Pestel Analysis Of The Auto Ancillary Industry Economics Essay

Pestel Analysis Of The Auto Ancillary exertion Economics EssayAuto supportive industry is an merchandiseant segment of the economy in any country. The Indian auto industry has the potential to emerge as one of the largest in the world. Presently, India isThe largest devil wheeler manufacturer in the world.The largest three wheeler commercialize in the world.Second largest two wheeler market in the world.The fourth largest commercial fomite market in the world.Auto ancillary company comprises ofOEM (original equipment manufacturers).Replacement Market.The automotive vault of heaven in India contributes to 5% of the nations GDP. This envisages theAuto ancillary sector output hit a level of $145 cardinal accounting for more(prenominal) than 10% of the GDP by 2016.PESTEL ANALYSISThere atomic number 18 many factors Consists of internal purlieu and external surround impart affect the decisions of the managers of any organisation. This analysis is essential for all organization before beginning its marketing process.3Investments in IndustryForeign InvestmentsIndia enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 per cent abase than their western counterparts. Seeing the growing popularity of India in the automotive portion sector, the Investment Commission has set a target of attracting foreign investment worth US$ 5 one thousand thousand for the next s blush years to increase Indias share in the world(a) auto components market from the existing 0.9 per cent to 2.5 per cent by 2015. French tyre major, Michelin, has gained clearance from the Foreign Investment Promotion Board (FIPB) for its US$2.26 billion Foreign direct investment (FDI) proposal to set up a manufacturing facility in Tamil Nadu. Ford motor car is investing about 500$ gazillion (Rs. 2,445 cores) to double capacity at its India plant, which willBecome a strategic global production hub. Bosch will continue to maintain its focus in In dia in spite of global recession as it is planning to set up manufacturing units for electronic control units (ECU) by investing US$ 26.76 gazillion. Renault in association with Nissan is to source USD 440 million worth of auto components from India in the coming years. Italian car manufacturer Fiat is planning to increase sourcing to USD 330 million by 2010 and make India its global sourcing centre. Volkswagen has set target to capture 8-10 per centum of market share in the passenger car segment in India by 2014 with a series of launches and by doubling the number of dealers.Domestic InvestmentsThe market is so large and diverse that a large number of players can be absorbed to accommodate buyer needs. TheSector not only has global players looking to invest and expand but leading domestic component companies are also pumping in huge sums into expanding operations. Indian tyre makers are wheeling out investment plans worth US$ 1.24 billion, ascribable to the rising popularity of radial tyres in the commercial vehicles segment.Some other investments include Hero Motors will invest US$ 19.84 million in association with Austrian firm BRP Power train for manufacturingAutomotive transmissions in India. Indian arm of Swedish automotive component maker SKF is investing US$ 30 million in new ball bearingsmanufacturing plant at Haridwar. Mahindra Mahindra will invest approx US$ 400 million for setting up an integrated auto facility inTiruvannamalai(Chennai). an auto park is coming up near Hyderabad with investments worth over US$ 409.30 million from around 34automotive ancillary units.A lower labour cost gives Indian auto ancillary companies an absolute cost advantage. ACMA numbers declare oneself that wage cost accounts for 3% to 15% of revenues for Indian manufacturers as compared to 20% to 40% for US players. Historically,Indias strength in exports lies in forgings, castings and plastics. But this is changing with more component manufactures investing in up gr adation of technology in recent years.DEMAND SUPPLY SCENARIODemand supply scenarioDemand is generated from two segments videlicet OEMs and replacement markets.The volume of demand varies by product segments.The replacement market has 45 percent of its sales coming from unorganized players.There are no regulatory standards prevailing in the market.The level of technology is not sophisticated in the replacement market.The replacement market is a safe bet even when the economy faces a slowdown. Hence, it looked as an area of focus by major players of the auto component industry.The margins in the replacement market are generally higher(prenominal) because of low cost operations and counterfeit sales.Success in the organized market depends on the presence of an established brand name and a all-inclusive distribution network.Unorganized sector enjoys huge advantages over the organized players in foothold of excise duty exemptions and lower overheads.The suppliers to