Study Says GM and VW Show Most Promise in Four New Markets

By Brendan Moore


GM logo smallA study released yesterday stated that General Motors and Volkswagen AG are positioned best in terms of tapping the four new emerging auto markets of Brazil, Russia, India and China.

The study, by The Boston Consulting Group, says that those four countries will account for more than a third of all global sales within the next four years, and will grow at a four-year rate of as high as 40%, far outpacing the 2% growth of mature markets.

The “BRIC” markets will become increasingly important to the major automakers, the report says, and automakers not already established in those markets may find it extremely difficult toVW Logo med catch up the auto manufacturers currently entrenched in those countries.

Each country will require a different mix of products and a different strategy, forcing automakers to use in-country resources effectively in order to succeed. Some of the later entrants will find this customization very difficult to pull off, concludes the study.

China is expected to account for more than 60% of BRIC unit sales, and that, coincidentally, is where GM and VW are very strong. Both companies arrived in China early, stuck it out through the hard times, and both do a very good job of manufacturing vehicles the Chinese love.

China became the No. 1 market in the world last year. As an example, GM sells far more Buicks in China than it does in the United States.

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Official press release from The Boston Consulting Group follows:

BRIC Auto Markets Offer ‘Exceptional’ Growth Opportunity and Largely Untapped Strategic Potential, Says New Study by The Boston Consulting Group

Yet Few Companies Are Ready to Seize the Opportunities by Deeply Localizing Their R&D, Sourcing, Manufacturing, and Sales Operations

DETROIT, Jan. 21 — For at least the next decade, the future of the automotive industry lies in the BRIC countries. Together, Brazil, Russia, India, and China will account for 30 percent of world auto sales in 2014 — while also offering significant opportunities for cost-effective R&D, sourcing, and manufacturing, says a new report released today by The Boston Consulting Group (BCG).

Yet, although virtually all multinational automotive OEMs and tier 1 suppliers have set up operations in the BRIC countries, they are not fully capturing those markets’ strategic potential because the operations are not deeply localized, says BCG.

Because these countries differ dramatically in market development and local capabilities, as well as in consumer preferences, companies must devise country-specific approaches to localization, as well as strategies that span all four countries, BCG contends.

“Auto companies cannot succeed in these markets by offering one-size-fits-all BRIC products, processes, or approaches,” said Nikolaus S. Lang, a Munich-based partner and lead author of the report. “To realize the full value of localization, the key is knowing which functions are best suited to which BRIC countries.”

The report analyzes the challenges and opportunities associated with localizing R&D, sourcing, manufacturing, and sales in each of the four countries. The findings are based on the firm’s experience and more than 250 interviews conducted with senior executives at the leading auto OEMs and suppliers that are active in those countries.

Exceptional Growth Opportunities Through 2014

While the economic crisis plunged many of the world’s auto markets into free fall, markets in the BRIC countries generally performed strongly in 2009 and “now offer prospects for exceptional growth,” says the report. Whereas auto sales in the Unites States, Europe and Japan will grow only moderately from early 2009 through 2014, at an average rate of some 2 percent per year, sales in the BRIC countries will grow by more than 6 percent per year, BCG predicts.

In 2009, Brazil’s market grew 11 percent, India’s 13 percent, and China’s a staggering 42 percent — while Russia’s market shrank by 48 percent. The first three markets will continue growing relatively steadily through 2014. While Brazil’s market will grow at about 3 percent per year, China’s market will grow at about 5 percent per year and India’s at about 9 percent per year. In contrast, auto sales in Russia, which dropped by one half in 2009, are expected to stabilize in 2010 and then grow some 15 percent per year through 2014. The Russian market’s development is hard to anticipate, however, because it will hinge on external factors, such as prices of raw materials.

China will remain by far the largest of the four auto markets, expanding its share of total BRIC sales from 53 percent in 2008 to 61 percent in 2014. Brazil is the most mature and stable of the BRIC markets and is likely to remain the second-largest of the four through 2014. India will grow rapidly and remain the third-largest BRIC market through 2013. In 2014, the Russian market’s strong postcrisis recovery is likely to propel it up into third place, nudging India down to fourth place.

Ongoing Challenges to Localization

Despite the significant growth opportunities in the BRIC markets, few auto companies are positioned to fully realize those markets’ strategic potential. For example, less than 10 percent of leading auto OEMs and suppliers are deeply localized in all four BRIC countries, says BCG.

“One reason localization is not more advanced is that most companies are struggling with stiff challenges in the BRIC markets,” Lang explained. In conducting R&D there, for instance, many are under pressure from strong central R&D management, constraining the activities of local R&D centers and making it difficult to find and retain local staff. Currently, some 55 percent of foreign auto companies’ R&D centers in China and India, and 30 percent of those in Brazil, have little or no autonomy from global R&D centers and only low levels of project responsibility.

In sourcing, key challenges include weak supplier quality, which limits volumes. Foreign OEMs’ sourcing from China, for example, typically represents just 1 to 5 percent of their overall sourcing.

In manufacturing, companies are generally paying a premium of 5 to 15 percent to manufacture in the BRIC countries, mainly because of diseconomies of scale and higher quality-assurance costs than they incur in the more developed markets; only in Brazil do they actually save money on manufacturing. Challenges include small sizes of plants, limited conversion from automated to manual processes, and low quality.

And in sales, the diversity in national tastes and requirements drives the need for specific car offerings for each country. For example: Brazilian consumers favor sporty hatchbacks, Russians prefer Western sedans and sport-utility vehicles without visible local adaptations, Indians seek ultra-low-cost minicars, and the Chinese enjoy affordable luxury-style sedans with flair, according to Lang.

Untapped Potential for More Profitable Localization

“To date, companies have tended to approach Brazil, Russia, India, and China opportunistically rather than systematically, and to consider them individually rather than as elements of a global strategy,” said Stefan Mauerer, a coauthor of the report. “What’s needed is a new management approach — one that combines cross-BRIC strategies, active sharing of best practices among relevant locations, and country-specific R&D, sourcing, and products.” BCG recommends three general guidelines:

• In terms of country strategies, make China the cornerstone of any BRIC strategy, strengthen the company’s presence in Brazil and India, and invest selectively in Russia with a view to its long-term potential.

• Until each BRIC country provides enough scale to justify completely individualized products, adapt standard platforms significantly to meet local requirements, and engage local partners as needed to help develop appropriate local sales-and-marketing concepts.

• Expand sales networks in all four BRIC countries and, depending on the company’s capabilities and prospects, invest selectively in particular countries to increase local R&D, sourcing, and manufacturing where those activities are most advantaged.

The report concludes by noting that the lessons of localization in the BRIC markets can be applied with equal success in other rapidly developing economies.

To download a copy of “Winning the BRIC Auto Markets: Achieving Deep Localization in Brazil, Russia, India, and China” please visit:

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at

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  1. Toyota may not be on top in sales for long if this pans out. They’re not strong in Brazil or Russia, and they’re in just an okay position in China and India.

  2. Very good news for GM. Good thing they didn’t go out of business before all this groundwork in other countries started paying off.

  3. Chevrolet is a very popular brand in India. A Chevy is thought of well there and desired by young people.

    The new Chevrolet Beat is expected to do well there.

  4. Toyota looks strong now, but in the future, it may well be VW against GM for the global sales crown.

  5. GM is incredibly strong here in Brazil. You see GM vehicles everywhere and there is a great deal of brand loyalty to GM here.

  6. Wow, the world market is going to look real different soon. and I guess that means the cars that get offered are going to be focused more for those tastes in those areas. Should be interesting.

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