Maruti Suzuki India and Tata Motors are joining Hero MotoCorp in the race to the South American market with plans to set up manufacturing plants. The move is seen as a measure to grow volumes and revenues through the addition of new markets at a time when sales at home remain sluggish.
Senior officials at the ministry of external affairs (MEA) told FE that Maruti Suzuki and Tata Motors are discussing plans to set up a manufacturing base in South America. Tata Motors is looking to start with its bus manufacturing unit, while Maruti Suzuki is eyeing countries like Argentina, Chile, Peru and Colombia for a local production base.
The region has no railway network. Hence, their dependence is totally on surface transport. The Indian auto industry is aware of this and has been making efforts to enter the region. The primary reason for this sudden surge of the Indian automakers to this region is that there are no security concerns and there is no political unrest in the region, which gives more security to investments, explained an official.
A Tata Motors spokesperson said the company is evaluating other markets in the region and working out strategies. The company had entered the market with its Xenon pick-up and has been exporting to Chile since FY10.
It had signed a distribution agreement with SKBTT (SK Berge Group) in August 2008, under which 15 dealers were appointed.
As a global company, Latin America is one of the focused markets for Tata Motors. The company plans to be a long-term player in the market and is currently working out strategies, the Tata Motors spokesperson said.
Vishnu Mathur, director general at the Society of Indian Automobile Manufacturers (SIAM), said, India-made cars are likely to do well in South America. Logistically, its a challenge because of the distance, but it is a good potential market which we are now tapping.
Colombia has emerged as as a favourite starting point for these automakers as it is comparatively closer to India, followed by Peru. Riewad Warjri, Indian ambassador to Colombia, said: Pawan Munjal (MD & CEO, Hero MotoCorp) was in California in May to seal a deal with FENALCA for an assembly plant. When Hero and Honda were together, FENALCA was representing both of them. Now, after the split Hero has chosen to stay with FENALCA. The plant is expected to take care of neighbouring countries around Colombia like Ecuador, Venezuela, Peru and even up to Chile.
Hero MotoCorp is one of the first in the domestic auto industry to plan significant investments in South America, to counter rival Bajaj Autos strong export presence in Africa and Southeast Asia. We have plans to achieve annual sales of 10 million units in next few years, nearly 10% of which we expect to come from our international business. To reach this ambitious target, we are initially focusing on markets where the volumes are large and products can be sold with minimum modifications. Thus, markets in Central and Latin America provide us a perfect platform, Munjal said.
Hero recently added export markets like Guatemala, El Salvador, Honduras and Peru, with Ecuador to follow soon. The company already sells its two-wheelers in Colombia, where a manufacturing facility in Colombia will start by the middle of 2014.