Download - Auto Industry - Country Risk Analysis
OPPORTUNITY-RISK ANALYSISAutomobile Sector
Automobile sector is one of the worst hit sector due to the present recession. Across the world the it is looking for bailout packages. In this situation, we are trying to find out which is the best country to operate in this sector.
Future growth will be driven by developing markets (Source: BCG Report).
It needs proximity to suppliers and customers.
We have taken an hypothetical auto manufacturer catering to B and C segment cars
AUTOMOBILE SECTOR
GROWTH IN PASSENGER CAR MARKET WORLDWIDE
Source:OICA
COUNTRIES UNDER CONSIDERATION
India China Brazil Thailand
FRAMEWORK FOR EVALUATING COUNTRIES Market potential Political scenario Infrastructure Credit availability Entry barrier Employing workers Protecting investors Trading across border Exit barrier Availability of skilled labour Raw material availability Vendor availability
MARKET POTENTIAL - BRAZIL
Year Cars % change
2001 1,501,586 -
2002 1,520,285 1.25%
2003 1,505,139 -1.00%
2004 1,862,780 23.76%
2005 2,009,494 7.88%
2006 2,092,029 4.11%
2007 2,388,402 14.17%
Source: OICA
MARKET POTENTIAL - CHINA
Year Cars % change
2001 703,521 -
2002 1,101,696 56.59%
2003 2,018,875 83.25%
2004 2,480,231 22.85%
2005 3,078,153 24.10%
2006 5,233,132 70%
2007 6,381,116 21.93%
Source: OICA
MARKET POTENTIAL - LNDIAYear Cars % change
2001 654,557 -
2002 703,948 7.54%
2003 907,968 28.98%
2004 1,178,354 29.77%
2005 1,264,000 7.26%
2006 1,473,000 16.53%
2007 1,707,839 15.94%
• By 2015 developing markets will contribute to 30% of new car sales (BCG).• India (72% of total sales is small cars and mid size)
Source: OICA
MARKET POTENTIAL - THAILAND
Year Cars % change
2001 156,066
2002 169,321 8.49%
2003 251,691 48.64%
2004 299,439 18.97%
2005 277,603 -7.29%
2006 298,819 7.64%
2007 315,444 5.56%
Source: OICA
POLITICAL SCENARIO
– Relatively stable– But, Highly publicized
scandals– Reforms are slow
China Brazil
– Stable Govt.– Autocracy– Policies Implemented
quickly• No time for
companies to adjust
Thailand
• A new constitution was drafted and promulgated in late 2007
• Political turmoil in 2008• PPP government facing
pressure to step down amid mounting civil disobedience and unrest lead by the PAD
India
• Either congress or BJP coalition govt.
• Both support development of economy
• Power will receive encouragement
• Stable policy
INFRASTRUCTURE - BRAZILSector Sub
SectorProjects Total
Investment
Energy Electricity 130 63,590
Natural Gas
15 6,624
Total Energy
145 70,214
Transport Railroads 16 8,572
Roads 39 12,121
Seaports 37 2,768
Total Transport
92 23,461
Per capita investment in transport= $122.2
Per capita investment in energy = $365.8Source: World bank group
INFRASTRUCTURE - CHINASector Sub
SectorProjects Total
Investment
Energy Electricity 157 31,416
Natural Gas
177 4,135
Total Energy
334 35,551
Transport Airports 17 2,766
Railroads 7 5,314
Roads 130 21,941
Seaports 55 12,426
Total Transport
209 42,447
Per capita investment in transport= $31.9
Per capita investment in energy = $26.7
Source: World bank group
INFRASTRUCTURE - INDIASector Sub
SectorProjects Total
Investment
Energy Electricity 93 33,133
Natural Gas
4 776
Total Energy
97 33,909
Transport Airports 6 4,514
Railroads 3 218
Roads 133 9,862
Seaports 24 4,327
Total Transport
166 18,922
Per capita investment in transport= $16.4
Per capita investment in energy = $29.5
Source: World bank group
INFRASTRUCTURE - THAILANDSector Sub
SectorProjects Total
Investment
Energy Electricity 52 10,894
Natural Gas
3 1,350
Total Energy
55 12,244
Transport Airports 2 455
Railroads 3 2,772
Roads 2 782
Seaports 11 199
Total Transport
18 4,208
Per capita investment in transport= $ 67.4
Per capita investment in energy = $196.3
Source: World bank group
CREDIT AVAILABILITY
Source: www.doingbusiness.org
ENTRY BARRIER
Source: www.doingbusiness.org
EMPLOYING WORKERS
Source: www.doingbusiness.org
PROTECTING INVESTORS
Source: www.doingbusiness.org
TRADING ACROSS BORDERS
Source: www.doingbusiness.org
EXIT BARRIER
Source: www.doingbusiness.org
AVAILABILITY OF SKILLED LABOR
Thailand Shortage of skilled labor deterring
new FDI Now companies reevaluating
Thailand’s attractiveness. Shortfall of 580000 by 2010.
