India is the lynchpin in Renault’s Asia-Pacific strategy

When Renault recently announced its plans to enter Indonesia, what was perhaps left unsaid was the critical role of India in this endeavour.

Completely knocked down kits of the Duster have already been shipped out from the Chennai plant in what could be the first phase of a bigger strategy for the Asia-Pacific region.

The French automaker has already created a manufacturing powerhouse in India along with global ally Nissan. Over 4 lakh vehicles will roll out from Chennai.

The Duster is one of these models and is already doing roaring business here, quickly establishing itself as a formidable player in the SUV space. From Renault’s point of view, there is really no reason why this success cannot be replicated in the Asia-Pacific region.

It is India that has the core strengths in a robust auto ancillary base — it offers the best mix of high quality at competitive costs. It is this edge that prompted Renault CEO Carlos Ghosn to coin his famous term, ‘frugal engineering’.

Cerebral talent

The cerebral talent in India was good enough for the company to establish a strong R&D base which is involved in a host of important projects.

Indian auto suppliers, like wise, work with some of the biggest vehicle manufacturers across the world and their focus on costs/quality is what enabled Renault to price the Duster competitively.

This strength will now be leveraged to service the Asia-Pacific region, with Indonesia as the starting point.

Unlike India, the country does not have a mature supplier base, which means assembling imported parts becomes the easier option.

From Renault’s point of view, the Duster could then find its way from Indonesia to other countries like Thailand, Malaysia, Vietnam and the Philippines.

Costs will not be an issue since these countries are part of AFTA (ASEAN Free Trade Area), where there are no import tariffs.

The business model could, therefore, see India become the hub for export of critical components while the final vehicle (Duster in this case) will be shipped out to other parts of ASEAN.

Will China also figure in this business model for Renault? Unlikely, considering the country has moved on rapidly ahead with its customers seeking top-end expensive models. India, in sharp contrast, is still a compact car market which is now also seeing demand for (compact) SUVs like the Duster.

Critical factor

Yet, price remains the most critical factor and this is where suppliers have to pull out all stops to help automakers out with their costing structure.

The Duster’s monthly sales touched peak levels of over 6,000 units earlier this year till Renault, like other manufacturers, got swamped in the worst auto industry slowdown in recent times.

Yet, even when things got particularly difficult in the July-September quarter, the French automaker’s global business model came in handy with more Duster shipments from India to the UK.

It helped balance the setback though Renault is confident that things will look up in the coming months here.

> murali.gopalan@thehindu.co.in

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