Page 70 - DMGT547_INTERNATIONAL_MARKETING

Unit 3: Political Environment of International Marketing

Notes
It has been nearly a year since I took over as the CEO of Auto Components. I returned from
the US in 1995 where, after completing my MBA, I worked in the Production Planning
Division of a transnational. I was looking forward to a promising career, but chucked it in
deference to the wishes of my father, who wanted me to return home to take over the
family business. As a technocrat, he has spent his life in the automotive sector and decided,
in his mid-40s, to set up a company of his own. Auto Components started off as a captive
ancillary unit for Sadgati Motors, then a fledgling four-wheeler manufacturer. Our initial
capacity of 1 million shock absorbers per annum has grown into 3.20 million units.
Incidentally, the total output in the country is 21 million units per annum. However, the
growth in the top-line has been erratic. There were years when Auto Components grew
by 80 per cent, in others; the company registered a negative rate of growth… Yes?
That is bound to happen when you are a component manufacturer. A feeder unit’s fortunes,
invariably, move in tandem with those of its OEMs. Is there anything peculiar about the
shock absorber market?

Yes, there is. The thing is that there is no replacement market. Not only do most auto-
ancillary units fare better than the automotive sector, they are also insulated from recessions
because of the after market. Unlike most auto components, whose life is between 2 and 3
years, a shock absorber can last for anything between 6 and 8 years. You can also re-
condition a shock absorber – a process that extends the life of the product by at least 2
years. At less than a quarter of the price of a new one, re-conditioning is cheaper than
replacement. Of course, although the owners of premium vehicles will not opt for re-
conditioning, we do not get volumes there. So, we are fully dependent on the OEM market.
As a manufacturer of shock absorbers, are there any other market segments you can
target?
No. Basically, the shock absorber functions as a dampener of shocks resulting from the
vertical vibrations of a vehicle. Its function is to absorb the jerks transferred from the
wheels to the frames, thus ensuring a comfortable ride. Typically, each shock absorber
consists of two oil-chambers. Whenever a vehicle passes over an uneven surface, the
movement of piston-rod results in the displacement of oil which leads to the generation of
a dampening force. Almost the entire output of shock absorbers produced in the country
is used by the automotive industry. Shock absorbers are both technology and capital-
intensive – a big barrier for new entrants. Since the specifications are unique to each
customer, their design is critical. A shock absorber with only a few moving parts is
considered to be better. Importantly, the quality of the raw material – bright bars – is
crucial to the production of a quality shock absorber. Again, there is little possibility of
the unorganised and small-scale sectors making a beeline for this business because of
these factors.
Incidentally, since 1991, we have had collaboration with Sephantu, a Japanese component-
manufacturer. We chose Sephantu because it supplies shock absorbers to quite a few
Japanese auto majors, some of which have set up operations here. In fact, this collaboration
has helped us get new customers since Auto Components enjoys a preferred-supplier
partnership with some of them. It has also placed us on a strong wicket as far as our future
plans are concerned. It will now be easier for us to become a sourcing-base for both
European and Japanese auto majors for their global operations – a possibility that we will
examine shortly. I believe that only by becoming a part of the global value-chain can we
become competitive.

Let me raise one question that we have frequently asked ourselves in the past 12 months:
should we cater to other markets as well? I can cite the example of Sephantu, which has a
Contd...

LOVELY PROFESSIONAL UNIVERSITY 65