India Skilled labor shortage Problem is not quantity but
quality High turnover rates and steep
wage inflation have eroded the competitiveness.
China Rising wages and turnover. Only a small portion of the total
labor force qualified to work in a foreign company.
Brazil Dearth of highly skilled labor. Average level of education is very
low Foreign skilled labor also limited
because of the language barrier.
RELATIVE HOURLY COMPENSATION COSTS(US100)
Source: Key indicators of the labour market
RAW MATERIAL (STEEL) AVAILABILITY AND COST India Good availability of iron
ore. Companies investing in more efficient production methods. Currently Per capita consumption low
China Steel industry under the
control of Govt. Consolidation going on in the domestic steel industry.
Shortage of iron ore might increase domestic prices in the long run.
Current lack of demand has resulted in low prices of steel.
Year Production
1990 17MT
2003 36MT
2011 66MT
YearH.R Coil
Price (RMB/kg)
2006 4.3
2007 4.7
2008 4.8
2009 4.1
Source: Indiastat * Source: chinaesteel.com
YearH.R Coil
Price (Rs/kg)
2002 18.50 2003 23.57 2004 32.41 2005 33.87 2006 33.65 2007 38.09 2008 43.42 2009 36.20
RAW MATERIAL (STEEL) AVAILABILITY AND COST
Thailand There is a domestic
shortfall in steel production. Country dependant on steel
imports. (40% of total consumption)
YearH.R Coil Price
(THB/kg)
2004 18.52007 182008 382009 28
* Source: steelguru.com
o Brazil• Abundance of iron ore,
coke.• Availability of cheap labour• Availability of modern
production techniques.• Steel industry is mainly
export dependant
YearH.R Coil Price
(USD/kg)2004 0.78
2007 0.71
2008 1.22009 0.933
* Source: steelguru.com, financial express
VENDOR AVAILABILITY India Has got a good vendor
base for automobile sector.
The vendor bases are developed by existing companies like Maruti, Tata etc.
Estimated Rs 26,000 Cr to be pumped into auto vendors by 2010.
Country has developed as a supplier base for auto vendors for Global Auto Majors
China Good vendor base low
technology intensive components
Have a good base for forging and casting products.
Have a good supplier base auto electronic components - future trend
VENDOR AVAILABILITY
Thailand Competitive vendor base
for manufacturing casting & forging parts, stamping body parts, rubber and glass.
Cost competitive suppliers for auto electronic components. These components are exported to Japan.
Supplier base developed due to assembling plants of major automobile MNCs like Ford, GM, Chrysler, Mitsubishi, Honda, Toyota etc.
Brazil New vendors developed by
European car manufacturers after 2000.
Good supplier base available for exhaust control components – future demand.
Steel components are available at a cheaper price.
AVERAGE OPPORTUNITY SCORE
ANALYZING THE RISK
SOCIO- ECONOMIC & POLITICAL RISKS
INDIA• Uncertainties surrounding in the coming general
election.• Rising communal violence and terrorism
incidents • slow-down in government decisions due to
political instability• Labour unrest and industrial action• Corruption and bureaucratic inefficiency• Unexpected delays and cost-overruns due to• Overlapping governmental jurisdiction• Fluctuation in interest, inflation and currency
rates
SOCIO- ECONOMIC & POLITICAL RISKS
CHINA• The environment could see conservatives increase in
influence in the government.• security threats along the border as a major vulnerability.• Public demonstrations and protests • Unemployment• Three Disparities (gaps between rich and poor, east and
west, and rural and urban)• Public security & safety.• Excessive discretionary authority of the customs
administrative systems.• Inadequate patent policy and poor supervision of
counterfeit goods have prevented many brand from entering the Chinese market
SOCIO- ECONOMIC & POLITICAL RISKS
THAILAND• Political fighting is aggravating social unrest,
driving a wedge between urban inhabitants and rural farmers.
• Political turmoil is seriously hurting key national institutions.
• Political chaos damaged its image as a stable place to do business.
• Terrorist activities• Accelerating inflation due to commodity prices
will be a key economic negative factor.• Domestic demand declined
SOCIO- ECONOMIC & POLITICAL RISKS
BRAZIL• Corruption scandal weakening Lula and his
government• Policy paralysis of Administration on the defensive
and fighting off corruption allegations • The public debt burden is very heavy with
maturities too short.• The external debt level is unsustainable over the
long haul.• External financing needs are too great in
comparison to currency earnings due to the debt amortization burden.
• The low level of savings which government financing needs essentially gobble up has been impeding private
• company investment.
AVERAGE RISK SCORE
OPPORTUNITY RISK MATRIX
Increasing Opportunity
Dec
reas
ing
Risk
1 32 4
1
2
3
4
2.58
2.73
India
China
Thailand
Brazil
THANK YOU!!!
Made by:- 08FN-13 Anirudh Singh 08FN-19 Aravind Menon.M 08FN-25 Ayush Gupta 08FN-27 Biswajit Mohanty 08FN-37 Jatin Sehgal 08FN-44 Kshitij Jain