2.05.2012

With petrol prices hiked, diesel ain't a bad option!

The Economic Times of India, September 18, 2011







While it has always been far more efficient fuel giving higher mileage compared to petrol - a reason why heavy users like commercial vehicles use diesel - its use in the passenger vehicle industry was restricted for two reasons. One, diesel was relatively more polluting - releasing higher levels of particulate matter and harmful oxides of nitrogen and sulphur. 

The past two decades saw increasing awareness and stringent curbs on vehicular emissions in different parts of the world. Led by California in the US, many other states and countries have regulated usage of diesel due to its polluting nature. In the US, availability of diesel at retail gas stations too is an issue. In India, Delhi took the lead by replacing diesel with CNG in public transport. 

But there was another more important reason why diesel was not popular among passenger car industry. Diesel engines were bulky, noisy, more difficult and costly to maintain. Petrol, on the other hand, is smoother, more refined and has a higher throttle. "All this helped the case of petrol engines through the 1990s," says Deepesh Rathore, director (India) IHS Global Insight, a research firm. Most car companies - American, European and Japanese - focussed on building petrol cars. 

The push for change for diesel began in the 1990s when Europe's mileage-driven thrust nudged its car manufacturers to spend more R&D dollars on diesel technologies. So today, while the US and Japan - the two big hubs for car manufacturers - continue to be petrol-driven markets, Europe leads the world in diesel engines and diesel technologies. 

It is exactly for this reason that Europe-focused manufacturers - Fiat, VW, Mercedes Benz and even American auto companies like Ford and Opel who have a strong presence in Europe - have a good line-up of diesel engines. Japanese companies like Honda, Toyota, Suzuki, Nissan and even Koreans like Hyundai have lagged behind. In India, Fiat's small diesel engine is being used by Tata Motors, Maruti and GM. 

China, the new 600-pound gorilla of the car club, should have been setting the new trends on fuel usage. But it too swings the petrol way for multiple reasons even as it bets big on electric vehicles. One, China's car market offers very limited options in diesel vehicles. This constrains demand. Two, many Chinese cities do not allow registration of diesel vehicles. Three, legislation norms in China requires lower amounts of sulphur in diesel and that variant is in limited supply. But the big reason is that "Chinese government does not favour diesel as the local industry lacks experience in developing advanced diesel power trains," says China-based Bill Russo, senior adviser, Booz & Co, a consultancy. 

Cleaner, Smarter Diesel 

But other governments have been pushing for cleaner low-sulphur diesel for years. Last year, India joined in with Delhi and 12 other Indian cities introducing low-sulphur diesel.  
All this comes on the back of technological innovations brought about by car manufacturers to improve diesel engines - on both emission and performance counts. The first game changer was Bosch's (common rail direct injection (CRDi) technology that made diesel engines run faster, quieter and smoother almost like the petrol one while boosting its efficiency by 25% or so. VW, with aspirations to lead the auto world, is betting on TDi - turbo-charged direct injection. 

Soon-to-be-implemented Euro V norms in India will help diesel as these engines are installed with catalytic converters which have lower carbon monoxide emission. 

This will greatly increase the attractiveness of diesel engines in future, say auto pundits. But some stubborn mature markets like the US and Japan are finding it difficult to shift preferences. "Diesel gives me 30% more fuel economy. These engines have changed so much in the recent past that when you sit inside the car you won't know the difference. Still, Americans' perception of diesel - of loud, rumbling engines that do not start in winter - continues," says Rebecca Lindland, US-based auto analyst with IHS Global Insight.

The India Playfield 

Which way will India swing? Though minuscule now, India could be the next big frontier for diesel engines. It is tipped to be the world's third largest passenger vehicle market by 2020.

The historical price-skew favours diesel over petrol big time. For many Indians, still buying their first cars, operating costs are a critical factor under consideration. "The petrol-diesel price differential will always be there. And diesel with better technology, more power, more fuel efficiency and better environment - I see a big growth for the next four to six years," says Neeraj Garg, director, Volkswagen (passenger car) India.
While diesel cars are more expensive than their petro counterparts, it is the running cost that gives them an edge.

