It is 4 a.m. on a cool February morning. Hundreds of trucks are heading into Chennai's Koyembedu vegetable and fruit market-one of the biggest markets in Asia-to unload their cargo like they do every day. What was unusual that day was the presence of three German executives from Daimler AG who were busy interacting with the drivers using their Indian colleagues as interpreters. They had come to understand drivers' perception of safety-what they thought about collapsible steering, air bags or honeycomb panelling for the front of the truck which will collapse on frontal impact and thus save the driver.
What they learnt stunned them. Indian truck drivers have little interest in these features and prefer to leave their safety to the lemon and green chilly they string and hang in front of the truck and an idol of their favourite deity they place in the dashboard. Once back home, the Germans tweaked the dashboard design for all the Daimler vehicles that will be manufactured and sold in India to include a flat surface to mount God's idol, apart from incorporating the various safety features.
*THE GAME PLAN Set up a full-fledged plant — not just an assembly line — with 85% localisation. Understand the market well before going into product development. The first product will roll out six years after the company entered India. Develop the right product for India, factoring in the market's unique characteristics such as overloading and low total cost of ownership. Use technology to reach service back-up faster to customers.
Welcome to India-one of the most unique and toughest truck markets in the world where emotions and business acumen work in an unusual tandem.
It is not surprising that Daimler, the largest truck maker in the world with a presence in over 150 countries (and market leadership in many emerging economies such as Indonesia, Brazil, Mexico, South Africa and Turkey), is taking no chances with its Rs 4, 400-crore investment in India. The new project spread across 400 acres near Chennai to manufacture and sell light, medium and heavy duty trucks (6–49 tonne capacity), would be able to roll out over 70, 000 units a year.
"We have the knowledge and data from across all continents and countries. We know under given conditions how long a truck would last. But that is not enough for India, " admits Aydogan Cakmaz, Vice President (Product Engineering), Daimler India Commercial Vehicles (DICV). Cakmaz is not exaggerating. India is one of the most demanding markets when it comes to truck performance. The total cost of ownership-fuel efficiency, product reliability, cost of spares and resale value-needs to be the best.
"India may be a developing economy, but commercial thinking in the trucking sector is First World. I have not seen the cost consciousness that Indians exhibit anywhere else in the world. We need to offer a highly efficient and a very reliable product at a very competitive price, " says Marc Llistosella, CEO, DICV. Adds Cakmaz: "We have to be very precise in India. Life cycle costs are calculated very meticulously here."
That's not all. India has an unusually high proportion (a third almost) of first-time users and small fleet operators which calls for product offerings that are tailored very differently from what global players are used to. Also, India is as good as a vast continent when it comes to truck usage and expectation. Road conditions vary significantly and so do driving habits, which are in a way linked to each region's culture.
Then there is the general mistrust of foreign players, who have in the past failed to deliver adequate product support. And if all these are not enough, a new entrant faces a formidable challenge from the well-entrenched Tata Motors and Ashok Leyland. Good enough reasons for any foreign company to keep away from the Indian market for so long (barring Volvo, which has managed a marginal presence in the low volume heavy duty segment).
*Entry barriers India is a very demanding and cost conscious market. It is very diverse. Each region's expectations, weather, driving habits and traffic conditions differ. First-time users and small fleet operators account for over 30 percent of the market. They need very different product offering strategy. Overloading, unheard of in the West, is a norm in India. Fleet operators and truck owners have a distinct mistrust of MNCs as they have in the past failed to deliver product support. Any new entrant has to face stiff competition from well-entrenched Tata Motors and Ashok Leyland.
While India may be an intimidating market, it is turning attractive, too. Demand for trucks is expected to double from the current 2.02 lakh units per annum to over 5 lakh by 2018. The market is also moving, though slowly, towards new generation vehicles and most importantly, government mandated emission and safety norms are levelling the playing field as Indian players are forced to retire old products, develop new ones and invest in modern technology-all of which increase the selling price of their vehicles.
Daimler hopes that it's well mapped out strategy will help it meet the challenges and take advantage of the opportunity that India presents. One of the earliest decisions it took was to tailor a product for India rather than rushing in with a retro-fitted model drawn from its vast product portfolio. "We entered India in 2006. We have been studying the market for the last four years to understand it and gain customer insight. Our first product will hit the market only in a good six years after we started work here, " says Llistosella.