OEMs have to adhe re to requirements of high quality, ridiculous delivery schedules and lower margins.Duty structure RegulationsGovernment PoliciesReduction in excise duties in select segment of automobiles.Extension of tax holiday for degree Celsius per cent export oriented units (EOU) until 2010-11 will benefit only players with established EOUs.Scheme to provide enhanced Export Credit and Guarantee Corporation (ECGC) conceal at 95 per cent has been extended up to March 2010. This scheme will assist players to mitigate risk of payment defaults in the export market. free approval for foreign equity investment up to 100 per cent of manufacture of automobiles and components is permitted.The automobile industry has been delicensed.There are no restraints on import of components.Free Trade AgreementsThe growing number of FTAs (Free Trade Agreements) that are being signed by India with countries like Thailand, Singapore, China etc is likely to hurt the domestic players as they pay a relatively higher duty of around 25% as compared to 1%-10% being paid by its Asian counterparts.P- POLITICAL fixingsPolitical factors the most important influence on the regulation of any business.How stable is the political environmentInfluence the Government Policy / Law on your businessGovernments position on Marketing EthicsGovernments policy on the economyGovernments view on culture under religionPolitical dodging is responsible for Law Making.Immediate laws which affect any business in general are Central Excise, Sales revenue/ VAT, Corporate Income Tax, Personal Income Tax Service TaxControls if any on Marketing StrategiesLike Marketing / Advertising of Cigarettes, Tobacco, Alcohol etc.Government Policies on the EconomyRole of unexclusive SectorRole of Private SectorRole of Joint SectorE- ECONOMIC FACTORInflation trade fluid incomeBusiness cyclesEnergy availability and costGovernment outlook towardsBank FinancingInterest RatesExchange Rate MechanismIncentives for ExportsRestrictions for ImportsInflationLabour PoliciesLevel of Government disbursalAvenues for Capital CreationSize of the Capital MarketRole of the RegulatorType of the InstrumentsNature of the InvestorsBusiness CyclesMonsoonEnergy accessibilityCost of EnergyS- SOCIO cultural FACTORDemographicsDistribution of incomeSocial mobilityLifestyle changesConsumerismLevels of educationDemographics Distribution of IncomeDivision of population Male / FemaleAge Group of the PopulationDisposable Family IncomeDisposable Income in the hands of the different Age GroupsEducation Level of the Age GroupsLife Style Changes ConsumerismAttitude to livingDifferent Age GroupsIn crinkle with available disposable incomeThrust on taking care of present needs by spending than saving for the future.Joint living and nuclear familiesAvailability of various media toolsReach of the media to the populationT- TECHNOLOGICAL FACTORNew discoveries and innovationsSpeed of technology transferRates of obsolescenceInternetAdvantage of Te chnologyIn terms of Economies of ScaleE- ENVIRONMENTALEnvironmental factors include the weather and climate change. Changes in temperature can impact on many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a significant issue for firms to consider. The growing desire to protect the environment is having an impact on many industries such as the travel and transportation industries (for example, more taxes being placed on air travel and the success of hybridization cars) and the general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunitiesL- LEGALDiscrimination lawConsumer lawAntitrust lawEmployment lawHealth and safety lawCONCLUSIONThe auto ancillary industry is in the growth phase. As, the auto sector grows, the auto ancillary sector also grows. The industry is graduatin g towards the world-class technology by implementing TQM, TPM and Six-Sigma. India is becoming the global manufacturing hub for the small cars. European companies are expressing interest in India for sourcing their needs. Many other companies are looking to consolidate their global operations India is now a supplier of high value and critical automobile components to global auto makers such as General Motors, Toyota, Ford and Volkswagen. India is expected to soon become a destination for sourcing the auto components. The Automotive Mission Plan 2016, states to increase the turnover to $145 billion and increase the export revenue to $35 million by 2016 and also to provide employment to 25 million people.With investments around US$ 15 billion slated for the sector over the next few years, the prospects for Indias auto market are bright. The results for the month of November and December2009 of the auto sector and the improved sentiments have already resulted in the bovine spongiform e ncephalitis Auto Index outperforming the Sensex over the last one year. Therefore, the auto component industry is expected to grow in the near future.SUBMITTED BY PANKAJ KUMAR YADAV