Entry Strategies in Emerging Economies: The Case of the Indian Automobile Industry

In anticipation of rapid growth, the passenger car market in India is crowded with 18companies trying to establish themselves. Most companies have joint ventures with Indianpartners and have entered the market in the last two years. The number of new entrants over anarrow time window of two years is unprecedented. Demand forecasts vary and analystsexpect anywhere between 2 and 3.5 million cars to be sold in the next five years. Equityholding for the international partner is usually over 50% and they retain significant managerialcontrol. Most of them have introduced cars in the $13,500 to $33,000 price range, which isviewed as a luxury segment in India. Automobile companies have also chosen to establishexclusive dealerships. Initially, companies have chosen to import completely knocked down(CKD) kits and assemble them in India. However, this strategy is not effective in the long runsince such imports attract 50% duty. The major implications are that a shake out is likely andthat companies would need to have alternate plans, including introduction of cars in othermarket segments, lower prices, and exports from India if they cannot establish themselves inthe domestic market. The supplier industry is very small and needs to develop simultaneouslyon all fronts including rapid capacity expansion, acquisition of technology, improvement inmanufacturing practices, quality and productivity, adoption of lean manufacturing, anddeveloping product design capabilities to meet the needs of assemblers. Therefore, a criticalrequirement for rapid growth of the industry is adequate assembler involvement in the supplerindustry.