CHAPTER No.

BACKGROUND, OBJECTIVES AND RESEARCH

METHODOLOGY
• Background

• Brief Overview of the Automotive Ancillary Industry

• Need for the Study

• Objectives of the study

• Scope

• Methodology

• Sample Size

• Data Collection

• Constraints in Data Collection

• Data Analysis

• Hypothesis

• Chapterisation
CHAPTER NO. 1 : BACKGROUND, OBJECTIVES AND
RESEARCH METHODOLOGY

BACKGa^OUND :

About fifty years ago, Peter F. Drucker, the father of

management sciences described the Automobile industry

as ^Industry of Industries'. Even today, the Automobile

manufacturing continues to be the largest manufacturing

activity in the world, producing more than five crore

new vehicles every year.

General Motors and Ford Motor Company of the United

States of America are the most striking examples of

this phenomenon. These corporations top the list of

FORTUNE 500 companies at number one and two positions

respectively.

In the Indian circumstances also, the Automobile

industry plays an important role. The liberalisation

process which was started by our late Prime Minister

Rajeev Gandhi, had given a fillip to the Automobile

industry in India. No other industry had taken the

advantage of this liberalisation process than the

Automobile industry. Every world famous Automotive

manufacturer is in the process of setting up a

manufacturing base in India.

The first two FORTUNE 500 companies namely General

Motors and Ford Motor Co. are already in the process of

establishing their manufacturing activities in India.

Other world famous manufacturers have already located

Indian partners and established manufacturing

facilities in India. These include Mercedes Benz of

Germany, Daewoo of Korea, Suzuki of Japan etc.

The liberalisation process in India coincided with the

establishment of Maruti Udyog Ltd. which has changed

the entire industrial scenario in general,and the

Automotive industry scenario in particular, in India.

BRIEF OVERVIEW OF THE AUTOMOTIVE ANCILLARY INDUSTRY :

As in the case of any other manufacturing industry, the

Automotive industry also purchases various components

which go into the assembly of an Automobile. Barring

few critical components, majority of components

including sophisticated sub equipment are purchased

from outside - the Ancillary manufacturers. There are

many components which are so technical and critical

that even the Automobile manufacturers find it

difficult to manufacture.

These Ancillary producers have subsequently attained

the status of an Industry- which is known as Automotive

Ancillary industry. The apex body of this industry

which is known as Automotive Components Manufacturers

Association of India (ACMA) has become a force to

reckon with which is on par with Association of Indian

Automobile Manufacturers (AI7\M) - which is the apex body

of the Automobile manufacturers in India.

The Ancillary manufacturers produce their products

basically for supplies to the vehicle manufacturers.

These products are manufactured as per the drawings and

specifications of the vehicle producer. Since the

Automotive manufacturer's aim is to control the cost,

the Ancillary supplier is left with a meagre margin

when he supplies his produce to the vehicle

manufacturers. These supplies are known as supplies to

Original Equipment Manufacturers (OEMs).

When these vehicles operate in the field, there is a

wear and tear to these components due to which these

components and parts need replacement. It is a moral

duty of the vehicle manufacturer to cater to this

requirement. However, it may not be possible at all the

times for the vehicle manufacturer to supply these

spares. In order to fill up this gap and also to earn a

fairly good amount of profit, the Ancillary

manufacturers supply these products as spare parts to

what is popularly known as the replacement market.

As is evident, the Ancillary supplier gets better price

from this class of actual users than the OEMs. The

market need is also fulfilled and the Ancillary

producer gets a market recognition which is desired by

him.

This volume of replacement market is fairly large.

During the year 1994-95, the production of Automotive

components was to the tune of Rs. 5,175 crores.(l) This

production value is only of the manufacturers in the

organised sector. A further production of the value of

Rs.1,552 crores(2) is estimated to be manufactured by

the small scale industries sector. It is estimated that

about sixty percent of this production of the organised

sector that is Rs. 3,105 crores is sold in the

replacement market. The entire production of Rs.1,552

crores is of the small scale industries sector is sold

only in the replacement market. Thus, the sale in the

replacement market reaches a mammoth figure of Rs.4,657

crores.

