Japan's Kubota Sets Out to Crack Indian Tractor
Market with Escorts, also sets eyes in Africa
Company acquires local maker Escorts after long struggle to
do it alone
For Japanese tractor maker
Kubota, the path to becoming a global powerhouse goes through India.
Having doubled its sales
to 2 trillion yen ($14.9 billion) over the past decade, Kubota is enjoying rapid
growth, with overseas markets accounting for 70% of its overall revenue.
But its ultimate success
overseas hinges on India, the world's largest tractor market. After a long struggle
to gain traction there, Kubota now has a partner -- Indian tractor manufacturer
Escorts, a joint-venture partner that was turned into a subsidiary for 140 billion
yen this year.
By combining its durable,
high-quality machines with the low-cost products of this subsidiary now called Kubota
Escorts, currently India's fourth largest tractor maker, the parent seeks to capture
around 25% of the Indian market by 2030.
Since the deal, the Indian
market has buzzed with speculation about improvements the Japanese company is expected
to bring to its products there.
"It seems the Japanese
did kaizen," a market insider says, using the Japanese word for improvement.
Kubota Escorts, known
for its inexpensive, mass-produced "basic tractors," has not publicly
announced any improvements, but distributors and customers have begun to notice
subtle changes.
One of Kubota's two main
goals with the acquisition is to turn India into a manufacturing hub for other markets,
harnessing the principle that making large numbers of tractors in the largest tractor
market will increase business efficiency. The company has a mapped out a plan for
exporting tractors from India to Europe, the U.S. and new markets such as Africa.
The other goal is to become
a major player in India. Winning in India could put the company on track to becoming
a global powerhouse.
When Kubota established
a sales company in India in 2008, the country was already the world's largest tractor
market with 350,000 units. It saw its products gain traction in southern India,
where rice is the main crop. But the company struggled in the north, where other
produce is grown.
Unable to compete with
rival products in price and other features, Kubota captured a meager 2% of the Indian market as of 2021. The acquisition is
going to change that.
For Kubota, which had
been increasing its share of tractors used in rice paddies in Thailand, India had
seemed an ideal target.
"Our plan was to
first go after demand among rice farmers in the south," said company president
Yuichi Kitao, recalling the company's thinking at that time.
Dai Watanabe, a senior
managing executive officer, added: "We assumed that if we brought in Kubota's
lightweight and compact tractors, we would be able to capture a significant volume
share."
The results were disastrous,
owing to differences in how the tractors were used. In Japan and Thailand, tractors
are used almost exclusively for work in rice paddies, so lightweight and maneuverable machines are preferred. But in India, tractors
are only used for purely agricultural work around 30% of the time. For the remaining
70%, they are used for hauling heavy loads in trailers. Lightweight Kubota tractors
lacked traction, leading customers to drift to other companies' products.
Kubota also tried to sell
its combines for paddy fields in India. Around 10 years ago, the company began exporting
combine harvesters manufactured in Thailand to India, but this too was a struggle.
The reason was that the farmland in India generally contains a higher amount of
stone compared to that of Japan and Southeast Asia, requiring a far higher level
of durability. In addition, Kubota's combines did not have sufficient engine insulation
to withstand the high temperatures in India.
In contrast, Kubota's
tractors for vineyards and other orchards became widely adopted. Although small,
with engines only offering about 25 horsepower, they are considered useful for simple
tasks such as spraying pesticides. Some local farmers had introduced larger farm
machines, such as those made in Italy, but they were too complex. Kubota was therefore
able to find some success in the orchard market.
Even so, sales continued
to stagnate. Ten years after entering the market, Kubota had only managed to capture
a share of just a few percentage points. And while the market was dominated by inexpensive
tractors made in India, Kubota was imported those manufactured in Thailand.
Finally they
chose to partner with a local manufacturer. "We had been fighting in India
for 10 years, but there was a limit to what we could do on our own," said Watanabe.
In February 2019, Kubota established a manufacturing joint venture with Escort,
with the Japanese maker taking a 60% stake in the company. Production capacity was
about 50,000 units per year.
In April 2022, Kubota
went further by making the company a consolidated subsidiary and began a fully-fledged
strategy to capture the Indian market. And the company is already looking beyond
India.