The tractor unit of Mahindra & Mahindra, which has made steady inroads into the highly competitive Chinese market to emerge as one of top five brands in the country, has begun construction of a new engine plant in Yancheng City of China's Jiangsu province.
The foundation stone for construction of an engine manufacturing and assembly plant in China in collaboration with its JV partner Yueda Group was laid on September 6 at a function attended by India's Ambassador to China, S Jaishankar, among others.
The plant is being set up by the Mahindra Yueda Yancheng Tractor Company Ltd (MYYTCL) to provide reliable and fuel efficient engines in the Chinese market, thus creating additional value for the customer and a competitive advantage for Mahindra Tractors in China, the President and CEO of M&M's China Operations, Harish Chavan, told.
MYYTCL will invest approximately $14.6 million on the engine plant and another $3.7 million on research and development.
M&M, which has so far invested $110 million in China, has already grabbed a 9.2 per cent share of the fast developing Chinese market, with annual sales of 29,000 units. Over 3.18 lakh tractors were sold in China last year.
"This investment signifies our long-term commitment to the rapidly growing Chinese market," Pravin Shah, M&M's Chief Executive, International Operations, Automotive & Farm Sectors, said.
"The plant will not only give us a competitive edge in the domestic market, but will also provide us with access to several other export markets through China," he added.
"This investment will enable us to manufacture reliable and fuel-efficient tractors in line with the value proposition of the Mahindra brand in the global tractor market," he said.
The investment in this state-of-the-art engine plant will help M&M to produce tractors, which offer better performance in terms of fuel efficiency and reliability, Chavan said.
This will provide us with an advantage in the local Chinese market, where most of the engines are outsourced and usually meet very basic standards of fuel efficiency and reliability, he said.
Mahindra signed an agreement to form a Joint Venture (JV) with state-owned Jiangsu Yueda Yancheng Tractor Manufacturing Co Ltd (Yancheng Tractor), a leading Chinese tractor manufacturer, in 2008.
The company's product portfolio comprises tractors ranging from 16 HP to 125 HP.
The company has a strong distribution network covering over 25 provinces in China. The company is also a leading exporter of tractors from China, with a footprint in more than 60 countries, including the US, South America, Russia, Europe and Africa, he said.
Currently, the top tractor manufacturers in China are homegrown Foton and Dongfeng, while global players like John Deere, New Holland and Mahindra are the other major players in the segment.
The tie-up between the $12.5 billion Mahindra & Mahindra Group and the $7.3 billion Yueda Group is considered to be a win-win deal for both parties.
Yueda has a presence in various sectors of the Chinese economy, including automobiles and tractors, coal and mining, infrastructure and real estate, and has a vast distribution network across the country.
Indian diplomats working to expand India-China trade and business links said M&M's success in China shows how Indian companies can compete in highly competitive markets like China.
The size of the Chinese economy is going to grow from the present $6.27 trillion to about $15 trillion in the next two decades, offering immense opportunities to Indian companies to share in China's growth, the Indian Embassy's Counsellor (Trade and Commerce), Nagaraj Naidu, told.
"It is time top Indian companies work out their strategies to exploit the Chinese market by making their presence felt. We are China's closest neighbour. If our companies do not have a strategy for China, they may lose out in the long run," he said.
Besides M&M, several Indian companies are doing well in China, he said, citing the example of Lakshi Machine Works, which is able to sell its textile machinery in the highly competitive Chinese market.
Similarly, companies like Sundaram Fasteners and Bharat Forge are doing well, he said.
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