Volvo Sees Opportunity in India's Automobile Market

Volvo announced plans this month to launch its Eicher Pro Series trucks in India with its joint venture partner, Indian automaker Eicher Motors. Volvo points to the country’s enormous growth potential as the driving force for its expansion plans.

Production of the Pro Series will start this February in newly upgraded Indian manufacturing facilities. Over the past years, Volvo-Eicher Commercial Vehichles (VECV) have invested over Rs 1,800 crore (US$288.3 million) into expanding and modernizing production facilities in India, including a first-class engine factory, new assembly lines, a cab factory and cab painting workshop.

Recently, the auto industry has suffered slow growth due to a weak rupee, leading to decreased domestic demand and increased costs for imported parts. Despite this, VECV remains confident in future industry growth. Set to become the world’s third largest automotive market by 2016, India will surpass Japan, Germany and Brazil.

“India is aggressively investing in infrastructure. Improved roads and more effective logistics chains put new and higher demands on vehicles and that leads to new opportunities for Eicher,” says Joachim Rosenberg of VECV. In September, India’s government approved over US$28 billion in infrastructure projects.

As India’s auto industry is still young given its low penetration rate, Volvo’s decision to expand now will provide it an early-entrant advantage over the long-run.

“India is a very important market to us, and the Eicher brand is an integral part of the Volvo Group’s strategy to expand in Asia and other growth markets,” Volvo CEO Olof Persson said in a statement.

In addition to domestic distribution, VECV has plans to enter the Southeast Asian and African markets, using India as a global sourcing hub for medium-duty engines for trucks and buses.

Eicher has proved its expertise in international expansion through its acquisition and revival of the Royal Enfield brand. “Indian manufacturers have a long track record of rescuing heritage brands and re-positioning them for the Asian and then global export markets,” comments Chris Devonshire-Ellis of Dezan Shira & Associates.

Firms looking to enter Africa should consider moving through India. In the past five years, India’s car exports to Africa have grown faster than that of any other BRIC trading partner. India’s share of auto exports to Africa is doing so well due to similar demands and consumer trends. African markets, similar to Indian markets, demand durable, cost-effective transport solutions.

Cumulative FDI inflow into the Indian automobile industry during April 2000 to July 2013 was recorded at US$8,932 million, approximately 4.5 percent of total FDI inflows, according to the Ministry of Commerce.

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