Why Kia may not enter India in a hurry

Hyundai Motor has just launched its Creta SUV in India and analysts across the world, especially those based in Korea, will be wondering if subsidiary Kia Motors will also enter this growing automotive market.

After all, the two brands compete with each other in major markets such as North America, Europe and even China. More importantly, the combination of both brands has helped the group cater to different buyer requirements. Hyundai and Kia have thus amassed combined market shares of nearly eight per cent in these markets. The Hyundai Motor Group was the seventh largest vehicle seller in North America, the fifth largest in Europe and the third largest in China in the first quarter of 2015.

However, Hyundai and Kia are facing headwinds in the US and in Europe. Their share in the US is likely to decline as other players release their new products which were delayed during the recession. In Europe, the decline in Russia could weigh heavily on the group’s regional sales.

Meanwhile, China continues to be a focus for both brands even though group sales were flat in the first quarter. Hyundai and Kia are adding more facilities in the country, set to become operational by 2016-17.

So why can't the two brands co-exist in India, the rationale goes. Kia certainly has attractive products to help bolster the group’s sales as they have done so in the regions mentioned earlier. This is something I have often been asked and it is doubtless a valid argument especially when Hyundai is Suzuki’s closest rival in India and stepping on the gas in a big way. However, the platform sharing strategy with Kia means the two brands have products which closely resemble each other. Take the Kia Morning, for instance, which does not look very different from the Hyundai i10. Even the just launched Hyundai Creta has its sibling in the Kia KX3 that is sold in China.

Hyundai is fighting for every inch of market share in India, and we do not think it would want another competitor let alone its own sister company to run away with its sales pie. We believe the cannibalisation between Hyundai and Kia would hurt the group more than any significant boost in overall volumes. It is something that Hyundai can ill afford at this point in time especially when it is keen on building its presence in the subcontinent far more aggressively than in recent times.

The right strategy would be to continue leveraging the strength of the Hyundai brand in India, while the two companies remain true to their platform sharing strategy. It is through this approach that new products are jointly developed, costs shared and new vehicles marketed across the globe under the appropriate brand.

We also think that the huge investment cost to come to India could impact Kia’s entry and end up becoming a barrier of sorts in the short-term. To begin with, the group would have to commit to a new facility because it would be imperative for Kia to produce locally to be successful. This would have to come on top of the group’s already committed investments of $73 billion through to 2018 for new factories in Mexico and China.

There may be a case for Kia and Hyundai to jointly invest in a new plant, similar to Renault-Nissan’s Chennai plant. Even so, Kia would have to make a strong case for big volumes in India, which we are not very confident it can achieve specifically because its products too closely resemble that of Hyundai.

What’s more, a badge-engineering strategy will certainly be a disaster, which then means Kia has to look to develop India-specific products. Again, this is not likely to happen. Add to this the money required to set up Kia’s retail network and we are talking of big ticket investments. While some might argue Kia could piggybank on Hyundai’s sales outlets, we have seen this to be a failed strategy where a classic case in point is the Tata-Fiat joint dealership model which just did not work. The right way forward (if Kia were to enter India) would be to have independent showrooms which would be a costly and time-consuming activity.

It is our conclusion that Kia is likely to stay away from India in the foreseeable future. The group would gain more success as it further strengthens Hyundai with new products instead.

The writer is Manager, LMC Automotive

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