BENGALURU: When RC Bhargava, first proposed to export Maruti 800’s from India in the late 1980’s, his board and parent company were against the idea and asked the team to focus on the Indian market instead. The exports of cars was almost unheard of then as the opening up of the domestic market presented bigger opportunities.
But, Bhargava was determined. His main intention was to export and compare quality of cars produced here to global standards and not for profitability or expansion. Bhargava pursued the idea to send the first shipment to Hungary in Europe which he accompanied. J Vengala Rao, (then) Union Minister for Industries, handed over the keys of the Indian made Maruti 800 to Dr Peter Medgyessy, Deputy Prime Minister of Hungary. “We got praise from India but we wanted to see how the car fares with global car makers. We were surprised to see that consumers there were pointing out the tiniest of defects, which were not even considered defects here,” Bhargava, Chairman of Maruti Suzuki Limited (MSL) says. Soon, the numbers ballooned to around 1500 by 1990-91 and then to over 4000 units in the next few years. A trend started by MSL to compare its quality has become a viable norm in the industry today which exported 35,73,806 units (all categories) in Fy15.
Automobile exports from India grew 14.89 per cent in 2014-15 compared to 7.2 per cent in the domestic market. With better profitability, brand visibility and business opportunities in new markets, the industry is witnessing an export focus like never before. The strategy became more amplified with better returns due to the depreciating Rupee against the US Dollar. Another reason Bhargava lists out for exports is the criticism that the company was consuming a sizeable chunk of foreign exchange at the time.
The trend is also likely to further reduce the gap between domestic and export volumes in the coming years. Domestic sale of automobiles (all categories) stood at 1,97,52,580 units (up 7.2 per cent) while exports (all categories) stood at 35,73,806 units (up 14.8 per cent) in Fy15. Exports have grown almost 100 per cent from 1,80,4426 units in 2009-10 while domestic market sales growth has been around 60 per cent from 1,22,95,397 units.
Maruti Suzuki Limited (MSL), India’s largest car maker says that the high quality, design and technology features in Indian made cars “opens up new opportunity in export markets”. MSL exported over 121, 000 units in Fy15; registering a growth of over 20 per cent. MSL has expanded its export portfolio from small cars like Swift, Alto (K-10), Celerio to Ertiga, DZire among others. MSL says that its premium sedan Ciaz has been doing well in markets like Mexico and Egypt. Automobile makers have expanded capacity in recent times to cater to both domestic and export markets. “Capacity expansion decisions are long term calls and decided on the basis of long-term domestic and export goals,” MSL spokesperson says. Korean car maker Hyundai has been exporting from India since 2003. The company which has 40 per cent market share in car exports from India is shipping to nearly 100 countries worldwide from their plant here.
“Although we are continuously increasing our focus on domestic market, we are still harmonising our export production as well to meet export demand,” Rakesh Srivastava, sr. vice president- sales and marketing-Hyundai Motor India Limited (HMIL) says. The company has a 40:60 ratio favouring the domestic market.
Though India is touted as one of the fastest growing automobile markets in the world, experts says that manufacturers also aspire to make India the global hub for exports. “Since 2009 there have been two major dips and then recovery in the domestic market. It is very difficult to manage the fluctuation in demand,” Sugato Sen, deputy director General of automobile trade body, Society of Indian Automobile Manufacturers (SIAM) says.
He says that exports serve the purpose of a ‘buffer’ to balance the volatility in domestic markets. While catering to traditional markets like Sri Lanka, Nepal and Bhutan among other neighbours, Indian automobile manufacturers have now ventured (and in some cases) captured markets in South America, Africa, Middle East and South East Asia. “Earlier nearly 40% of our exports were to Europe. After the slowdown, manufacturers are looking at alternative markets.
Abdul Majeed, Partner, PriceWaterhouseCooper Auto industry expert says that many countries like Japan, Germany and Korea among others export almost half the vehicles produced in their respective countries to other markets. “Price realisation is higher as the Indian Rupee continues to fall,” he says and adds that Hyundai was the first company to realise the benefits of export and capitalise on the export hub potential.
N Raja, senior vice president & director (sales & marketing) at Toyota Kirloskar Motors (TKM) says that exports help with greater viability. The company exports the Etios mid-size cars to markets including South Africa. He says that Indian made cars are no longer looked down upon in other markets. “We adhere to same global quality standards of the company leading to greater acceptability,” he says. Adding to this, large companies like Toyota have their presence world over making the marketing a much easier task.
With sluggish demand in the domestic markets, even CV makers are looking at increased exports. “Exports helps in de-risking the business, limiting and reducing the dependence on the domestic business especially in a cyclical industry like the CV business in India,” RT Wasan - Head, International Business, V Business Unit, Tata Motors Ltd says and added that it helps in optimal utilisation of manufacturing capacities and better manage the cyclicity in the auto business. The company exports its new generation range of Prima Trucks to Kenya, Uganda and Bangladesh and also announced its entry into Vietnam. Tata CV and PV exports were about 50000 units in Fy15. Exports accounts for 10-12 per cent of its production.
“To have exports as one of the streams of business is valuable. The Commercial Vehicle Industry is cyclical and catering to multiple streams and segments can often balance the ups and downs,” Kamal Bali, MD, Volvo India Private Limited says and added that it helps upgrading local offerings. He says that its construction equipment solutions have an increasing proportion of exports over times. Swedish premium CV maker Scania wants to produce 2500 buses and 5000 trucks for the local market and an additional 50 per cent for exports.
The company set up bus and truck units in Karnataka and has exported to Sri Lanka, Bangladesh, Nepal and Bhutan. “We are looking at the whole of Asia, Middle East, Africa and it when things are right, will look at Europe and South America,” Krister Thulin, director (pre-sales & marketing) says.
The price of the products differ in the markets they are sold. “This could be due to various reasons from regulations in these countries, to operating conditions, to applications, to customer preferences and to maturity level of such markets. For example, we sell the Xenon pickup in Australia with a 4-star ANCAP safety rating, with Air bags, ABS and ESP as a safety standard, which adds to the cost of the vehicles. Each market has a specific pricing, where we assess the competitive position of our products, accordingly determining the pricing in the market. These have no relation to the Indian pricing for the reasons mentioned above,” MSL says.
But does it make a difference in the top and bottom line of balance sheets? “Ideally a depreciating rupee would have a positive effect on exports as it enables better earning capacity for every unit sold. However, it has been a mixed bag really, with the currencies of a number of countries we are present in also depreciating and some sharper than that of the Indian rupee, making us less competitive when it comes to those markets,” Wasan says.
Bali states that another important driver for exports is better price realisation and the resultant gross profit. Also explaining the flipside, he says, “To be able to circumvent a cyclical market has significant impact on better profitability. The cost of inventory, investments and a product range can be high if one has stepped into the wrong end of the cycle,” he adds. But not all claim that higher exports equal higher profitability. Sen says that ‘sometimes you make money, sometimes you don’t’ as automakers pay in dollars for components that are imported; in some cases the entire engine, thereby negating high margins. However, challenges in the export market have also seen a rise in recent years. “Abrupt changes in regulations in certain export markets, weakening economic situations and adverse currency movements are among the risks inherent in export operations,” MSL Spokesperson says.
Sri Lanka has recently brought in regulations that have had an impact on exports from India to the island nation. Even Algeria, which tops MSL exports have brought in technical regulations without giving lead time, Sen says. Pointing out to policy shortcoming, Sen says that India has Free Trade Agreements (FTA) with competitors but not with markets.
Make in India, it is.