Tata aims to break into top 10 in Indonesia by 2018, plans 70 dealerships – interview

Having entered the Indonesian automotive market in September last year, Tata Motors has been busy getting its products ready for the market (see Indonesia: 12 September 2012: Tata enters Indonesian market). The automaker followed up recently by launching three passenger car models - the Aria multi-purpose vehicle (MPV), the Vista hatchback, and the Safari Storme sport utility vehicle (SUV) (see Indonesia: 11 September 2013: Tata launches three models in Indonesia). IHS Automotive recently interviewed Biswadev Sengupta, president and director at Tata Motors Indonesia on topics ranging from the automaker's future plans to government policies. Here are excerpts of the interview.

IHS: What is Tata's entry strategy as of now in Indonesia?

Biswadev Sengupta: Yes, Indonesia is a new market for Tata Motors. We have just launched our initial phase of vehicles only last month. But we have been working on this market for almost two-three years now. And for the last one year we have our operations ongoing in Indonesia. We have done the brand launch, and post that we have been getting the team in place, getting the dealerships in place, workshops, etc. Also, the vehicles have been tested and homologated. So, all those have happened in the past one year. So by September 2012, we had our brand launch and in September 2013, we had our commercial launch. In the first phase of our launch, we have launched our three passenger cars – the Vista, the Safari Storme, and the Aria.

Entry strategy for the Indonesian market is different as we are entering on our own. For the other markets, we have entered through joint ventures. For Tata Motors, it was a conscious decision for this large and critical market. We now have two fully owned subsidiary in place for production and distribution operations. To summarise, Indonesia is a market we feel is similar to the Indian market and we feel our products will find traction here, be it our passenger car or our commercial vehicle range.

IHS: What is the reason behind this digression from well-established practice of entering new markets by forming alliances and joint ventures? What positives do you see from this strategy?

Biswadev Sengupta: For every such strategic initiative, there are pros and cons. In the other markets, we have our JVs and here we have gone on our own. And over the next three years, we will see dividends that come out, or what benefits come out of such a strategy. But you know, the competition here is pretty tough, almost 95% of the business is being occupied by the Japanese brands who are here for the last 30-40 years. So Tata Motors feels that here is a market that needs complete involvement from Tata Motors' side. Over a period of time, it will prove if this approach was correct or not. But as of now we feel that this would be most sustainable approach for a large but complex market like Indonesia.

IHS: Apart from the three recently launched models, is the company planning to bring any vehicles made specifically for the Indonesian market?

Biswadev Sengupta: As I have mentioned, we have launched three passenger vehicles recently. And, we are preparing for the launch of the first commercial vehicle, which will be a small commercial vehicle that we will be launching in a couple of months. Subsequently over the next 6-8 month period, we will be launching medium and heavy commercial vehicles. Right now, we are not developing any product specifically for Indonesia, it is too early for that as we are taking our initial steps in the market. But yes, the products that we are introducing in Indonesia are being thoroughly tested in Indonesia by Indonesian operators and in Indonesian driving conditions. Every model is undergoing 20,000-40,000 kilometres of driving in Indonesia. And after the validation is being done, then only the vehicles are introduced. While doing that, small changes are being made to suit Indonesian driving conditions, we are doing that. To that extent, the vehicles are being slightly customised for Indonesia. But as I mentioned, the operating conditions in Indonesia are similar to India. Many of the vehicles from the Indian portfolio, with small changes here or there, can work in Indonesia. Right now, we have not planned for any Indonesia-specific model, which might happen as we go along.

IHS: The Indonesian market is heavily skewed in the favour of MPVs. Do you have plans to launch a Sumo type of vehicle in Indonesia?

Biswadev Sengupta: Yes, if we look at the Indonesian market it is heavily skewed towards MPVs. If you look at the passenger vehicle market, two-thirds of the market is populated by MPVs, small and medium MPVs. But if you look at the growth, the sector which is growing fast is the hatchback segment. The growth in the hatchback segment is very high, this is higher than the average growth rate and it has become even faster with the launch of the LCGC scheme. Against the national overall growth rate of 15%, the hatchback segment is growing at almost 35%. So that is the segment, where there will be lot of action in the next 24 months. In the last five years, for the first time, the fuel price in Indonesia has been increased. And so far people used to only bother about the cost of the car. Now people are realising the importance of the fuel cost and the operating cost. And they are now also realising that it is much easier to operate a small car than a larger car. And with also the advent of nuclear families and the kind of congestion which is there on the roads in Indonesia, we are looking towards a gradual shift in demand from the MPVs to smaller cars.

