- INdianNova

New Production Paradigm
Presented By:
The automotive sector is one of the core industries of Indian Economy,
whose prospect is reflective of the economic reliance of the country.
The industry currently accounts for nearly 4% of GNP and 17% of
indirect tax revenue.
The well developed Indian Automotive Industry has a presence among
all vehicle segment and key components.
According to Report of Society of Indian Automobile Manufacturers
(SIAM), 2006 , Percent Share: Commercial vehicles 3.94 ,Passenger
vehicles 12.83 ,Two Wheelers 79.19 ,Three Wheelers 4.04 .
Although the automotive industry in India is nearly six decades old,
until 1982, there were only three manufacturers – M/s Hindustan Motors,
M/s Premier Automobiles and M/s Standard Motors in the motorcar
 In 1982, Maruti Udyog Ltd. (MUL) came up as a government initiative in
collaboration with Suzuki of Japan to establish volume production of contemporary
models. The Company Maruti Udyog Ltd. (MUL) has become Suzuki Motor
Corporation’s R&D hub for Asia outside Japan.
Maruti also set up a Centre for Excellence with a corpus or Rs. 100 million. This was
done in collaboration with suppliers, who contributed an additional Rs. 50 million.
 Maruti has embarked upon this new project in collaboration with SMC for the
manufacture of diesel engines, petrol engines and transmission assemblies for four
wheeled vehicles. The project is being implemented in the existing Joint Venture
Company viz. Suzuki Metal India Limited (renamed Suzuki Powertrain India Limited).
Q1 Identify the most important factors of production in case of
automobile industry. Also attempt to explain the relative significance of
each of these factors
: Workers employed directly in the car industry; engineers, designers, paint sprayers,
testers, management staff, transport & distribution workers etc2.
: Natural resources used in manufacturer, land for plant and equipment3.
: Fixed capital: machinery, technology, buildings + Working capital: i.e. stocks of raw
materials and components4.
(sometimes seen as a separate factor): management, risk-taker
Q2 What more information would you like to obtain in order to draw a
production function for Maruti Udyog ? Explain with logic.
A production function defines the relationship between inputs and the maximum
amount that can be produced within a given period of time with a given level of
Q=Q(L, N, K.................)
Production Function states that Q is the maximum amount of an output which the
firm can produce if it combines the inputs (Land L, Labor N, and Capital K).
For purposes of analysis, the equation can be reduced to two inputs X and Y.
Q= f( X,Y)
Q= Output, X= Labor, Y= Capital
Hence, In the case of Maruti Udyog,
• Land: No details has been made available such as location, cost of land etc.
• Capital: 100 million+ 50 million from suppliers = 150 million
• Labour: No information on Labour required is available.
Hence due to absence of these factors, production equation for Maruti Udyog
cannot be derived
Q3 Automobile industry is a good example of capital augmenting
technical progress. Discuss.
As per Davos Report 2006,1.
• India is largest three wheeler market in the world;
• 2nd largest two wheeler market.
• 4th largest tractor market.
• 5th largest commercial vehicle market
• 11th largest passenger car market in the world
• expected to be the seventh largest by 2016.
India is among few countries that are showing a growth rate of 30 per cent in
demand for passenger cars.
The industry currently accounts for nearly 4% of the GNP and 17% of the indirect
tax revenue.
As per another report
• every commercial vehicle manufactured, creates 13.31 jobs
• every passenger car creates 5.31 jobs
• every two-wheeler creates 0.49 jobs in the country.
This growth will primarily be fuelled by the increasing number of vehicles on the
road, as well as the aggressive expansion of independent and foreign players.
While current margins for the industry remain attractive, players across the value
chain may see margins reducing to the lower levels observed in developed
Therefore, to sustain profitability, players evaluate additional ways of capturing
value, including expanding service networks, building scale.
Revenue pools remain large across the value chain, hence if players are able
to pursue appropriate strategies, significant profits can be made in this sector.