The company Orbital was first came in to existence in the 1960s, Orbital Corporation Limited mainly operates in the auto components industry, with its headquartered in Perth, WA along with some of its facilities in Melbourne Orbital has gone through some structural changes twice before its current structure established in 1990.
The company main mission is mainly concerned on the research, design, manufacture, development, and testing of the company’s new CNG engines along with its other related technologies. At present the company operates worldwide to the motor vehicle industry. Orbital can be considered as a leader in alternative fuel technology, which is very highly accepted by both the automobile and motorcycle industry. Orbitals main customers and competitors are further highlighted under the Target market analysis, which will give a clear picture of Orbitals strengths and weaknesses.
Due to its technological advancement the company has been able to get the approval of the Australian Government, such approval from the government has helped the company in innovating and in the development of eco green cars. Hence the obtainment of federal grants for this purpose, the company is now also part of The Industry Innovation Council`s website, that mainly show Australian innovation to foreign markets (Orbital Corporation Limited 2010).
According to the report released by the Federal Chamber of automotive industry (2010), “the overall Australian automotive industry mainly accounts for approximately six per cent of the total value added in manufacturing and almost one per cent of Australia’s gross domestic product”.
According to the figure given in the fact sheet of the outlook for the automotive manufacturing industry was 3.1bln, that is also the overall value of Australian automotive exports for the year of 2009. Where as the total amount spent on the motor vehicle and the motor vehicle parts manufacturing industry was $798million.
In coming years the company is constantly trying to strengthen its exports for its CNG engines and other spare parts, as well as the company is also focusing on markets closer to home, that can be targeted by introducing new technologies in the market. According to Terry Stinson who is the CEO of Orbital stated in Corporate Web page 2010, that the overall CNG market is growing globally especially in Asia where CNG is rapidly growing as a lower cost alternative fuel of choice for many of the lower and middle class people. In Europe, Italy leads the CNG development system, with significant growth projected in the coming years.
Potential to Increase Exports
India along with other Asian countries can be considered as the growing market for CNG engines, If orbital wants to lead the CNG market, the company has to expand its commerce in Brazil, China and India (Orbital Corporation Limited 2010).
Mr Simon Crean, who is the Australian Minister for Trade 2010, stated “India, at present represents a market of 1.2 billion people and on such basis it provides a substantial set of opportunities for Australian business exports’.
As reported by Thottam, J (2009), Ratan Tata, who is the chairman of Tata Sons, the holding company of Tata Group, mentioned that the Indian Car Manufacturing industry will have a production of half a million Nanos per year, that will exceed the production of Japanese car industry.
If the overall CNG demand continues to grow on the present rate, than it can be expected to export minimum 250,000 Orbital CNG engines to India and can be sold as part of a corporate relationship with Tata Motors.
Considering that Tata has a 74% share of a multimillion dollar Indian market the potential to offer the Orbital CNG engine throughout the Tata range would exponential increase exports for Australia at the same time keeping in mind the demand for CNG would be much higher in the coming years.
India’s domestic automobile industry grew 12.8% in 2005-06 reaching 10 million units and the domestic passenger market grew 7.5% to 882,094 units (Surfindia 2010), where as in 2004 the passenger car market witnessed the growth in the top 12 passenger car producing countries. (Surfindia, 2010).
According to Vikas Sehgal, of Booz & Company claims that the overall Indian car market, now 1.7 million units, is expected to grow to 3 million by 2015 (Athavale 2009). Figure A shows industry turnover almost doubled from 99-00 to 04-05.
At present only 16% of the Indian automobile market is based on the passenger vehicles (Refer figure B). However with the increase in the buying power of the middle class by 30-40 million annually and rising household incomes (refer figure C) market share is shifting further towards passenger vehicles (SIAM 2010).
Accelerating Household Income in India
Average household disposable income
According to the current figures, if India continues to produce cars on the same average it is expected that soon India will overtake Germany and then Japan in 2012. It is also forecasted that by 2050 every sixth car globally will be by the Indians (Scribd 2010).
India at present is generally considered as the sixth leading country in the world for CNG vehicles (refer figure D).
Approximate Number of CNG Vehicles
Source: Gas Vehicles Report May 2009
The demand for the CNG engines or any other alternate for the fuel system is growing throughout India. According to the Times of India 2009, CNG conversions in Surat doubled in June and July of 2009.
This huge increase in the demand of CNG can be attributed mainly because of the low running costs CNG provides. Figure E shows CNG costs about half that of petrol.
The regional transport office in Surat generated a report in which it was very clear that the registeration of CNG vehicles nearly doubled in 2009, at the same time it has also been forecasted that the conversion rate will continue to be the same in the next coming years (The Times of India 2009).
At present the overall Indian CNG market accounts for 3% of the total vehicle market in India, if it will continue to grow with such pace, than based on the projected 7.5% annual growth of the motor industry in the next couple of years, the Orbital CNG market will grow by 44%.
According to Austrade the overall competition in the transport industry of India is being actively encouraged (Austrade 2010).
At the same time the Ministry of Finance in India claims that the government of India holds a vast potential for overseas investment and at the same time the Indian government is actively encouraging…foreign companies to invest in the Indian market (Finmin 2010). According to UNCTAD World Investment reports India as the second most attractive location for foreign direct investment for 2007- 2009 (Indiaonestop 2010).
Due to the rapid advancement in the CNG car market and constant growth in its demand many players have entered the Australian and other market, creating some competition for the local manufacturer of CNG engines.
Advanced Engine Components Ltd (AEC), which is also based in Perth, has strategic alliances and good positive terms with various vehicle manufacturers worldwide developing CNG powered engines for vehicle integration.
