Porter's Diamond Model [PDF]

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Porter’s Diamond Model:

Porter’s Diamond Model can be used to assess the national competitive advantage of Indian automobile industry. Factors of Production: Among the basic factors, low labor cost is one of the key characteristics of the Indian automobile market. The average manufacturing wages are below 1000 USD in India which is far less than other global auto industry leaders like South Korea or USA. The Paved Highways (per capita) for India is 1.4194 mm which is close to the global standard. This is a crucial infrastructure factor. When it comes to advanced factors of production however, India has room for improvement with 5.3% and 6.1% telephone and internet users respectively. The adult literacy rate which is an indicator for investment in human capital and the level of skill that can be extracted from the workforce is only 61% in India. Demand conditions: The rise of the middle class in India has directly affected the sales volume of automobiles. The recent surge in per capita income of India created a sizable buying population. With the introduction of foreign firms, these buyers have enjoyed quite a few switching options. The firms naturally had to keep up with the latest innovations to hold on to their customer base. The large size of population in India also meant that economies of scale could be achieved by the leading firms. As the industry matured, the higher sophistication levels sought by the buyers caused the firms to come up with better product which in turn contributed to increased demand in the international market. Related and supporting Industry: Most components required by the Indian automobile industry are manufactured locally which is a big plus to the whole industry. India's component industry has achieved the capability to manufacture the entire range of auto components, such as engine components, drive and transmission components, suspension and braking components, electrical components, and body and chassis components. Most of these component firms are low volume and fragmented meaning they are family owned operations with small investments. This sometimes results in counterfeit products. Firm structure and rivalry

The liberalization approach taken by the Indian government has opened the automotive market to a lot of international entrants. The market leaders in the industry are Tata Motors, Maruti Suzuki India, Hyundai Motor India, Mahindra & Mahindra, Ashok Leyland, Hero Honda Motors and Bajaj Auto. These companies over the years have enhanced the production capacity and upgraded manufacturing facilities of potential vendors with the help of some investment opportunities being tied up through the financial agencies. Through obligational contracting with the suppliers many of the firms have created long term business ties. The competition is intense after the influx of international firms and yet some of the production capacity is unused. Outsourcing process has not seen enough enthusiasm.

References: 1. Society of Indian Automobile Manufacturers. (2006). The Indian Automobile Industry: Statistical Profile 2005-06. New Delhi. Retrieved from www.siamindia.com/scripts/installed-capacities.aspx, retrieved June 2009

2. Balakrishnan, K., Seshadri, S., Sheopuri, A., and Iyer, A. (2007), “Indian Auto-Component Supply Chain at the Crossroads,” Interfaces, 37(4), 310-326.