Fuel efficiency is among the top three criteria that Indian customers benchmark their cars before purchase. "Repair and maintenance costs of diesel engine are typically 14% of total operating costs per km as against 8% for petrol engine," says Singapore-based Mohit Arora, executive director, JD Power, a research firm. "That 6% differential is more than offset by the huge price differential (38%) that the two fuels have in India," adds Arora.

The thumb-rule till recently was that if a car owner clocks around 11,000 km annually, the benefits of a diesel car begins to far outweigh its higher costs. That threshold should now have lowered a bit with the new round of petrol price hikes.

Most importantly, diesel's prospects in India are also boosted by the fact that more automobile companies are now launching new cars in diesel variants to woo customers. So far, diesel engines have largely come in bigger vehicles, above 1200 cc. 

The smallest that was available till recently was 1200 cc Fiat engine. GM has launched a 936 cc diesel variant of its Beat model. The engine was specially developed for Indian customers. "Our R&D will continue to look at smaller engines [diesel]," says Michael Boneham, Ford India MD. Honda-SIEL, the company that stayed firm on petrol so far, is expected to launch diesel variants of City and Jazz in India by 2013. Hyundai is expected to launch diesel variants of i10 and Santro in future. Maruti Suzuki is developing a sub 1,000-cc engine for India even as VW is likely bring in the diesel variant of the smaller Up in the near future.

Says JS Chopra, head, Delphi-TVS Diesel Systems, a supplier of diesel engine component to M&M and Tata Motors: "Diesel option is compulsory now for every model. For a car manufacturer, its range is not complete without a diesel option." Many like Ford, GM are setting up flexible engine plants that can easily swing between petrol and diesel to cope with this shift.

All this will mean a country that was once on a path to shunning diesel may well be embracing it. Some like Gulshan Ahuja, secretary general, FADA are backing diesel all the way. "Even if there is price parity between petrol and diesel, I would bet on diesel as the fuel of the future," says Ahuja.


Engines: know your diesel from petrol 

Firing The Engine 
Petrol engines get fired up with a spark plug. Diesel engines use direct fuel injection method in which the highly compressed hot air is used to ignite the fuel. During harsh winter, when the air isn't hot enough to ignite the engine (unlike petrol which gets ignited with a spark) diesel vehicles of the past have had starting trouble. But a new generation of diesel engines takes care of this problem.

Fuel Efficiency 
Diesel gives more km per unit than petrol - because it has higher energy density and hence produces more energy per given unit. Diesel engines also use lesser fuel when idle as against petrol, by some account, just 1/3rd.
Example: Skoda Octavia (petrol) gives 8.1 km/l in the city as against the diesel which gives 10.7 km/l

Performance 
Reaction to accelerator pedal, pickup for a petrol engine is faster and smoother. Diesel cars (without a turbo) have a slight lag in responding to the demand from the accelerator. But the latest CRDi engines with turbo chargers puts it neck-to-neck with petrol.
Example: Skoda Octavia (petrol) does 0-100 km in 9 seconds but the diesel takes 13.6 seconds

Power Factor 
Diesel engines have a higher torque or turning power vis-a-vis the petrol ones. So when driving uphill on a lower gear, a diesel car will take lesser effort to drive up due to diesel's higher thermal efficiency and higher torque. This is the reason why heavy vehicles typically have diesel engines. But petrol engines give a far smoother, peppier ride
Example: Skoda Octavia (petrol 1.8) gives a maximum speed of 215 kmph as against diesel (1.9) that gives 175 kmph

Weight & Wear-Tear 
Due to high compression ratios and high cylinder pressure, diesel engines must be built to withstand more wear and tear than petrol. As a result, critical car/engine components like crankshaft, cylinders have to be thicker and heavier. This makes them heavier and pushes up the sticker price.
Example: Octavia (diesel) gross vehicle weight is 1,855 kg as against petrol variant 1,810 kg 


