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International Joint Venture (IJV) in Emerging Economies

Info: 4397 words (18 pages) Example Research Project
Published: 12th Oct 2021

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Tagged: EconomicsAutomotive


IJV, a popular form of Foreign Direct Investment (FDI), is a favourite mode for automobiles multinational companies (MNCs) to expand into new markets, especially emerging economies. However, many things are considered by MNCs in selecting investment destinations, including industry growth and the quality of destination countries. Therefore, emerging economies need to show their attractiveness to attract MNCs to invest there.

This research has analysed the growth of the automotive industry in two emerging economies, India and Indonesia, and its economic impacts, and provides information on the contribution of the IJV to the host country and explains the attractiveness of the two countries, particularly in the automotive field. The findings on the research are useful in giving consideration to MNCs to invest in both countries, especially in the automotive field. Furthermore, it also provides information to emerging economies about the contribution of the IJV company to the host country.

1. Introduction

IJV, a popular form of Foreign Direct Investment, has become a business growth strategy favoured by MNCs to enter emerging economies since the 1980s [1]. The increase has been sharp in the last few decades [2] and has succeeded in becoming an expansion mode favoured by MNCs to enter the global market [3].

Experts agree that the IJV has a strong appeal for MNCs because it opens wide opportunities to global markets [4-6]. The existence of local partners provides great benefits for the IJV, including accelerating the expansion process, transferring technology, resources and skills, minimizing risk and reducing costs [7-8] hence it opens up greater opportunities for success if done in a way correct and appropriate. The surprising fact is that the IJV has a high failure rate of 70% [9] and the basic trigger is the wrong partner selection [10], causing a lot of conflict and ultimately leading to IJV instability. Therefore, companies must reckon the process of selecting partners if they desire to increase the chances of the IJV success. In addition, companies also need to take into account internal factors (technological capability, cultural compatibility) and external (business environment and industry growth) factors of the potential partners [7].

The high failure rate of IJV means that IJV has a high level of complexity. This complexity will be even greater when IJV operates in the automotive industry, a large industry that involves many business components, from upstream to downstream, bringing them together from different cultural backgrounds and understandings. Emerging economies are the most profitable market for automotive industry [11].

1 Corresponding Author: Khairun Nadiyah

As a result, IJV research in the automotive sector is crucial to be carried out in order to encourage the success of IJV in the automotive sector, especially in emerging economies.

Indonesia and India, two of emerging economies, are well aware of the large contribution of foreign investment in developing the country hence both countries are currently trying to attract foreign investors to invest, especially in several priority sectors, one of which is the automotive sector. To response that condition, this paper is focused on analysing India and Indonesia's automotive industry.

2. Methodology

This research has used quantitative and qualitative methods. Quantitative method was used to analyse the growth of the automotive industry in India and Indonesia while qualitative method was used to analyse the attractiveness and contribution of IJV companies to both countries. The data used were secondary obtained from several published corporate, government and private institutions data namely SIAM (Society of Indian Automobile Manufactures), DIPP (Department of Industrial Policy and Promotion), IBEF (India Brand Equity Foundation), BKPM (Indonesia Investment Coordinating Board Official), GAIKINDO (The Association of Indonesia Automotive Industries), AISI (Indonesian Motorcycles Industry Association), Maruti Suzuki Reports, Toyota Motor Manufacturing Indonesia Reports etc.

The numerical data that have been used were automotive production, FDI, Export volume, GDP and domestic sales of the two countries. Furthermore, numerical data have been analysed with some statistical tools such as AAGR (Average Annual Growth Rate), CAGR (Compound Annual Growth Rate), and correlation. Case study design was used in this study to narrow discussions about IJV in both countries. Maruti Suzuki and Toyota Astra Motor are two venture companies which became the object of IJV case studies in this research.

3. Results and Discussions

3.1. India and Indonesia Automobile Production's Growth

The automotive industry has an important role in driving the country's economic growth. This industry supports many related industries, both upstream and downstream, such as steel, aluminium, rubber, battery, software and so on.

Table 1. Automotive Production.




Passenger Vehicles

Commercial Vehicle

Three Wheelers



Grand Total

India (2010-19)













5,7% 4,3%







Table 1 shows the growth trend of automotive production in India and Indonesia. Overall, India and Indonesia were experiencing the positive growth with AAGR and CAGR value above 3,8% in all of vehicle's types over the given period.

3.2. Foreign Direct Investment Growth in India and Indonesia Automotive Industry

The automotive sector is ranked in the top 10 largest attractors of FDI in India [12] and Indonesia [13].

The increase in FDI gives a positive effect on the growth of related industries.

Table 2. FDI Inflows in Automotive Industry

India Indonesia.

