Professional Documents
Culture Documents
Apollo Tyres Case Study
Apollo Tyres Case Study
*
:
.
\ (
m
&
: ~ ,
Marketing Environment Case 3
8
The idea is asimilae the releuant concept 0work and analyse in light of te following isue:
How to tck and identf opprunites and threat in the macro-environment
How to asess the imporance of demoraphic, economic, plitcal and technological factor
How to sustain, sutive and grow in the changing business milieu
OVER A CUP OF COFFEE
It 6 a bright day, and the sun rays filter in through
the window of Satsh Mehra, the Chief Operatng
Officer at Apollo Tyres. The company i one of the
leading tyre companies in India with a turover of
R 2,60 crore, 2nd largest in the country, 17th
largest in the world.. Satsh moves over to the coffee
machine to brew his third cop and turs it on. His
door opens and Kran Sinha, the Stategy Head
walk in with a woned look on his face. Satsh looks
at Kran and aks, "Why the woried look Karan,
what's bothering you now?" "Worrying me? That's
a understatement Satsh, have you seen the kind
of changes that are happening around us? It surely
* ~
brought in and ask him that what it is. Karan tells
him that he has collected data on the economic
figures for India, the various policy changes of the
new goverment and has various sureys which
capture the changing consumer buying behaviors
it impact us ? If industial growth is at 10 then
what, and if any of these are lower than forecasted
then what do we do ? Th goverment has relaxed
the cap on FI into retail and RD with s many
oter psitve plicy changes which would impact
us, but how do we make sense out of all this?" "That
is something I was hoping that you would help me
answer, Satish because I & a overwhelmed b all
this data a you seem to be,'' replies Karan. This
data crnching is going to require a lot of time and
I don't think ve \.Jould be able to do justice to it with
our current schedules especially with the Asia Pcific
review due next week. Satsh mulls over the senario
for a while and then says that it is a better idea to
hire a consultancy for one of the aspects of the
macro-environment and ak them to present their
findings with the impact on their company. Kran
seems delighted ''That is a wonderful idea; s let's
do it." They decide to allocate economic growth in
India to Boston Consulting Group (BCG) and give
a deadline of one week for the fh to present their
findings.
Afer a week BCG presents their report on the
macro-economic analysis and its impact on Apollo
Tyres which is presented in the Annexure .
THE DILEMMAS
''Have you gone through the repor yet Satsh ?" asks
Karan as he walks into Satsh 's office holding a copy
of the report hi,. '"elf
.
''Yes, I have and am impresed
with their finding
s
and analysis" replies Satish. ''S
o
am I and it is interesting to see the intensity of the
impact that these economic factors in the macro
environment have on our industy," says Kran a
he put the report on Satish's table. "I could have
never imagined the high corelaton that our indust
has -ith these economic factors, it more so
vindicate te imporance of macro environment and
1
4
SECOH i : M vr0mt
The rfor prO ha had sme yer beneci efect on the Indian economy, including higher groth
refors undertken since 191 have unlehed the growth potental of the Indian economy . A sries of
"Second Generaton refors" ae at deregulatng the count and stmulatng foreign investent have
moved India firly into the font tk of the rapidly growing Aia Pcific region .
. Relationship between Transport and Economy
There i a stong relatonship beteen economic development and tanspr demand. Economic growth
irt plies both an increa in G rt and more mobility, resultng in an increase in passenger tansport .
Apar from the relatonship beteen income, on the one hand, and proucton and consumpton, on the
other, other development (e.g . change in the scale ancorsope of proucton and reallocaton of producton
from a global sale) infuence tnspor demand. The tanspr system helps to make the economy tck . Good
tansport i needed to get people to work and many jobs are baed on etensive tavel. Transport i also a
-:jor contibutor to the economy in it own right. Road transport, vehic!:'anufacturing and related industies
alone employ a major chunk of the populaton. Goo tansportaton i vitl to the movement of goods and
serices and thus has a direct impact -on economic growth and prouctivity . Thus if the transportaton
requirement of the count are affected by the economic growth, it has a direct impact on the demand for
tyres as tyres fon a major component of the tanspor requirement of the count and both are not mutually
exclusive. Thus economic growth increases tanspor requirement which ultimately impact and increases
the demand for tyres.
