The Indian operations of global auto majors like Ford, General Motors, Toyota and Honda are expected to deliver higher returns, with their parent company tackling saturation in more mature markets and thus putting more resources in emerging markets.
Low production costs, skilled but cheap workers, burgeoning middle class, export potential and improving infrastructure are some of the key market drivers for the global auto majors to increase focus in the developing markets.
The economic power of the growing BRIC countries - Brazil, Russia, India and China - is already far more important than it was a few years ago.
These emerging markets, once seen as risky places to do business, are now viewed as major opportunities, mostly because of the rising purchasing power of their large populations. China has 1.3bn citizens and its economy grew at nearly 10% in '05.
India, whose GDP grew at 6.9% in the same year, is gaining importance in computer software and back-office processing. In comparison, the euro zone posted growth of only l.3% in '05.
KK Swamy, Dy managing director, Toyota Kirloskar India says that auto majors have started developing car models specifically for emerging markets, something that was unheard of a few years ago.
Adds Rajeev Chaba, MD, General Motors India, ”to maintain global competitiveness, we have to be a major player in emerging markets. Product development is not the only priority for us. We are giving component sourcing and setting up of technical centres in the country as much importance.”
The fact that sales have grown in India, has become evident in the last two years, when fuel prices and auto component prices rose significantly. It is a good sign for automakers.
Similarly, rural demand is also growing, with rural consumers accounting for over 10% of car sales by the end of the decade, market sources said.
India has emerged from its long past, with just two players and only one in 1,000 Indians able to afford a car, into the world's fastest-growing major car market among the world's top 15 passenger car producing countries.
Car sales are expected to grow by 10-30% over the next five years. Commenting on the country's potential for growth, Arvind Mathew, MD, Ford Motor India said that Ford is accelerating growth throughout Asia, and India is clearly a growth market.
“The automobile industry has been witnessing steady growth over the past few years and a healthy economy creates greater consumer interest in personal mobility,” he said. Mr Mathew added that as in Brazil, Ford was the first MNC in India to design models such as the Ikon and Fiesta specifically for the market.