Ashok Leyland eyes China for sourcing and acquisition

Back in early 2004, it's reported that Indian commercial vehicle maker Ashok Leyland, part of the Hinduja Group, was mulling local production in China; but actually it didn't set up its Chinese office in Shanghai till mid-2007. Why Ashok Leyland made such a slow decision? and how is its business going? Naresh Gupta, global sourcing general manager, head of Ashok Leyland's Shanghai office, has answerd these questions in our interview.

Difference between the Chinese and Indian CV markets

Gasgoo.com: first of all, please tell us your understanding of the commercial vehicle markets in China and India.

Naresh Gupta: In China, there are many large players in the commercial vehicle market (there're also some smaller ones), who will buy major aggregates like engine, gearbox, chassis from other suppliers; they will just assemble and sell them.

In India, it's quite different. There're three major players in the heavy truck segment, namely Tata Motor, Ashok Leyland and Eicher Motor' JV (Volvo has signed a joint venture agreement with Eicher Motors). Besides the three, there're some smaller players, namely AMW (Asia MotorWorks Ltd), JV between Mahindra and Navistar (Navistar formed a JV in 2005 with Mahindra & Mahindra to make and market light, medium and heavy commercial vehicles). So in India, there're not so many smaller players as compared to China where maybe more than 100 companies will just assemble the vehicles.

In the light commercial vehicle (LCV) segment, the leading players are Tata Motor and Eicher; also there're other smaller ones like Bajaj and Force Motors. Also Ashok Leyland enforces this segment through establishing a JV with Nissan (actually before that we have been producing small volume of small trucks with Iveco technology, but that's not the focus of business). The JV will roll out the first vehicle by 2010-2011 with exports expected to account for 20% of the first phase capacity of 100,000 LCVs.
 
These large Indian OEMs have their own engine plant, their own gearbox plant, and their own cabin plant and so on; they don't need to buy from others; only those smaller players like AMW need to do so. While in China, almost all the companies need to buy key components from others; so there're a number of large suppliers regarding each kind of key parts: we can see such diesel engine suppliers like Weichai and Yuchai.

I can see that lots of people here think the commercial vehicle market is already mature in China, but actually, the Indian market is much more mature and the leading players are highly independent.

Not a late-comer; marketing strategies in China

Gasgoo.com: Back to early 2004, it's reported that Ashok Leyland was mulling to manufacture its trucks and buses in China as part of the plans to increase overseas business. Now we see you have established the Shanghai Representative Office in June 2007. Why your decision-making process was so long and what does the Shanghai office do?

Naresh Gupta: At the moment we focus on sourcing parts from China for use of manufacturing of vehicles in India; also we're open to acquisition / JVs in China and are open to look for a small bus manufacturer. Anywhere in China. Besides servicing the domestic market, we can use this base for exports to other countries as well. This company could be manufacturing buses any where from 500 to 2000 numbers per year. We have entered the European market last year, and we already have business in Middle East, ASEAN and Africa. While European business is through acquisition, the others are green field. It's a good time to explore China again.

Then the other opportunity could be having a JV / acquisition with a manufacturing company, in small diesel engine segment, with major capacity in 4 cylinders engines. Ashok Leyland already has know how and capacity in 6 cylinder diesel engine business. We are currently importing large number of these engines from China, primarily for stationary applications.

Last but not the least; we are open to look at any other opportunity in commercial vehicle business.

Praise for Chinese suppliers

Gasgoo.com: It's said that late 2009 will be a good timing to make M&As in the auto industry, do you agree with that?

Naresh Gupta: These projects are long lead and we should always keep on looking for opportunities.  The current economic outlook should not stop us from exploring. Maybe by the time we conclude some thing, the business environment would have changed and we are back on growth path. .

Gasgoo.com: What do you think of the Chinese suppliers here? Have you met some challenges while sourcing parts and looking for local production opportunities?

Naresh Gupta: We have had a tremendous success in partnering with Chinese supplier companies. When I ask the same question from many other companies, they have a very mixed response. I differ with most of them, as we only have had good experience in China.

We have an excellent relationship with all our partners. We look at all issues from long term point of view only, and invest resources and energy in development of our business.

We have excellent experience of getting 100% quality products, with 98% delivery performance and competitive pricing. We are sourcing very critical and safety items from China. We do not demand quality and delivery from suppliers, but we work with them to enable them to have robust processes.

We are proud of our suppliers in China. We have great trust in each other and are supporting each other even in this very difficult time.