IHS: Do you have a product which will be eligible for tax breaks under the LCGC scheme?

Biswadev Sengupta: Our team is currently studying all the details to what it could be right model for Indonesia's scheme. But you know, we have a lot of concern before we can start talking about the LCGC scheme because right now the focus is on how to build our brand, our network, our service delivery mechanism. Simultaneously, our research team in Pune (Maharashtra, India) is working on what kind of product can be developed under the LCGC scheme. But this is not the priority area for Tata Motors. Priority area is building the brand and building the service delivery. Because for LCGC scheme, we need to have critical mass, we have to start production, localisation. We need to cover a bit of ground before we can reach that kind of scale.

IHS: What is the kind of volumes that the company is targeting in Indonesia?

Biswadev Sengupta: That is a difficult question to answer. I can't tell you about the numbers right now because it is too early. We are just taking the initial steps and I don't want to make any guess or estimation on what kind of numbers or market share that we could finally achieve in a particular year. In our plan for the next five years, we should be among the top 10 players in Indonesia. And I think the range of products that we have in the market that is in front of us, that is definitely doable, definitely possible.

IHS: What is Tata's dealership strength as of now in Indonesia? What are plans on this front?

Biswadev Sengupta: We are focusing on Indonesia as a collection of many islands. Almost 65% of the GDP is concentrated in Bali and Java and initially, we are building up our dealerships in Java and Bali. So we have issued so far nine letters of intent, of which five dealerships are up and running and have started transacting business. And four more will be ready by January. And we hope to have a total of 15 dealerships by the end of the financial year – by March 2014. We would be starting with dealerships in only Java and Bali right now and as we progress, we will move to other islands, like Kalimantan and Sulawesi.

We would be having two types of dealerships. One type of dealerships will only be for passenger vehicles and small commercial vehicles. There will be another set of dealerships which will be displaying the full range of vehicles and whenever we decide to launch medium and heavy commercial vehicles. Right now these 15 dealerships which I was mentioning are mainly for (small) commercial vehicles and passenger vehicles. But when we introduce the medium and heavy commercial vehicles, then we might have a new set of dealerships, which would be responsible for them, because they require different type of workshop and different type of service area.

IHS: What are the company's plans to expand its retail presence in the country?

Biswadev Sengupta: There are about 30 total brands right now in Indonesia and if we have the ambition to be in the top 10 in five years, then we need to have 60-70 dealerships by the five years. And that is what we are looking at.

IHS: What opportunities do you see about vehicle exports from Indonesia?

Biswadev Sengupta: It is bit too early to make any comment on the export possibility from Indonesia. Once we reach critical mass and get into the manufacturing mode, then of course the possibility for the vehicles that we are going to assemble in Indonesia. For those vehicles Indonesia can become a hub for export into the other ASEAN markets, taking advantage of the ASEAN Free Trade Agreement. So it is definitely possible. But as I mentioned, we'll have to cover a bit of ground to get to that kind of scale.

Outlook and implications

Notwithstanding the struggle the company is faced with in its domestic market, Tata Motors has identified southeast Asia as a crucial market and has taken initial steps to enter the region. By starting operations in Indonesia, Tata Motors has pinned its hopes on a country which is expected to continue to spearhead growth in the region in the coming years. While MPVs account for a wide majority of passenger vehicles sold in Indonesia, Tata's efforts are focussed on smaller vehicles. In addition to being the largest market in south east Asia, Indonesia is also an excellent fit for Tata Motors as the nature of automotive demand in the south east Asian country is similar to India. Although Tata is not going to participate in the low cost green car (LCGC) scheme, its product line-up of utility vehicles is expected to find ready buyers.

While there have been reports of Tata Motors planning to develop its Indonesian base for exports to other ASEAN countries, Sengupta's remarks in this regard are more calibrated and indicate full production is still some time away (see Indonesia: 10 July 2013: Tata to make Indonesia hub for Southeast Asian exports). In the meantime, helping the automaker would be the focus on boosting dealership network from existing five outlets to 70 by 2018. Given Tata Motors' fresh entry and no history in Indonesia, its ambitions of breaking into top-10 brands by 2018 may sound lofty, particularly so when considered Japanese automakers' near monopoly in the country. However, IHS Automotive's forecasts reveal the automaker is positioned to make inroads in the market and may end up at 11th place, trailing Ford by a small margin but ahead of Kia, Isuzu and Hyundai.