As shown above. the concern theoretical account is formulated as input ? procedure ? end product. For a two Wheeler industry. The inputs to the OEM constitutes of
1. Import of parts: the basic ingredients for theoretical account edifice are the parts such as thrust ironss. engines. constituents. transmittals etc. 2. Auto Component Manufacturer: There are 300+ participants in the industry which manufacture car parts constituents and execute undertakings such as castings. forgings. tyres etc 3. Natural stuff Supplier: This forms the initial demand for the development of any vehicle. The natural stuff of which it is composed of consists of sheet metal. aluminum etc. The processing involves:
Original Equipment Manufacturer ( OEM ) : The industry is extremely concentrated with 3 participants representing 80 % of the market portion. viz. Hero Moto. Bajaj Auto & A ; Honda Motors. This industry has a turnover of 55K Cr by bring forthing over 13. 33mn units in the FY 2011. 2. Franchise Network
Trader: In the Indian domestic market. the trader are numbered over 2000 Sub- Dealer: The bomber traders. besides known as the touch points are over 12000. This franchise web forms the competitory advantage of a company in the market Service Centers: These provide after gross revenues service for the two Wheeler industry and organize the portion of care and helps in constructing client trueness.
The end product portion of the concern theoretical account comprises of
1. Domestic Customers: There is a low incursion in the domestic market with coverage in rural market every bit low as 7 % . 2. International Customers: The major markets for two Wheelers are Africa. Latin America & A ; South East Asia INDUSTRY ANALYSIS
The industry is extremely concentrated and there is a strong bridgehead by 3 major participants in the industry viz. Hero Moto representing 39 % of the market portion. Bajaj Auto representing 27 % of the market portion and eventually Honda Motors with 14 % market portion. So. these 3 major participants sum to 80 % of the entire industry market portion.
The Indian Auto sector had a volume growing of 13 % CAGR over the last 5 years- Driven by two Wheelers which account for 80 % of the entire volumes
Two Wheeler gross revenues reached INR 55K Cr and volumes reached 13. 3 mn units timing a CAGR of 15 % and 13 % severally over 2006-2011. This works to an mean realisation – Rs 42000 or 1. 2x the existent per capita GDP of India.
Domestic volume growing has been strong over the past five old ages turning at 11 % CAGR
Exports have been a important factor to lend to overall volumes with a growing of 27 % CAGR over the last 5 old ages.
Year to day of the month. the volume gross revenues growing in two Wheelers has surpassed all other car sections.
FIVE Forces Analysis
What is it?
Five Forces Analysis is a tool that enables directors to analyze the cardinal factors in an industry environment that form that nature of competition: ( 1 ) competition among current rivals. ( 2 ) menace of new entrants. ( 3 ) replacements and complements. ( 4 ) power of providers. and ( 5 ) power of purchasers. When do we utilize it?
In a strategic analysis. Five Forces Analysis is an first-class method to assist you analyse how competitive forces shape an industry in order to accommodate or act upon the nature of competition. Jointly. the Five Forces determine the attraction of an industry. its net income potency. and the easiness and attraction of mobility from one strategic place to another. Because of this. the analysis is utile when houses are doing determinations about entry or issue from an industry every bit good as to place major menaces and chances in an industry. Why do we utilize it?
This analysis was originally developed by Michael Porter. a Harvard professor and a celebrated authority on scheme. While all houses operate in a wide socioeconomic environment that includes legal. societal. environmental. and economic factors. houses besides operate in a more immediate competitory environment. The construction of this competitory environment determines both the overall attractiveness of an industry and helps place chances to favorably place a house within an industry. Porter identified five primary forces that determine the competitory environment: ( 1 ) competition among current rivals. ( 2 ) menace of new entrants. ( 3 ) replacements and complements. ( 4 ) power of suppliers. and ( 5 ) power of purchasers.
