Piaggio to outsource vehicle, parts from India - Views on News from Equitymaster

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Piaggio to outsource vehicle, parts from India

Feb 8, 2000

Two-wheeler major, Piaggio of Italy, has outlined plans to establish a setup in the country for manufacturing four-stroke two-wheeler engines, three and four wheeler vehicles and components. This will serve as a base for the company's global operations. Piaggio earlier had a presence in the country through its venture with LML, before differences between the partners led to a split.

According to a report in a leading financial newspaper, Piaggio has charted out an investment plan of US$ 150 m over the next five years, and plans to invest US$ 50 m on its own by 2003.

Earlier there was some confusion about whether the company would be buying a stake in Scooters India or setting up an independent 100% subsidiary. The latest news report seems to indicate that the company is still pursuing plans to buy a stake in Scooters India.

At the same time the company has announced that it would be setting up a 100% subsidiary which will operate as a holding company to route all investments in the country.

The company is looking at India to develop four-stroke, two-wheeler engines, three and four wheeler vehicles and components and then outsource these products to other countries. Once the company is successful in developing a manufacturing set up in India, it will discontinue its production in Italy, where they are being manufactured currently. Cheaper raw materials and lower cost of labour are reasons why India is more attractive than some other destinations.

Paiggio has set its sights on the Indian two-wheeler market and plans to introduce models like Vespa, Gilera and Skippers. How successful the company's venture will be is debatable. At a time when established scooter companies like Bajaj Auto and LML are focussing on motorcycles, Piaggio is setting up operations to manufacture scooters. Both Bajaj Auto and LML have established service centres and spare parts networks across the country. Piaggio will find it very difficult to duplicate that.

However, if the company can work out a feasible pricing policy, then the combination of a foreign brand at an attractive price may help the company grab some market share from competitors.

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