Why Diesel Makes More Sense 

Better Mileage 
Latest diesel engines are at least 25% more fuel efficient than petrol

Cheaper Commute 
Diesel cars, though costlier, make sense if it clocks 11,000 km plus annually

Costlier Upkeep 
Maintenance costs per km of diesel engine is 14% against 8% of petrol

Less Polluting 
Cleaner fuel, latest tech and catalytic converters means diesel is no longer dirty

2.03.2012

"Competing For The Global Middle Class" Is Most Read Among Thought Leaders

White Space Newsletter, Issue 21, February 2012

Click here to view the newsletter


So what do clients read?
A little while back we told you about our latest thought leadership digests - quarterly summaries of the best research and ideas from consulting firms for leaders in six different functions. The latest editions have been in the hands of our target audiences for at least two weeks now and, thanks to the URL shortening service 'bitly', we've tracked what has been read.

Cue drumroll...

Unable to maintain the suspense, we're forgoing reverse order and starting with the winner this quarter - Booz & Company. Its report Competing for the global middle class has been opened over twice as many times as any other - an impressive result. However, in some ways not a surprising one. From our other research strands, we know that clients are seeking to better understand what the changing demographics of emerging and developing markets mean for them. And what this article does well is focus on the issues relevant to businesses - product and service lines and operating models - rather than put forward yet another generic economic discussion. Although not quite in the same league, Booz & Company's article Managing the global enterprise in today's multipolar world also received a significant number of hits, particularly from the readers of our strategy digest.

The second theme that was popular with our readers this quarter was decision making. Yet again, Booz & Company came out top with The decision making flaw in powerful people tapping into broad concerns about the effectiveness of decision making and, we suspect, the desire in many of us to have some evidence to support our sneaking suspicions about those in charge. Our operations digest readers were also keen to click through to the Bain article on this theme: How organisations make great decisions.

Honourable mentions must also go to Roland Berger for whom The trend compendium 2030 proved a hit with marketing folks and KPMG'sThe price isn't right which was well received by finance. HR readers liked the look of PwC's Recruiting and managing the millennial generation. As far as our IT readers are concerned, they are apparently still open to reading new material on the cloud and KPMG's Clarity in the cloud hit the spot for many.

Obviously, whilst we know which articles have been most opened, we don't know from bitly which of these articles have been read through to the end. However, our White Space quality ratings, coming out next month, consider all aspects of thought leadership not just immediate appeal and will give a perspective on who is most likely to keep readers engaged. 

1.30.2012

Gordon Chang, Shaun Rein – Two Sides of the Same Coin- Someone Get Fallows In Here

Technomic Asia, January 2012

Click below to read the post at Technomic Asia blog:

Gordon Chang, Shaun Rein – Two Sides of the Same Coin- Someone Get Fallows In Here

Excerpt:

The smartest writers, pundits, business people and academics I know all see that China can be all of the above, none of the above and everything in between.

Read James Fallows of The Atlantic, Stan at China Hearsay, Andrew Hupert, Ian Bremmer, Ann Lee, Janet Carmosky, Malcom Riddell, Bill Russo, Richard McGregor, Avery Booker, Bill Dodson, Charles at China Geeks, James McGregor, Peter Hessler, Kent Kedl, Tom Lassiter, Ben Shobert or Dan Harris at China Law Blog for starters. All voices who I owe a great debt to for having taught me so much about China and who consistently provide balanced views.

1.29.2012

Can GM Leverage China as a Global Platform for Growth?

Investor Conference Call, Thursday, February 2, 2012, 10AM EST



About The Call
  • GM sold 2.55 million vehicles in China during 2011, an increase of 8.3% over the previous year in its largest global market.  Impoortantly, GM outperformed the industry growth of 2.5% by leveraging a business model that is designed to deliver products well suited to the needs of the market.  The country represents huge potential for the OEM and importantly, a solid platform into the rest of Asia. Clearly, the SAIC-GM JV is working, effectively combining local market knowledge with world-class technology and design. Looking forward, GM’s ability to offer a wide range of products for its Chinese customers, from premium, high-end Buicks to mid-market Chevrolets and entry-level cars like the Baojun 630 Sedan is likely to fuel continued success for years to come.
  • With our expert, William Russo, we’ll explore how GM has successfully established itself in China and its road-map for the future to include brand, product, business and globalization strategy. We’ll evaluate demographic shifts in China and the OEM’s ability to meet consumer needs through a broad showroom lineup, addressing both price and image concerns. We’ll assess the competitive landscape in China relative to foreign and domestic players and conclude with a near to mid-term outlook for GM’s performance. 