Among the direct and obvious forces in the industry. bing rivals must first trade with one another. When organisations compete for the same clients and seek to win market portion at the others’ disbursal. all must respond to and expect their competitors’ actions.
2. Menace of Entrants
New entrants into an industry compete with established companies puting downward force per unit area on monetary values and finally net incomes. In the last century. Nipponese car makers Toyota. Honda. and Nissan represented formidable new entrants to the U. S. market. endangering the market place of established U. S. participants GM. Ford. and Chrysler. The being of significant barriers to entry helps protect the net income potency of bing houses and makes an industry more attractive.
3. Substitutes and Complements
Besides houses that straight compete. other houses can impact industry kineticss by supplying replacement merchandises or services that are functionally similar ( i. e. . carry throughing the same end ) but technically different. The being of replacements threatens demand in the industry and puts downward force per unit area on monetary values and borders. While replacements are a possible menace. a complement is a possible chance because clients buy more of a given merchandise if they besides demand more of the complementary merchandise. For illustration. iTunes was established as an of import complement to Apple’s iPod. and now the house has leveraged connexions among its suite of merchandises including iPhone. iPad. and the similar.
4. Power of Suppliers
Suppliers provide resources in the signifier of people. natural stuffs. components. information. and funding. Suppliers are of import because they can order the nature of exchange and the possible value created farther up the concatenation toward purchasers. Suppliers with greater power can negociate better monetary values squashing the borders of downstream purchasers.
5. Power of Buyers
Buyers in an industry may include terminal consumers. but often the term refers to distributers. retail merchants. and other mediators. Like providers. purchasers may hold of import bargaining powers that dictate the agencies of exchange in a dealing.
Harmonizing to Porter. successful directors do more than merely respond to this environment ; they act in ways that really shape or “enact” the organization’s competitory environment. For illustration. a firm’s debut of replacement merchandises or services can hold a significant influence over the competitory environment. and in bend this may hold a direct impact on the attraction of an industry. its possible profitableness. and competitory kineticss.
I. Dickering power of purchasers: High
Who are the purchasers of this industry: Individual clients who purchase and use two Wheelers for the intent of transit. This class of clients considers two Wheelers as a necessity than a luxury. In a underdeveloped state like India. particularly in tier 2 and tier 3 metropoliss. two Wheelers are highly popular amongst households and pupils. Water scooters are considered to be public-service corporation vehicles transporting a household of 2-3 at a clip and supplying good milage. Motorcycles on the other manus come in a assortment of sections. They can be less. playing as public-service corporation vehicles.
They can be bing really high. moving as luxury merchandises for their proprietors. The undermentioned points can be aggregated to find the comparative bargaining power of purchasers against the car fabrication houses. The bargaining power in this instance would intend to what extent the purchasers can negociate monetary values of the two Wheelers. This purchasing power would find the market monetary value of the two Wheelers in the long tally. It besides indicates the strength of competition amongst the bing houses in the market. Product Differentiation: Low
The characteristics in two-wheelers produced by the Indian makers like Bajaj. Honda. TVS etc. are really near to each other. These characteristics include visual aspect. Price. Quality and other functional characteristics. This implies that: The purchasers can switch from one merchandise to another. as they do non hold affinity for any specific merchandise
Information Handiness: High
High handiness of information over the cyberspace. leads to higher dickering power with the purchaser to compare the assorted characteristics and monetary value of merchandises therefore taking to take down dickering power with the fabrication houses.
Type of Economy: Developing
India being a Developing economic system. is a large hub for two Wheeler makers. A two Wheeler is a necessity in little towns even today. The big figure of clients lowers their bargaining power to some extent. However. this is offset by the big figure of providers. This is good intelligence for the car houses as their merchandise is traveling to stay in demand for a piece at least and they don’t have to worry about worsening gross revenues for some clip in India.
