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Ashok Leyland – Nissan Joint Venture For LCV Business

Presentation By Group 8

Submitted to, Prof Govinda Sharma

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IntroductionProject – “Sunrise”

Major Purpose of this Joint Venture

Basically this Joint venture has led to the following activities/Organizations:

Ashok Leyland Nissan Vehicles Ltd

Nissan Ashok Leyland Technologies Ltd

Nissan Ashok Leyland Powertrain Ltd

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1.Ashok Leyland Nissan Vehicles Ltd (ALNV): - Its major activity is to manufacture vehicles at their plant called Ashok Leyland Hosur – Plant II.

2.Nissan Ashok Leyland Technologies Ltd (NALT): - It concentrates on Research and Development, Product Development and Design

3.Nissan Ashok Leyland Powertrain Ltd (NALPT):- It induces to manufacture engines to the vehicles that are being manufactured by ALNV

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Our Strategy • To come up with a CNG Passenger car from

the JV of Nissan Ashok Leyland

About CNG

• It is a Substitute for gasoline fuel like petrol and diesel

• More environmental friendly

Ashok LeylandVision:Achieving leadership in the medium/heavy duty segments of the domestic commercial vehicle market and a significant presence in the world market through transport solutions that best anticipate customer needs, with the highest value-to-cost ratio.

Mission:The great insight of Ashok Leyland’s mission is:Identifying with the customerBeing the lowest cost manufacturerGlobal benchmarking our products, processes and people

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Strategy formulation frameworkStage 1: The input stageSummarizes the basic input required for strategy

formulation (CPM)Stage 2: The matching stageFocuses on generating feasible alternatives by

aligning key external & internal factors (SWOT, SPACE)

Stage 3: The decision stageEvaluation of relative attractiveness of

alternative strategies and help choose the best alternatives (QSPM)

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Competitive Profile MatrixCompetitive Profile Matrix

CSF Weight

Ashok Leyland

Tata motors Maruti Suzuki Honda

rating

weighted score

rating

weighted score

rating

weighted score

rating weighted score

Market Share

25% 3 0.75 2 0.5 4 1 1.5 0.375

Product quality

18% 4 0.72 4 0.72 3 0.54 3 0.54

Customer loyalty

15% 4 0.6 2.5 0.375 3 0.45 2 0.3

Distribution Channel

12% 2.5 0.3 3 0.36 3.5 0.42 2.5 0.3

After sale Service

20% 3 0.6 2 0.4 4 0.8 2.5 0.5

Financial Strength

10% 2.5 0.25 4 0.4 3 0.3 3 0.3

Total 100% 3.22 2.755 3.51 2.3157

Market share: there is a link b/w market share and visibility.

They have a good presence in southern India and they are aggressively focusing in Northern India – M.S Dhoni

Customers trust successful companiesProduct Quality: known for technological

leadership and has a strong reputation for product reliability

The only auto major in India to have been awarded the ISO/TS 16949 Corporate Certification

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Customer Loyalty: To sell is to know your customers

Built-up a data base of 130,000 customersDistribution Channel: 420 nationwide

dealersNew 3S outlet in ChindwaraService centers at every 75 kmsReaching customers within 4 hours and

restoration of vehicle in 48 hours19,000 mechanics and nearly 5,800 retailers

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Financial Strength: operating profit margin declined 50 basis points y-o-y to 10.7% in September '11

net sales growing 14% to Rs 3,094.6 croreAfter Sale Service: easy access to

customers anywhere in the country5000 plus outlets for Leyparts, genuine

spares for our products serviced by five warehouses

Around 300 Highway mechanic tie-ups for corridor support

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SWOT AnalysisOPPURTUNITIES1. Getting the advantage

from government2. Tax Benefits.3. Due to liberalization,

demand for heavy vehicle have stepped-up all over the globe

4. Increasing demand for credit for dealers

THREATS1. Entry of new global

competitors2. Weak Index of

Industrial production3. Tight monetary policy

viz., Higher lending rate

4. Suspension of mining activities in many parts of the country

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STRENGTHS1. High Market Share2. Standard

innovative quality Products

3. Supplies 65% of defense vehicles to army

4. Strong Functional Structure

WEAKNESS1. Late entrant in LCV

segment2. Low Margin3. Much dependency

on state road transport corporations

4. Not good player in Northern parts

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SO strategiesIncrease the supplies to defense to 75% with the

opportunity of getting the benefit from government. (S3,O1)

Can use the functional structure and distribution network to gain more dealers.(S4,O4)

WO strategiesSetup new manufacturing plant in Northern India for

heavy vehicle segment.(W4,O3)ST strategiesRelease new products yearly to overcome

competition(S1,S2,T1)WT strategiesInvest on private transport agencies for the

transportation or import of raw material(W3,T4)

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SPACE MatrixAshok Leyland financial, competitive and

industry profilesRatings or numerical value between +1 to +7

and -1 to -7Several factors under each SPACE matrix

axes are considered which determines the recommended strategy of Ashok Leyland

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Ashok Leyland’s net sales growing 14% despite low operating margin

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The company’s return on capital is 8% in 2012.Decreased from 10% in 2011

1

The company’s earnings per share decreased from 1.96 to 1.53 2

Total 4

Financial Position Rating

Liberalization and tax benefits provide huge competition in Indian Automobile industry