SHABNAM BOETTLE
VP & Senior Director
Global Research Intelligence
646-695-3283
MICHAEL COHEN
Director
Global Research Intelligence
646-783-6052
CARLA SISON
Director
Global Research Intelligence
646-695-3281

1.21.2012

"Competing for the Global Middle Class" Selected Among Best New Research and Ideas

Thought Leadership Digest, January 2012


Ron Haddock, Bill Russo and Ed Tse’s article "Competing for the Global Middle Class" was featured in this January 2012 digest of the best new research and ideas for strategy leaders.

The purpose of our digests is to make it easier for business leaders to find the best research and ideas. Every month, we
trawl the websites of about 30 of the world’s leading consulting firms looking for the latest thought leadership. What we
find, which now totals over 20,000 articles, we categorise by sector and service line, and make available – with supporting
analysis – via a searchable database which we call White Space. In the process of doing so, we get a very good sense of
what’s being said in any particular business area, and which the best quality pieces of thought leadership are. This allows
us to present time-pressed managers with a summary of the things that really merit their attention.

Competing for the global middle class Booz & Company
They say: In a variety of industries, corporate leaders are discovering that they must rethink their product and
service lines, go-to-market strategies, and operating models to build a presence in emerging economies.

We say: A good starting point for the conversation all boards should surely be having about the large and growing
middle-class market in emerging economies.


1.16.2012

Competing for the global middle class

Business Intelligence Middle East, January 16, 2012


Source: Booz & Company , Author: Ronald Haddock, Edward Tse, Bill Russo, Karl Nader
Posted: Mon January 16, 2012 10:50 am


UAE. The time has come for senior executives to take the plunge and override their hesitancies about the idea of joining the race for the global middle class market share; without the loyalty of this key segment, they may be left out in the cold as their competitors vie for industry leadership. Thought leader Booz & Company explores the options. 

In 2011, the worldwide economic phenomenon that is known as the global middle class included between 700-900 million people, all of whom had the purchasing power to become consumers of manufactured goods and services.
There is one common denominator across each country in which this demographic can be found: they are all recovering from the global recession with an increasingly urbanized lifestyle.

The value chain of companies that provide this population with goods, services and infrastructure is becoming known as the global middle market. Competing for their share are three different types of company - the local upstarts who are migrating into the domestic middle market as their customers become more prosperous; the global aspirants, who have already developed products for their domestic middle market, and who are looking to expand into the global equivalent, and the multinational incumbents intent on adapting their existing product lines to capture the attractive growth opportunities in emerging middle markets.

“An intelligent approach will allow local upstarts and global aspirants to move up in the corporate chain. Transitional moves, such as joint ventures and regional expansion, aid their advancement by proffering the experience required to compete on a larger scale,” commented Ronald Haddock, a former partner at industry management consultancy, Booz & Company.
No matter which of the three categories they fall into, companies looking to tap into the lucrative global middle market can draw inspiration from Alfred P. Sloan Jr’s reorganisation of General Motors Company in the 1920s; by targeting the consumers in the middle finance-zone (those who were unable to afford luxury vehicles but wanted an option other than the ‘any colour so long as it’s black’ Model T Ford), he propelled GM past the competition to take the leadership spot among carmakers and held that position for the rest of the century.

Recognising the pace of development in the target markets is the first step towards claiming a stake and taking that all-important step up onto the leadership ladder. All industrialising countries follow an ‘arc of growth’, an evolutionary path of economic change that takes them from nascent to mature, with a critical stage of urbanisation and economic momentum in between.

