– by Li Qiu
Prudent in India strategy
India and Russia form the investment focus of Foton’s overseas strategy, with the Indian market developing faster than scheduled. Foton started its research there as early as five years ago, and signed a letter of intent to invest with the Indian government in April 2011, formally opening its strategy in the market.
Foton has increased its investment in the Indian plant three times to-date, and announced plans to inject more than ¥20 billion ($3.23 billion) to develop the Indian market and set up an exclusive department in India. Land approvals in India have been processed and Foton’s Indian branch mainly produces light, medium and heavy-duty trucks as well as other commercial vehicles and will extend to full range of Foton vehicles in the future.
Great Wall is also giving India much attention. “As a private automaker, Great Wall is more prudent in decision-making, so we haven’t any specific planning in the Indian market,” said an executive of the company’s overseas sales department. Great Wall set India as its strategic market at the beginning of 2012 and established an India project team in May 2012. The team has finished a primary research of the Indian market, including product planning, choosing of plant site, etc.
Chinese automakers are quite prudent facing the second largest auto market worldwide with very slow progress because of the many obstacles in India.
The first obstacle is high automobile consumption tax. Chinese automobile consumption tax is 5-10 percent of the car price, while in India the tax is as high as 20-24 percent and has been increased to 30 percent in 2013. Besides, weak industrial base and human resources also hindered the development of the Indian automobile market.
According to industry insiders, India does not own a full industrial system with many auto parts purchased from multinationals and the working efficiency of Indian workers is lower than the Chinese in general.
Moreover, Indian domestic products also have great competence. “Though it has great potential, the heavy-duty market of India is limited and unstable with high policy risks,” said an insider of CAMC Hualing’s overseas department. “As most market shares of India are taken up by Indian domestic truck manufacturers and their trucks have high performance-price ratios, it is very difficult for Chinese automakers to enter the Indian market,” said the person.
But there are two sides to every coin. Since India has not established a comprehensive industrial system, many auto parts and components cannot be self-produced. With an illiteracy rate of 35 percent, the truck industry in India cannot maintain sustainable and quick development on this base with a vacancy of key technologies. India has only three truck makers, Tata, Ashok Leyland and the Hero. Nighty percent products in India are medium- and low-end trucks. With an insufficient market competence due to monopoly, the Indian market provides more developing opportunities for Chinese truck manufacturers.
The successful visit of Chinese Premier Li Keqiang recently indicated a bright future for the China-India relationship. According to Zhou Gang, former Chinese ambassador to India, the two countries will enhance cooperation in financial arenas and open more bank branches in each country. The two countries will also enhance cooperation in infrastructure construction. Chinese engineering contract business has developed rapidly in India with contract amounts exceeding $60 billion by the end of last year. The two countries still have large room for development in railways, high-speed railways, communication, expressways and resources, said the ambassador.
Besides, Zhou believes China and India will open new cooperation in fields such as building technology parks and starting sub-regional economic cooperation, for example, to establish an economic corridor through China, India, Burma and Bangladesh. According to Sugato Sen, senior executive of India Association of Automobile Manufacturers at an automobile forum in China, India has made great process in infrastructure construction and other construction is also making progress.”
Sugato Sen said 70 percent of the Indian population lives in rural areas and takes up 50 percent of GDP, and 60 percent consumption. The demand of rural populations should be considered, no matter the types of vehicles that are manufactured there.
(Rewritten by Jennifer Chen based on author’s article in China Business News)