Number of Suppliers: High
The figure of companies fabricating cars is high in India. With each major participant opening salesrooms in non merely Tier I but II and III metropoliss. the consumers have a broad assortment of options to take from. The figure of purchasers and Sellerss in market is high. These two effects offset each other. This implies that: The dickering power of consumers is high because of this consequence as the consumers have the option of traveling to another trade name if they do non like the functional characteristics or monetary value of one trade name. In instance of public-service corporation vehicles fabricating class. Rohtak entirely has two salesrooms of the major participants in the market. This implies an sceptered consumer.
Switch overing Cost: Moderate
The shift costs are higher than FMCG goods nevertheless are low compared to many other high engagement merchandises. A basic two Wheeler starts from about Rs 40. 000. This cost possibly high for some people and non so important for others. However as two Wheelers barely have any associated merchandises. which would necessitate compatibility with the merchandise. the exchanging cost is low. Besides due to a well-established 2nd manus market in India. the vehicles can be easy resold these yearss. This besides covers up for the shift costs to some extent.
II. Bargaining Power of the Supplier: Low
Organizations would be at a disadvantage if their providers are powerful. They should sooner non be dependent on any provider. Now providers can be powerful if the figure of houses supplying thie peculiar service or merchandise are few in figure ( eg. A monopoly. oligopoly ) . The figure of the houses determine their bargaining power. The power gets by the addition in being of exchanging costs for the assorted houses. Furthermore. houses in an industry have power if they have many alternate beginnings of supply or if they have a believable menace of incorporating backward to supply their ain beginnings of supply. So even provide concatenation direction is peculiarly of import in industries where the possible power of providers is high. Now. for a 2 Wheeler Industry there would be assorted providers which can be loosely classified into 4 wide classs: –
1 ) Steel industry
2 ) Tyre industry
3 ) Car constituents industry
4 ) Battery industry
The 2 Wheeler industry in India largely imports all the automotive steel. Around 65 % of the steel is imported for cars. The inexpensive import responsibility helps the 2 Wheeler industry to import high quality steel. So the monetary values of steel is determined by largely international markets. so the bargaining possibility is less for the steel providers. Demand for automotive steel such as interior constituents and outer organic structure parts comprises merely 7-8 million metric tons ( meitnerium ) a twelvemonth out of India’s entire production of about 78 meitnerium. but is turning at 10-20 % a twelvemonth even as overall demand growing lags economic growing.
The companies in India which develop automotive steel have now decided to spread out in this country and many companies have entered into joint ventures with assorted international companies like Sumitomo + Bhushan Steels. Jfe+jsw. Tata+Nippon joint ventures. So the 2 Wheeler industry has a batch of sellers both nationally and internationally to take from. Thus. the dickering power of the provider is low.
Car constituents and Battery Industry
Both the Auto Components industry and the Battery industry in India are extremely disconnected. There providers extremely outnumber the 2 Wheeler companies. Examples of a few companies which provide car constituents in the car industry are Rico Auto Industries Ltd. JBM Group. Sona Koyo Steering Systems and Lumax Industries. Indication Instruments Ltd Aisin Seiki Co. . BorgWarner. Continental. Delphi. Denso Corporation. Eaton. FAG. Faurecia. GKN. Honda Foundry Co. Ltd. . Honeywell. Knorr Bremse. Koyo. Magna. Magneti Marelli. Mando Corporation. Meritor. Mitsuba Corporation. NHK Spring. Robert Bosch. Showa Corporation. Sumitomo Wiring Systems. Toyoda Gosei. USHIN. Valeo. Visteon. Yazaki and many more. Amaron. exide. aglow. kaycee. sumangal. action. tata batteries are merely a few illustrations of the Battery Companies in India. Thus. since the figure of providers is immense the dickering power they enjoy is low.
It can be clearly seen in the pie chart below that for Sur industry in India. 53 % of the Sur ingestion is by the 2 Wheeler industry. The benefits are given to them as they are purchasing in majority and the relation gives the Sur houses a strong trade name association.