Considering the profit margins which are retained, the

Automotive Ancillary manufacturer would try his best to

get maximum share of business from this market segment.

Getting this share is not a simple target to achieve.

They have to plan their actions to achieve this target.

It is observed that these Ancillary manufacturers

formulate strategies so that they can grab maximum

share of business in this market segment.

NEED FOR THE STUDY :

With the development of the Automobile industry, lot of

other industries also developed. These are basically

the support industries which supply various raw

materials that go as input in the Automobile

manufacturing. The components and spares which go in

the manufacturing of the Automobile are called as

Ancillaries. The Automobile industry cannot grow alone

on its own. It has to be supported by the Ancillary

industry. Unless the Ancillary industry gives support

by way of supply of quality products in the right

quantities at the right time, the development of the

Automobile industry cannot take place.

Having realised the importance of the Automobile

industry, quite a few studies of the various aspects of

the Automobile industry were made. But so far, no study

of the Automotive 7\ncillary industry which is an

important contributor to the Automobile industry, has

been made.

The Automobile industry has got its recognition as the

prime industry by virtue of its contribution to the

overall economy and generation of employment. One has

to look at another important aspect of this industry.

In the day-to-day running of the vehicle, it requires

various inputs by way of consumables. These consumables

include fuel, tubes and tyres and various spare parts.

It is concluded that this sector creates more

employment than the Automotive sector itself.

It is estimated that the vehicle industry employs about

two lakh people(3) while the component industry in the

organised sector only, employs two lakh thirty thousand

people(4). To top these figures, the indirect

employment in this industry is the mind boggling figure

of one crore(5).

It will also be interesting to note the contribution by

this industry to the state by way of excise duty. For

the year 1994-95, by way of excise duty, the Government

earned a revenue of Rs.9,627 crores{6) from this

industry. This includes the excise duty on motor

vehicles and accessories, tyres and tubes and fuel.

Ancillary marketers use various strategies to achieve

their goals and targets. The effects and outcome of

these strategies are very interesting to note. The

effects of these strategies when compared to the

targets are multifarious. Sometimes, these show instant

results. Sometimes, these strategies fail miserably

while a few show continuous positive results.

Looking at such a pattern of the outcome of strategies,

a need of going into a detailed study of these

strategies was felt for concluding the effects of

various strategies. Also, the need to find out reasons

as to why a particular strategy shows instant results

and some don't, was felt.

OBJECTIVES OF THE STUDY :

Looking at the large volume of the potential business

of various components going into the maintenance of the

Automobiles - Ancillaries - there are many Ancillary

manufacturers who want to enjoy maximum share of

business. This aim has got a pure business purpose. The

margins available from supplies to Automobile

manufacturers - commonly known as supplies to Original

Equipment Manufacturers (OEMs) are much lesser than

those available from supplies as spares in the

replacement market. Sometimes as a policy, the

Ancillary manufacturers may be happy with supplying to

only OEMs at break-even cost and earn the necessary

margins from supplies in the replacement market.

In order to achieve this target, the Ancillary

manufacturer has to plan the correct marketing

strategies which will help him in achieving the target

of acquiring maximum share of business from the

available potential.

The following objectives for the study have been

formulated on the basis of detailed survey of

literature and discussions with knowledgeable persons

in the field:

1. To review the marketing strategies adopted by the

well established brand manufacturers of Automotive

Ancillaries.

2. To study the role played by distributors, fleet

operators and opinion leaders in establishing brand

equity.

3. To review the infrastructural facilities emerging

for the development of Automotive sector in general

and Automotive Ancillary sector in particular.

4. To estimate employment generation and its spin-off

effect on the growth of the economy via Automotive

Ancillary sector.

