Nissan and Others Add Factories in Emerging Markets

ORAGADAM, India — On a dusty sun-baked field, in a ceremony presided over by a chanting Brahmin priest tossing water and rice, the Japanese carmaker Nissan Motor made a bold step into the Indian auto market.

Caparo, a parts maker, uses Japanese equipment to supply the carmakers that are making Chennai an automaking hub.

The traditional Hindu ritual this month, attended by a half-dozen sweating Japanese and European executives, blessed the site where Nissan will build its first passenger vehicle factory in India, a sprawling $1.1 billion complex where rice paddies once stood. The plant, built jointly with its French partner Renault an hour outside the southern city of Chennai, will turn out 400,000 cars a year when completed in two years.

Japan’s Big Three — Toyota, Honda and Nissan — led the world in factory automation and eco-friendly technology, but until now they have been cautious about venturing far from the roads they know: the mature markets of North America and developing markets closest to home, particularly China and Thailand. Now, in a radical shift, Japan’s staid Big Three are plowing into exotic terrain, from Saharan Africa to the former Soviet Union to the scorching plains of southern India.

They are determined not to repeat the mistakes of a decade ago, when they were late to the party in China, and where they have since trailed rivals like Volkswagen and General Motors. They have been particularly quick to expand in India, a nation of 1.1 billion that is just beginning its automotive revolution, and that many call the world’s next megamarket after China.

The aggressive moves by traditionally cautious automakers are the latest signpost that the epicenter of the global auto industry is shifting increasingly from California to somewhere between Canton and Calcutta. The shift is also yet another sign of the waning centrality of the United States to the global economy.

Under the guidance of Nissan and Honda, Caparo has built assembly lines in India to manufacture metal parts for carmakers.

Speaking at an annual shareholders meeting on Wednesday in Yokohama, Nissan’s chief executive, Carlos Ghosn, said that surging prices for raw materials would force car companies to raise prices — but that the economic malaise afflicting the United States and Japan would make it harder to increase sales in the face of higher prices.

So places with rapidly escalating demand — like India, Brazil, Russia and China — will be more important than ever. “We intend to take full advantage of growth in emerging markets,” Mr. Ghosn said.

“These developing markets used to be an afterthought” for Japanese automakers, said Hirofumi Yokoi, an analyst in Tokyo for CSM Worldwide, the auto market research company. “Now they are the industry’s future.”

According to CSM, vehicle sales in developing regions are expected to rise by about 10 million units over the next six years, contributing 76 percent of the industry’s entire global growth.

In the last seven years, Nissan’s vehicle sales in all developing nations have nearly tripled to 1 million units, out of the company’s 3.7 million vehicle sales last year.

“It used to be that Honda relied on its U.S. business, maybe too heavily,” said Honda’s president in India, Masahiro Takedagawa. “Nowadays, we are trying to spread the sources of profits more globally, beyond just one market.”

To be sure, the United States will remain the world’s biggest and richest market for the foreseeable future, contributing some 70 percent of the profits at most Japanese automakers. But Japan’s automakers need to offset what is shaping up to be one of the worst years for United States auto sales in more than a decade.

Breaking into far-flung emerging markets comes with its own hazards, especially when the Japanese carmakers’ most lethal competitive weapon is world-leading quality. This is especially true as they build factories in places where local parts suppliers are accustomed to lower standards — and where even electricity is unreliable.

In India, for instance, Nissan faces challenges from ensuring timely delivery of parts via half-finished roads clogged with trucks and bullock carts, to teaching its new workers and local suppliers exacting Japanese precepts like kaizen, or “constant improvement.” “The hardest part will be teaching the mindset and culture of kaizen,” said Shouhei Kimura, a former factory manager who now heads Nissan’s operations in India.

Still, in recent months, the big Japanese automakers have announced a slew of new factories in the Middle East, South Asia and Latin America.


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