Globalization Trend In Automobile Industry Economics Essay

The car industry is an prototype of globalisation in which industries have developed linkages that extend beyond their national boundaries across the states. From the terminal of the Second World War until mid-1960 ‘s the US car makers dominated the industry with their huge domestic market and enlargements into Europe. In the 1970 ‘s Nipponese car houses non merely penetrated the North American Market, but besides spread their range to Europe and Asia. Toyota Motor Company, a Nipponese Automobile company, pioneered the construct of “ Thin Production ” and showed the universe that one can construct high quality autos at low cost by uninterrupted procedure betterments. In 1990, Nipponese houses shifted from the paradigm of exporting vehicles from Japan to the edifice installations in other states that enabled them to bring forth & amp ; sell vehicles at much lower cost. This scheme helped Nipponese car makers to surpass their US challengers and granary one tierce of the market portion in US.

Hyundai ‘s Global Escapade [ 1 ] [ 2 ]

Hyundai Motors Company ( HMC ) emerged from being a complete knock down assembly program for Ford in 1968 to one of the top 10 maker of car in the universe. HMC produced its first originally model in 1976 called the “ Pony ” utilizing a low cost scheme. In less than a decennary HMC opened its first abroad works in Canada to piece the forepart wheel thrust “ Sonata ” theoretical account. Until mid-1990 ‘s HMC focussed on exporting the domestically produced theoretical account. However it realized to go an International participant it needs to travel off-shore. HMC adopted the Nipponese scheme of come ining a foreign market at the lower section and so traveling upwards to capture the market portion.

Motivations for Globalization

Changing Macro Economic Conditions [ 1 ]

In the early 1990 ‘s one of the important alterations in the car industry is the impregnation of demand in developed markets – US, Europe and Japan and high growing chances observed in emerging economic systems such as Asia and South America. It was observed the car demand in the developed economic systems were merely turning at a rate of 2 % while the demand in developing economic systems was about double in late 1990 ‘s. The top American car industries – GM, Ford and Daimler -Chrysler were sing serious fiscal troubles and Toyota was the lone Nipponese house from US that seemed stable to work the chances in the emerging economic systems of Asia and South America. This state of affairs provided an chance for South Korean companies like Hyundai and Daewoo to capitalise chances in India and China.

Hyundai Faced Trouble in USA [ 2 ]

Hyundai ‘s exports to the USA exceeded 1 Million in the 1990 ‘s. Hyundai won batch of awards and popularity in USA & A ; Canada. In 1992, Hyundai ‘s Scoupe Turbo theoretical account won the Pikes Peak Hill ascent, in 1993 Elantra was selected the “ Best Car of the Year 2003 ” in Australia and Elantra was selected as the Best Buy in 1995. However Hyundai was unaware of the problem brewing in USA. The “ Pony ” a.k.a “ Excel ” theoretical account launched in USA encountered a batch of mistakes that led to a bad image for Hyundai. The low cost mass production scheme led to quality and dependability issues. The hapless image resulted in bead of gross revenues in US and many franchises abandoned their franchises. Clearly Hyundai realized a demand to diversify exports to emerging markets like India & A ; China.

Internal Pressures [ 2 ]

In the ninetiess the South Korean car industry started confronting stiff competition both at place and international market. Since 1987 increasing labour issues were ensuing in works lockouts that straight impacted the low cost scheme of Hyundai. The local market was turning at merely 5 % and in add-on the heavy vehicle excise responsibility imposed by the Korean Government on the cars and gasolene farther aggravated the competition for endurance. South Korea was further hit by the Asiatic fiscal crisis in 1997. To counter the inexorable state of affairs back place South Korea car shapers such as Hyundai and Daewoo Motors began to sharply spread out into planetary markets. These internal conditions and turning competition led Hyundai to set up production units in other states and accomplish the economic system of graduated table at low cost and diversified hazard.