Year 2010-19 2010-18

AAGR 23% 30%

CAGR 15% 11,90%

The result of data processing in Table 2 shows that both countries were experiencing a positive growth of FDI Inflows. India shows AAGR of 23% and CAGR of 15% in FY 2010-19 while Indonesia registered an AAGR of 30% and CAGR of 11,9% during 2010-18.

Table 3.Correlation Analyses between FDI Inflows in Automobile Industry and Total Production.


Country (Period)

India (2010-19) 0,764

Indonesia (2010-18) 0,512

Table 3 presents that the value of r in India is +0,764 which means that there is a sufficient correlation between FDI Inflows in Automotive industry and Total Production while the correlation both variables in Indonesia is rather weak with r value of +0.512.

3.3. Export by India and Indonesia Automotive Sector

The noble export performance will add to Indonesia and India tax revenue. Below are the export analyses in India and Indonesia automotive industry:

Table 4.Export Trend.

India (2011-19)



Passenger Vehicles


Commercial Vehicle


Three Wheelers


Two Wheelers








Indonesia (2011-18)




CBU (Complete Built Up)



CKD (Complete Knock Down)



Component Part



Two Wheelers



The data above shows that there has been an increase in export volume in every vehicle's category in India and Indonesia. If we look at both sides (AAGR and CAGR), overall types have a substantial positive value.

3.4. Domestic Sales Pattern

Below is the Domestic Sales Pattern of India and Indonesia Automotive industry:

Table 5. Domestic Sales.















Two Wheelers














Three Wheelers




The data above shows the domestic sales of four kind of vehicles in India and two kind of data (four wheelers and two wheelers) in Indonesia. It can be seen clearly from AAGR and CAGR values, domestic sales in both countries were experiencing a great growth in all of vehicle types over the given period.

3.5. Employment in Automotive Industry

Along with renewed government policies that are friendly to foreign investors, rising FDI in the automotive sector, expanding domestic and export markets, and increasing automotive production, have opened up great opportunities for increased absorption of the automotive sector workforce in India and Indonesia. Based on data from the Indonesian Ministry of Industry [14], the automotive industry was able to absorb more than 1 million workers. On the other side, in India, the automotive industry has employed more than 30 million people according to data from SIAM [15].

3.6. GDP Per Capita and Automobile Domestic Sales

Below are the correlation analyses between GDP Per Capita and Automobile Domestic Sales:

Table 6. Correlation Analyses between GDP Per Capita and Automobile Domestic Sales.

Category r

India 0,995

Indonesia (4-wheeler) 0,923

Indonesia (2-wheeler) 0,570

Table 6 presents that the value of r in India is +0,995 which means that there is very strong correlation between GDP Per Capita and Automobile Domestic Sales. Similarly, the result shows that the correlation between both variables in Indonesia (4-wheeler) is very strong (r = +0.932) while the correlation in 2-wheelers is rather weak with r value of +0,570.

3.7. GDP Contribution by Automotive Sector in India and Indonesia

Automobile Industry in India had been contributing more than 7% of total GDP recently [15] while Indonesia is slightly larger at an average of 9.4% in the last seven years [16].

3.8. IJV Contribution to the Host Country

Table below is the contribution of Maruti Suzuki and TMMIN to the host country:

Table 7. Maruti Suzuki and Toyota Motor Manufacturing Contribution.






Adopt and promote the ISO 14001 standard

Adopt and promote ISO 14001 standard

Toyota Eco Youth and Toyota Forest


- 33.180 Employee (until 30 March 2019) [17]

- Export (AAGR of 10% and a CAGR of 6% over 2004-19 period) and Sales (CAGR and

AAGR of 10% over 2004-19 period)

- Income Generating Society [18]

- More than 8.800 employee (until January 2019) [18]

- Biggest contributor in the export volume

- Biggest domestic market share



Training program; Employee Union; Schools and Learning Centre [17]

Training program; Manufacturers Club; Learning Centre [18]




Has some Schools

- WATER ATM :21 in 20 villages

- Cleanliness: Waste treatment program; household toilets (4.345 in 26 villages); collecting and disposing household waste.

- Paved Road Renovations

- Road Safety Campaign

Has an Education Foundation

- Scholarship: > 99.000 recipients since 1974 - Donation: Rp.4.306.000.000 in 2017

Health Sector: fogging and posyandu (Integrated

Healthcare Centre)

Infrastructure development

Social Program


Road Safety Technology [17]

Technology Transfer and Management [19]

Technology Transfer and Management [20]

3.9. India and Indonesia Attractiveness

Table below shows several attractiveness of India and Indonesia as destination for investing, particularly in automotive sector:

Table 8. India and Indonesia Attractiveness.




