Motown India comes of age

The Indian automobile industry is making its presence felt globally with rising exports, multiple acquisitions and heightened exposure to overseas markets. In February this year something very uncommon, if not unprecedented, happened in the Indian automotive industry. The country's largest car maker, Maruti Suzuki India Ltd, exported a batch of 1,800 units of its latest premium compact car Baleno to its home market Japan. Export of cars from India have gained significant volumes and are growing fast but even then this tranche was of special relevance. It was the first time ever that Maruti, where Suzuki owns a majority 54 per cent, was exporting a model from its factories in India to parent Suzuki's home country. Over the last decade, Maruti - and with it India - have assumed greater importance in Suzuki's global standing, contributing 40 per cent to its overall profitability. But this was a development that underlined in no uncertain terms that India was finally producing world class cars that are fit to ply on Japanese roads. Maruti quickly followed up the export of Baleno with the launch of its compact SUV Brezza, which is the first model ever to be designed and manufactured by a team of Indian engineers led by executive director (engineering) C.V. Raman. Brezza would also be exported to a variety of markets including the Middle East, South America, Africa and rest of Asia. “If Baleno is our poster car for Make in India, Brezza is Maruti Suzuki's statement of create in India,” said Kenichi Ayukawa, Maruti Suzuki managing director, at the launch of the car in April.

As cars like Baleno, Brezza and around 3.4 million exports in the last six years stipulate, it is not difficult to find a made in India car in any corner of the world today. Global hub for small cars The journey of India becoming a hub for mini car production in the world started quite some time back but the Union Budget of 2006 had a big role to play in it. That year, the Indian government decided to introduce different rate of excise duties for small cars, defined as those that measured less than 4 metres in length and had engines smaller than 1.2 litre for petrol and 1.5 litre for diesel and others. That differential rate exists till date and in some cases is even more unbalanced. The resultant price difference led to the proliferation of small car production in the country and creation of new segments like compact sedans and SUVs. Though the policy was aimed largely at the domestic market, as the government wanted to incentivise smaller cars that cost, pollute and cause less congestion and are more fuel economical, it had an indirect spin-off on export markets. The intensity of competition and growing domestic market led to massive investments in scale and India became a test market for affordable cars worldwide. If a car can be successfully made and sold in India, it would find a market in many other emerging markets. “I have been a big admirer of India′s frugal engineering,” says Carlos Ghosn, chairman of the Renault Nissan alliance which developed the Kwid compact car for India. He adds: “A car like Kwid cannot be made in France or Japan. India is a big test market for us. We have used the expertise in France, the engineering prowess of India and some know-how from Japan. If the Kwid succeeds here with big numbers, we will be certain that it will be successful in whichever global market we launch it in. Right now we start here and going forward markets like South America, Middle East and Africa are all markets where Kwid will find buyers. If Kwid succeeds globally, it will highlight the strengths of Indian engineering. “If you want to make a value for money product with frugal engineering, India is the place to do so. By 2016, 60 per cent of the automobile market will be in countries such as India, Brazil, China, Russia and Indonesia.” It is a policy that was first successfully used by Korean car major Hyundai Motor India. The company has been India's largest car exporter for well over a decade and its i10 small car is the most exported car from India ever. At the time of their launch, both the i10 and its bigger sibling i20 were exclusively made in the company's Chennai factory and exported even to developed markets in Europe, where safety and emission regulations are more stringent compared to India. Rakesh Srivastava, senior vice-president, sales and marketing, Hyundai Motor India Ltd says: “We have been the pioneer as far as exporting cars from India is concerned. Since the inception of the company we have demonstrated quality and standards that are at par with anywhere else in the world. The rest of the industry has woken up to the potential for exports from India only now. “Some of our cars like i10 and i20 were only made in India and exported from here all around the world till some time back.” Others such as Toyota, Renault-Nissan, Ford, General Motors, Volkswagen and Honda have quickly joined in. Toyota's Etios - the company's smallest and most affordable car till date - is exported from its Bengaluru factory to many markets. It has been a bestseller in South Africa. Nissan exports more units of the Micra hatchback and Sunny sedan from its Chennai factory than it sells in the domestic market. Consumers in Chile and other countries in South America are lapping it up. It is a similar scenario with Volkswagen Vento, Chevrolet Beat, Maruti Suzuki Ertiga and Ford EcoSport. Vento and Beat are big draws in Mexico, Ertiga in Indonesia and EcoSport in South Africa. “We are developing India as a major hub for our cars,” explains Dave Schoch, president Asia Pacific, Ford Motor Corp. “The segment below our entry level Figo hatchback is attractive as there is a large customer base not only in India but also in other emerging markets as well. Exports from India will help us stay on track for (high) growth in the region.” Motorcycle, tractor exports on upswing too It isn't that cars offer the only success story in the industry. The growth in exports in two-wheelers has also been as dramatic. Since 2010-11, exports have grown at a cumulative annual growth rate of nearly 11 per cent. Nearly 2.5 million units were exported in 2015-16 alone. And even though India is a market for frugal, no frills economical 100cc mobikes, production capability has reached levels where even high-end sportsbikes are being produced and exported from here.

