Bottom Slips Out Of Mncs Projections

Cielo manufacturer Daewoo Motors (formerly DCM Daewoo) was forced to operate its Noida factory at 30 per cent capacity utilisation last year, cutting down on production levels due to stock pileup. The company has been forced to maintain one months stock of about 2,500 cars as inventory.

Honda too has downscaled its projections for the domestic passenger car market. In a bullish mood two years ago, Honda had projected a one million car market by the year 2000. Today, it has reduced its market assessment by 25 per cent, projecting a 7.5-8 lakh car market.

Honda has also been forced to revise its projections for the 1.3 litre-1.5 litre category in which it intends to compete with the launch of Honda City this December. Honda has changed its estimate from a 2 lakh vehicles market by the year 2000 to a more realistic 1.4 lakh vehicles.

 

The market has failed to pick up. There could be many reasons for this such as lower cash availability and confusion in the consumer mind due to a flurry of proposed new models. We also might have wrongly assessed the disposable income levels in the Indian middle class, says N K Goila, vice-president and director, Honda Siel Cars India. The company is aiming to sell 4,000-5,000 cars in the first four months of the Citys launch.

The Association of Indian Automobile Manufacturers (AIAM), which in 1995 had projected the Indian car market at around 8,50,000 in 2000, now expects demand to be around 700,000 by the turn of the century. These projections include utility vehicles also. Hence, the projections for the passenger car segment will be even lower.

A similar scenario is evident in the cellular phones business. Says a spokesman for Siemens: The market has not grown at all. Implementation of the cellular licenses has got delayed and the low pickup in the customer base has lead to high cost of the product and depressed demand.

When the basic and value-added telecom industry was deregulated in 1994-95, cellphone manufacturers had projected a subscriber base of 5-6 million in the country by the turn of the century.

But market realities have forced them to pull down their steep projections. Now, the cellular industry hopes to have a market of 2-2.5 million cellular handsets by the year 2000 almost five times the present size.

As a result, players like Nokia and Motorola, which were planning to set up units to assemble cellular phones in Indian have given up the idea at least for the time being. Says a senior Nokia executive: The minimum size for a plant to be economically viable is 5 lakh pieces per annum. But there is no market of that size in India.

While the sluggish cellphone sales are understandable given the high handset prices, which range from Rs 13,000 to Rs 70,000, the slow growth of the paging subscriber-base has confounded the industry.

Both service operators and pager makers had projected a subscriber base of some 10 million by the year 2000. However, the industry has been making such huge losses (Rs 15 crore a month) that pager makers project a more realistic 5 million pagers by the turn of the century which itself would be a significant leap from the current half-a-million base.

Market growth has also inexplicably fallen in certain fast moving consumer goods. Industry estimates put the growth of soft drink sales at a mere 7 per cent between January 1997 and April 1997. To make matters worse, most of the major brands actually registered negative growth in April due to mild temperatures.

Explaining the trend, a senior multinational executive said: What we are seeing is virtual stagnation in growth in the metros. It seems the high price has led to market saturation at a lower level. Adding to these woes, the summer in the last two years has been mild, adversely effecting soft drink sales.

Of course, not everyone is ready to accept the multinational argument that the Indian market is not as big as it is made out to be. Says a senior industry association: Most of the companies which are complaining are from Japan and Korea. These companies, which are facing troubled times domestically and cutting down their plans overseas, are complaining of the small middle-class market as a justification for their own woes at home.

Whatever the reasons for their initial debacle, more and more MNCs are undoubtedly coming around to the fact that they will have to substantially rework their strategies if they are to successfully woo the unpredictable Indian consumer.