- Projected to become the fourth largest economy in the world by 2020 [21]

- By 2030, about 600 million people will live in cities [23]

- The largest economy in Southeast Asia [22]

- GDP stability (16)

- More people will live in urban area [16]


- Large working-age population, projected will reach 869 million by 2020, constituting 28% of the global workforce [23]

- Large working-age population (67.6%) [24]

- Monthly wage average: 2,83 million Rupiah [24]

- Literacy rate: 95,7% in 2018 [24]


- Literacy rate: 74% [23]



- Second largest steel producer and combined aluminium production stood at 1,12 million tonnes in 2019 [25]

- World largest producer of nickel in 2018 and currently aggressively focused on battery production development for Electrical Vehicle [26]




- 100% FDI with a simple entry procedure [27]

- 100% foreign ownership; tax holidays or tax incentives; OSS System [14]



- Total population: 1,37 billion people [23]

- Ranks fourth as the country with the most vehicle sales at present [27]

- In 2018, out of 1.000 people, only 27 had cars in India [28]

- Total population: above 265 million people [23]

- The most vehicle sales in ASEAN [29]

- In 2016, out of 1.000 people, only 59 people owned cars, and 67% of car owners consider that their car is a symbol of their success [16]



- Make in India [30]

- Making Indonesia 4.0 Program [31]


ADDITIONAL - EODB Ranking: 77 [32]

- English is the second language [33]

- EODB Ranking: 73 [32]


4. Conclusion

India and Indonesia are two emerging economies with noble performance in the automotive industry. It can be seen from the results of the analysis that both countries' automotive industry experienced positive growth hence it had a positive impact on export volumes, GDP, FDI, and employers in both countries. As an FDI earner, export producer, and GDP contributor, the automotive industry is vital in determining both countries' economy. IJV is a popular mode used by MNCs to expand into emerging economies. Two examples of successful IJV companies, Maruti Suzuki in India and TMMIN in Indonesia, have had many positive impacts on host countries, in the areas of environment, economy, skill development and community development. India and Indonesia have a strong appeal as a destination for investment. In addition, the understanding of the two countries on the positive impact of foreign investment, one of which is in the form of the IJV, makes the two countries more eager to increase their attractiveness to become the chosen destination for investors to invest, especially in the automotive sector.


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[12] DIPP 2019 FDI Statistics https://dipp.gov.in/publications/fdi-statistics

[13] BKPM 2019 FDI https://www9.bkpm.go.id/en/statistic/foreign-direct-investment-fdi

[14] Kebijakan Sektor Industri Otomotif Dalam Rangka Implementasi Roadmap Industri 4.0 (Jakarta: Ministry of Industry Republic of Indonesia)

[15] Singh, V 2017 International Journal of Commerce and Management Research 3 6-10

[16] Mirae Asset 2017 Automotive: Too big to fail (Jakarta: Mirae Asset Sekuritas Indonesia)

[17] Maruti Suzuki 2019 Integrated Report 2018-19 (New Delhi: Maruti Suzuki India Limited)

[18] Toyota 2018 Sustainability Report 2018 (Jakarta: PT Toyota Motor Manufacturing Indonesia) [19] Motohashi K 2015 Suzuki Motor's Expansion in India (Tokyo: Springer) pp 223-241

[20] Irawati D and Charles D 2010 Int. J. of Automotive Technology and Management 10 180-196

[21] Budhwar PS, Varma A, Kumar R, editors 2019 Indian Business: Understanding a rapidly emerging economy (New York: Routledge)

[22] World Bank 2019 Indonesia https://www.worldbank.org/en/country/indonesia/overview

[23] Bliss S 2019 Geography Bulletin 51 78-98

[24] BPS 2019 Statistical Yearbook of Indonesia 2019 (Jakarta: BPS-Statistics Indonesia)

[25] IBEF and Aranca 2019 Metals and Mining (New Delhi: IBEF)

[26] Young LE 2019 Nickel and the Battery Revolution ed Tan WN (Singapore: DBS Group Research)

[27] IBEF 2019 Automobile Industry in India https://www.ibef.org/industry/india-automobiles.aspx[28] McGee P and Mundy S 2019 India displaces Germany to become fourth-largest auto market Financial Timeshttps://www.ft.com/content/73b7ccf6-1714-11e9-9e64-d150b3105d21

[29] AAF 2019 Statistics http://www.asean-autofed.com/files/AAF_Statistics_2018.pdf

[30] Kumar R 2019 International J. of Social Science and Economic Research 3 2075-2095

[31] Satya VE 2018 Info Singkat 10 19-24

[32] The World Bank 2019 Doing Business 2019 (Washington DC: The World Bank)

[33] Graddol D 2010 English Next India: The future of English in India (India: British Council)

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