To grab a bigger share of the Indian automobile market, late entrant Nissan Motor is following a strategy somewhat different from its Japanese counterparts
Two years ago, when Nissan Motor India, a 100 per cent subsidiary of Nissan Motor Ltd Japan, was celebrating the start of production of its made-in-India compact car, Nissan Micra, from its manufacturing plant at Oragadam, near Chennai, Toshiyuki Shiga, chief operating officer, Nissan Motor Company, had said, “The start of commercial production of Nissan Micra is the beginning of a new chapter for us in India.” One message came through loud and clear from his statement. That the Asia’s No 2 car manufacturer (with a share of 7.5 per cent in the region) may be a late entrant in one of the top 10 automobile producing markets in the world (No 7 in 2010 with an annual turnover of $35 billion against No 15 in 2000) but it was no push-over. Mind you, in its home market, Nissan is already the second largest car manufacturer, surpassing Honda in 2011 with Toyota still very much the dominant first.
Indeed, Nissan Motor India hasn't looked back since then. The company has gone on to sell 22,022 units in the domestic market till January this year, unveiled two new models — the Nissan Sunny sedan in September 2011 and the Nissan Evalia, a multi-utility vehicle showcased at the Delhi auto expo earlier this year and slated for launch in August — and has put competition in a fix with a heady mix of killer pricing and aggressive retail expansion strategy. While the sales figures tell a story of steady growth, its overall strategy shows how it is following a path somewhat different from what its Japanese counterparts in India, such as Honda Motor, Toyota and to an extent Suzuki, are following in the country.
First, let’s look at some figures: Nissan Motor India reported its highest ever monthly sales in India this February with a total of 5,371 units, registering an over two-fold jump over February 2011. In the same month last year, the company had sold a total of 2,081 units. From the figures available, it is evident that the Nissan Sunny, the entry-level sedan that was launched in the country in September 2012, has been a big contributor to the company’s sales by logging 3,130 units in February 2012. In turn, the introduction of the diesel variant in January 2012 has given sales of the Sunny a huge leg up.
The Nissan Micra too showed impressive numbers in February 2012 registering total sales of 2,198 units. The other models in the company’s line-up in India, the Nissan Teana, the X-Trail and the 370Z, contributed the rest.
From the looks of it, the tales of rising inflation, the hardening of interest rates and the increase in fuel prices are not going to dampen the spirits of the company’s brass. Says Kiminobu Tokuyama, managing director, Nissan Motor India, “We hope to cross sales of 30,000 units this year and touch 1 lakh in the year 2013.” While Nissan has a little over 1 per cent of the 2.3 million vehicles units Indian car market, Tokuyama says its performance shows, among other things, that there is a growing acceptance of Japanese technology and quality in India than ever before.
Of course, the thing to remember is that the company has a small base in India. In other words, for companies like Maruti Suzuki and Hyundai that have a significantly larger base, even a small growth percentage can mean much higher sales volume than Nissan. Also, the year seems to have begun on a positive note for most automobile brands. Sales of market leader Maruti Suzuki grew 2 per cent in January 2012 compared to January 2011; that of No 2 Hyundai Motor India and Tata Motors grew 11 per cent in the same month over January 2011. Toyota Kirloskar logged 246 per cent growth, while Ford India and General Motors skidded with –8 per cent and –22 per cent respectively.
Now look at its strategy. While Nissan started its operations in India in 2005, with the launch of the Nissan X-Trail (T30), which was imported as a completely-built unit (CBU), the company really took the decision to go all out with the launch of the compact car Micra realising that affordable small models dominate India’s car market, accounting for around 70 per cent of the sales. In this it has followed the strategy of South Korea’s Hyundai Motor which entered the market in 1996 and immediately began targeting the small car sector where formerly state-run Maruti Suzuki had a virtual monopoly. Even luxury brands like BMW AG and Daimler’s Mercedes-Benz plan to bring compact cars to India.
