German automotive industry and frugal innovations in India

Abstract

The German automotive industry is world renowned for its monopoly in the luxury car market. With a prominent global presence, they are well known for their technological superiority (design, engines etc.). However recent trends in the automotive industry have put their monopoly in jeopardy. Firstly, Tesla’s success in the market with e-vehicles presents a threat of substitution. The German automotive industry prides in its build and petrol and diesel powered engines. However , with developed countries moving towards sustainability, e-vehicles have gradually started pushing the German cars out of the market. Secondly, given the effects of the Covid-19 pandemic, luxury cars aren’t a preferred investment. However the new concept of ‘frugal innovations’ still provides optimistic hopes during these troubled times. This involves targeting the growing middle class population in developing countries by developing cars that are just good enough to meet basic customer needs. India is a country with a promising buying potential. Well known automakers like Ford, Suzuki, Hyundai and Tata, have successfully innovated to serve this market. However for the German automotive industry, which has always targeted affluent customers, frugal innovations would be challenging internally and externally as it calls for a different mindset. Despite the increasing importance of frugal innovations, academic sources do not provide a country and industry specific strategy for a high-tech firm to switch to frugal innovations. Given this controversy, this research attempts to explore the scope for frugal innovations for the German automotive industry in India by answering the research question: What are the opportunities and threats concerning frugal innovations for the German automotive industry in India? Given the knowledge gap resulting from the lack of available sources, the research starts with the construction of a theoretical framework that would enable a firm to assess its current position in terms of frugal innovations. This framework represents a detailed overview of the internal and external factors including organisation, value chain, competitors, social, political and legal factors to name a few. This framework also forms the backbone of further research work to be embedded in. Additionally, it could also be used by a product based firm that wishes to transition to frugal innovations. The generic nature of this framework has been obtained from both strategic management and frugal innovation literature. The research makes use of the complementarity approach to identify the internal and external opportunities and threats available. The first approach has been a thorough study of the literature from different disciplines that would have the necessary answers. Secondly, the Fiat Palio is an example of a controversial frugal innovation in India by the Italian automaker Fiat. The story of Fiat in India revolves around its very high receptivity during its inception and its eventual downfall in a few years. Having enjoyed the status of an elite automaker, a second case study of Fiat Palio in India has been performed to identify the factors that could be of influence. Thirdly, the research features insights from around 8 academic and industry experts specialized in this area. The combined insights from the three approaches were embedded in the context of the evaluated literature. To assess a firm’s current position in the market environment and make business decisions, the SWOT analysis is one of the most widely used tools. As a consequence, the combined findings were reported in the form of a SWOT analysis. However, the SWOT has certain disadvantages in taking business decisions, in a highly competitive environment. As a consequence, a new and a modified approach to SWOT known as the evolutionary and correlative SWOT has been considered as the tool for analysis to identify the opportunities and threats. Using the evolutionary and correlative SWOT analysis qualitatively, the opportunities and threats have been identified into four categories: Real opportunities, where the internal strengths and external opportunities are in perfect synergy; Space of lost opportunities, wherein the organization has a vast potential to review itself internally to tap external opportunities; space of possible defense, wherein, the firms could use its internal strengths to combat threats; and Real threats, wherein the internal weaknesses and external threats are in perfect synergy. The main sources of opportunities for the German automotive industry is its strong technical skill set, presence of well established suppliers, superior brand name that could give them an edge in comparison to competitors. However, with competitors like Suzuki, Tata and Hyundai skilled in local market adaptation, mass production, meeting low cost pressures including inexpensive after sales service, pose a major competitive threat. The success of the German automotive industry lies in reviewing the firms and making internal changes and exploiting opportunities to combat this. Expanding production and service networks by forming alliances and partnerships provide a ray of hope to push further in this market. A total of 15 opportunities and threats collectively were identified that if dealt with effectively could result in the success of frugal innovations for the German automotive industry. The main contribution of this research includes the identification of a new market opportunity for the German automotive industry, with the various factors that could lead to its success and failure. Additionally, this research contributes to the academic literature by highlighting a few key limitations of the frugal innovations literature like their lack of focus on sales and service as one of the most important parameters in determining a firm’s success with frugal innovations. Secondly, the research builds on the work of Vlados (2019), by using evolutionary and correlative analysis as a tool to make strategic decisions. Lastly, given the lack of technological expertise and living conditions in India, this move from the German automotive industry to frugal innovations would be a major contributor to the country’s development. The research makes use of both a managerial and societal approach to identifying the factors that make it a good fit for the MOT curriculum.