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Iwo) puts its faith in China
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Iveco has taken steps to increase its global reach over the past few months. Andy Salter caught up with chief executive Paolo Monferino at the Hanover Show to find out what its up to.
While the truck media flocked around the stands of MAN-ERE Scania and Volkswagen at last month's Hanover show, hoping one of them might let slip a nugget of information regarding the great takeover bid, one of the most revealing press conferences was given by Iveco.
Chief executive Paolo Monferino outlined his plans for the rebirth of Iveco as a global giant. Iveco 2 is how he,and others,are referring to this strategy, which will make the company one of the strongest European players in the vast Chinese market.
Monferino revealed that Iveco has just finalised three new joint ventures in China accounting for up to 140,000 vehicles a year and 100,000 engines over a five to 10-year period. That's twice the company's current volume — it will make Iveco a pivotal player in this emerging market.
There's bound to be risk
Of course, any dealings in new and emerging markets come with a high degree of risk. One industry observer I spoke to after the press conference was less than impressed with Monferino's pronouncements and had some serious reservations regarding the Iveco strategy for China. "I can see this all ending in tears" he said — and that seemed like a good place to start our interview when I met up with Monferino later that day. It's the first time CM has interviewed Monferino and he comes across as an extremely easy communicator, clearly explaining the rationale behind the current strategic plan.
"First of all," he told me. "this is not a pure play mission to get our products into China.The strategy hasn't just been designed to explore the market there; it is much more comprehensive. There arc a number of objectives which emerge from our dealings in this area. First of all there is the opportunity for a low-cost, entry product from China, which could serve a lot of our markets around the globe.
-Let me give you an example. In the past Iveco and Fiat had a major presence in North Africa and the Middle East.Gradually we lost our position in those markets because we didn't have a product which was competitive on the price base. Chinese-built products could offer us significant market developments in these areas.
"Another advantage revolves around components," he added."We will be building a huge production facility in China,where local suppliers will be expected to meet exacting standards. I can easily see a transfer of components back
to other factories around the globe, which will dramatically improve our competitiveness."
That said, the undoubted jewel in the crown of Iveco's Chinese strategy is the potential sales volumes on offer in a market that is set to grow like hell in the coming months and years.The big risk, on the other hand, concerns protection of intellectlIal property rights in the Chinese market Monfcrino is well aware of the risks; he has based the Chinese expansion on trust, close management and assurances by the Chinese authorities that the position of partners will he respected. China is developing extremely quickly," he said "The whole country will change and there is a recognition that the international rules must be respected if China is to join the global economy."
OK. I can see the rationale behind this argument, although some pundits will no doubt remain sceptical. But will the home performance suffer while the focus is on away games?
Heavy presence in light sector
In the UK Iveco has held on to a strong presence in the medium and light truck sectors—the Daily van continues to impress But it continues to struggle in the heavy truck sector despite the undoubted virtues of the current Stralis lineup.
"The heavy truck problem we have is one of heritage, which still hangs over us.We paid a big price because we didn't do a good job with the previous generation," Monferino admits. "Today we have a strong product which is no different from the top players and in a lot of areas is even better. We are now in a position to play in the market, but perception is not something which can be built in a factory. "We have to ensure customers are given the opportunity to test and try the products and keep the product at a price position which is most appropriate to its value.
"Price and value is the key," he adds. "We are not trying to keep up in terms of market share."
The UK remains a difficult market for Iveco, he concedes, particularly in the heavy truck sector, where the company has not developed the financial tools to satisfy the market fast enough. He points to the I veco Financial Services joint venture with Barclays as one possible solution: "We are working with Barclays to understand the customer needs and build a package for the UK.Contract hire and operating leasing are the keys to market success."
OK we're impressed Despite Iveco's inability to crack the heavy truck sector in the UK, CM remains impressed by Ivcco as an organisation and believes it is now structurally robust and commercially sound enough to generate future growth.
What's more, like a good few others we reckon it is one of the few companies — Renault might be another — which can genuinely claim some success in the Chinese markets and, on the face of the current deals, can look forward to further sustainable growth.
It can't be denied that any investors in this volcanic market face some big risks in the short to medium term. But the flip side of that gamble is the potential to achieve significant sales growth in an emerging market and develop a low-cost supply base to feed production lines throughout the world. And that's an irresistible proposition in anyone's book •