HP versus price

S. Muralidhar

AS IN the case of the passenger car industry, till the late 1990s, the tractor industry was dominated by domestic players.

Once the sector was thrown open to foreign players, the new entrants brought in high-end, higher horse power (HP) tractors, again prompting a comparison to the passenger car industry -- the new multinational manufacturers chose to launch their upper mid-size vehicles, instead of small cars that could have generated more volumes. In both the cases, though the respective segments gained prominence, the volumes generated obviously did not justify the large investments the individual companies had made.

Among the three main MNC tractor-makers, New Holland is present in the country through a wholly-owned subsidiary. The other two -- John Deere of the US and Same of Italy -- entered through joint ventures with L&T and Greaves respectively. Renault Agriculture of France has also made its foray into the country through a collaboration-cum-joint venture agreement with the Delhi-based International Tractors Ltd.

None of these companies has generated respectable volumes. So, what was the rationale of launching higher HP tractors in a market almost completely dominated by lower HP tractors. According to Mr Palani Kumar, Managing Director, New Holland, MNCs that entered the market at a later date had a poor understanding of the market compared to the domestic companies. ``Given their constraints, the foreign companies launched existing products from their portfolio. Since 50 HP tractors are usually the least powered in most advanced markets such as Europe and the US, the MNCs brought them first,'' he said.

The high-end HP tractor launches also helped these companies make a quick entry into the Indian market, establish their brands and set up dealership networks. Further, by bringing in their higher HP tractors, such companies as New Holland India and L&T John Deere managed to set up a high-quality vendor network, that would enable them to launch new products in the lower HP segment at a faster pace.

New Holland India has tractors in the 70 HP, 50 HP and 42 HP range. It now plans a 35 HP tractor by the first quarter of 2002. Similarly, L&T John Deere has a 55 HP and a 40 HP tractor and is now developing a 47 HP to bridge the gap between the former two products. Same Greaves, the Italian joint venture with the L. M. Thapar group, was a single product company with a 50 HP till last year. This year the company launched a 35 HP and a 40 HP tractor to expand its range.

All the overseas entrants are now actively present in the lower HP segments of the tractor market and have either launched or are in the process of introducing tractors in the 30-50 HP range -- again a strategy comparable to that adopted by the MNC passenger car companies. But the trickle down to the lower HP segments has also been forced due to the highly price-sensitive nature of the Indian market, according to Mr Rakesh Chopra, Escorts Tractors.

"Price segments are more important than HP-wise segmentation," according to Mr Chopra. The discerning Indian farmer is not going to buy a higher HP tractor unless the cost-benefit trade-off is substantial, he said. The industry's expectations of a quick shift in demand for higher HP was premature, but it is likely to happen in a phased manner over the next few years. The MNCs are not waiting for that day and have instead taken the fight into the stronghold of local companies.