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Tax benefits provide product freedom and price fluctuations 3

Suspension of mining leads to lower supply of raw material 4

Total 12

Industry Position Rating

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Increasing inflation and depreciation of rupee causing instability in Indian economy

-4

Rising fuel prices effecting the price elasticity of demand for light commercial vehicles

-5

Increasing lending rates by banks lead to slowdown for expansion -6

Total -15

Stability Position Rating

Huge market share -2

Known for quality products and services -5

Strong distribution network and organizational structure -2

Total -9

Competitive Position Rating

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Conclusion from above criteria:FP Average= 4/3= 1.33IP Average= 12/3= 3SP Average= -15/3= -5CP Average= -9/3= -3Directional vector co-

ordinates: X-axis: -3+ (+4) = 1 Y-axis: -5+ (+1.33) = -3.67

FP

CP IP

(1,-3.67)

SP

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Analysis From SPACE MatrixFrom the above analysis using SPACE matrix,

it can be concluded that Ashok Leyland should pursue Competitive strategies.

Thus Ashok Leyland has a competitive advantage of new product development by entering into joint venture with Nissan for LCV strategy.

The company is fairly competing in the unstable and unpredictable automobile industry

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Why to apply QSPM model ?

Alternative 1: Entering into the CNG Passenger models solely owned by Ashok

Leyland.Alternative 2: Entering into the CNG

Passenger models in a joint venture with Nissan Motors.

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Factors to considerKEY INTERNAL FACTORS Weights KEY EXTERNAL FACTORS Weights

Strengths: Opportunities:

1.      Market Share 0.05 1.      Tapping emerging markets 0.1

2.      Popularity 0.1 2.      Developing fuel efficient cars 0.15

3.      Innovative Quality products 0.2 3.      Fast growing automobile market 0.15

4.      Functional Structure 0.2 4.      Location benefits 0.1

5.      Pioneering 0.2 5.      Technology innovation 0.1

Weakness: 6.      Previous rankings 0.15

1.      Competition from LCV players 0.1 Threats:

2.      Dependence on other automobile manufacturers 0.05 1.      Government policies 0.05

3.      Market capitalization 0.05 2.      Fuel prices 0.1

4.      Failures in the previous segments 0.05 3.      Substitute modes 0.05

Total: 1 4.      Major existing players 0.05

Total: 1

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KEY INTERNAL FACTORSWeights

Ashok Leyland JV with Nissan

Strengths: AS TAS AS TAS

1.      Market Share 0.05 2 0.1 2.5 0.125

2.      Popularity 0.1 1.5 0.15 2 0.2

3.      Innovative Quality products 0.2 1.5 0.3 1.75 0.35

4.      Functional Structure 0.2 2 0.4 2 0.4

5.      Pioneering 0.2 1 0.2 1.5 0.3

Weakness: 0

1.      Competition from LCV players 0.1 3 0.3 2.5 0.25

2.      Dependence on other manufacturers 0.05 1 0.05 2 0.1

3.      Market capitalization 0.05 1.5 0.075 1.25 0.0625

4.      Failures in the previous segments 0.05 1 0.05 2 0.1

Total: 1 0.475 1.8875

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KEY EXTERNAL FACTORS Weights Ashok Leyland JV with Nissan

Opportunities: AS TAS AS TAS

1.      Tapping emerging markets 0.1 4 0.4 3.5 0.35

2.      Developing fuel efficient cars 0.15 2.5 0.375 2.5 0.375

3.      Fast growing automobile market 0.15 3 0.45 3 0.45

4.      Location benefits 0.1 2 0.2 2.5 0.25

5.      Technology innovation 0.1 1.5 0.15 2.5 0.25

6.      Previous rankings 0.15 1.5 0.225 2.5 0.375

Threats:

1.      Government policies 0.05 1.5 0.075 2 0.1

2.      Fuel prices 0.1 0 0

3.      Substitute modes 0.05 2 0.1 2 0.1

4.      Major existing players 0.05 3 0.15 2 0.1

Total: 1 2.125 2.35

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Results

Alternative 1’s Total attractiveness score: 0.475+2.125 = 2.6

Alternative 2’s Total attractiveness score: 1.8875+2.35 = 4.23

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Balance Scorecard for Ashok Leyland:Financial perspective:

Revenue of Rs 133.59 billions

Ashok Leyland’s net sales growing 14%

The company’s return on capital is 8% in 2012

Conservative volume growth of 15%Efficiency:

Production hits all time high at

95,337 vehicles, higher return on

investment, efficiency

increases wrt cost and time by the

use of technology.

Quality: Development of a

modern and contemporary

engine package protected for

Euro-6 emission standards, very

good in plain road and excellent fuel

average.

Innovation: R&D-relevant , appropriate and affordable world class technology. Spend 2.59% of total turnover in

R&D.

Responsiveness to customers: Easy access to

customers anywhere in the

country, they have more than 450 touch points for offering sales,

service and parts support.

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Conclusion SWOT Matrix, SPACE Matrix, BCG Matrix, IE

Matrix, and QSPM can significantly enhance the quality of strategic decisions

They should never be used to dictate the choice of strategies.

Behavioral, cultural, and political aspects of strategy generation and selection are always important to consider and manage.

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THANK YOU