Leaving India: The Peugeot Story|Business Strategy|Case Study|Case Studies

Leaving India: The Peugeot Story

            
 
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Case Details:

Case Code : BSTR023
Case Length : 9 Pages
Period : 1994 -1997
Organization : Peugeot Premier Automobiles Ltd
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Auto and Ancillaries

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"We . burnt our fingers there."

- Paul Alvarez, Peugeot spokesperson commenting on the company's Indian experience, in September 1999.

Closing Down

In October 1994, Europe's 4th largest automobile major, Peugeot of France (Peugeot), entered the Indian automobile market through a joint venture with Premier Automobiles Ltd. (PAL), christened as PAL-Peugeot Ltd.

As Peugeot was one of the first automobile MNCs to enter India, the early mover advantage was expected to help the company make its mark in the Indian automobile market. According to reports,1 Peugeot was set to achieve cash breakeven within two years and to begin generating profits by 1998. Peugeot decided to enter the Indian market with its passenger car model, Peugeot 309, as the car was believed to be the best suited for Indian terrain. Production began at the Kalyan plant and the car was launched in 1995, positioned in the mid-size segment, against Daewoo's Cielo and Maruti's Esteem. The initial response to the car was positive, with the company selling around 10,000 units in the first year of the launch.

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However, Peugeot's ambitious plans soon went haywire when production at the Kalyan plant was disrupted due to labour unrest in mid 1996. Production of the Peugeot 309 had to be halted resulting in mounting losses and a severe cash crunch.

Problems surfaced with PAL regarding certain strategic issues including infusion of fresh funds and violation of the PAL-Peugeot MoU. By 1997, the company's accumulated losses touched over Rs 3 billion. In November 1997, Peugeot announced its decision to exit from the joint venture and leave the Indian market. The news came as no surprise, as there had been several media reports about how Peugeot was finding it difficult to survive in the Indian market. Peugeot of course claimed that it was moving out of India only because of a policy decision by its parent company to concentrate only on European markets. Pegueot's exit from the Indian market opened up a debate on a host of issues including the company's blunders, and more importantly, the survival prospects of MNC players in the newly-liberalized Indian economy.

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1] Business World, February 1, 1997.

 

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