5. To investigate the role played by spurious parts

manufacturers in the Ancillary market and its

comparison with the genuine parts manufacturers.

6. To analyse the cause-and-effeet relationship of

consumer behaviour with Ancillary markets.

 10

7. To study the original equipment market and the

replacement or consumable market.

SCOPE :

The present study covers Ancillary manufacturers for

the passenger cars, light commercial vehicles (LCVs)

and Commercial Vehicles (including the ones used for

passenger transport). The Ancillary manufacturers for

two and three wheelers are deliberately not considered

since even though they contribute to a large extent by

volume, due to the price per unit, this volume when

converted into value forms a very small part of the

total business.

METHODOLOGY :

The method adopted for the present study is based on

the qualitative and quantitative assessment of the

responses obtained by administering a structured

questionnaire wherever possible or views exchanged

during personal interviews of the above referred

sources.
 11

SAMPLE SIZE :

For collection of information, personnel from the

following categories were required to be contacted :

• Automotive Ancillary manufacturers,

• Distributors,

• Dealers / retailers,

• Opinion leaders,

• Fleet owners,

• Reborers and Mechanics.

These parties are spread all over the country. They

make up a very wide network. Contacting all of them for

data collection is beyond the reach of an individual

researcher. Therefore, a suitable sample was selected

from each of these categories. While selecting the

sample in each category, it was ensured that these are

leaders in their respective fields.

The sample composition was as follows :

Automotive Ancillary Manufacturers :

• Bimetal Bearings Ltd.

• India Pistons Ltd.

• Rapsri Engineering Industries Ltd.

 12

Gabriel India Ltd.

Benara Udyog Ltd.

Distributors :

TVS Sundaram Iyengar and Sons Ltd. - Madurai

Sundaram Motors - Madras

Madras Auto Service - Madras

Jay Motors - Bangalore

Power Stroke Inc. - Pune

Siyaram Brothers - Delhi

Pathak Sales Corporation - Indore

FairParts, Pune.

Dealers / Retailers :

Bajaj Brothers - Madras

Sahni Benz - Delhi

Kohli Auto Stores - Delhi

Eagle Traders - Indore

Opinion leaders :

Mr. Aditya Mondal - Calcutta N,

Mr. Kannan - Madras

Mr. Sanjay Gupta - Mumbai

 13

Fleet Ovmers :

• Maharashtra State Road Transport Corp. (MSRTC)

Mumbai

Reborers :

• Hind Motors - Delhi

• Green Motors - Delhi

• Khalsa Auto - Indore

• Mahalaxmi Engineering - Indore

Mechanics / Garages :

• Mr. Bachhater Singh - Indore

• Mr. Mohammed Saab - Indore

• Sundaram Motors - Madras

• TVS Iyengar and Sons - Coimbatore

DATA COLLECTION :

The present study is based on the primary as well as

the secondary data collected from the responsible

quarters.

The primary data is collected from the sources as

referred to above.
 14

The secondary data is collected from the already

published articles and research papers. The sources of

the data are duly acknowledged.

The facts and figures are collected from the various

journals published by Associations like Automotive

Components Manufacturers Association of India (ACMA),

Association of Indian Automobile Manufacturers (AIAM)
and the data published in various periodicals and news

papers.

CONSTRAINTS IN DATA COLLECTION :

Since the data to be collected was sensitive in nature,

initially, nobody was willing to give it

wholeheartedly. The main apprehension in the minds of

the Automotive Ancillary manufacturers, distributors,

dealers and retailers was that if their strategies are

disclosed, the competitors will take the advantage of

it for their benefits. It was also feared that the

information regarding consumer behaviour pattern is

likely to be used by their competitors. The Ancillary

users felt that disclosing sensitive information may

hamper their reputation. This was because of the fact

that whatever practices they had indulged in the

 15

promotion of a particular brand or product can be

termed as unethical practice. Due to this type of

consumer psychosis, primary data collection was a very

difficult task.

