Thursday, June 22, 2017

Why is General Motors exiting India .. ?

General Motors , over a century of operations around the world ..
After India's attraction as a manufacturing hub for some of the global popular and mid-range auto majors like Ford, GM, VW, Toyota, Renault, Hyundai, Suzuki, Skoda, Fiat, Volvo, BMW, Audi, Mercedes etc, for the first time we find GM is exiting India. As a management case study it makes great sense as to what went wrong with GM's India operations at Taloja, Maharashtra plant and how they could have salvaged it.

US takes pride in General Motors as the second great automobile company to come out of US in 1908 in the last century. One of its greatest CEOs Alfred P. Sloan already has the MIT Institute of Management named after this great leader. It is a great shock to the rest of the world and a great lesson for other automobile companies from around the world who already have operations in India or are planning to open up new ones to understand what went wrong with GM India strategies ? GM India now makes cars only for the Latin American market. 

The major reasons for GM India operations failure as has been outlined after a research by Prof. Vijay Govindarajan of Tuck School of Business are five in number (HBR, June 2017 issue).

After a thorough analysis of the reasons of the inglorious exit, we find the withdrawal of GM from India is due to the failure in two fronts, leadership and strategy.

Failure in Leadership 
1. Frequent change of Indian leadership - 9 CEOs have come and gone in 21 years heading the India operations, though the latest has been around for 14 years. The long term impact of frequent change made the situation within the country very fluid and no leader had a vision and long term plan for the company in India, GM having already exited from India two times in the past.
2. Local leaders never got autonomy to take independent decisions - Indian operations being large and catering to a billion plus population needs to have lot of autonomy content inbuilt, Indian CEO cannot be interacting with Global CEO and with Global HQ for each and every action to be taken to spearhead Indian day to day operations. This lack of autonomy to Indian CEO affected GM India operations and dented it's image much. 
Failure in planning strategies 
1. Indian operations can be run only with India specific strategies -  India being a global player and set to lead global economy by 2050 AD, cannot be expected to follow strategies suited for other economies. India is by nature very cost conscious and Indian customers are some of the greatest cost bargainers and at the same time demand unparalleled quality in the products, unlike other global customers. Global Companies need to look at such stringent cost and quality constraints as opportunities for growth and global leadership. General Motors failed to understand this truth in India. (the recent example of Vodafone running scared of their Indian telecom operations finally having to team up with Birla's Idea telecom is an example to quote) Suzuki and Hyundai, global auto leaders have suited their operations to manufacture sub compact cars for the middle class customers and have reaped intense benefit, together they control about 65% of Indian market.
2. Indian strategy has to be focused on volumes and scale, not just on expensive high end cars - Indian customers are very diligent when it comes to spending money on cars. They study the market carefully, make personal observations and ask their friends and relatives many times before finalising on a high value purchase - a societal norm too. Indian customers are extremely obsessed with value for money and do not allow themselves to be taken for a ride by the automobile companies. Companies that have a good dealership and maintenance chain across the country frequently do succeed in their domestic operations. Maruti, Hyundai, Tata etc have great maintenance network across the country.
3. Lack of a long term strategy - a long term strategy is much needed for success in Indian markets. India having opened to almost all auto-majors of the world now is a great ground for improving product competitiveness. It also holds promise to be the world's largest automobile market very soon especially with the advent of electric cars. Short term myopic strategies rarely succeed and fail in India because Indian customers are some of the smartest in the world. Despite initial setbacks, a company that focuses on long term vision only can hold itself and withstand intense competition from other global competitive players operating within the country.

This GM India withdrawal case should be an eye opener not only in the automobile sector but in the FMCG sector too. Indian cost consciousness already is making waves in the high-tech space technology and atomic energy market, India leading over the rest of the world in high-quality cost consciousness.

India once again proves to the world, that though it outwardly appears to be a castaway, it is high time countries and companies around the world started taking it seriously, if it is to stay in business in the country and plan for its future survival in the world..

george..

Ref : 1. Govindarajan, Vijay and Gunjan Bagla, What US CEOs can learn from GM's India failure, HBR, June '17. 

No comments:

Post a Comment

Was Reliance Jio introduction a BPR exercise in India ?

Business Process Reengineering is defined as the fundamental rethinking and radical redesign of business processes to ach...

My popular posts over the last month ..