Global manufacturers go local in cost-wary India

At the opening ceremony for Daimler's $850-million India factory, chairman Dieter Zetsche stepped down from the cab of a gleaming yellow 25-tonne truck with scaled-down horsepower, a stripped-back gearbox and no sign of the iconic Mercedes-Benz three-pointed star on its grille.

Daimler has been assembling high-end trucks in India for years, but its recently launched cut-price BharatBenz line has joined a trend by global heavy equipment manufacturers to compete in India's high-volume, high-growth — but cost-conscious - mass market.

The potential is huge. Truck sales alone grew 18% in the year to March 2012 to over 800,000 vehicles, and are expected to double to 1.6 million by 2017. This eclipses the United States, where just over 300,000 commercial trucks were sold in 2011.

But it's a market where being best isn't good enough. To target the low end of India's engineering markets, which accounts for over 70% of sales, manufacturers need to offer the best value, and to do that they need to go local.

The BharatBenz 2523, a 25-tonne truck, will likely cost around R17.5 lakh before tax. That's less than half the price of a comparable Mercedes-Benz Axor 2529 that retails in Europe for 61,000 euros.

"If customers can get gear manufactured by the global firms at lower or equal price points compared to the domestic manufacturers, then naturally there will be serious demand for international kit," says Bharti Momaya, chief manager at distributor firm, Ajisons, which sells locally-made switchgear in Mumbai.

Car makers have been localising their products for years, sourcing materials and making cheap, India-tailored vehicles. India-made cars from companies such as Ford or South Korea's Hyundai which poured billions of dollars into India in the 1990s now command 75% of the market.

By comparison, foreign truckmakers have less than 10% of domestic market, while overseas manufacturers of substations — a market targeted by local units of Germany's Siemens and Swedish-Swiss rival ABB — have just over 20% of the local market.

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