Countries in the ‘momentum phase’ have large, relatively young populations and high economic growth rates, making them the seedbed of the emerging middle-class markets.

“The buying power, needs and desires of the middle class varies dependent upon nation and region, so obtaining a full understanding of the local requirements in desired territories will prove highly beneficial to anyone wishing to successfully harness capital in that specific market,” said Edward Tse, senior partner with Booz & Company and the firm’s chairman for Greater China.

“Identifying the attributes that the targeted consumers value and adapting the product to meet them – or culling undesirable traits from the existing merchandise – is essential to winning customers.”

Considering the huge, indispensible source of sales volume presented by the global middle market, it’s no surprise that competition is already intense. Despite the number of active companies competing for consumer spending, several would-be contenders are being put off by myths that throw a negative light on the situation. 

“There’s talk that it’s too early to enter the middle market in emerging economies, when the reality is that it may already be too late as some industries are already becoming saturated with competitive rivals,” explained Bill Russo, a senior advisor with Booz & Company, based in Beijing.

 “Other companies claim that they can’t make money from emerging economies, but they have to consider that while prices are up to 40 percent lower than in developed nations, sales volume is potentially up to three times greater than in mature markets.”

This explains the motivation of Adidas to develop training shoes under the Reebok brand to sell for as little as 1 dollar across rural India, said Karl Nader, Principal at Booz & Company.

This is the case in the GCC, where multinationals that have been late in the game, face stiff competition from local brands as well as from established international competitors deeply rooted in the local market. These multinationals either fold or resort to inorganic growth options to bridge this gap.

This is evidenced, by Carrefour’s challenges to compete effectively against Panda and Al Othaim in Saudi Arabia, and Coca Cola’s recent acquisition of a 50% stake in Aujan, a significant investment to bridge the gap with PepsiCo, added Nader.

Russo goes on to explain that the attitude of assuming that success will come from the education of consumers, rather than the adaptation of products, will not bear fruit. No matter how valued or desirable the merchandize is, most newly-minted middle-class customers will not be able to afford them.

The final myth laid to rest is that entering the global middle market will be too disruptive to operations, to which he simply says that companies need to develop a business model that is suited to the task in order to succeed.

It may be that an alteration in the mind set of more conventional multinational corporation executives is required, in order for them to compete for the position of industry leader by cashing in on the benefits of the middle-class market. The opportunities in the global middle market may require additional effort in order to successfully reap the rewards on offer, but they’re most certainly worth it at the end of the day.

Click here to download the pdf report by Booz & Company. Registration required.

More reports and whitepapers are available on the Booz & Company website.

About Booz & Company
Booz & Company is a leading global management consulting firm, helping the world’s top businesses, government ministries, and organisations. Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914. Today, with more than 3,300 people in 60 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage.

For our management magazine strategy+business visit www.strategy-business.com.

For the Ideation Centre, Booz & Company’s leading think tank in the Middle East, visitwww.ideationcentre.com

For more information, please visit www.booz.com and www.booz.com/me

1.15.2012

China car sales slow as US bounces back

China Economic Review, January 13, 2012


Car sales in China grew by only 2.5% last year as the government removed stimulus measures, while the US emerged to become the world's fastest-growing car market, the Financial Times reported. Car and light truck sales in the US grew by 10%, but sales of 12.8 million units were still far below the 18.5 million sold in China. 


Analysts believe the slowdown in China sales was largely due to the withdrawal of tax incentives introduced in 2008; auto sales in China grew by 46% in 2009 and 32% in 2010. Foreign carmakers did better than average, with General Motors (GM.NYSE) posting a 8.3% rise, and Ford (F.NYSE) a 7% increase. 


Analysts believe the auto market will rebound this year, though likely not to 2009 and 2010 levels. "Continued growth of the urban middle class, along with continued investment in China’s transportation infrastructure, will continue to fuel demand growth for the foreseeable future," said Bill Russo, head of Synergistics auto consultancy.


Click here to read this article at www.chinaeconomicreview.com