Indian Automobile Industry

History [ 3 ] [ 4 ]

The first auto ran in Indian roads in 1897 and autos were imported in little figure until 1930. The Hindustan Motors ( HM ) group was set up in 1942 and Premier Automobile ( PAL ) was established in 1944 to fabricate cars in India. PAL produced the first auto in India in 1946 by piecing ‘Dodge De Soto ‘ and ‘Plymouth ‘ autos at its Kurla works in Mumbai, as HM concentrated on car constituents and could bring forth their first auto merely in 1949.In 1945, Mahindra & A ; Mahindra was started by two brothers who assembled landrovers and subsequently got into the fabrication of Light Commercial Vehicles and Tractors. Post-independence in 1947, Government of India and private sector collaborate to make automotive portion fabrication industry for the Automobile industry. The growing of Automobile industry was really slow in 1950 ‘s and 1960 ‘s due to nationalisation and licence raj ordinances. The car industry growing started in 1970 ‘s, nevertheless the growing was chiefly seen in tractors, commercial vehicles and scooters. Cars were regarded as luxury point. In 1981 Nipponese auto maker Suzuki along with Government of India collaborated to make Maruti Udyog Limited that is the largest auto maker in the state. MUL launched Maruti 800 a bantam hatch back in 1983 that is considered as specifying minute in the history of Indian Automobile industry. Maruti 800 was much more dependable and modern than its rivals that captured the bosom of in-between category and remained a best marketer for two decennaries. It is still popular in little towns and rural countries. MUL established efficient fabrication patterns and an eco-system that facilitated easy entry of foreign participants [ 4 ] .

In 1991 the Indian economic system was liberalized and since so many Indian and transnational auto shapers have established their operations here.

Attractiveness of Indian Automobile Market

Hyundai Motors entered the Indian market in 1996. It established a big mill in Chennai the southern portion of India that consisted of stores for engine, transmittal, imperativeness, organic structure, pigment and plastic injection casting that helped the works to go self-sufficing and cater to the domestic and export demands. Some of the cardinal factors that influenced Hyundai ‘s determination to put in India are:


The Indian Government liberalized the economic system in 1991. In 1993 licensing demands were abolished that allowed planetary participants to setup fabrication workss to provide the domestic and exports market. The ordinances were relaxed bit by bit from 1995 onward leting car and car constituent makers up to 100 % FDI investing in the state. Even the quantitative limitations on import of natural stuffs and constituents were relinquished doing India a Pro-Automobile fabrication finish.


Post liberalisation the GDP of India grew from 1.4 % in 1991 to 7.3 % in 1996. The GDP was expected to turn at 8 % in the subsequent twelvemonth. The per capita income of the Indian population was besides turning at an accelerated gait. The important addition in the disposable income of the in-between category led to increased outgos in lasting trade goods such as auto.

The growing of industries including the IT revolution led many people to travel from small towns and work in metropoliss. The atomic in-between category households with a Husband, Wife and two kids aspired for a compact household auto. The lone participant meeting this demand was Maruti.


The growing in economic system besides led to the addition in labour forces available in the market for fabricating sectors. A batch of people moved from the agribusiness based employment in the small towns to the fabrication and service based employments in major metropoliss of India that included Mumbai, Delhi, Kolkata, Chennai, Bangalore and Pune. The presence of prime instruction institutes like IIT ‘s, NIT ‘s and other province technology colleges along with direction institutes like IIM ‘s ensured quality labour at low cost.

Competition [ 5 ]

In 1996 when Hyundai decided to come in the Indian market, the market had few participants that included Maruti Udyog Limited ( MUL ) , Premier Automobile Limited ( PAL ) , Hindustan Motors ( HM ) , TELCO and Mahindra & A ; Mahindra ( M & A ; M ) . Daewoo had entered the Indian market in 1993 ( 3 old ages back ) while Ford, Honda and Opel were merely a twelvemonth old. Maruti was the leader in the rider auto section and other participants such as Telco and M & A ; M were into commercial vehicles and Utility. PAL & A ; HM suffered from quality issues, high cost and tarnished trade name image. Clearly the big Indian market for compact autos was up for grabs. Hyundai launched its first theoretical account “ Santro ” in India in the twelvemonth 1998 that became a ace hit among the largest client section in India i.e. in-between category.

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