Made in India : BMW 3 Series & 5 Series

Local assembly in Chennai should help BMW avoid 60% import duty and other taxes that make cars shipped from abroad prohibitively expensive. Read original article (See BMW here if you haven't got ADSL broadband)

What is the Strategy?

BMW expects to remain a niche player in a market dominated by small cars produced by local companies such as Maruti, Tata and Mahindra & Mahindra.

When it comes to firm orders with down-payments, we have a couple of hundred

Peter Kronschnabel, president of BMW India.

It looks like BMW are investing for the long term, and it also looks like BMW expects the high import taxes to remain in place for a significant time period.

Why India?

Mercedes, BMW's main rival in India and the absolute leader in the luxury segment, has been assembling cars in India since 1993 and currently sells about 2,000 cars per year.

If we have the customers, we can produce 10,000 cars at this plant, no problem Frank-Peter Arndt, BMW In pictures: BMW in India

The luxury segment is tiny in India, accounting for no more than 0.03% of the market.

Nevertheless, high-end carmakers see it as crucial to build a presence here due to the market's anticipated growth.

Market share is always a good driver for competition, and BMW clearly don't want to lose out to Mercedes in such a growth market. One way of looking at it is that they are already fourteen years behind! On the positive side BMW will have the most up to date factory and equipment, their cars appeal to a younger market too. I imagine that the explosive growth in the luxury segment will come from younger upwardly mobile technology workers and in this niche BMW has a clear brand advantage over Mercedes.

• 2000 only five in every 1,000 population owned a car
• 2000 5 million cars on the road.
• 2010 forecasted eleven car owners per 1,000 population.
• 2010 there could be 13 million cars on India's already crowded roads

We want to benefit from this growth potential, but we also want to make an active contribution to this growth. Our plant here in Chennai is a clear commitment to India as a business location.

Norbert Reithofer, chairman of BMW's board of management.

So Why Chennai?

"Chennai has a developed infrastructure and it benefits from having parts suppliers nearby," added Frank-Peter Arndt, BMW board member in charge of production.

Most of the parts will be shipped in

And the long term plan?

Initially, BMW has invested 20m euros in its Chennai plant and BMW India's headquarters in Gurgaon outside Delhi, creating 600 jobs directly and a further 600 indirectly through its service and dealer network.

Almost all the parts will be shipped in, including the engine and body, although seats for the 3-series and door panels for the 5-series will be produced locally.

It aims to assemble 1,700 cars per year at the plant in the medium term, though this could rise if demand grows, said Mr Arndt.

"If we have the customers, we can produce 10,000 cars at this plant, no problem," he said.

BMW have invested a relatively small sum, and in the short term ensured that the most part of the skilled labour stays outside of India. This has allowed them to move quickly without risk to their Brand Quality. No doubt there will be a very rigourous training scheme in the near future so that they can benefit from transfering more of the skilled work to the Indian plant.

Worthy of note is the fact that they only have a couple of hundred firm orders, medium term they are planning on producing 1700 vehicles a year. BMW have built a factory which can handle 588% of their medium term production plan.

Overall this seems like a cautiously realistic strategy, minimising risk wherever possible. Kudos to BMW for their excellent planning for projected growth.

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