At present there are 40 listed companies in the Sur sector in India. Major participants are MRF. JK Tyres. and Apollo Tyres & A ; CEAT. which account for 63 per cent of the organized Sur market. The other cardinal participants include Modi Rubber. Kesoram Industriesand Goodyear India. with 11 per cent. 7 per cent and 6 per cent portion severally. Dunlop. Falcon. Tyre Corporation of India Limited ( TCIL ) . TVS-Srichakra. Metro Tyres and Balkrishna Tyres are some of the other important participants in the industry. Therefore. with so many participants in the market and besides with the power to give Sur companies trade name association. the 2 Wheeler industry is at a immense advantage and the bargaining power of the Sur providers is low.
III. Threats of Substitutes: Low
Number of Substitutes: High
Substitutes can be autos. electrical vehicles. public conveyance and rickshaw/taxi. There are many participants in the market for four-wheelers. Besides. in tube and some of the tier-II metropoliss. public conveyance installation is rather good. Therefore. this can be a negative factor for two-wheeler industry. But two-wheeler may be a better option for 2 people in the same monetary value scope. Flexibility is besides high compared to public conveyance. These facts nullify the negative consequence of this factor.
Public Transport Infrastructure: Moderate
As of today. public conveyance is non really good developed in India but its underdeveloped twenty-four hours by twenty-four hours. In tier-1 metropoliss. people have started preferring public transit for everyday undertakings but people in other parts don’t have an option.
Scope of Differentiation: High
There is a high range of invention in this industry as the engineerings are of all time altering. Customization harmonizing to the client needs is of import and attracts consumers’ attending towards one vehicle from another.
Lifestyle in India: Changing
Common Man’s life style is altering in India and figure of people working in a household are increasing. Most of them prefer one vehicle per caput to transpose. For a in-between category household. two Wheeler is the lone executable option in such instances looking at its flexibleness and affordability. Therefore. altering life style is a positive mark for this industry.
Cost of Switch overing to Substitutes: High
Peoples switch to replacements for a ground. Given below are some of the grounds why people switch to replacements.
Comfort. position Symbol. safety
Affordability. Safety. Cost. Pollution. Time salvaging
Environmental friendly. Care cost
Here is the negative side of exchanging to replacements. Public conveyance vehicles are non readily available for transit within the city/town/village except in a few metropoliss in India. For the parts where public conveyances are non available. merely four-wheeler or electrical vehicles remains the replacement to a two-wheeler. Electrical vehicles at present non competitory with regard to show gasoline running vehicles. No established participant is offering Electrical vehicles. Switch overing cost from a two-wheeler to a four-wheeler is rather high as investing will be needed to exchange the merchandise. Besides running cost is more for a four Wheeler.
The above tabular array shows the computation of running cost of a two-wheeler and a four-wheeled per kilometer. The Numberss are rationally assumed for making to quantified figures. As we can see from above computations. running cost of a four-wheeler is about 3. 5 times more than that of a two-wheeler. Therefore. we conclude that the cost of exchanging to replacements is Low in the instance of two-wheelers.
Sing all the five factors lending to Threats of Substitutes. it can be safely concluded that this menace is LOW. Lower running costs. higher addressable market and deficiency of public conveyances make two Wheeler industry attractive.
IV. Threat of New Entrants: MODERATE-WEAK
Capital demands: Moderate
High capital demands mean a company must pass a batch of money in order to vie in the market. The investing made by the company depends upon the type of enlargement. High capital demands positively affect 2 Wheeler Industry India. “High Capital Requirements ( 2 Wheeler Industry India ) ” is an easy qualitative factor to get the better of. so the investing will non hold to pass much clip seeking to get the better of this issue. Easy to get the better of this disadvantage
High sunk costs
High sunk costs make it hard for a rival to come in a new market. because they have to perpetrate money up front with no warrant of returns in the terminal. High sunk costs positively affect 2 Wheeler Industry India. This statement will hold a short-run positive impact on this entity. which adds to its value. “High Sunk Costs Limit Competition ( 2 Wheeler Industry India ) ” will hold a long-run negative impact on this entity. which subtracts from the entity’s value. “High Sunk Costs Limit Competition ( 2 Wheeler Industry India ) ” is an easy qualitative factor to get the better of. so the investing will non hold to pass much clip seeking to get the better of this issue.
