Nissan and Others Add Factories in Emerging Markets
Caparo, a parts maker, uses Japanese equipment to supply the carmakers that are making Chennai an automaking hub.
ORAGADAM, India — On a dusty sun-baked field, in a ceremony presided over by a chanting Brahmin priest tossing water and rice, the Japanese carmaker Nissan Motor made a bold step into the Indian auto market.
Under the guidance of Nissan and Honda, Caparo has built assembly lines in India to manufacture metal parts for carmakers.
“The Japanese hold our hand, work with us on the shop floor, help us develop,” Caparo’s chief executive in India said.
The traditional Hindu ritual this month, attended by a half-dozen sweating Japanese and European executives, blessed the site where Nissan will build its first passenger vehicle factory in India, a sprawling $1.1 billion complex where rice paddies once stood. The plant, built jointly with its French partner Renault an hour outside the southern city of Chennai, will turn out 400,000 cars a year when completed in two years.
Japan’s Big Three — Toyota, Honda and Nissan — led the world in factory automation and eco-friendly technology, but until now they have been cautious about venturing far from the roads they know: the mature markets of North America and developing markets closest to home, particularly China and Thailand. Now, in a radical shift, Japan’s staid Big Three are plowing into exotic terrain, from Saharan Africa to the former Soviet Union to the scorching plains of southern India.
They are determined not to repeat the mistakes of a decade ago, when they were late to the party in China, and where they have since trailed rivals like Volkswagen and General Motors. They have been particularly quick to expand in India, a nation of 1.1 billion that is just beginning its automotive revolution, and that many call the world’s next megamarket after China.
The aggressive moves by traditionally cautious automakers are the latest signpost that the epicenter of the global auto industry is shifting increasingly from California to somewhere between Canton and Calcutta. The shift is also yet another sign of the waning centrality of the United States to the global economy.
Speaking at an annual shareholders meeting on Wednesday in Yokohama, Nissan’s chief executive, Carlos Ghosn, said that surging prices for raw materials would force car companies to raise prices — but that the economic malaise afflicting the United States and Japan would make it harder to increase sales in the face of higher prices.
So places with rapidly escalating demand — like India, Brazil, Russia and China — will be more important than ever. “We intend to take full advantage of growth in emerging markets,” Mr. Ghosn said.
“These developing markets used to be an afterthought” for Japanese automakers, said Hirofumi Yokoi, an analyst in Tokyo for CSM Worldwide, the auto market research company. “Now they are the industry’s future.”
According to CSM, vehicle sales in developing regions are expected to rise by about 10 million units over the next six years, contributing 76 percent of the industry’s entire global growth.
In the last seven years, Nissan’s vehicle sales in all developing nations have nearly tripled to 1 million units, out of the company’s 3.7 million vehicle sales last year.
“It used to be that Honda relied on its U.S. business, maybe too heavily,” said Honda’s president in India, Masahiro Takedagawa. “Nowadays, we are trying to spread the sources of profits more globally, beyond just one market.”
To be sure, the United States will remain the world’s biggest and richest market for the foreseeable future, contributing some 70 percent of the profits at most Japanese automakers. But Japan’s automakers need to offset what is shaping up to be one of the worst years for United States auto sales in more than a decade.
Breaking into far-flung emerging markets comes with its own hazards, especially when the Japanese carmakers’ most lethal competitive weapon is world-leading quality. This is especially true as they build factories in places where local parts suppliers are accustomed to lower standards — and where even electricity is unreliable.
In India, for instance, Nissan faces challenges from ensuring timely delivery of parts via half-finished roads clogged with trucks and bullock carts, to teaching its new workers and local suppliers exacting Japanese precepts like kaizen, or “constant improvement.” “The hardest part will be teaching the mindset and culture of kaizen,” said Shouhei Kimura, a former factory manager who now heads Nissan’s operations in India.
Still, in recent months, the big Japanese automakers have announced a slew of new factories in the Middle East, South Asia and Latin America.