Demand for Tyres .
.
The demand for tyres comes from three segment original equipment (OE) maker, replacement and
exports where the replacement market is the primar driver of demand, followed by the OE segment. Export
account for les than 10 per cent of the total demand. As with any other auto-ancillar product, realisation
and profitability in the OE segment i relatvely lower compared to the replacement market. The demand
from the OE segment depends on automobile proucton, while the flow of demand from the replacement
market hinges on the automobile output in the recent past. The OE segment i a major surce of demand in
the pasenger car market, followed by the two-wheeler and tactor segment. In the pasenger car market. the
OE segment account for about 6 per cent of the total demand, while in the two-wheeler and tractor sgment,
it contbuton i about 50 per cent. .
The demand for tyre has been derived from the annual te producton data for all the tyre manufactures
in India a shown below. The table below gives the figures for the tyre demand1 from the year 196 to 20 .
The figures are in lacs nos .
1996
l997
1998
1999
2000
2001
2002
2003
200
'278.9
129765
310.9
370.48
414.13
424.71
435.14
515.85
546.9
t 1.66
9 17 . , 8
18.1
. .
: 1
.
9. 1
.
7.
198
11.08
23.52
28.4
32.71
>urte PutO0c yrc PmDMM Pm
1)62
.e. rs A
#
19.79-
W
w 78.35
87. 93
86.12
&.74
98.63
108.21
N# <
.. 32.6
38.13
q 41.8
45l71
60.54
68.13
74.81
85.4
99.59
22.37
19.89
19.77
21.47
24
23.15
22.55
24.2
24.05
Industria
0.95
0 . 66
1.43
1.37
1.72
2.19
2.14
3.09
2.95
42
Macr Ftn
Te f chon to monitor and quant te macr envirnment dgiven bow. Te facor encompss
t itcal, Economic,
HBhwy .
Ros 1
Vehicles
FI
Crude 011
Sensex (FII)
AI - Ac Prcton Index
Fo sn
P Ino of Indua Pructon
I
Wa
Rte
Industal Index
Emplormnt
Svin1s
Population
Thi section lists the historical movement of the chosen macro environment factors for about a decade lng
cognizance of the development of the same post liberaliston in India
|W Jb
7.3
1997 9702 7.8
199 1016S9S 9 .
Y
.
10748 6;5
14836 6.1 .
201 I CS92 4.4
202 12673) s.
203 1318321 . 4
20 1424507 8.
8.8 103 51.1 :f8.42
f02
199.+
s;a ro 15,5
1926
+
H 6 1 1 6.7 ..
23.1
1 9.37'
6.7 9
1, 1
W
.
4. :ti 1 ,:Jhfj'.1.
1.8 103
7.1 . 8
W
1657
(13
1 5.5
17.
20.8
1 9.'
W
212:S
t. 174 1' 9
211
9.2
P
. a 9 2
7.2 6133
.
"13.1 - S38S
4.7 241
4 5181
3.8 67
4.3 81-S2
4.1 539
s.s 16S2
W
27S.
27.41
28.4S
21."
1.3
27.6
279
2n.os
27.01
93
W
W
100
IOF4
1027
1037
lOSS
W
1073
1 Srce: EcooiSurey LIndi 20S1 Cculate by Wng te m a IOfo te W199S and ten Upsing te grm rte
on te futre y ear giing us a relte pfve o te GOP pr cai on a base o IO Sre: Indi Meteoooicl
Departent Monson meure in tens o prcentge were U goverment m set a benchmr mnon al avere O0at
| and releaes monso fcures in percent tens by ting conince Oti bnchmars Sorce:. Ministl mAriculure,
Indi. Aricultre Prouco Index is a inde o aicural prouctn (o % crps, including planttions) wit bae
trennium endinc |98 ( -2= 0. The agriculurl outut is measure trouch tis index wit diferent wiht beinc cien t vaos
types mcros.' Source: Cnfederatio o Indin Indust (CII)' Srce: Census mIndia 204
. . .
as
+
19
1 3.