In 2012, Yamaha started manufacturing and exporting its R15 sportsbike that costs Rs 1.15 lakh ($1,700) to its home market Japan. Like the Baleno in the case of cars, this was also the first time that an Indian subsidiary of a Japanese company was exporting to the parent's home country. While that is a statement of intent, the scale and volumes from exports invariably comes from bigger domestic players like Bajaj and Hero MotoCorp. The Pune-based company was among the first to start exporting its mobikes from India, exploiting the restrictions for exports on arch rival and market leader Hero MotoCorp for its tie-up with Honda Motor Corp till 2010. It exported 1.46 million mobikes in 2015-16 and has market leadership position in many African markets like Nigeria and Uganda and South American markets like Colombia. Its dynamic managing director, Rajiv Bajaj, has also never been coy about revealing his global ambition. “The motorcycle market outside India is double that of the Indian market. That means if Bajaj sells 100 bikes in India, eventually we must sell 200 bikes outside India,” he says. “We are very clear we want to be a global player. And we are equally clear we want to be a specialist in motorcycles and not dabble with scooters unnecessarily. To be global you need to be a specialist. Every day I ask myself and my team whether we can be bigger than any other company in the world. The hunger is there. In any part of the world if you think of motorcycles, Bajaj should spring to your mind.” Market leader Hero MotoCorp, now unfettered after the divorce with Honda in the fag end of 2010 has quickly hatched a plan to spread its wings globally. Roping in golf legend Tiger Woods as global brand ambassador and collaborating with various international technological partners like Erik Buell Racing, Engines Engineering and Austria's AVL are proof of its intent. It aims to export to 50 countries from the current 30 by 2020, when exports will contribute at least 10 per cent of its overall revenues. In 2015-16 it exported 210,239 unit two-wheelers from India. It is investing Rs 1,100 crore ($164mn) in a new factory in Halol in Gujarat, its fifth in India, which will be the hub of its exports out of the country. It has also set sights on developed markets like US and Europe for which it is readying a new line up of products. “We will be selling in 50-plus countries by 2020. To top it all, I am talking of an annual turnover of Rs 60,000 crore,” said Pawan Munjal, chairman, managing director and CEO, Hero MotoCorp, in August 2013. “We are aiming for 10 per cent of our sales to come from export markets by 2017.”

