Something unique is happening in the Indian
automobile industry. Renault Nissan Automotive India Pvt Ltd, which has a major
presence in India with a large manufacturing plant in Chennai and an all-India
marketing presence, is implementing a unique business model. Cars and utility
vehicles developed and supported with components from Renault and Nissan global
network are manufactured in Renault Nissan state-of-the-art manufacturing plant
in Chennai and are sold under different brands through Renault and Nissan
marketing networks, each product being offered with minor specification
variations. Nissan Micra small car is offered as Renault Pulse hatchback,
Nissan Sunny sedan is offered as Renault Scala upscale sedan and Renault Duster
SUV will soon be offered as Nissan Nuv. Nissan Evalia utility vehicle is being
launched as Style by their joint venture partner, Ashok Leyland.
Common product and dual branding in a
homogenous market is not uncommon in other industries such as electronics and
FMCG but is certainly a new feature in the automobile industry. That India is
home to this experiment through Renault and Nissan is a matter of interest and satisfaction
to the observers of the Indian automobile industry. The industry has been
witness to shared marketing (Tata and Fiat), shared components and aggregates
(Maruti Suzuki and Fiat) but the example of one company marketing a common
product with minor modifications as two products is unique. This clearly is
different from different marketers sourcing the same product for sale as
different products, a feature common in the branded generics market of the pharmaceutical
industry of India, and also in the branded white goods and electronics
industries of India. Renault Nissan unique business model certainly
necessitates greater examination of the business model of common production and
dual branding.
Benefits of scale
The crux of sustainability in any industry is
scale. Scale is of even greater importance in the automobile industry which
requires lakhs, if not millions, of product runs to recover the costs of
machine tools and dies, especially those related to high technology components
and systems such as engines and transmission boxes and stylistic parts such as
body panels. While sharing of components across the globe is commonplace in the
automobile industry, setting up plants in specific countries is a high cost
endeavor, requiring country specific strategies. Renault Nissan, for example,
is said to have earmarked Rs 4500 crore in India (over 7 years) for its 200,000
capacity plant set in an area of 640 acres. Most of the production (almost 80
percent) is currently heading for exports. Aiming at a market share of 10
percent means that the company would need further capacity hikes and
investments to meet a potential 800,000 capacity mark.
Having common design platforms and common
manufacturing infrastructure enables Renault Nissan as a unified company, and
also as two different companies, Nissan of Japan and Renault of France, reap
significant advantages in a volume constrained and competition intensive
country like India. As a result, Nissan and Renault have been able to sell
about 40,000 cars each in 2012 in the domestic market while having a common production
base of 80,000 cars. It is evident that this strategy provides economies of
scale. Potentially, this strategy can be utilized by Tata Motors in respect of
Jaguar-Land Rover up-market model range, although the product overlap is unlikely to be
anywhere near that of Renault Nissan. This brings us to the question of whether
common production and dual branding should cover non-overlapping, partially
overlapping or fully overlapping product portfolio. In other words, should
economies of scale be accompanied by economies of scope?
Options of scope
Given that most global car companies are full
line producers, the true economies of scope accrue when both the brands offer
the full portfolio. In this approach, differentiation becomes tenuous and requires
ingenious solutions. Renault Nissan has sought to adopt a strategy of minor
upgrades serving as differentiators even as both companies offer the same
product platforms. Sunny car of Nissan is upgraded, for example, as Scala sedan
of Renault with a minor luxury touch. Any strategy of splitting the product
range, for example small cars and sedans with Nissan and luxury vehicles and
SUVs with Renault would not provide the same level of economies of scale and
scope, possibly according to Renault Nissan. There are, of course, arguments
for and against this hypothesis, again based on the experiences of the Indian
automobile industry.
Marketing focus could provide an alternative
view. The experience of Maruti Suzuki
has proved that it is possible to be a mass producer of small cars and A, B and
C segment sedans. The experience of Toyota Kirloskar has proved that it should
be possible to touch a sale of 100,000 units per annum just on the basis of a
well designed utility vehicle, Innova. There is, therefore, the possibility
that Renault and Nissan could adopt completely different marketing foci, and
still derive the economies of scope at the plant level. Potentially, the
reintroduction of Datsun brand by Renault Nissan could help in such
differentiation. In a sense, it could be seen as existence of two companies of
non-overlapping product portfolios in one company. Potentially, this could be
seen as a choice between maximizing production economies (common full line product
portfolio) versus maximizing marketing economies (split product portfolio).
