To Study the market potential for Skoda Fabia Hatch back Car segment in Twin City and AMC/jeep are a testament to this. On the other hand by entering on a large scale, one runs the risk of drastic under-utilization of capacity as observed by Daewoo’s experience in India. Since the economy segment cars are expected to drive volume growth in India in the coming years, it is extremely important for a manufacturer to have a model in this segment to reduce his per unit cost.
Government policy: the license-raj of the Indian government toll 1991 acted
as a significant barrier for any new entrants in the passenger car industry. Moreover, the government’s perception of the car being a “luxury “rather than a modern “necessity’ resulted in this sector being labeled as “low priority.” However, the liberalization of the Indian economy has removed this hindrance.
Huge capital Costs: Huge capital Cost act as significant entry barrier and
only established companies with deep pockets possess the resources to enter the automobile industry. Significant costs are involved in the development of a new car as can be seen by Telco’s Indica car which has incurred an expenditure of Rs.17 bn.
Absolute cost Advantages: Maruti’s presence in the car industry since 1984
gives it considerable cost advantage over the new entrants. Not only are its plants highly depreciated and its cars highly indigenized as compared to its competitors, it has a wide distribution and service network which will require mammoth resource to replicate. Absolute Cost Advantage: Maruti’s presence in the car industry since 1984 gives it considerable cost advantage over the new entrants. Not only are its plants highly depreciated and its cars highly indigenized as compared to its competitors, it has a wide distribution and service network which will require mammoth resource to replicate. Although liberalization of the Indian economy has reduced the impact of government policy as an entry barrier, the car industry still enjoy high entry barriers due to huge capital costs involved in setting up efficient plants and numerous cost advantages enjoyed by Maruti. The recent pull-out of Peugeot is an example that even a global automobile company could find it extremely difficult to operate in India if it faces labor trouble and Rivalry between Established competitors.
Highly Concentrated Industry: The Indian car industry is highly
concentrated with Maruti itself accounting for about 80% of all sales. The lack of
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