Economic Analysis

Economic Statistics: Indonesia is Southeast Asias largest economy with 250 million people, and GDP
growth above 5% in 2014 and projected to remain above 5% for the next five years. During the global
recession of 2009, Indonesias economy was among the top worldwide performers, due to a number of
factors, including strong domestic demand and rich natural resources. The favorable conditions like
strong macroeconomic variables, a stable currency and recent upgrades in bond ratings have made
Indonesia a major economy to watch for investments in the coming years.
Automotive Sector: The automotive sector in Indonesia has seen a positive growth in the past decade.
Indonesia has a relatively low vehicle ownership rate, but its high population means the overall market
volume is significant. Low interest rates have helped to boost consumption and economic growth. In
2012, Indonesia produced more than one million motor vehicles for the first time. The output rose 3.6
times during 200012, a large increase compared with global output growth of 1.4 times.
Foreign Investment: Inward FDI has driven recent output growth. This has mainly come from Japanese
automotive producers, who now account for some 90 per cent of Indonesian production and domestic
market sales. Today, the large size and growth of the Indonesian domestic market is the main driver of
optimism for automotive producers. Indonesia is reaching an income level at which many urban dwellers
can begin switching from riding motorbikes to driving cars.
Most of the cars in Indonesia are imported or use imported parts. The widening trade deficit has led to an
increase the import tax for consumer goods, from the present level of 2.5 percent, to 7.5 percent. The
government is giving incentives to low cost green cars (LCGC) with reduction of import and luxury tax.
The new automotive investment in Indonesia is more than doubled between 2011 & 2012. Most of these
investments came from foreigners. Indonesia expected to receive up to USD 1.2 billion in foreign
investment in the countrys automotive component industry this year. Of this value, about 40-50 percent
of the investments are expected to come from car manufacturers such as Toyota, Honda and Suzuki,
which planned to build car component manufacturing facilities in the country.
Trade Restrictions: Indonesia has also tried to increase the local content of automotive production by
imposing local-content requirements. The main types of parts being imported are engines and
transmission systems, often from other ASEAN countries, especially Japan and Thailand. One reason
cited for the previous lack of domestic parts production is the scarcity of raw materials available in
Indonesia. As of late 2013, production was continuing to rise, sustaining demand for locally manufactured
automotive parts and components. Some vehicle brands in Indonesia appear to have high local content,
but the indirect import content is often high. To increase genuine local content, Indonesia has charged
lower levels of duty, or no duty, on imported subcomponents since 2006. This is to encourage local
assembly of major components rather than their direct importation.
Media: The internet is profound in Indonesia. It overtook print and radio for the first time in 2012 in
terms of reach. While television is still the dominant medium with near 100% monthly reach. The young
and tech-savvy consumer base is highly social media aware, and supports a huge advertising market that
exceeds US$10 billion.

Market Audit and Competitive Analysis:

Market analysis: The CAGR of automotive sales has remained 11.1% from 2005 to 2012. The CAGR of
increase in production is 11.4% from 2005 to 2012. As per KPMG report 1.2 million vehicles were sold in
2013, out of which 70% were passenger cars. 70% passenger vehicles are bought on credit. According to
2012 data the two wheeler market comprised of 25% of the market and the four wheeler penetration was
as low as 3.5%.
Challenges ahead: the first hindrance is the underdeveloped infrastructure which makes it tough to drive
4 wheelers. The second factor is the weakening of the rupiah, this might make automotive expense
decision for a purchase. The third issue is the high oil prices globally since 2013.
Key automotive player: The below diagram represents the market share of the group companies in
Indonesia. Car buyers in Indonesia favour SUVs, MPVs and compact cars over Sedans, with 12.8%
increase in sales of compact cars year on year. The 7 seat SUVs are the
best sellers because they offer great fuel effeciency, lower tax rate and
larger capacity. Toyota is the market leader with the lauch of
Avanza. GM launched Chevrolet Spin (USD 12,000) in 2013.
Value Chain Analysis: The automotive industry largely operates
through vehicle assemblers. 70% of the auto parts are imported.
Tata Motors has lauched an initiative to establish 300 auto parts
Indonesia by 2015.

