INVESTIGATION:
A SWOT ANALYSIS OF THE INDONESIAN AUTOMOTIVE INDUSTRY:
INTERNAL FACTORS
STRENGHTS:
- Indonesia is a big automotive market with a strong economic growth and high export volumes.
- Product specialization as Indonesia Specializes in utility vehicles, MPV’S and CV’S, and is a main producer of components used in these CV’S and MPVs.
- Car manufacturers (MNC’S) from across the globe are competing in Indonesia due to lower costs of production-wages and land is cheaper.
- Indonesia is the third largest car market in Southeast Asia.
- Easy to obtain credit by potential customers with low interest rates with a strong consumer lending by banks.
- Availability of Many new low-priced car models which are assembled locally.
- Easier to export/import with ASEAN countries since 2000,due to flexible trade laws.
WEAKNESSES:
- Market is dominated by foreign players (nearly 80% of the market is controlled by them).
- Passenger car ownership has been discouraged through progressive taxes by the government.
- Indonesian infrastructure is not developed as yet.
- Economies of scale not available because of lack of standardization by the automobile assemblers (as they make various makes and models to cater for a relatively small market).
- Only the MNC’S have cost advantages due to the huge capital investment required for new technological systems.
- Marketing is very aggressive with fast changing models mainly by the dominating Japanese players.
- Different car models have different import duties in Indonesia.
- Compared to other ASEAN countries, tariff on components have not been reduced in Indonesia
EXTERNAL FACTORS
OPPORTUNITIES:
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Indonesian automotive industry is booming, with an increasing growth trend.contious rise in export volumes (especially of CVS and vans within ASEAN) and economic growth is expected.
- Sales in Indonesia expected to reach 530,000 units by the end of 2008
- High growth is expected in some segments like the MPV(ex:kijang inova) and the small car segments(ex;Honda jazz)
- Fuel efficient and low priced cars are of high demand in the industry, due to rising fuel prices.
- Interest rates are predicted to be reduced, which would boost up car sales , as most purchases are on lease.
- Rapid development and a higher consumer purchasing capacity is expected due to the strong economic growth, which would boost up sales to the automotive sector.
THREATS:
- Threat of new entrants from countries like china and Malaysia with cheaper prices.
- NISSAN and MAZDA is increasing their investment to increase their production base in Indonesia.
- Competitors are offering more advanced technologies ,like navigation/entertainment system with fuel saving technologies as well. Newer hybrid technology vehicles are to be vastly produced domestically as well.-like the new Honda Civic.
- Other existing car makers are also expanding their production capacity to meet the demand and exploit the market potential as Indonesia is the fourth most populated country with a low ratio of car ownership(less than 1 in 35 indonesian’s own a car.)
- Indonesian giant PT.ASTRA (Toyota) plans to increase its market share from 31.7% by increasing its production capacity for its MPV (kijang Innova) from 80,000 units to 100,000 units by next year.
- Bank of Indonesia is planning on increasing interest rates after eid holidays by half a basis point due to increasing inflation, which would lead to a fall in car sales, as most purchases are made through leasing.
- Besides the busway,more Newer,cleaner,and safer transportation systems are coming up-(Monorail,subway, safer taxi companies,and newer bajaj powered by BBG.)
- WHAT STRATEGIES HAS ENABLED TOYOTA (JAPANESE MANUFACTURER) TO BE SUCCESSFUL IN THE CHANGING TRENDS OF THE INDONESIAN CAR INDUSTRY WHILE HYUNDAI (KOREAN MANUFACTURER) HASN’T?
TOYOTA:
P.T. ASTRA MOTOR’S TOYOTA is the market giant in Indonesia , with a 45% market share,owned by singapore’s Jardine cycle and Carriage.,these are some of the awards achieved by Toyota:
Best Compact MPV versi Majalah Mobilmotor 2006
JD Power Asia Pasific 2006
ICSA (Indonesian Customer Satisfaction Award)
IBBA ( Indonesian Best Brand Award)
IMAC (Indonesian Most Admired Company)
“One of the main reason Toyota has achieved such great heights is because of its production system which follows Japanese standards,keeping quality in mind, as the key to their success is that they follow JIT(JUST IN TIME),built in quality , standardization of work and kaizen(continous improvement)”
Another reason contributing to this success would be because they follow COST LEADERSHIP STRATEGY(refer to porter’s generic strategies (in page.) as they target a broad scope(industry wide) with a low cost advantage given the level of quality, as they sell below the average industry prices to gain market share.
Porter’s five forces analysis
Intesnsity of rivalry(strong):
- As more than 70% of the market is controlled by the top 3 brand’s like Toyota,Honda,and Daihatsu,there is intense competition in the Indonesian automobile industry, and all of them have similar technology, similar car design/products “similarity of players”,manufacturing processes ,distribution systems and supplier relationship.
- Companies are becoming more globalized ,increasing production ,putting pressures on everyone to keep costs low with increasing raw material costs.
- A trend can also be observed of companies merging(chery and Suzuki) to compete with larger companies like Toyota/Honda and easy to expand in this industry.
- Another reason the high exit barriers from this industry ,as the industry requires high capital investment.(in terms of machinery, labor, advertisement)
The Threat of new entrants(weak)
- The possibility of new entrants into the Indonesian automotive market is pretty slim, because of;
- The large amount of capital required to enter into this industry.
- large distribution networks and brand image by existing companies like PT.ASTRA’S Toyota and Honda.
