forty-nine percent which can rise to seventy-four percent with government's permission. Technological dimension India is a country, which has embraced technological innovation a factor that increases efficiency in business development. It uses both 4G and 3G networks which are fast in information transmission and access to the internet (Kaur &Kaur, 2016 n.p). Also, the country is well known for a pool of technological innovations, advancements and constant upgrades in software. It is also one of the countries that launched satellites into space. Geographical location India is one of the Asian countries which, is strategically positioned for business success. It is at the border of the Bengal Bay and the Arabian Sea. In addition, it is sandwiched between such countries as Burma and Pakistan and borders China, the country with the highest economy in Asia to the North (Johnson & Tellis, 2008 p.9). Its central location gives the country a peculiar advantage to partner and attracts investors from the United State, other Asian countries like Japan and China, African countries like Mozambique and Nigeria and Middle East countries. Challenges for investing in India The Indian market is quite complex and many first time investors have higher chances of finding it difficult to understand. It is coupled with the long procedural regulation channel and verification with many bodies which govern the business welfare in the country. All companies are required to adhere to the bureaucratic regulations of not only the state but also the central structures. Secondly, the country has a huge diversity as far as regions are concerned (Patel, 2010). As indicated in socio-cultural dimension above, the country has a large division between its urban and rural population. The rural area forms seventy percent of the entire populations. Another challenge is the poor infrastructural development in the country which reduces the efficiency of most enterprises (Unf.edu, 2016). The other challenge is the frequent reviewing of levies and duties by the central and state bodies especially on annual budget meetings. Detailed analysis of Automotive Industry in India using Michael Porter’s five forces framework Michael Porter’s Five Forces model emerged in the year nineteen seventy nine By Michel Porter. The aim of the framework was to assess the competitive advantage of a company or an industry for potential investors (Weihrich, 1999). It determines how an attractive a potential market is. Changan can therefore use the model for strategic planning for its entry in India’s Automobile industry. The model has two forces on the vertical competitive side which entail: The buyers and the sellers and their power to bargain and on the horizontal competition they are three: threat of substitute products, threat of competitive rivalry and threat due to entry barriers. The India Automobile industry is ranked position ten worldwide. With reference to its business revolution which took place in nineteen ninety one, it is evident that the country has a promising rise to a better position. The industry ventures in motor vehicles manufacturing, design, developing, marketing and selling (The financialist, 2016). The main existing car companies include Hyundai ltd, General Motors, Honda Toyota and Hindustan motors. Its two wheeler main companies are Scooter India, Honda motorcycles Bajaj and Yamaha. Application of the Porter’s models The bargaining power of suppliers in India is quite low since it has many automobile parts supply firms. It is a factor which renders suppliers susceptibility to losses in case a manufacture is not pleased with their services and decides to contract another one (Scribd, 2016 n.p). The more people use their cars, the more suppliers will get clients and vice versa. Thus, their power of bargain is at stake. On the other hand, the consumer bargaining power is unchallenged only on the manufactures; however, consumers have little power since they only purchase small amounts of cares. In India, the Automobile industry faces major barriers for internal investors. Foreign investors have more bargaining power into the market. Cars have a high market especially passenger ones. However, other foreign investors such as Hyundai and Honda pose a great challenge to Potential investors such Changan (Ahluwalia, 2002 p.113). The need to keep with the fast-paced technological advancement is another barrier but can be overcome by keeping up with the up to date technology to increase efficiency in product development and service provision. Consumer tastes and preferences are the best determining factors for Automobile industry success in India. Therefore, Changan should focus on business confidence and consumer needs for a competitive advantage. The competitive rivalry in India automobile industry is posed by the existing companies and the diversity of their operations (Scribd, 2016). Much competition is more on small care companies, which is the main product manufactured by Changan (Google.com, 2016).The prices of the cars are also another competition factors since it is the main client attracting factor. The final force is Substitutes threats, which entail the likelihood of people making use of public buses rather than buying cars. The willingness of consumers to buy a particular car model is also a key factor. When the cost of fuel goes high, consumers are likely to use gasoline powered vehicles. Detailed Analysis of the resources and capabilities (internal environment) of the company Tangible and intangible resources are the drivers of a company. Every company has its resources that help it to withstand competition from other firms. Changan Limited is a big automobile company that has both tangible and intangible resources ranging from financial assets, physical assets, reputation, skills and human technology. Changan Automobile Company has over ten car models which include Alsvin, Benni, CX20, CX30, Eado, Eado EV, Raeton, Z-Shine, CS35 and CS75 (Hktdc.com, 2016 n.p). The Anhui production base of the company has a capacity of three thousand units per year. The company has total assets of 89,774.73 million dollars with a net income of 9,952.71 million dollars per year. The profit margin of the Changan Automobile is growing, as of 2015 the margin stood at 15.74 percent (Google.com, 2016). Through partnership with other automobile companies like Suzuki, Changan has grown its customer base in the global market. The intangible assets of the company are its large skilled workforce and technology. Changan Automobile has a workforce of 37, 457 employees. These employees have good skills that have helped in the success of the company in the domestic market (Googel.com, 2016 n.p). The company has capabilities of diversifying to different parts of the world through partnership and acquisition strategy. The production capabilities of Changan Automobile Company are high hence it can produce many units in a year to meet the market demand. A company market advantage over its competitors is based on its capabilities and resources. The resources and capabilities that make a company to compete successfully in a market include financial resources like production capacity, financial resources such as shareholders, cash flow, suppliers and debtors. Intangible resources of customer base, business system, brands and skilled workforce are the major determinants of success of an organization in both global and domestic markets (Kenneth, 2015 p. 8).Changan Automobile requires the skills of Indian population to expand its manufacturing capacities. Competition in the automobile industry in China is high. Consequently, Changan Limited