Kubota’s path to global expansion goes through India

Japanese farm equipment maker Kubota looks to copy Suzuki Motor’s playbook for expanding its global footprint: establish India as a production hub.

“The local staff have begun to engage in kaizen on their own,” Katsunori Asano, head of manufacturing at Indian subsidiary Escorts Kubota, said in December while giving a tour of a factory in India’s Haryana state. Kaizen is a Japanese term meaning “continuous improvement.”

When he first arrived at Escorts Kubota in May 2022, “the hallways and the yards were packed with half-finished product waiting to be reworked,” said Asano.

To resolve those issues, Asano instituted the Japanese approach to manufacturing that maximizes quality control at each step of the production process. As the result of these changes, over 70% of the products coming off the assembly line can be shipped without extra fine-tuning.

The unit’s predecessor, Escorts, was an Indian machinery maker founded in 1944. It later became a household name thanks to the motorcycles produced jointly with Japan’s Yamaha Motor. In the 1990s, Escorts ran into financial trouble at several operations, particularly its cellular phone arm, which led to a restructure that centered the company around tractors.

In 2020, Kubota decided to buy a 10% stake in Escorts for about 16 billion yen ($106 million at current rates), expanding its ownership above 50% two years later for roughly 140 billion yen and rebranding the company as Escorts Kubota.

The production facilities have transformed into something completely different, said Nikhil Nanda, chairman and managing director of Escorts Kubota and the grandson of Escorts founder Har Prasad Nanda.

The purchase of Escorts was the largest in Kubota’s history. A key player in the deal was Maruti Suzuki Chairman Ravindra Chandra Bhargava, who built the Indian automaker up together with Osamu Suzuki, Suzuki Motor’s former chairman and current senior adviser.

In 2019, when Kubota President Yuichi Kitao was still a vice president, he met Bhargava at an estate near Delhi. After a quiet discussion, Bhargava turned to a man sitting beside him.

Believe in this Japanese company and take a chance in forming a partnership, said Bhargava. The man, who turned out to be Nikhil Nanda, took that advice to heart. Nanda regarded Bhargava, who had known his grandfather, as a guardian.

Kubota first entered the India in 2008, but it had only attained a market share in the single digits after a decade. Tractors are big in India, which accounts for half the global demand at 900,000 units a year. However, tractors are often used for non-farming purposes in India, such as hauling freight.

“We struggled because the light tractors Kubota specializes in did not have enough pulling power,” said Kitao.

Prior to Kubota’s purchase, Escorts held the No. 4 market share in the world, topping 10%, but it lagged behind market leader Mahindra & Mahindra and other local rivals in overseas expansion. Kubota, which was searching for an Indian partner, complemented Escorts with its firm foothold in Western economies.

Bhargava, who is also an independent director at Escorts Kubota, envisions the company repeating Maruti Suzuki’s success story. Maruti, then government-owned, entered into a joint venture agreement with Suzuki in 1982. The team-up has grown into a powerhouse.

But future success is hardly guaranteed. Japanese drugmaker Daiichi Sankyo spent about 500 billion yen to buy an Indian generic drug manufacturer in 2008, only to sell off the operation in 2015 following a quality-control scandal.

Things will go well as long as both sides understand each other’s differences and Escorts is embraced, said Bhargava. He expects Nanda to gain a thorough understanding of Kubota’s management and to share the insights with executives and rank-and-file employees in India.

Kubota’s total sales in India last year came to about 175 billion yen. The company holds a roughly 12% share in India’s tractor market. It hopes to double the share by 2030, trailing only Mahindra.

Kubota is recruiting suppliers in India to make use of components that are cost-competitive even in Japan. These suppliers often overlap with Maruti Suzuki’s supply chain. The Japanese company plans to raise India’s share of groupwide procurement from roughly 10% to 20% in 2030.

“Production costs will go down significantly,” said Kubota Executive Vice President Masato Yoshikawa.

India will serve as an export hub to Africa, which is expected to be a growth market. Food demand in Africa is projected at 350 million tons in 2050, expanding 2.4-fold from 2010. The agricultural market is on track to reach $1 trillion by the end of the decade.

Escorts also plans to export tractors to South Africa and Tanzania. This year, the company will release a new tractor series made with Kubota’s technical assistance.

Escorts has traditionally made farming equipment in the color blue, but the company has also released products in Kubota orange. India will make the products that sell worldwide, said Bhargava.

Nikkei Asia

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