5 Forces analysis:
High negative impact in the long tally
High positive impact in the short tally
Easy to get the better of this disadvantage
Strong trade names
If strong trade names are critical to vie. so new rivals will hold to better their trade name value in order to efficaciously vie. Strong brands positively affect Two Wheeler Industry India. The 3 major participants contribute to 80 % of the market portion Hero Moto. Bajaj Auto. Honda Motors.
Advanced engineerings make it hard for new rivals to come in the market because they have to develop those engineerings before efficaciously viing. The demand for advanced engineerings positively affects Two Wheeler Industry India.
Economies of graduated table
Economies of graduated table aid manufacturers to take down their cost by bring forthing the following unit of end product at lower costs. When new rivals enter the market. they will hold a higher cost of production. because they have smaller economic systems of graduated table. Economies of graduated table positively affect Two Wheeler Industry India. ”Industry Requires Economies of Scale ( Automobile Industry India ) ” has a important impact. so an analyst should set more weight into it. “Industry Requires Economies of Scale ( Two Wheeler Industry India ) ” will hold a long-run negative impact on this entity. which subtracts from the entity’s value.
This force has important impact
High negative impact in long tally
Patents that cover critical engineerings make it hard for new rivals. because the best methods are patented. Patents positively affect Two Wheeler Industry India.
It takes clip and money to construct a trade name. When companies need to pass resources constructing a trade name. they have fewer resources to vie in the market place. These costs positively affect Two Wheeler Industry India.
High acquisition curves
When the acquisition curve is high. new rivals must pass clip and money analyzing the market before they can efficaciously vie. High larning curves positively affect net incomes for industry.
High shift costs
High shift costs make it hard for clients to alter which merchandises they usually purchase. due to costs. High shift costs positively affect Two Wheeler Industry India. High Switch overing Costss for Customers has a important impact. so an analyst should set more weight into it. ”High Switch overing Costss for Customers will hold a long-run positive impact on this entity. which adds to its value. This statement will hold a short-run positive impact on this entity. which adds to its value. This force has important impact
High positive impact in long tally
High positive impact in short tally
Strong distribution webs
Weak distribution webs mean goods are more expensive to travel about and some goods don’t get to the terminal client. The disbursal of constructing a strong distribution web positively affects Two Wheeler Industry India. “Strong Distribution Network Required ” has a important impact. so an analyst should set more weight into it. “Strong Distribution Network Required – Two Wheeler Industry India” will hold a long-run positive impact on this entity. which adds to its value. “Strong Distribution Network Required – Two Wheeler Industry India” is a hard qualitative factor to support. so viing establishments will hold an easy clip get the better ofing it.
This force has important impact
High positive impact in long tally
Difficult to support advantage
High entry barriers
When barriers are high. it is more hard for new rivals to come in the market. High entry barriers positively affect net incomes for Two Wheeler Industry India. So to sum it all. for the two Wheeler industry the menace of new entrants is moderate to weak.
INTENSITY OF RIVALRY AMONG EXISTING COMPETITORS: Moderate
Among the direct and obvious forces in the car industry. bing rivals must first trade with one another. When organisations compete for the same clients and seek to win market portion at the others’ disbursal. all must respond to and expect their competitors’ actions. There are 3 chief factors along which the strength of competition amongst bing participants in the car industry have been identified
1. Number Of Rivals: –
The figure of rivals within an industry is a direct correlativity to the strength of competition. all else being equal. The industry concentration was studied utilizing Hirschman-Herfindahl Index. The information for analyzing HHI was obtained from the Centre for Monitoring Indian Economy. Annual gross revenues volume informations for assorted trade names of two-wheelers in the three sections were obtained for the period 2008- 2012 and was computed.
