Kubota plans to sell in Africa low-cost tractors produced in India, setting up a supply chain that takes advantage of India’s low material and labor costs to carve out a sizable share in the continent.
The Japanese farm equipment maker aims to sell 5,000 tractors there by 2028, generating revenue of nearly 10 billion yen ($72.1 million) that year. Instead of exporting from Japan, Kubota will have an Indian subsidiary ship compact models to the small-scale farms that dominate Africa’s agricultural sector.
Kubota established a local subsidiary in Kenya in 2017, but struggled to build a sales network and brand recognition. Market share failed to grow beyond a few percentage points. But the company does not plan to beat a retreat, with President Yuichi Kitao saying “the African market will definitely grow.”
Escorts Kubota, an Indian tractor producer that was turned into a subsidiary in April, will ship products mainly to countries such as South Africa, Tanzania and Nigeria where farmers are embracing agricultural equipment.
Tractor prices can be reduced about 30% by building them in India rather than Japan, thanks to cheaper materials and labor costs in the South Asian country.
Japan’s manufacturing industry has had little success breaking into the African market. About 30% of the roughly 80 Japanese manufacturers operating in Africa expected to incur operating losses in fiscal 2021, according to a Japan External Trade Organization survey.
Though more companies are entering Africa to tap market growth, weaker legal structures and infrastructure pose a risk. Building a sales network is also a challenge due to differences in business practices.
In July, Kubota appointed Ravindra Chandra Bhargava, chairman of Suzuki Motor’s Indian subsidiary Maruti Suzuki, as an outside director of Escorts. Bhargava was a key player in Suzuki’s early entry into India and is credited for its high market share there. Kubota aims to use his know-how to gain market share in Africa.
Kubota hopes to use Escorts’ established a sales network in Africa, where many Indian immigrants work as wholesalers handling agricultural machinery. The goal is to increase its share to just under 20% by 2028.
In South Africa, Tanzania and other sub-Saharan African regions where Kubota has a foothold, the agriculture, forestry and fisheries industries account for just under 20% of gross domestic product, World Bank figures show. By 2030, the agricultural-related market for the whole African continent could swell to $1 trillion.
The spread of tractors in Africa is far behind India and South America, but demand is rising, according to the United Nations Food and Agriculture Organization.
U.S.-based Deere and Co., the world’s largest tractor producer, also manufactures low-priced tractors in India and ships them to Africa, but has been unable to capture significant market share. CNH Industrial, second in the global market after Deere, and India’s Sonalika have had the same experience.