• Opportunities

Mahindra has been present in the Chinese tractor market since 2005. As you’d  be aware, there exists great demand in the domestic tractor market, which in turn offers tremendous potential for growth. In 2004, the Chinese government announced a new agri policy to promote rural prosperity and since then, the agri-machinery sector, especially the tractor market, has witnessed exceptional year-on-year growth.

In the past, we have experienced how Chinese policy makers can make things happen on a mass scale and actively influence business, by creating favorable policy framework in government-supported industries. In both our joint ventures, which are in two different cities and provinces, we have received excellent support from local governments and JV partners.

Overall, as a foreign investor on a macro level, we have received very good support. In 2005, to understand the market in a cautious manner, we started with a relatively small JV set-up, with limited product range in the lower hp category. But the fast-growing market and need for a higher hp product range, beyond 25 hp, forced us to look at inorganic growth.

With our second JV, we now have a product line ranging from 16 hp to 125 hp tractors with 2WD and 4WD options and a strong dealer network of over 500, pan-China.

The expectation that China will be one of the largest auto as well as tractor markets in the world and Mahindra’s global vision that our presence in China will be a key enabler, has been proved right.

We are looking at China as a second home-market and intend to create our biggest tractor base here, outside of India. We would like to explore the full agri-mechanization potential of this market by participating in the tractor and related agri-machinery space.

Right now, we are ranked amongst the top five companies in the Chinese tractor market and this substantial size will also help us leverage our supply base for our Indian operations. The Chinese market is growing very rapidly in the higher hp segment and we plan to use this opportunity to establish Mahindra in the 100 hp plus segment. We are working on setting up our engine plant to provide fuel-efficient engines for our locally-produced tractors.

Can’t ignore
The Chinese tractor industry, which sells around 2.9 lakh tractors annually, is only second to the Indian tractor industry, but it has the potential to become the largest tractor market in the world. And hence, no company with global aspirations in the world’s tractor market can ignore the Chinese market. Our significant presence in the Chinese market will allow us to maintain our global leadership position by virtue of sales.

It will also allow us to establish ourselves in the higher hp space, which is not the main hp segment today in India.We continue to look for opportunities for our automotive products as well as sourcing of components from China for our domestic and overseas market needs.

The China market has traditionally been a high volume-low margin agri-machinery market, essentially focused on revenue growth for sustenance. It is certainly a more price-sensitive market than India in the tractor space, but buoyant growth is allowing us to sustain and grow with our expertise of frugal engineering, product development, managing a lean and mean manufacturing set-up and effective distribution network.

The agri-machinery industry in China is a priority industry well-supported by the government through its subsidy program for farmers and as such, we do not see any impact on revenue growth. However, liquidity-tightening measures are making banks lend very cautiously and this has had an impact on the availability of funds in the market in recent times.

PRAVIN SHAH is Chief Executive–International Operations, Automotive & Farm Equipment Sector, Mahindra & Mahindra.

©Entrepreneur October 2010

Tags:
agri-machinery, Chinese tractor, dealer, government, joint ventures, Mahindra, smetv