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However, there is no economies of scale available ,and threat from foreign companies(like;geely from china) may arise to steal market share from existing companies in this market, but legal restrictions(% of components have to be produced domestically,etc) is somewhat a setback, the new rise in interest rates by half a basis point(on oct 8th 2008) may lead to lower sales.
The threat of substitutes (moderate):
- As the public transport system is not very efficient and clean in Indonesia, but new means are emerging which are safer and less-expensive (Busway, monorail, Subway, and newer taxi’s; new Toyota vios(blue bird),and C-class Benz & Alphard(silver bird))
- Used car is the major substitute to the new car industry, as Indonesia is one of the largest markets for second hand cars due to good resale values; a perfect example of a second hand car site-PRJ Kemayoran, with 3 different areas comprises of more than 80 second hand car showrooms.
- With changing trends to be environmentally friendly, increasing number of eco-friendly cars (substitute) are emerging in indonesia, but not happening at a scale large enough to be worried about as yet. As the number of these vehicles are still in the hundreds (compared to an average of 500,000 cars sold a year), in contrast to other countries like the U.S and U.K where production of these vehicles are in their thousands due to mounting fuel prices.
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Switching cost is high, in this industry, unlike other commodities like chocolate or public transport. as with a low national income(developing country),Cars are a high % of indonesian’s income.Even though price is a very dominant factor to most Indonesian’s when purchasing a car, but the most dominant factor in this country would be brand loyalty(to brands with a good reputation ,german and Japanese cars especially)-a good example would be Chery , a chinese company which sells cars for half the price of Toyota, but has less than a 2% market share in the Indonesian automotive industry.
Bargaining power of suppliers (weak)
- As there are so many suppliers in our automotive industry (spread all over the world), that their power is quite low and these suppliers cannot easily forward integrate.
- There is credible threat of backward integration by buyers to eliminate supplier’s margin with increasing costs of raw materials.
- Another reason is that these suppliers are highly dependent on these car assembling firms, as these component (tire, window,engine) suppliers generally has only a couple of large firms that place large orders.
- Even though switching costs are high, firms that follow a cost-leadership strategy generally focus on cost/price more than quality, and these firms are the major portion of the Indonesian automotive market (Suzuki, Toyota, Honda), but there are some MNC’S like BMW and Jaguar who is highly dependent on the quality of the suppliers product, but these luxury brands are not that popular in the Indonesian market.
Bargaining power of buyers (weak)
- As switching cost is very high, unlike consumer goods which are low priced thus low switching costs…
- Buyers are weak also because of the low demand of non-consumer goods (automobile)
- Buyers are not able to backward integrate, as buyers are generally consumers, and backward integration involves huge capital investment.
Porter’s five forces analysis is a framework that can be used to analyze the sources of competitive pressures of the automobile industry. (Analyze automobile industry profitability),as these 5 factors causes the long term profit to be low.ex.Honda would analyze the business competition using this framework.
Despite the growth that this industry is currently observing,competition in intense
Porter’s Generic strategies
Even though the automobilie sector would have below-aversge profitability,a company in this industry may have strengths by positioning itself by two headings; cost advantage and diferenciation(by applying them in a broad/narrow scope),they may use any of the 3 generic strategies: cost leadership,differentiation and focus.By looking at the strategies adopted by successful firms like Toyota and Honda , and comparing them to strategies adopted by Ferrari,Jaguar,and Lexus, we can compare which of the firms have been more successful in the Indonesian market, based on their sales/profitability/market share are primary research figures.
High interest rates may hit car sales
*mustaqim adamrah,jakarta post-09-oct-2008
Recently, central bank has risen key interest rate because of the global financial crisis, this “may hit the country’s automotive industry,local players say”, with the interest rate raised to 9.5 percent, car sales are now expected to see a slight slow down in the coming months up to next year.which means it might not reach it’s target of 585,000 units if the BI rate stays at this level.
As around 70% of car sales are financed through credit/bank loans.
This sept.,sales(55,000) dropped 6% compared to august(58,489) cause?
Many holidays during Islamic fasting month(fewer working days).
However, we can still see that demand is still high, as long as demand stays over 50,000 units a month.
The main question is –
How have they maintained this high demand?
The answer to this is because they know just the right product being demanded by (whom? At what price range is demand the highest? Method of payment? Brand and car type? City?age group?...etc) this can be achieved through intensive research,whether it be primary or secondary.
I would conduct such a survey to see trends in potential customers, in which companies to base their strategy and adopt it on their advertising,product innovation, and the four P’s(pricing and product especially.)
Survey questionnaire on the automotive market in Indonesia
1.) Name? ____________________
2.) Gender and age group? Male female
No answer 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54
3.)Are you planning on buying a car?(I yes, state whether it would be brand new(BN),second hand(SH),or don’t know(-)
YES NO CONDITION-(BN/SH/-) (____)
IF YES, PLEASE PRECEDE TO THE FOLOWING QUESTIONS!
4.) Function of buying a car?
Replacement of an older car an addition to the cars owned
To buy your first car
5.) Method of purchase?
Credit from a leasing company credit from bank cash
6.) Which brand are you considering to purchase? (And type if applicable)
Toyota Honda Nissan Suzuki Daihatsu others __________
Honda Jazz Toyota Avanza Toyota Yaris Toyota Fortuner
7.) Budget? (In millions)
<rp 100 100-150 150-200 200-300 300-500 >500