Design, the integrator cum differentiator
If the possibilities of economies of scale
and scope have to be combined, only design offers some significant potential. There
are two considerations of design that have promoted the trend of exclusivity amongst
the diverse car makers. The first one is the proprietary nature of designs
which is prompted by business considerations. The second one is customized
nature of designs which is aimed at performance optimization. The first barrier
can be overcome by cross-licensing of technologies and sub-products, a trend
that is widely seen in the electronics industry, and could be emulated by the
automobile industry. The second barrier requires creativity of design with
design platforms that are applicable not just for one model but more for a
small group of contiguous models. This means that a 1500 cc engine in naturally
aspirated, turbocharged and turbocharged-intercooled options should power three
distinct car models which require power of 100 PS, 130 PS and 160 PS and torque
of say, 140 NM, 200 NM and 260 NM. While diesel engine and heat recovery and
recharging technologies make the paradigm within grasp in respect of engines, the
challenges could be higher in respect of other vehicle systems, but not
impossible.
The first of the challenges pertains to the
chassis. A typical ladder type chassis provides maximum flexibility to change
wheel base, front track, rear track and width while a typical monocoque in situ
welded chassis offers the most inflexibility as every curve and anchor point is
preformed. The new trend of hydro-formed
chassis could offer a mid-point. If the designers keep in perspective that
typical length of automobiles in A, B and C segments would range between 4000 and
4600 mm and width would range between 1400 and 1600 mm, and the length in B, C
and D segments would range between 4400 and 4800 mm and width would range
between 1600 and 1800 mm, it would be possible to design and develop chassis
that are trended out of certain common profiles.
The second of the challenge pertains to
ensuring structural strength and overall form factors appropriate to different
segments. The consumer acceptance of “family look” across the full portfolio
(as in the case of Audi Q3, Q5 and Q7) favors design exponents to be creative
and effective with flexible C Post and other designs. Development of flexible
stamping systems has enabled the Japanese automobile firms develop panels and
stampings of different shapes, thicknesses and strengths with efficiency. With
the greater spread of aluminum as a material for automobile manufacture,
greater flexibility could be achieved in this domain. As technologies for cross-metal
welding develop in future, the possibilities could be immense.
The third of the challenges pertains to
design of flexible transmission, suspension, safety and steering systems. Probably,
this would be one area where compulsions of customization would override the benefits
of design flexibility, as these systems have to be matched finely with engine
power and torque profiles, segment ride and safety criteria and traffic
navigation conditions. This rules out, for example, use of a 5 speed manual box
across all models. Customization of transmission systems, in fact, enhances
engine performance and overall vehicle performance. Fortunately, manufacture of
these systems has become such a specialized manufacture that judicious resort
to in-sourcing of such specialized systems provides economies of scale and
scope to designers and manufacturers.
The fourth of the challenges is one of
designing interiors such as seats, lights and trim as well as vehicle
electronics. These are typically outsourced completely by vehicle manufacturers
although the designs have to dovetail with vehicle profiles. The availability of
modern and flexible molding technologies and clever packaging would help such
component suppliers become scale and scope efficient. The challenge here is
probably high as the vehicle designers frequently seek “product refreshes”
which typically involve exterior and interior trim and lighting systems. The elevation of the component industry to
mastering high scale and scope is a challenge by itself, regarding which enough
attention has not been paid, at least in the Indian automobile industry. The relatively
small and medium scale of evolution of the component supply industry in India
has been a kind of structural limitation in the past but need not be so now
with the increasing volumes of end-products.
Multiple approaches
While Renault Nissan business model of common
production and dual branding is an innovative way of reaping economies of
scale, there is a need for more involved and design driven approaches to
combine design customization and manufacturing flexibility to ensure economies
of scale and scope that are structurally internal to the firms and the industry,
rather than dependent on market branding. Firms could also pursue more flexible
and collaborative strategies of sharing internal systems without compromising
the overall differentiation and competitiveness. Collaborative ownership and
alliances together with innovative design and manufacturing could help the
Indian automobile industry achieve sustainable economies of scale and scope,
and become globally competitive.
Posted by Dr CB Rao on January 13, 2013
1 comment:
Great post! I am actually getting ready to across this information, It's very helpful for this blog.Also great with all of the valuable information you have Keep up the good work you are doing well.
Automobile Chatbot
Automotive Chatbot
Chatbots for Automotive Industry
Car Chatbot
Chatbot Companies
Car Dealer Chatbot
AI Chatbot for Car Dealers
Post a Comment