On the other hand Teleflex GFI of Canada and Landi Renzo of Italy are been able to have alliances with Volkswagen for CNG engine development. Whereas Fiat uses compatriot Tartarini Auto of Italy for any CNG engine works it requires (Wikipedia 2010).
Competitors key strategies
AEC has two specific key strategies;
Its ability to be able to modify engines according to customer’s needs
Expand into new markets
Landi Renzo key strategies include;
Eco-sustainable mobility which is more in demand now
Been able to expand globally into new markets
Though all these competitors have access to international markets and already have strategic alliances with few car manufacturers but none of them manufacture CNG engines, instead they provide a service of design and engineering to vehicle manufacturers. As such no distribution is required by these organisations.
Barriers that Orbital may face in this venture consist of;
Brand loyalty –those competitors who already have established relationships with manufacturers in India, than Orbital will have to reconsider pricing and services provided to win sales.
Transportation costs – Due to the geographical positioning of Australia from India clearly indicates that the transportation cost of the CNG engines will be very much expensive, for this reason cutting down the cost will be a big challenge for Orbital.
Orbital have enough production capacity for its CNG engines that it can easily fulfil the current market need if implemented by an Indian manufacturer.
According to the discussion had with one of the Australian vehicle engineer one thing is very much clear that there is a potential to design a lower cost unit with better profit margin mainly because of the reason that Australian motor vehicles are designed for a ten year lifespan, whereas in India vehicles are designed for only 5 years. Keeping this difference in mind, Orbital might than be able to capitalize on it. Indians on average pay a minimum of 60,000 INR that is equal to ($1,486 AUD) for an aftermarket conversion kit. This kit places large tanks in the boot of the vehicle making this space unusable (Business standards 2010).
Other product quality advantages include that Orbital has over others:
By using Orbital CNG engines it will maximise boot space of the cars as tanks fitted underneath vehicle instead of retrofitted in boot.
Orbital will provide full vehicle engine warranty that conversion kits void.
Critical Success Factors
For Orbital, there are various critical success factors (CSF) for any project undertaken. Few of them are as below:
To establish and contract with various suppliers, build relationship with Indian car manufacturer on the long term basis. Such relationship has to be without any binding of legal contract. A manufacturer would be able to purchase any number of engines and alter their current engines according to the Orbital standards.
The overall return on Investment has to be for 2 years. Based on the projected growth of the Indian car market and that of CNG take up of 30.6% (CNGNOW.COM.AU) it is also very much realistic if one assume that profits can be achieved within 2 years due to lower setup costs.
There are a number of ways through which the company can maximise competitiveness. These include:
Orbital needs to create direct supply contract with Tata motors, which is the leading car manufacturer in India with over 68% market share (Wikipedia 2010). However one good positive sign is that Tata has not yet signed any CNG engine supply agreement with any CNG manufacturer. By working with Tata Orbital will than be able maximize its sales potential of the units through Tata’s own leading marketing and sales programs.
Given that the CNG engine currently produced is designed for a ten years lifespan Orbital can consider to minimize its cost of production by lowering the engines lifespan to five years that will match the Indian market.
Australian Minister for Trade 2010, Major step towards a Free Trade Agreement between Australia and India, 4 May, viewed 10 May 2010, <http://www.trademinister.gov.au/releases/2010/sc_100504.html>
DIISR Australian Department of Innovation, Industry, Science and Research 2010, Outlook for the Automotive Manufacturing Industry Fact Sheet, viewed 23 April 2010<http://www.industry.gov.au/Section/AboutDIISR/FactSheets/Pages/OutlookfortheAutomotiveManufacturingIndustryFactSheet.aspx>
FCAI, Federal Chamber of Automotive Industry, 2010, trade and industry policy, viewed 22 April 2010, <http://www.fcai.com.au/policy/industry-policy>
OEC Orbital Corporation, 2010, from the CEO, viewed 20 April 2010, < http://www.orbeng.com.au/orbital/aboutOrbital/ceo.htm>
OEC Orbital Corporation Limited, 2010, Investsmart company profile, viewed 12 May 2010 <http://www.investsmart.com.au/shares/asx/Orbital-Corporation-OEC.asp,>
Thottam, J & Pune 2009, ‘The World’s Cheapest Car Debuts in India’, Thetime, 23 March, viewed 24 April 2010, <http://www.time.com/time/world/article/0,8599,1887070-,00.html#ixzz0noSewbV3>
Athavale, Dileep (http://www.zigwheels.com/News/Indian-car-market-may-grow-to-3-million-by-2015-says-Sehgal/Indian_20090527-1-1 (Dileep Athavale | TNN 24 June 2009
PBS 2008 (http://www.pbs.org/now/shows/425/india-middle-class.html)
The Times of India July 2009 http://www.carsonnaturalgas.com/
NGVglobal (http://www.ngvglobal.com/advanced-engine-components-achieves-bs-iv-for-cng-engines-in-india-0217) International Association for Natural Gas Vehicles 2010
Wikipedia 2010 (http://en.wikipedia.org/wiki/Compressed_natural_gas) Wikipedia 2010
Business Standards 2010 (http://www.business-standard.com/india/news/%5Ccng-conversion-to-help-autorickshaw-owners%5C/184257/)
Wikipedia 2010 (http://en.wikipedia.org/wiki/Tata_Motors – Tata motors market share)
Surfindia 2010 http://www.surfindia.com/automobile/industry-growth.html
Austrade 2010 (http://www.austrade.gov.au/India-profile/default.aspx)
CIA World Book 2010 https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
Gas and Vehicle Report 2009 (www.iangv.org/tools-resources/statistics.html)
Indianserver.com 2010 http://www.india-server.com/news/price-of-imported-luxury-cars-to-rise-1926.html