19 3.5
199 .49.6
& 52
201 52
O 57.7
203 58.1
Z b
. .
- .
' +
. . q
, .
a - . .
1Zb
Z
239.7
2416.1
246.7
2.].]
248].]
26l.l
337
591
W3
62210
6532
113.0
120
1
133.0
142.0
149.0
153.0
162.0
173.0
J
12
.41
.6.
6.25
0
bLLN Mrkmgmmmt
-
_ um8DF
+w
, -te
.
- Ia#zw '
~
In te
, :/
.
- " . -.
a 04V6ff SerIet
^ I . q .
.^. . ! -
V ._ . .- o f * 1 .
* J
' - ;
. -..
J/9/
317261
35217
379
1
4909
532274
6229
62176
21931
219
Z
W
385
41929
4384
27
Z
22
21
20
Z
J
]0.4
30.
lOB
] 1.8
]0
14.8
4]
4]
%
%
47
47.2
47.2
>
51.2
Source: Ministr of Road, Trnsport & Highwys' Surce: Ministr mCommerce and Industry. The lndeA U Industrial Production
(liP) index coprises of S4l items of wich 478 fll in te manuacturing sector, in mining and one in electricity. The data for liP has
been nO nalied wit Oknz base vlue for year 1995 (I 09.1 dividd each by 1995 value &multipied by I '"Source: Resere Bank
of India India Brad Equi Foundtion (IBEF)
Based on the findings and corelatons conducted the final factor selected for the development of th1
econometic moel are: Year (Time), GOP Absolute,.Infaton, Road Length, Inde of Industial Proucto1
(liP), Serice Sector Contbuton and Populaton. GOP per capita was rejected since absolute GOP anc
populaton take account of GOP per capita. Monsoon agriculture were rejected as the correlations ar
negatve and the count is no longer dependent on monsoon a the year Z-recorded GDP growth rat4
of b.D (highest ever) with lowest recorded rainfall of only b. Natonal highway not selected as it is t
subset of road length. Wages, Employment, PLR, FOI and Sensex were rejected due to low correlaton:
though FOI exhibit tepid corelation with Fll.
conometrm mode
The model wa developed to detenine the demand of .res in India based on the changes in the variou
macro and economic environment parameter. The moel calculates the demand of tres under variou
segment like Bus Trck, Pasenger Car, Ught Commerial Vehicle, Tractor and total tre demand by takin
an input of the various economic parameter, and derive the demand based on the changes in any of thes
seven variable thus giving a robust insight into how the change in these macro-environment and economi
variables impact the tyre indust a a whole and how Apollo Tyrs Ltd. can formulate or goad their strategy
by tking conizance of the se. The moel has been made by applying multple linear reesion and
statstcal tet are included later in the L to vindicate the moel.
. = =
- ~ ..1
----
Te rsion equaton de f t moel and which d usd to get te demand d a follow:
Tot Tyr D0d
Bus & Truc Tyre
Pssenger Car Tyre
Light Commercial
Vehicle (LC) Tyre
Tractor Tyre
*-
-*
# -
--
3237.69-13186 e + O.OD (Aoute) Crr + I 0.2 7nfad coerin
Y
+ `
.
absolu be=IO + 0.83*Lg O R (os K) + 1.96*11P + 2.34*Population
(mdlion) + 300l*CoUibon O Sere Stor e + 32537.70 (+/- 8.95)
5626 . -8375-2 . 91* Ye + O.(GO P R (Asolute) Crore + - 1.42* + 0.04*Length O
Roads (Tous Km) + 0.98*11P + 0.20*Populailon (million) + 3.58* Serices Cntribution +
5626.49 ( +/- 2.82)
. 9239.426567+4.73* Yer + O.O*GO Rel (Asolute) Crores + -O.SO*Infation + -O.OJ*Length
O Roads (Tous K) + 1.48*11P + -0.2 4*Po lation (million) + -0 .49* Serices Contribution
+ -9239.43 ( +/- 1.64)
. . . . . . .
.