Case Study

Background Note:

Korea based Hyundai Motor Company (HMC) in India. HMC entered India establishing  its wholly owned subsidiary Hyundai Motors India Limited (HMIL) in 1996. Within a year of launch of its first product - Santro, HMIL had emerged as the second largest car company in India. 

For a long time after India became independent in 1947, the car market had just two models to offer - the sturdy 'Ambassador' from Hindustan Motors (HM) and the sleek 'Fiat' from Premier Automobiles (PA). This was the result of Government of India's (GOI) decision to keep the car industry tightly protected. For HM and PA, the GOI dictated as to what type of vehicle the two companies should manufacture. No other domestic or foreign car manufacturer was allowed to enter the Indian car industry.   

The restriction on foreign collaboration led to poor technological improvements in Indian cars. As a result, car prices remained high while quality was inferior.

This affected the growth of the industry. The demand for cars in 1960 was 15,714 units and in the next two decades, this rose to 30,989 units, which meant that the Compound Annual Growth Rate (AGR) was just 3.5 per cent.       

In the 1980s, the GOI felt the need to introduce an affordable small car, targeting the Indian middle class. As manufacturing a small and affordable car required better technology than was available indigenously, the government tied up with the noted Japanese company, Suzuki. The government formed a joint venture with Suzuki and founded Maruti Udyog Limited (MUL). It held 74% and Suzuki got 26% equity stake in MUL. In 1983, MUL launched the 'Maruti 800', priced at Rs 40,000...

In August 2004, a leading business newspaper reported that Hyundai Motors India Limited (HMIL), an Indian subsidiary of the South Korea based Hyundai Motors Company (HMC) was expected to reduce the price of its flagship car - Santro - by as much as Rs 40,000. Industry experts were expecting a reduction in Santro's price in response to the price war being waged by the market leader in India - Maruti Udyog Limited (MUL), which had reduced the price of its largest selling car in the B segment - Alto - by Rs 58,000 in two price cuts starting from September 2003. This move had resulted in Alto replacing Santro as the largest selling car in the B segment in the period January to June 2004.

Rebutting the report on price cuts, HMIL's managing director, BVR Subbu (Subbu) said, "We are not cutting prices on the Santro. We have allowed our competitors the prerogative of cutting prices." Several dealers of HMIL also felt that the company would not reduce Santro's price as it had not adopted such tactics earlier.

Issues (Questions)

-         Which Consumer group Hyundai has targeted in India.

-         What must be Marketing Strategy to deal with the stiff Competition with Maruti.

-         Instead of Price Cut launching a another model is a feasible solution or not to face the reduction in price done by the competitor.