Thai Summit, Thailands biggest supplier of motorcycle parts with clients including Honda Motor Co, will make fuel tanks, bumpers and other components for Ashok Leylands trucks, said the companys executive vice president Thanathorn Juangroongruangkit, in a January 12 interview in Bangkok, without giving the financial terms of the plan.
Southeast Asia is a very big market for us, primarily because of the cost effectiveness of producing in Thailand helps Ashok Leyland compete with Japanese and South Korean rivals, the companys finance director K Sridharan said in a phone interview from Chennai. We can meet the cost expectations of that market by producing locally closer to customers, he said.
Ashok Leyland and its bigger competitor Tata Motors Ltd are leading a push by Indian companies to expand abroad, as they seek new markets and investment opportunities. A factory in Thailand, Southeast Asias largest vehicle market, gives Ashok Leyland a foothold in a region with a combined population of 500 million people.
Vehicle sales in the region expanded 10% in 2003 to $174 billion, according to the secretariat of the Association of Southeast Asian Nations, or Asean. Ashok Leylands shares rose 8.5% on Tuesday to a six-day high of Rs 22.45 rupees on BSE.
Thai Summits shares arent publicly traded.
Ashok Leyland has a plan to become a global player in the truck industry, Thanathorn said. They want to use Thailand as the base for export to the Southeast Asian region. For Thai Summit, a venture with Ashok Leyland helps expand its business into making parts for trucks and larger vehicles.
Tata Motors last year bought South Koreas Daewoo Commercial Vehicle Co, for $118 million to expand in northeast Asia. It was the Mumbai-based companys first overseas acquisition. Following Tata Motors entry into South Korea, its important for Ashok Leyland to get a global perspective, said Aditya Palwankar, who helps manage Rs 40 billion ($914 million) of assets at JM Capital Management Ltd in Mumbai.
The move to set up a factory in Thailand will give Leyland a foothold in the Asian market. Ashok Leyland and Thai Summit will compete with Hino Motors Ltd, Japans second-largest truckmaker, which has been selling more vehicles in Thailand and Indonesia as demand in Japan stalled.
Ashok Leyland exported 4,164 trucks and buses, compared with 2,275 in the same nine months in 2003, according to the Society of Indian Automobile Manufacturers. Ashok Leyland and Thai Summit plan to take advantage of the preferential tariff between Aseans 10 members.
The tariffs, agreed under the terms of a 2008 free trade agreement, let auto companies sell vehicles with import duties of as low as 5%, compared with 300% in Malaysia without the agreement.
To qualify for the lower tariff, assemblers must obtain at least 40% of their components from among Aseans member economies.
That may prove to be a barrier because Ashok Leyland plans to import completely knocked down trucks from India for assembly in Thailand, analysts said. If Ashok Leyland gets to large volumes, the amount of local content will be checked by the importing countries, said John Bonnel, an auto analyst at Bangkok-based Automotive Resources Asia Ltd.
In the past policing has been lax but with export gravitating toward Thailand, Malaysia and Indonesia may pay more attention to the content. The company will meet the rule by supplying the engine, gearbox and buy other components such as batteries and tires from Thai companies, Sridharan said.
Chennai-based Ashok Leyland also wants to take advantage of a trade agreement between Thailand and India. The two nations plan to cut import tariffs on 82 products such as fruit, jewelry and auto parts to 5%.
Ashok Leyland plans to import components such as sheet metal from Thailand to cut costs, Sridharan said. It is also important to get a sourcing base in Thailand, after the two countries began cutting duties last year, JM Capitals Palwankar said. Thai Summit, which controls about 90% of the Thai motorcycle parts market, also plans to buy companies in Indonesia to boost sales, Thanathorn said without elaborating.
During the past two years we have formalised our strategy to compete with the enactment of the Asean free trade agreement, Thanathorn said. We want to expand in India, Indonesia and China because the market for motorcycles in Thailand is saturating, he said. Thai Motorcycle sales in the 11 months to November rose 23% to 2.62 million units, Thai Automotive Club said.
Thai Summit expects to start production of auto parts in a venture with an Indian autoparts maker Jay Bharat Maruti Ltd near New Delhi.