However, the researcher had a distinct advantage of

being in the field of Automotive parts marketing for

more than fifteen years. He has had excellent

connections with all the concerned for the primary data

collection. The researcher had followed a discussion

method for the collection of relevant information.

DATA ANALYSIS :

The data thus collected needed to be analysed for

conclusions to be arrived at and also for the testing

of the hypothesis.

The data analysis was done scientifically. Information

on the strategies applicable for a particular market

segment by various Ancillary manufacturers was

analysed. Also, detailed study was made as to how these

strategies differ from area to area depending on

customer behaviour.
 16

HYPOTHESIS :

On the basis of issues identified after literature

survey and discussions with knowledgeable persons, the

following hypothesis have been formulated for the

purpose of field testing.

1. Statement : Some Ancillary manufacturers concentrate

only on OEM business.

Explication : The philosophy of some of the

Ancillary manufacturers is that they will

concentrate only on supplies to vehicle

manufacturers. They feel they are producing quality

products which cannot be appreciated by replacement

markets. Also they feel that the replacement market

is a dirty business which does not fit into their

philosophy of business.

2. Statement : Some Ancillary manufacturers do not

formulate any strategy but also do not have any

apprehension in supplying to replacement market.

Explication : There are Ancillary producers who

appoint distributors or dealers and leave strategy

or policy formulation to them. They are not

interested in going out for grabbing a sizable

volume of the replacement market business.

 17

3. Statement : There are Ancillary manufacturers who

treat OEM business and Spare Parts business equally.

Explication : Here we have a typical class of

Ancillary producers who believe in giving equal

importance for Original Equipment as well as Spares

business. They treat both these classes of customers

uniformly. They give them equal importance. However,

they do not give preferential treatment to any one

of these.

4. Statement : Quite a few Ancillary producers

concentrate on replacement market and aim at maximum

market share.

Explication : There are manufacturers who carefully

design the marketing strategies in such a manner

that they are in a position to capture maximum

volume of replacement business. They use recognition

by vehicle manufacturer only as a stepping stone for

entering into the replacement market.

5. Statement : Many Ancillary producers convince the

Opinion leaders for promoting their product.

 18

Explication : Opinion Leaders play a vital role in

the Automotive Ancillary replacement market. Having

realised this fact, there are many Ancillary

producers who would like to take the advantage of

these opinion leaders. By the employment of fair or

unfair means, they convince the opinion leaders for

the promotion of their products.

6. Statement : There is a class of customers that takes

the decisions regarding replacement of spare parts

only on economic basis and use non-genuine parts.

Explication : These customers take the decision of

replacement of components only on economic

considerations. Their main aim is only to ensure

that the vehicle is not off the road. They do not

mind in frequent replacements instead of using

expensive and genuine components.

CHAPTERISATION :

The first chapter has dealt with the introduction of

the subject. The next chapter discusses the evolution

of Automotive industry in India. The third chapter

deals with the Automotive Ancillary markets in India

and its various aspects like market segmentation,

 19

localisation, etc. The fourth chapter deals with the

consumer behaviour pattern and its effects on the

strategy formulation by Automotive Ancillary

manufacturers. Chapter five deals with the importance

of strategy formulation and its effects on the

achievements of corporate objectives. The last chapter

discusses the conclusions arrived at, the

recommendations and scope for further study.

We have discussed as to how and why the need is felt by

the Automotive Ancillary manufacturers for formulation

of marketing strategies to sell their products. Before

going in for further discussions regarding various

strategies employed and the factors governing the

strategy formation, it will be interesting to review

the progress of the Automotive Ancillary industry in

India.
 20

References :

1. Automotive Industry in India - Facts and Figures,

1994-95, published by Automotive Components

Manufacturers Association of India.

2. ibid

3. ibid

4. ibid

5. ibid

6. ibid