needs a new market base for its products. Therefore, through penetrating India market the company will increase its market share and global success. India Entry Strategy When a company chooses to penetrate a new market its main aim is to leverage the global opportunities. Most companies expand internationally in basis of double objectives of growth and production cost reduction. The motivation objectives of Changan company to entre India market is to tap its growth potentials and cost reduction capabilities. Entering India market may be the only available opportunity for Changan Automotive Company to strengthen its market position through innovation and diversification (Business standard.com, 2016). With a greater market position in India, the company will be able to increase its market share beyond domestic territories. New markets provide new opportunities for the company to expand its brand loyalty. Therefore the aim of exploring new markets is to increase economies of scale by reducing costs. India is good region to set up a production facility for a company due to the available skilled and cheap personnel. The Company will be a pioneer since it is the first of Chinese automotive organizations to enter the Indian market (Kaur & Kaur, 2016). Therefore, Changan Automotive Company will reduce production cost by entering the India market. There are various entry strategies which are available for use when entering a new market. Some strategies like direct investments are faced with biggest risks that may prevent success in the new market. For Changan Automotive Company, mergers and acquisition can accelerate the entry process in India market (Isobe et al., 200 p. 28). Mergers is a more appropriate strategies used by many companies when expanding to a new market. It is more advantageous that most of other strategies available due to its capability to protect the company from competition. Automobile industry has many companies competing for the market share. Therefore, forming mergers with already existing companies in India like the Maruti Suzuki India Limited or Mihandra &Mihandra Ltd can help Changan Automotive Company penetrate the market quickly without barriers of entry (Patel, 2010 n.p).The rationale for choosing this entry strategy is that, the strategy eliminates any possible barriers to entry because the company is able to use the already existing customer base form the other company to stabilize its market position can be a desired partner for Changan Automobile to merger with in India due to its great market position and brand superiority (Johnson & Tellis, 2008 p. 8). Changan Automobile products will stand a higher chance in the India market due to the support of Mihandra &Mihandra Ltd. Post Entry Strategy Post market strategies are implemented to safeguard a firm’s market share from rival companies entering the market. After penetrating the India market, Changan Automobile Company will maintain the global strategy. The company will be expected to uphold his position in India through spreading its brand across different regions. Through marketing and investing in Research and Development the company will build a strong brand and win consumer loyalty. To differentiate the Changan products from those of other existing companies in India, low cost strategy may be an option adopted to attract new consumers (India.incorporation.com, 2016). Websites and social media are growing platforms for increasing sales and customer base. Changan Automobile Company needs to utilize this opportunity and grow their market share. The percentage of internet users in India is high. Therefore, Changan Automobile Company can tap in this online market to market its products in the new region. Marketing strategy of Changan Automobile Company will include marketing mix, segmentation and target markets. The success of the company in the new market will depend on the marketing investment (Holweng et al., 2008 p.106). The best strategy for Changan Automobile is to build its brand image through marketing campaign and advertising. Storytelling market strategy will be appropriate for the company to popularize the brand in India through targeting and positioning. The marketing body will be needed to identify a particular potential consumer base then focus on the needs and tastes of that specific group of consumers. The organization and employees will be managed through line management. The company will hire a chief executive officer to run the company in India (Panmore Institute, 2016). Through human resources all employees of the company in India will be managed. Through motivation, the changes in the company will help solve any resistance and improve performance in the India market. Changan Automobile Co., ltd India proposed organization structure The organization structure to be adopted by the company should have much emphasis and consideration on the needs of the diversified target market in India. The structure should have the corporate Hierarchy that has a specific chain of which authority to report (Panmore Institute, 2016 n.p). The vice presidents of various departments should report to the Chief Executive Officer and the subsidiary managers to the Vice Presidents of specific regional departments. The next is function groups with regard to the activities and operations of the company. These include the manufacturing and labor affairs, Human resources and Corporate Social Responsibility, product development, legal, marketing, financial and accounting (Banerjee, 2008 p.373). The departments make the operations of the company easier to meet its objectives and deliver the best to its clients. The operations will include inclusive employee engagement in making decisions in order to increase their morale and sense of ownership. In addition, for the company to succeed, it should have more employees from India as compared to China since it is the culture of most Indian businesses which have navigated successfully in the market (Isobe et al., 2000). Global relations department should play a role in ensuring that there is a communication between all the companies in the United States, Unite Arabs Emirates and India to improve on productivity. Conclusion and Recommendations In summary, Changan Automobile Co., Ltd is a company with a high potential for making its business operations successful in India. It is because its economy is higher than that of India and since both are Asian countries, the minimal cultural differences place it at a higher position to succeed. The External Environment of India is favorable enough for success of the Automobile Company. Despite the lengthy legal requirements and regulations, the fast growing economy, huge population and high technological innovations render the country viable for business success. Changan Automobile has an array of both tangible and intangible resources. It has high technological innovation, a factor essential in the current world of business and development. Its operations too place it at a viable position since it deals with vehicles and motorcycles, sale of spare parts and other technological devices. Its strategy to enter India and succeed must focus on Marketing Mix, target population and their needs and segmentation. It is recommended that Changan ought to use such marketing strategies such advertisement and campaigns through partnership with other established local companies to increase its popularity. Bibliography Ahluwalia, M.S., 2002. State level performance under economic reforms in India. Economic policy reforms and the Indian economy, pp.91-125. Banerjee, S., 2008. 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