The above figure shows that the 2 Wheeler Industry is oligopolistic in nature and there is less competition even after deregulating of the Indian Economy. The Motorcycle section is characterised by a few big participants who have established their presence. The taking participant is Honda Motorcycles with about 50 % market portion. The Moped industry is a monopoly and TVS is the lone participant which has been able to capture the full market. The scooter industry has crossed the shakeout stage station 2004 when the Activa type theoretical accounts were being imitated by all major participants across the sections. This excessively has a HHI of. 309 bespeaking less competition.
2. Incentive to Fight: –
The inducement to contend is chiefly related to happening out how rivals fix monetary values i. e whether they engage in monetary value wars. or prosecute in aggressive activities with the purpose of increasing market portion. This shall farther be explored among 3 other parametric quantities.
A. Growth In Automobile Industry
There has been significant growing in the car industry in India and it has already crossed the 25 Billion Rupee grade and has had a 13. 7 % CAGR over the past 5 old ages. Over the average term. the 2W industry is expected to describe a volume CAGR of 9-11 % to make a size of 24-26 million units by 2016-17. This will be due to the ( a ) favorable demographic profile. ( B ) increasing personal income every bit good as ( degree Celsius ) moderate incursion in relation to other Emerging Markets. Therefore there is significant chance for growing taking to less competition.
B. Demand – Supply Gap
Most two Wheeler have idle capacity as the supply exceeds demand. Furthermore as many participants are be aftering to increase fabrication operations. it is estimated that the entire supply will transcend demand by about 15 to 20 % . This job has been compounded by the fact that foreign entrants are be aftering to come in India as growing in European and American markets have stagnated. This will take to more competition.
C. Nature of Demand
The nature of demand is extremely cyclical in nature. In times of high growing in the Indian Economy there is matching gross growing for all 2 Wheeler companies. This can be seen more from the growing of the 2 Wheeler Industry during recession which slowed well. In fact the bikes section had dipped to negative growing during that period.
Our group believes that after measuring the three factors. there will shortly be a inclination for the houses to prosecute in ferocious competition as the bets are increased manifold. This will finally take to more competition for bing participants and international participants who are believing of embarking into the industry.
3. Coordination between rivals
Harmonizing to the Indian Constitution.
“The Competition Act. 2002. as amended by the Competition ( Amendment ) Act. 2007. follows the doctrine of modern competition Torahs. The Act prohibits anti-competitive understandings. maltreatment of dominant place by endeavors and regulates combinations ( acquisition. geting of control and Merger and Acquisition ) . which causes or likely to do an appreciable inauspicious consequence on competition within India”
which prevents houses from conspiring implicitly or explicitly conspiring. Till now there has been no inclination amongst houses of conspiring. hence the market is still competitory in footings of the coordination between rivals. Sing all the factors. the competitory landscape within the industry is still non yet clearly defined. Even though houses are capacity constrained. there is still ample room for growing. Therefore our group believes that the competition is still low.
The manner in front
With consumers going progressively cognizant about merchandises and purchaser power increasing. the makers will hold to distinguish their merchandises. Then comes the epoch of green vehicles which will be powered by battery or green fuels and will supply milage of 100 km/Rs 8. The relationship between providers and makers is awful at this point of clip. It needs to be reworked. This will supply room for improved consumer feedback mechanism which will take to improved merchandise for consumers The jutting gross revenues of two Wheelers in India in FY15 are 18MN.
There is range in the unisex class of scooters as already there are plentifulness of minibike proprietors in the state. Companies could leverage on that. Another range is at that place in rural countries and tier II. III metropoliss. This market is comparatively untasted by two Wheeler sellers and hence this should be explored and usage made vehicles should be designed for people shacking in these countries. Since the buying capacity of these people is low it should be kept in head while doing public-service corporation merchandises for them.