Sporty Kia sets up race

For Kia to be profitable localisation would be key

After much speculation about its entry into India for years, Kia Motors Corporation, a part of Korean auto major Hyundai Group, finally signed an MoU with the Andhra Pradesh government in the end of April to set up a $1.1-billion manufacturing plant and produce 300,000 cars a year.
 
Today, the major challenge for Hyundai Group in India is building manufacturing capacity to take on market leader Maruti Suzuki. Hyundai Motor India Ltd (HMIL) is reaching its full capacity of around seven lakh units, while Maruti Suzuki has around 15 lakh units and is working on its 2020 production target of 20 lakh units. On the contrary, with Kia’s new plant, Hyundai Group’s total capacity in India will reach 10 lakh units at the same time.

 
The big question now is, how are the siblings going to take on the market leader? Hyundai has said that like in other markets, Hyundai and Kia will operate separately and compete with each other.
 

“Hyundai and Kia Motors will aggressively compete in India,” says Hyundai Motor India’s Managing Director Y K Koo. He adds that both the companies will be different in terms of their management, operations, network and strategies. However, vendors can be shared for cost reduction.
 
While the Kia management did not disclose its plan or respond to queries, sources who are close to the company say its strategy is to target youth and test products in two segments which will offer volume and brand image.

 
The segments are compact SUV, where Hyundai has Creta, and compact sedan, where Hyundai is present with Verna. Though Kia boasts global portfolios, which can hit the Indian roads with models such as Sportage SUV, Picanto, the Rio hatchback and sports sedan Stinger, sources say the company may look at India-specific design models.
 
According to sources, these are the segments which will allow Kia to build volume to run the business and lend a brand image of modern and premium that is important to attract its target audience, that is youth.
 
An analyst says the automaker is known for compact vehicles and affordable offerings with mass appeal, while an official who is part of the group points out that Kia’s tag line goes as “young at heart”. “They need to bring the thought among Indian customers that they are very good in pricing and design. They have sporty and youthful designs, which India would prefer,” adds the analyst.

 
Kia’s sales worldwide totalled over 30,07,976 units in 2016, up 3.2 per cent compared to 2015 volumes. Analysts attribute the growth to quality and design which led to successes it has had in the key mature markets of Europe and the US. It has also found more takers among young buyers who have appreciated Kia’s new design philosophy and a sportier edge.
 
Kia is ranked number one, ahead of Porsche, in the JD Power Initial Quality Survey — which is the first time in 27 years that a mainstream brand has topped the charts.
 
Though both Hyundai and Kia share platforms (currently for seven), both companies ensure that design and presentations of products and dealerships are different so that they are differentiated and do not confuse the customer.

 
Kia is also clear that in order to succeed and to be profitable localisation is key, and it is targeting as high a percentage as possible. While it may start with around 40-45 per cent, in the long run it would like to reach its sister Hyundai’s number, which is around 95 per cent for a few models, to make the multinational profitable in India.
 
As far as reach is concerned, both Hyundai and Kia will have their own sets of dealers.
 
Export will be part of Kia’s strategy. Since the brand is new in India, it may take some time to reach the volume in the domestic market, until which point they will rely on exports to help the company address its economics. This strategy was also adopted by Hyundai. Hyundai, which is the second largest manufacturer in India, started slowing down exports to meet domestic demand.

 
Han-Woo Park, president and CEO of Kia Motors, says the new plant in India will enable the company to sell cars in the world’s fifth largest market, while providing greater flexibility for the company’s global business. “The worldwide demand for Kia cars is growing and this is our latest step towards becoming a leading global car manufacturer.”
 
Park was previously MD and CEO of Hyundai Motor India.
 
The Hyundai Group has already experienced considerable success in the Indian market with Hyundai. In 2016, the Indian subsidiary of the Korean auto major crossed a $5 billion turnover, posting 11 per cent growth from a $4.75 billion turnover in 2015. The profit grew 11 per cent to around $290 million, as compared to $168 million in the previous year.

 
One has to wait and watch as to whether the group can repeat its success story with Kia and give a tough fight to Maruti Suzuki with the twin brands.