Now compare this with, say, a Ford Motor Company, which entered India around the same time as Hyundai but has struggled ever since with sluggish sales of bigger and costlier vehicles. Hyundai India sold 616,000 cars in 2011, around five times Ford’s total. It is only now that the company is saying India will be the small-car hub for Asia Pacific and Africa for Ford.
Or consider Honda. Despite being having a presence in India for about 14 years now and after ruling India’s premium car segment for years, Honda has faltered in recent years. It held less than 0.74 per cent of the market share in January 2012, according to reports. The Japanese car maker also failed to act fast on the market’s rapid shift towards diesel vehicles. Petrol currently costs 50 per cent more than diesel which remains subsidised. Honda’s sales fell 32 per cent in the first 10 months of the current fiscal while the passenger vehicle market grew 1.45 per cent. It remains the only carmaker in the country with an all-petrol line-up even though more than 40 per cent of the cars sold in India are now diesel-powered.
Nissan has been careful to cover its flanks — it offers both the Sunny and the Micra in diesel variants, which contribute a big chunk of their sales in India. And catering to the expectations of the small car market in India, Nissan claims to offer a combination of price, fuel-efficiency and eco-friendliness, power and safety features, besides value adds like low turning radius, iKey among others.
The company has also been attempting higher localisation in its diesel engine-powered cars. The company currently produces diesel engines for the Micra and the Sunny partly with imported components and partly with locally procured components but is working on higher localisation of the engine. Indeed, one important aspect of the Micra is that from the very beginning, more than 85 per cent of its parts are procured through local vendors (96 in total) and 50 per cent of them are located within Chennai.
Also many global automakers have moved low-cost export operations to India recently. Says Abdul Majeed, partner and leader, automotive practice, PricewaterhouseCoopers India, “Auto companies should also exploit the Indian location for their global strategy. For example, starting R&D base here, re-directing component suppliers, exporting components to other countries etc. Only then a global auto company can exploit the potential of a country in a holistic way.”
Currently, a majority chunk of Nissan’s production has been directed towards exports with the made-in-India Micra being sold in several markets globally. During the April 2011-January 2012 period, the Oragadam plant’s total production for Nissan stood at 103,437 units and the company exported 84,416 units of India-built Micra cars during the period. The company exported 60,000 Micra sub-compacts last fiscal year, 80 per cent of the vehicles’ production.
Experts say that for a relatively late entrant like Nissan, a key determinant of success will be how fast it is able to ramp up its distribution network. In a country like India the task becomes slightly complicated as the distribution and after-sale services have to be custom-made for different market segments.
In its focus on having a wide retail footprint, Nissan has followed Suzuki in India. Dinesh Jain, CEO, Hover Automotive India, Nissan’s sales and marketing partner in India, says, “Nissan wants to play it big. At the launch time of Micra we had 14 operating dealers and then in the next 20 months we opened 50 dealerships across India. By the end of next financial year, we should be 100-plus. It took seven to 10 years for many other original equipment manufacturers to reach such numbers that we have. We are already catering to about 75 per cent of the market for cars in India across 20 states and Union Territories.” While Jain seems content with the company’s growth figures, rising input costs have recently compelled Nissan to hike the prices marginally.
In the next one year, Nissan plans to focus on expanding its distribution network and improving brand visibility besides launching new models. Another focus area will be beefing up its portfolio of luxury cars in the country. In the pipeline is the launch its premium car brand Infiniti, which is likely to drive up competition in the car space with Toyota also drawing up plans to get the Lexus. Nissan wants to assemble the brand in India, rather than importing the cars as CBUs. The reason is simple: It has to compete with manufacturers like Mercedes Benz and BMW in the space, which have places a great onus on localisation. Localisation will help keep the prices low (CBUs attract high import duty). Plus India’s car assembly regulations mandate higher local content.
Capacity expansion is also on the cards for Nissan. It is currently running on a production capacity of 2 lakh units at our plant in Chennai. By the end of March it hopes to increase the production capacity to 4 lakh units. Depending on demand, the company is looking to export its India-made cars to some markets of Europe, Africa and West Asia, while sales in India will remain its first priority, Tokuyama says.
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