outlets in

Preliminary Marketing Plan

Product: The Tata Nano GenX carry several cosmetic updates and new features to become more
desirable to the small car buying customers and change its image from a Cheap car to Smart city car. It
has now more up-market cabin, updated engine, bigger fuel tank and some exterior changes. The main
feature that makes Tata Nano GenX set aside from the cars of its category is the Automated Manual
Transmission (AMT), which is goes with its image of Smart City Car.
Target Market: The target market for Tata Nano would be the youth of Indonesia (17 years 30 years)
who wants to shift their class by upgrading from two wheeler (Current market share of 25%) to four
wheeler. To quote Mr. Klaus Paur, Global Head Automotive, Ipsos In an emerging economy like
Indonesia, a car is a generally recognized and widely aspired to as a symbol of success.
Product adaptation and modification: To understand the Indonesian customer we will start with market
research. We will use the following model to conduct the market research:
TATA
Motors

TATA
Motors

Agency

Customers

Cultural
Boundary

Specific variants of the existing models of Tata Motors will be developed with automatic transmission to
test the acceptance towards it and make changes to it according to the tastes of consumers.
Promotion Mix: The promotion will be done in Indonesian language, which is the primary and most
spoken (more than 90 %) language of Indonesia. A new trend within Indonesias automotive industry is an
increase in financial services offerings from retailers. The research shows that various competitors spend
extensively on advertising and promotion. Astra International incurred significant marketing and
promotional expenses during FY13 with the launch of LCG cars.

Channels of Sale: We will collaborate with Tata Motors finance motor limited to start a promotional
campaign to give attractive financial offerings to the youth customers. To be an Insider in the Indonesia
market, we will promote the features like high road clearance well-suited to navigating flooded roads,
reliability, have a long lifespan and have high value-retention, all factors attractive to Indonesian
consumers.
Tata Motors Indonesia has launched an initiative to establish 300 auto-parts outlets in Indonesia by 2015.
We will use there outlets to promote Nano GenX variant with attractive offers.
As we are targeting youth, online promotion will be done on various social networking sites. We will also
launch the online purchase portal like it has been done in India.
Terms of Sale: The sale will be done according to the laws in Indonesia with 30% down payment when
financed.
Channels of Distribution: The distribution of Tata Nano GenX will be done through existing retail
outlets of Tata motors in Indonesia. Tata has a strategic alliance with Fiat which can also be used for
various promotional activities in the retail outlets of Fiat.
Industry Analysis: The Porters five force analysis will give the industry attractiveness of Tata Nano in
the Indonesian Market.
Threat of New entrants: The threat of new entrants is very high in the Indonesian car industry. The
growing economy and the increasing buying power of the customers has made every automobile player to
grab the opportunity in car segment. Barriers for entering would include economies of scale, competition
from existing players, customer switching costs and the investment decisions. So the threat of new
entrants is HIGH, hence Industry attractiveness is LOW.
Threat of substitutes: Substitutes for Tata Nano GenX are Low cost green cars for which the
government is giving major incentives. The SUVs And MPVs are also preferred in the Indonesian
market. The Indonesian customers also prefers used cars which also gives a challenge to Nano in this
market. So, the threat of substitutes is HIGH, hence Industry attractiveness is LOW
Bargaining power of suppliers: The suppliers for this industry include various components used for
assembling the car. As per the government regulation, 40% of the auto components should be from the
local market makes the power of the suppliers medium to high, Industry attractiveness is moderate
Bargaining power of buyers: The bargaining power doesnt have major influence in current scenario as
Nano doesnt have direct alternative in its 600CC product category. But there is availability of substitutes
for buyers in terms of vehicle utility. Hence the bargaining power of buyers is medium and industry
attractiveness is moderate
Industry Rivalry: Automobile industry in Indonesia is growing very rapidly with all major players
having their manufacturing base and sales in Indonesia. With a stable currency and favorable investment
opportunities, many players are entering in this market. The existing SUVs and MPVs players dominate
in this market. Thus, the threat from rivals is high, hence Industry attractiveness is low.

References

http://www.eastasiaforum.org/2015/05/02/indonesias-automotive-industry-shifts-up-a-gear/
http://www.bmiresearch.com/indonesia
http://www.tatanano.com/index.php

http://www.carwale.com/news/12160-tata-motors-to-set-up-assembly-plants-in-indonesia-southamerica.html