factors for a company or an industry refer to variables and conditions around
that company and industry that affect its working and performance, but which
cannot be controlled. For example, the weather conditions in a city may affect
the sale of Ice cream in a city, but the company selling or manufacturing ice
creams has little control over the weather.
can differentiate environmental factors from the internal variables of factors
that are under reasonable control of a company or industry. A company cannot
change or influence the environmental factors, but it does have fair amount of
control over impact of environmental factors on its performance. This control
is achieved by, understanding, anticipating, and responding wisely to
environmental factors by management of internal factors. For example, a company
cannot change the weather condition, but it can manage its production and
stocks of ice cream in a way that minimizes the ill effect of uncertainty and
fluctuations created by changing weather condition.
understand, analyse and deal with environmental factors, we can use the
“PESTEL” framework that classifies all environmental factors in the
following six groups.
of the major environmental factors affecting automobile industry in each of
these group are described below.
in a different countries producing a buying automobiles regarding policies on
import, export and manufacture of automobiles and automobile components.
This will also include policies on allowing setting up of manufacturing plants
by foreign companies.
governments. This may affect the future conditions in a country.
The population figures and automobile
buying capacity of people
Level of economic
activity that affects need for commercial use of automobiles
Per capita income- it measures the average income earned per person in a given area (city,
region, country, etc.) in a specified year. It is calculated by dividing the
area’s total income by
its total population. Here a
better per capita signifies the better living conditions and quality of the
life of that particular area. In India the per capita income at current prices during 2016-17
is estimated to have attained a level of Rs 1, 03,219 as compared to the
estimates for the year 2015-16 of Rs 94,130 showing a rise of 9.7 per cent.
rate- inflation rate has a big impact on the sector as the interest rate and
landing rate both go up in case of inflation as a result of which businessman
are less keen to make new investment as final consumer are cutting their demand
of products because of the rising prices (law of demand) and thereby the
investors are reluctant to take any new lone, and as we know the main source of
income for a bank is either through lending money or through deposit of money.
Here in case of inflation as the need for new investment decreases the lending
rate also decreases.
Economic policies-Economic policy refers to the actions that governments take in the economic field. It covers the
systems for setting levels of taxation, government budgets, the money supply
and interest rates as well as the labour market, national ownership, and many
other areas of government interventions into the economy.
The money supply and interest rates
The labour market
preferences of people that impact their choice of types of
Social norms that
impact the decision to own and use automobiles versus other means of transport.
relating to automobile designs
developments that may increase or decrease use of automobiles. For
example, Internet increase number of people working from home and
thus reduce automobile use for commuting?
conditions effecting ability to use automobiles of different types. This will
also include state infrastructure such as roads for driving vehicles.
relating to environmental population by automobiles. Legal provisions relating to safety measures (BS4) – As
of now, BS IV will be implemented from April 1, 2017. Those looking to purchase
a vehicle will have to spend a higher amount than before to own one. But, the larger aim for the automotive sector as a
whole is to implement BS VI emission regulation by the year 2020 in India. Yes,
BS VI and yes, BS V will be skipped. This will require a huge amount of
investments to make the oil refineries capable of producing a better quality of
fuel and also investments in the infrastructure to make that fuel available
across the country. Then, the automakers will have to make investments on their
end too in order to speed up the research and development process and improve
their own infrastructure – like the manufacturing plants – to make their
offering BS VI compliant. This, eventually, will make owning an internal
combustion engine powered car more expensive to own, and maintain. To sum it
up, India is making an effort to reach the global standards and hence, a lot of
changes in the trends, sales and choices made by customers are expected in the
in government policies- keeping in mind the progress and well wishes about the
country the government takes various decision and keeps on reviewing its
policies, rules-regulations and procedures to boost the economy which raises
profitability of few sectors and also sometime turned out poisonous for some
sectors. A change in FII and FDI inflow restrictions, entry exit barriers for
foreign banks in India, EXIM regulations, change in Basel norms etc. forms part
of important government policies thus a change in these policies affect the
A change in FII and FDI inflow
change in Basel norms
Policy and Promotion
The Indian government encourages foreign investment in the automobile sector
and allows 100% FDI under the automatic route. It is a fully delicensed
industry and free imports of automotive components are allowed. Moreover, the
government has not laid down any minimum investment criteria for the automobile
Besides offering a liberal FDI regime, the
government has made successive policy changes that allow for stronger growth in
the automotive sector. Major among these are:
Prepared by the Ministry of Heavy Industries and Public Enterprises, the
Automotive Mission Plan aims to accelerate and sustain growth in the
sector over the period 2006 to 2016. Under the plan, it is aimed to make
India a global automotive hub, with special emphasis on the export of
small cars, MUVs, two- and three-wheelers and auto components. The plan
also aims to double the contribution of the automotive sector to the
country’s GDP by taking its turnover to USD 145 billion and providing
additional employment to 25 million people by 2016.
Testing and R&D Infrastructure Project: This is a USD 388.5
million initiative of the Government of India and various state
governments; it is aimed at creating a state-of-art and dedicated testing,
validation and R&D infrastructure across the country.
for auto industry Some of the highlights of the
Budget from the point of view of the automobile industry include a major focus
on improving infrastructure including development of roads, decrease in
corporate tax rate for MSMEs, reduction in personal income tax at the lower
level, and allocation towards funding of the electric and hybrid vehicle
programme through the FAME scheme.
The reduction in corporate tax rate for MSMEs will give relief to the tier-2
and tier-3 automobile component manufacturers and help them make investments
for future expansion. The step is expected to fuel R&D at a very
significant level. A noteworthy step is in the direction of promoting cleaner and safer
vehicles through development of electric and hybrid vehicles. The allocation of
Rs 175 crore for this purpose is an incentive for automotive players. The government will also create a better ecosystem
for skill development. Automotive industry, which employs a large number of
people, would benefit from this measure, and enhance the technical and
managerial talent of the available pool of human resource.