Chinese car companies consider India a main target for overseas expansion. The leading firms are SAIC, Great Wall, and Chongqing Changan. All three are currently going through major expansion efforts in India.

There are several reasons why Chinese car companies are taking India more seriously.

First, the Indian car market is very similar to China’s. As the world’s biggest manufacturer and boasting incredible economies of scale, China cannot continue to lead an out-of-focus effort.

Second, the Indian car sector, along with the rest of India, is booming. Many are calling it the last frontier of growth after China and Russia.

They’ve become the world’s fifth largest car market, but should be the third biggest by 2020. Annual sales are forecast to nearly double from the current 2.7 million vehicles to 5 million during that time.

Finally, India represents a key strategic sector for Chinese players looking to expand even further overseas. The Chinese automotive market slowed down heavily in recent years. It’s now essential for businesses to invest in other industries for sustained growth.

 

Conquering The Indian Market: China’s Strategy

But another question comes to mind. How will Chinese car companies with no presence in India make their mark?

Despite acquisition being the primary method of overseas expansion, Chinese automobile giant Chongqing Changan will use the Greenfield method. That’s directly investing into the country without a strategic alliance.

They won’t be without help though. Chongqing reached out to a local Indian consulting company to help with their market entry. The business plans to produce cars in India by 2020.

Even bigger companies, such as SAIC and Great Wall, are taking another approach.

Due to their size and the negotiation power which comes with it, they’ve held separate talks with the government of Maharashtra. These players want to set up factories in the auto hub of Pune City.

SAIC is considering other forms of market entry too. These include acquiring GM’s manufacturing plant in the West Indian state of Gujarat.

 

Chinese Car Companies Focus on Local Culture

However, despite all initiatives, businesses still face major challenges in penetrating the Indian auto industry.

One important difference between China and India is the size of the cars they prefer. This makes a huge difference in the way their economies are shaped. Indians value a car’s size over other characteristics.

This is even though the Indian government, using lower tax rates and other policies, also encourages compact cars to fight pollution and ease traffic in jammed cities.

It will prove a challenge for Chinese giants to adapt their feature-rich and luxurious cars to capture Indian customers. But there’s light at the end of the tunnel.

One thing Indians really value, which also happens to be something the Chinese value, is a low price tag. That’s good news for China’s car companies since there’s perhaps no better low cost producer in the world than India.

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's an accomplished stock trader and property investor in Thailand, Cambodia, and many other places. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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