Toyota, the biggest of the three — eyeing rapid deployment in less developed markets in its bid to unseat General Motors as the world’s largest carmaker — has opened a factory in Russia, is building a second Indian plant, and recently announced a new small car for India.
Honda is building a plant in Argentina and expanding production in Brazil and India. Honda, which has long sold motorcycles in India, has also expanded its automobile production capacity from 30,000 units a year three years ago to a planned 160,000 units by the end of next year.
Nissan is erecting factories in Russia, Morocco and China, as well as a second plant in Chennai to make commercial vehicles. It has teamed up in India with Bajaj Auto to build a $2,500 entry-level car, which will also compete with the Nano by Tata Motors.
Sales of cars and trucks are expected to double in India to 3.92 million by 2012, according to a forecast by the market research group Global Insight. India’s burgeoning middle class has embraced the automobile with such fervor that cars now clog the nation’s crumbling roads and outdated infrastructure, vying for space with taxis, scooters, wandering cows and even an occasional elephant.
The Japanese are not alone. Just in Chennai, Ford, BMW and Hyundai Motors of South Korea have all built factories, leading some locals to call the city the “Detroit of India.”
General Motors sells Chevrolet-branded vehicles in India. It has just one plant with a capacity of 85,000 vehicles a year, and a second plant with capacity for an additional 140,000 vehicles is scheduled to start production at the end of this year. Ford recently announced plans for a $500 million investment to double production at its Indian plant to 200,000 vehicles annually by 2010.
The large Japanese automakers also find themselves in the unaccustomed position of trying to catch their much smaller Japanese rival Suzuki, which became the largest car company in India by being one of the first to arrive, a quarter-century ago.
Concerns of falling behind are felt keenly at Nissan, which last year sold only 500 vehicles at its five dealerships in India. By 2012, the company hopes to increase that to more than 200,000 at 55 dealerships. In April, Nissan created a six-person marketing team for India that is considering steps like hiring Bollywood actors to appear in ads.
To head its push into India, Nissan tapped Mr. Kimura, a 29-year veteran who had been running the company’s model factory in Oppama, two hours outside Tokyo.
A thin man with a quick smile and an engineer’s habit of speaking with careful precision, Mr. Kimura says his main mission is to bring the highly efficient and flexible manufacturing methods that Nissan has perfected in places like Oppama to Chennai.
He plans to send Indian workers to Oppama for training in everything from how to tighten a bolt to the principles of quality control.
With Indian wages only about a tenth of wages in Japan, the Chennai factory will rely more on human labor than Oppama, where robots staff many assembly lines.
Mr. Kimura, who worked five years at Nissan’s plants in Tennessee, said he expected personal adjustments as well in Chennai, where he will move in September. He noted that the city had only 2 Japanese restaurants, versus 10 near Nissan’s Tennessee plants.
“There’s a big difference between Tamil Nadu and Tennessee,” said Mr. Kimura, referring to Chennai’s state.
The other big challenge has been finding Indian parts suppliers the Japanese can raise to their quality standards. One is Caparo India, the Indian unit of a British auto parts maker that manufacturers steel body panels and other metal parts.
Under the guidance of teams of engineers from Honda and Nissan, Caparo has built new assembly lines near Chennai using the latest Japanese and Taiwanese factory equipment. Caparo has also adopted kaizen management, with its colorful bar charts posted on factory walls showing individual employees’ goals for raising production and reducing errors, and whether those goals were met — for all to see.
“We are not as good as Japan. Far from it,” said Caparo’s chief executive in India, Deb Mukherji. “But the Japanese hold our hand, work with us on the shop floor, help us develop.”
Many here see enormous potential for the Japanese brands among Indians, many of whom became used to driving Nissans and Hondas while living abroad, and became accustomed to their quality and reliability.
“Expectations are getting higher here when it comes to cars,” said Sudhir Natarajan, who runs Nissan’s sole dealership in Chennai. “This is a chance for the Japanese.”
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