Identification and prioritization of risks for new entrants in automobile sector using Monte Carlo based approach

Abstract

AbstractThe automotive industry serves as a crucial support system for the economies of industrialized nations in their pursuit of international market competitiveness. Despite this industry's importance, most developing countries face the challenge of acquiring a reasonable economic position at the global level in the automotive sector for various reasons. The most salient reasons include inconsistent government policies, multiple taxes, investor insecurity, political instability, and currency devaluation. Identifying risks is crucial for a new entrant in the already-established automotive industry. The researchers have used multiple (qualitative and quantitative) techniques to identify and prioritize risks in setting up manufacturing plants. The efforts to tackle these identified risks are undertaken at the domestic and government levels to smoothen the establishment of industry. The risks are first identified, in the current study, by reviewing the previous literature and conducting interviews of the various stakeholders (automotive dealers, managers, and customers). Then this study uses Monte Carlo simulation (MCS) approach and develops a risk exposure (high, medium, or low) matrix for the automotive industry of Pakistan. The findings reveal that the depreciation of local currency against the foreign exchange, oligopoly nature of competition, and low market acceptability of new entrants due to their products' image are the most critical risks the automobile industry faces. These findings will help automotive research institutes in developing national policies that specifically aim to support new players in the automotive industry, particularly in addressing high-priority hazards. The results may also provide valuable insights for new participants seeking to identify and address the key challenges in the Pakistani automotive industry before entering it.