Honda Motors' upcoming plant in Rajasthan will be an export base for certain key engine components, and not a manufacturing hub like some other auto-makers such as Hyundai, Suzuki and Renault have planned. The company has similar bases in other ASEAN countries.
Honda Siel Cars India (HSCI), a subsidiary company of Honda Motor Corporation (HMC), Japan, will become the sourcing base for critical engine components to other Asian markets. HMC is the second most profit-making car company in the world, behind Toyota.
HSCI is currently working on its new Rs 1,000-crore car making facility on 600 acres at Tapukara Industrial Area in Rajasthan, which after completion in 2009 will produce 60,000 cars annually in the initial phase.
Masahiro Takedagawa, president and CEO, HSCI, said, "Our plan is to integrate HSCI into Honda's pan-Asia supply chain network with our new plant becoming the export base for certain key engine components including crankshafts. These exports will happen to ASEAN countries, which also make other parts."
The company is aiming to derive full benefit from the free trade agreement (FTA) signed between India and Thailand, which in turn has similar agreements with the rest of the countries in the region including Philippines, Singapore, Vietnam, Malaysia and Indonesia among few others.
According to the FTA, special duty benefits are given on about 8-10 engine components traded between the two countries. The list, according to auto manufacturers, may get widened, when the governments take a final decision on this.
"We will stand to benefit from the FTA directly as our subsidiaries in different countries can start with integration. We can then start with production of engine components from our Rajasthan unit," said Takedagawa.
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Honda, Japan, has already put in place similar component manufacturing facilities across Asian countries including Malaysia, where it produces car bumpers, Philippines, where it produces automatic transmission units, Indonesia, where it produces manual transmission units, and Thailand, where it manufactures engine components.
India will join this league of nations as and when the company's new facility gets operational and ready for exports.
This strategy of Honda is aimed at reducing its dependence on a single nation for generation of sales and also nullify, if any, a cyclical downturn in any of the emerging or developed auto markets. The US (world's largest auto market) and certain markets in the Europe are currently facing a slump in demand, which is heavily influenced by the global economic turmoil.
HSCI is thus keen on reducing its supplier base, which it has developed over the past 11 years of its existence in the country. "We need to be (more) flexible and agile, minimise our supply chain, reduce the cost and expenditure. We need to control our stock more closely," said Takedagawa.
The company has allotted 150 acres to its ancilliary vendors for the manufacture of eight critical and bulky vehicle parts. The company believes that the proximity of the vendors to the car plant, coupled with the use of updated techniques, will make overall process of car production more efficient.