Kia Motors set to enter India

It’s no secret that Kia Motors, a part of the Hyundai Motor Group has been exploring an entry into the Indian market for several years. In fact, it’s surprising that Kia has taken so long to enter such an important market that has long been ripe for the picking. Newbie Kia has the massive advantage of piggybacking on sister brand Hyundai, which is a hugely successful in India, to tap a country forecast to have five million car buyers ever year, by 2020. 

 

Kia’s model line-up which ranges from budget hatchbacks to premium SUVs and sedans would be well suited to the Indian market, especially since many of them share the same underpinnings with popular Hyundai models in the market. Hence, developing the right products for India may not be that big a challenge as setting up an all-new factory and supplier base, building a dealer network and of course, establishing the Kia brand. Besides, to compete effectively, Kia would have to start with a high level of localisation from job one to keep costs low in what is undoubtedly the most price-sensitive market in the world.

 

Location tracking

 

Kia is yet to identify a location for its first factory in India and it's only after this big hurdle is cleared that a formal announcement on its entry into India can be expected. For now, the only official statement Kia has made on its India project is “We at Kia Motors are continually evaluating potential locations for overseas manufacturing facilities, including India, to secure additional engines for future growth. However, as of now no concrete plans have been finalized.” 

 

According to sources, several sites in various states are under consideration for the greenfield plant. The states of Tamil Nadu, Andhra Pradesh, Gujarat, Maharashtra and even Madhya Pradesh have all been wooing the Korean automaker. Setting up a plant in the vicinity of Hyundai’s existing Tamil Nadu factory to have close access to a ready supplier base, which would be common to both Hyundai and Kia, is the logical thing to do. However, the Hyundai Motor Group may not want to put all its eggs in one basket and may prefer to invest in another state. This is why Andhra Pradesh, adjacent to Tamil Nadu and a few hours away by road from the Hyundai plant, is emerging as the most sensible option. But discussions and negotiations with the various states are still underway and Kia is understood to be carefully weighing up all its options before taking a decision.

 

Sibling rivalry may have been a reason why Kia didn't come to India earlier. Though Hyundai and Kia belong to the same group, they fight viciously in the market for the same broad set of customers. Industry sources have hinted that Hyundai tried its best to keep Kia away from a market it has built up over two decades, until parent Hyundai Motor Group stepped in to look after the interests of both its progenies. And a new plant is in the interest of both brands, especially at a time when Hyundai is running out of the 6,80,000 capacity at its Sriperumbudur plant.

 

The new Kia plant is expected to have an installed capacity of around 3,00,000 units per year, but clearly, the brand will need to establish itself in the market before it can achieve those volumes. A likely scenario is for Hyundai to use the surplus capacity, which it urgently needs until then, possibly on a contract manufacturing arrangement with Kia.

 

Kia will also leverage Hyundai’s existing supplier base, and key components like the platform and powertrain will be shared. Not only will this give Kia products immediate access to high level of localisation from day one, the increased economies of scale will result in huge cost savings as well. For example, Kia won’t have to invest in an engine plant and can simply source the Kappa petrol and U2 diesel engines from Hyundai, which has also set up a state-of-the-art and flexible engine manufacturing facility.

 

It’s these synergies that will give Kia a massive head start when it kicks off its India operations, and Hyundai too will benefit as the unit cost of shared parts will come down with higher volumes.