MNCs a threat?

Raghuvir Srinivasan

IT IS only natural that multinationals would court the world's largest tractor market in volume terms (2,67,000 units in 1999-00).

Their entry strategy makes for interesting analysis. Ford New Holland, Deere & Co., Valtra, Renault Agriculture, and Same Deutz of Italy have all entered the Indian market either independently or in joint venture with an Indian partner.

Ford New Holland, the erstwhile collaborator of Escorts, now operates a 100 per cent owned venture. The company, which runs a plant with a capacity of 18,000 tractors per annum near Delhi, made the mistake of entering the country via the high horse-power 65 hp model. But it quickly realised that this segment would not afford volumes and followed up with a model in the 50 hp range last year. Now it has announced plans of entering the high-volume 35 hp segment by the first quarter of 2001. Deere of the US has an equal joint venture with Larsen & Toubro, L&T John Deere Ltd., which has just commissioned a 30,000 units per annum plant near Pune. The company came in with a 55 hp tractor first but has announced its intention to quickly introduce models in the lower horse-power ranges.

Renault Agriculture has chosen the easy way of acquiring a 20 per cent stake in the equity of International Tractors, the makers of Sonalika brand machines. The company has agreed to grant manufacturing licence to the Indian outfit for manufacturing tractors in the higher horse-power ranges. The two have together floated a venture that would market the products of both in the South Asian markets.

Valtra of Finland is in India in association with Eicher and has tested the market with a 61 hp tractor while Same Deutz has floated an equal joint venture with Greaves, Same Greaves Tractors Ltd., which will build a plant with a capacity to produce 30,000 tractors per annum at Ranipet in Tamil Nadu. Though its first product introduced a couple of years ago in the high end segment failed to click, the company has converted the technical alliance into a joint venture that will produce tractors at the lower end.

Are these multinationals a threat to the Indian companies? Though initially they fumbled by entering the wrong segments, the MNCs are fast learning and adapting to the Indian market. Though they are introducing models in the high-volume segments, price would be a major issue. Technology would take the back-seat here because of two reasons. Indian tractor manufacturers are capable of introducing high-tech vehicles by themselves. Second, the Indian farmer is not really going to lap up high technology vehicles if it means a higher capital outlay for him. One should remember that the average Indian farmer is not half as affluent as his counterpart in the developed world.

Besides, labour is not an issue here which means that advanced add-ons with tractors such as sowers and reapers are not going to be sought after by the Indian farmer. If advanced add-ons are not necessary, then he would also not need a high horse-power tractor -- a medium one can do the job as well. Here the Indian manufacturers enjoy a tremendous advantage in terms of cost, familiarity and relationships. Unlike other automobiles, selling a tractor is a relationship business. The farmer is as convinced to go in for a particular model by the familiarity of the brand and the service offered, as by the price.

It would take time for the MNCs to cultivate such a relationship with the Indian farmer. Besides, installing a dealer network is not an easy job given the concentration of the Indian companies in the high demand regions. The multinationals also need to indigenise fast as only that would give them the freedom of pricing. Importing engines and other critical components, as they now do, will not give them the price flexibility. But, again, the problem could be volumes -- any indigenisation plan has to be justified by the volumes in the Indian market.

It would, thus, be a tough call for the MNCs to make inroads into the Indian market immediately. But they should not be underestimated. A committed player such as Ford New Holland or John Deere certainly poses a threat to Indian players in the long term. It would need two major developments for the multinationals to come into their own -- consolidation of land holdings and a genuine rise in farm income. Given the fragmented land holdings now, the Indian farmer is not going to feel the need for a big tractor. Similarly, though he may admire a foreign machine, he may not have the financial resources to acquire one as of now.