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Indian market is gathering pace

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To increase localisation in the City and the Civic, we need to get involved with Indian suppliers.

N. Ramakrishnan

After the recent high-profile launch of the Civic, Honda Siel Cars announced that it was expanding capacity to one lakh cars, three years ahead of its schedule. The company also announced the setting up of a new company in India that will consolidate all of Honda's activities in the country. Honda Siel Cars plans to set up a new plant.

Mr Masahiro Takedagawa, President and CEO, Honda Siel Cars India Ltd

,

is at the helm of affairs when Honda is getting ready to enter the small-car segment in India. Mr Takedagawa recently spoke to

Business Line

in New Delhi on a host of issues.

Excerpts from the interview:

On the proposed expansion and the new plant.

We now have the confidence that this emerging market is gathering momentum and is becoming favourable for us. That pushed us to advance the expansion by three years. The plant's capacity is 60,000 units and we will expand to one lakh units by the end of next year. Our plan is to fulfil this production capacity by current models the City, the Civic and the Accord. If we want to add another segment of cars, we need to have another production facility. That plant should be ready in another three-four years.

It is up to the market (to decide when the company should expand). We are not in a hurry. We don't want capacity idle. Our concern as a manufacturer is capacity utilisation. Our policy is always over 100 per cent. For instance, today's Greater Noida capacity is 50,000 units. We are able to produce 20 per cent more. Once we are sure utilisation is 100-120 per cent and when demand is piled up, we can go on.

On the component industry in the country.

We have 98 component suppliers in India. We monitor for quality, cost and delivery (QCD). In ten years, the world has changed quite a lot. Particularly, the last three years when the market has come up... the level of QCD has improved a lot.

Thirty-four of these 98 suppliers are joint ventures or technical collaborations with Japanese companies, another 20 are technical collaborations or joint ventures with Europeans and the balance is 100 per cent Indian. They have improved a lot. That is also one of the reasons why we can advance our expansion plan. Local components quality give us some confidence that now we can go on.

To increase localisation in the City and the Civic, we need to get involved with Indian suppliers. The body panels bonnets, doors, trunks are imported from Thailand. You need to have big stamping facility, which we are missing. And, of course, engines. We are now assembling the engines with some parts procured locally. To produce the power train, we need minimum one lakh production capacity.

On the Indo-Thai free trade agreement and how it has helped Honda in India.

We are importing 8 or 10 pieces of components under the FTA. It will benefit us ultimately as it will become zero duty. Usually local procurement is necessary, to improve. The production components are similar between India and Thailand the City, the Civic and the Accord. From a global viewpoint, we don't need two assembly plants for each component for Thailand or India.

Some parts we may produce in Thailand and export here and others in India and export to Thailand. That is our strategy. We have done this among Asean (Association of South-East Asian Nations) members Thailand, Malaysia, Indonesia, and the Philippines. We are starting to expand to India as well.

However, logistic costs are a bit higher here than among Asean nations. Some parts, it is advantageous to produce here material related, steel related. We are working on that (exporting components from India to Thailand). I cannot say when that will happen.

On the proposed FTA with Asean and benefits to the company.

Sure (it will benefit the company). However, I am a member of SIAM (Society or Indian Automobile Manufacturers). I know my colleagues are not happy. We don't count such a (possibility) in our actual business plan. If it comes, it is additional benefit. When it comes, we will be happy.

But there it will be only Honda and (Toyota). Who else in India has got any infrastructure in Thailand? Toyota and Honda are the only manufacturers which can enjoy, then how come SIAM will... I am always a good boy at SIAM.

On allowing the Indian partner the Siddharth Shriram group to increase its stake from 1 per cent to 5 per cent.

That is why we are unique from others. We appreciate the Indian partner. They are also part of Honda Shriram Power Products. We are thinking of long-term, our relations will continue.

The Chairman of Honda Siel Cars is from the partner group. The Chairman (Mr Siddharth Shriram) gives good, valuable advice. Whenever I have something to consult with him, in whatever area administration, finance, labour which Japanese find difficult to handle, he gives good advice.

On the setting up of Honda Motor India Pvt Ltd.

Simple, regional office. Today Honda has divided the global market into six Japan, the US, Europe, South America, China and Asia. Indian and Pakistani operations report to Asian Honda, with its regional headquarters in Bangkok. The Indian operations are getting larger.

We will need such a regional function in this country. Honda Motor India, started as a logistics company, will be base for those functions. We have got certain guidelines... we need to make a decision where the market is. We have to get approvals from the Bangkok board.

Once a month we have approval meeting, which is much better than past, when we had to go to Tokyo for a decision, explain what is going on in the market and so on... But the market will change fast and Honda wants to be faster than the market. That is Honda's concept for regional headquarters. Most operational decisions are already delegated.

On the future of the two motorcycle businesses Hero Honda, in which Honda and the Hero group are equal partners, and Honda Motorcycle and Scooters India.

The two companies will work in tandem. We now have 48 per cent penetration. The market is growing. From 7.5 million in year 2010, it will become 10 million... We want to retain our share even at that time. In 1997 or 1998, when HMSI was established, we didn't see so much potential to grow the market.

We had separated from Kinetic Honda and we were looking for some other service. We wanted to re-create the scooter market here at that time. The economy is recovering and the motorcycle market is dramatically picking up. We are so satisfied with what we have done.

On speculation that Honda will buy out its joint venture partner in Hero Honda.

Why? We know the difficulty of (doing) business and the benefit of local partner. That is why we respect the Shriram family as well as the Munjal family. Hero Honda is an equal joint venture with the two partners holding 26 per cent each. And the last 20 years have been quite good, particularly in the last five years the Hero Honda business has been a success. We have no reason to complain.

On other Indo-Japanese joint ventures that have failed and what is it that Honda is doing differently.

I know many of my neighbours have divorces, but I don't know the actual reasons. I can't compare my wife with others' wives. We accomplish same interest. So we have been okay.

At least the motorcycle, 50:50 business has been successful. Both of us see benefit going home together. Children go to good school, house is okay, the saving account becomes larger. Why do we have to separate? And, husband is always afraid that if we separate now, how much I have to pay for it. So we are together. Both benefit and both interests are merging.

(This article was published in the Business Line print edition dated September 22, 2006)
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