In early July, as the two neighbours India and China shared frosty vibes on the borders, inside China a different chemistry was being kindled. Indian government conducted two seminars focused on the automobile sector as part of its Make in India thrust in two Chinese cities. Reeling under a trade deficit of $51 billion with its largest trading partner, India is trying to woo Chinese FDI, curb imports and boost local production. The response to the Make in India seminar was overwhelming. Close to 100 Chinese automobile companies reportedly sent over 180 representatives to the seminars.
Of the $278 million Chinese FDI that entered India in 2016-17, 60% was in the automobile sector. The momentum has been steadily building up over the years. SAIC Motor Corp, which first looked at India in 2010 through a partnership with General Motors (GM) but exited prematurely, will be back. When GM decided to exit India early this year, the SAIC decided to buy its Halol plant. And a range of Chinese automobile companies and vendors — Great Wall Motors, Changan Motors, Beiqi Foton, Wanfeng Auto, Kingfa, Lesso — are looking at India seriously. Growing up in the shadows of global MNCs like Volkswagen and GM, Chinese automakers are finally now breaking free and thinking big.
China, the world’s largest car market that sold nearly 28 million cars in 2016, mandates global MNCs to operate only through 50:50 joint ventures with local Chinese firms. This government policy has helped local Chinese firms gain knowledge and build technology to eventually stand on their own feet and launch their own portfolio of cars.
The homegrown Chinese companies, often called the Big Four in China, who have led the growth wave are Great Wall Moors Co, Volvo’s owner Geely Automobile, SAIC Motor and Gunagzhou Automobile. Media reports suggest that the four today have a 45% volume share in China and are likely to take it up to over 60% in the years to come.
The Indian passenger vehicle market is one of the fastest growing — by over 9% in 2016-17 — and is projected to be the world’s third largest car market by 2020, so it’s clear why the Chinese brigade is rolling in. But there may be another reason. In April, car sales in China witnessed their biggest fall since July 2015, down by 3.7% year on year to 1.72 million, as demand cooled after a year (2016) of record sales. Clearly, new markets — the few that are growing — are the order of the day.
Instinctively, it is easy to brush aside the Chinese threat on Indian roads. With Maruti Suzuki lording over 47% of the market, most global MNCs, from VW to Ford, have struggled in India; GM pulled the plug on domestic sales after 22 years of trying. In a deep-pocketed automobile business where plant, product, brand credibility, sales and after-sales network are critical, the odds are stacked against late entrants. Further, in an industry where brand reputation and credibility are important, Chinese products do suffer from a ‘poor quality’ consumer perception.
Besides, India isn’t an easy country to crack. Chinese automaker Beiqi Foton must have learnt it firsthand. The company announced its plans to expand into India in 2011 and bought 250 acres in Maharashtra to set up its plant. It planned to acquire another 1,250 acres to build an industrial park for suppliers. It has since run into a wave of resistance. Six years later, its plans are still hanging fire. While it remains committed to building its India operations, it has shifted focus from commercial vehicles to passenger vehicles.
The competition from dragon country can’t be underestimated though. For two important reasons. The Indian government has announced it wants India to go all electric by 2030. The electric vehicle (EV) push will give Chinese companies an upper hand. China is today the world’s largest EV market, having sold 3.52 lakh units on the back of a government policy push and generous subsidies. By 2020, the Chinese government wants 11% of its domestic sales to come from EVs. As a result, Chinese automakers are ahead of the global curve in building product, technology and component ecosystems for the EV wave.
Two, Chinese firms have had a sharp learning curve, improving vastly on their product quality and brand perception. They have pursued a two-pronged strategy of offering European quality at Chinese costs to win customers. This should be an unbeatable proposition to win value-conscious Indian customers.
Look at the sizzling mobile handset market for some clues. Late entrants like Xiaomi and OnePlus – with aggressive pricing and marketing iX have beaten other global handset makers to grab over half of the meatier smartphone market. Will Indiai¦s Motown see a replay of this Chinese story? Watch the road.