DICV's seriousness can also be gauged from the fact that it is investing over Rs 1, 200 crore in research & development alone and the first brick and mortar infrastructure that has come up at the otherwise barren factory site is a three-lane modern test track (only its third after Germany and Japan) spread across 47 acres.
"The test track simulates the varied Indian road conditions based on over 11, 000 km of road load data that DICV has managed to capture so far, " says Cakmaz. At present, 20 prototypes are undergoing tests with all of them cumulatively clocking over 10, 000 km every day.
Getting the product and price right is key to Daimler's India strategy. "With the sort of research that has gone in, we are confident of coming out with competitive products both in terms of price and performance. It is a pre-requisite given our ramp up plan. Believe me, it is very aggressive, " says V.R.V. Sriprasad, Vice President (Marketing, Sales and After Sales), DICV.
Interestingly, DICV is not banking just on market research for its success. It is also imbibing the local culture. "We do not need Daimler culture. We need Indian culture and the resultant local creative solution, " says Llistosella. So, he does not, for instance drive a Mercedes car like most Daimler CEOs in other parts of the world.
"It makes no sense (to do that) and talk of low-cost engineering, " he says. Also, DICV is tapping heavily into Indian talent to design the right product for India. Of the 500 employees it has today, only 30 are expats.
"Our aim is to sell trucks that are made in India, for India and by Indians, " he adds. The company has also taken care not to let its pedigree come in its way and has chosen to adapt to the Indian market in every possible way. "We have chosen to unlearn whatever we know about trucks and learn trucking the Indian way, " says Llistosella.
All senior managers, including expats, routinely visit major trucking sites to meet the stakeholders. Some even travel in a truck for days to experience first hand the Indian way of trucking. These efforts have helped DICV appreciate and adopt certain Indian practices that may not be part of Daimler's system.
One such case is its decision to sell the vehicles as cowls and not as fully built-the established practice in Daimler. Cowls are just the chassis with a driver seat. The driver's cabin and body are then built by truck bodybuilders. DICV is already talking to bodybuilders to ensure that there are no specifications issues after the products are launched.
Having realised that Indians are second to none in frugal engineering, DICV has not hesitated to utilise their expertise-be it for building the test track at a cost of Rs 25 crore as against Rs 80 crore that was originally proposed from Germany, or the proposed paint shop at the factory that will be set up at a cost which is 35 percent less than the lowest quotation offered by German contractors. Also, it has come to accept that overloading of trucks is the norm in India and is designing all products accordingly.
It has brought Daimler Financial Services, the world's largest truck finance company, to India to understand hire purchasing of trucks. Almost 90 percent of the trucks sold in India are hire purchased unlike in the West where they are leased. "We cannot lease trucks in India. There are too many variables and the market is not ready for it yet, " says Sriprasad.
While DICV has been keen to adapt to the Indian market, it has not hesitated to challenge existing practices where needed. Sales and distribution is one such area. Tata Motors and Ashok Leyland have over 300 service points spread across the country. Setting up such a network is seen as a major entry barrier for any new player.
But DICV has chosen not to replicate it. "Network is only a means to service your customers. We will leverage information technology to ensure that trucks are back on the road in less than two hours, " says Sriprasad. DICV plans to have 73 dealerships across the country by 2014.
But it has not always been easy for DICV to convince its parent to accept some of the unique aspects of the Indian commercial vehicle market. For instance, modern trucks have shifted to plastic bumpers worldwide. But DICV found that unsuitable for India as the vehicle density on Indian roads is heavy and bumpers tend to get damaged often. With 50 percent depreciation on plastic items while claiming insurance, truckers would be forced to pay heavily to replace the bumper every time.
DICV is also working to convert its late Indian entry into an advantage. "We have a clear medium- to long-term view. We also have a clear idea of the product configuration. Unlike existing players, we do not have to worry about today-we can just focus on the future. Late entry has its own advantages, " says Sriprasad.
As three digital clocks at the DICV office display prominently (to the second) the countdown for the start of production of light duty vehicles, heavy duty vehicles and engines, Llistosella leans back on his chair and says: "I see a totally different India in 20 years.By one in every six trucks will be made here. We will make a mark in India, export trucks from here and effectively compete with China. This is one market you should be in." His bosses in Stuttgart are, for sure, hoping that his words come true.
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