Unlike Bajaj, Hero has also committed investments overseas to further expand its global foray. It has commissioned a factory at Villa Rica in Colombia for South America and another facility in Bangladesh. In all, it will have 20 manufacturing facilities spread all across the world by the end of this decade. Yet, he sounds uncannily similar to Bajaj when he talks of global ambitions. “My long-term vision is to make Hero a global leader not just in terms of sales volumes, but in every sense of the term - technology and innovation, product line-up, worldwide presence, global talent pool and global best practices,” Munjal said. “We have now expanded to 30 countries across Asia, Africa, and South and Central America, from just four markets in 2011 when we started our solo journey. We have recently added new export destinations in four new markets in West Africa - Nigeria, Liberia, Ghana and Guinea. Together with Nigeria, which is the largest two-wheeler market in Africa, the combined volume size of these new markets is around 1.5 million units per annum. Hero products already sell in other West African countries such as Burkina Faso, Ivory Coast, Democratic Republic of Congo, Angola and Madagascar.” A Hero versus Bajaj fight is brewing up again, this time on foreign shores. Either way, Indian engineering and manufacturing would win. A sizeable chunk of tractors and farm equipment is also exported out of the country thanks largely to Mahindra and Mahindra. The company, the largest tractor maker in the world in terms of volumes, is an expert in low power small tractors that are in demand in emerging markets where landholdings are smaller in size. Just like in India. Mahindra easily exports over 10,000 tractors every year. A third of them goes to Africa where the company has small assembly facilities in Chad and Mali. The company's ambition in the continent is particularly intense. Last year, it set up a separate business unit to focus on the opportunities in Africa. The group that manufactures a wide variety of products from utility vehicles like Scorpio and XUV5OO, to two wheelers, tractors and trucks, says the Africa business unit has a potential to grow 10 times to $1 billion in seven years. “Africa has tremendous potential and we have merely scratched the surface so far,” says PawanGoenka, executive director, Mahindra and Mahindra. “There are 54 markets in Africa in various stages of evolution. We want to be at the forefront of servicing these markets.” The lure of Africa has attracted heavy commercial vehicle maker Ashok Leyland as well. The Hinduja Group flagship company recently announced a Rs 70 crore ($10.4mn) investment to set up an assembly plant for buses in Kenya. It already has a manufacturing facility in the UAE as a joint venture with local partner Ras Al Khaimah Investment Authority, which has an annual capacity to produce 2,000 vehicles. “The bus assembly plant in Kenya would be wholly-owned subsidiary. It will have an annual capacity of 1,200 buses. It will also serve as an export hub for three neighbouring countries,” said T. Venkataraman, senior vice-president (global buses), Ashok Leyland Auto components If such large number of cars, two-wheelers and tractors are being shipped out of the country, can components and spares be far behind. The low cost manufacturing that India offers has seen global firms source more and more components from the country for their global operations. Japanese car maker Nissan for example, exports a sizeable volume of components - some 1,800 types of manufacturing parts - to 34 factories across 24 countries. That is only a part of the story. Domestic component makers themselves are getting aggressive - bidding for global tender and often winning them and exporting significant volumes overseas. It is a far cry from the past when vehicle manufacturers used to complain about low standards and lack of quality within the domestic industry that has seen the proliferation of so many Japanese, Korean and European joint ventures in the country. Today, a homegrown Motherson Sumi with nearly a dozen acquisitions to its credit and offices world-over is a global player in its own right. In 2005, 71 per cent of its revenues came from India. Ten years later, that has shrunk to just 16 per cent while 58 per cent of its revenues comes from Europe. Vinnie Mehta, director general, Automotive Component Manufacturers Association, says: “In the last decade or so, the component industry has definitely come of age. There was a time when Indian companies had to be dependent on their foreign counterparts for critical parts. Today, they do it on their own. “Most of the small cars in India have high local content of up to 98 per cent and in some cases even 100 per cent. And these cars in turn are exported to developed markets. Even components are being exported all over the world. It shows how far the industry has come.” Component export revenues have grown by a strong CAGR of over 19 per cent and stood at Rs 255,600 crore ($38.15bn) in 2015-16. And unlike vehicle exports that show a strong bias towards emerging markets, components are exported in sizeable numbers even to developed markets like US and Europe that account for over 60 per cent of the revenues.

Local company, global ambition The outreach of Indian companies is not restricted to just rising exports alone. India has been a prominent participant in the mergers and acquisition (M&A) space in global automotive space in the last 10 years. A shift in automobile manufacturing across the world towards countries that offer bigger markets and lower cost and the global recession of 2008 saw valuation of many erstwhile global firms take a tumble, making them attractive acquisition targets. A hungry domestic industry, keen to make a mark globally, quickly lapped them up. Tata Motors' $2.3-billion acquisition of British marquee brands Jaguar Land Rover (JLR) in 2008 is an obvious headline grabber. It coincided with the unveiling of the company's low cost car Nano, around the same time and gave Tata global recognition. But that was not a flash in the pan. Tata had made at least one acquisition every alternate year in the heavy commercial vehicle business prior to the JLR acquisition, snapping up South Korea′s Daewoo Commercial Vehicles, Spanish bus maker Hispano Carrocera and forging a joint venture with Brazil′s Marcopolo in the process. From being a company largely centred in India a decade ago, Tata Motors today has a higher presence abroad. The other prominent Indian vehicle maker, Mahindra and Mahindra is behind Tata as far as overseas forays is concerned, but not by much. Mahindra is forever on the lookout and has been linked with Saab, Volvo and even JLR in the past. In 2011 it acquired troubled South Korean SsangYong Motor that gave it a foothold in markets like Russia and China. Then in 2014, its new found and as yet under achieving two-wheeler division acquired a controlling stake in Peugeot′s scooter division. In late 2015, it acquired iconic automotive Italian design house Pininfarina. The Indian auto industry has been hyperactive on the acquisition trail in the last 10 years. The industry acquired an estimated over 100 companies between them - cars, two-wheelers, trucks, tractors, components - worth almost $7 billion between 2005-2010. Analysts say that has only whetted the appetite and laid the foundation for more. “There are always opportunities in the market and we keep a close watch. The funding will depend on the size of the acquisition,” says Vivek Chand Sehgal, chairman, Motherson Sumi Systems. Last year, Sehgal had expressed his desire to acquire companies in US, a market where Indian companies are relatively non-existent. “USA is one of the strongest performing automotive sector in the world. All the car makers are going towards US, they have got more capacities, they want new companies to come in including Motherson,” he had said. “We are being approached by lot of companies which are asking us to come into US in a big way. So, what we are seeing is that US is going to be the biggest growth factor in the next five years.” The India story in the global automotive landscape has only just begun.