The Hindu : SFL sets up subsidiary in China

Online edition of India's National Newspaper
Friday, Mar 07, 2003

Business

Business

SFL sets up subsidiary in China

By Our Special Correspondent

Suresh Krishna (centre), Chairman and Managing Director, flanked by Sampathkumar Moorthy (left), President, and V. G. Jagannathan, President (Finance), Sundram Fasteners, at a press conference in Chennai on Thursday.

CHENNAI MARCH 6. Suresh Krishna-led Sundram Fasteners (SFL) of the TVS Group will become the first company in the annals of the Indian engineering industry to set up a fully owned manufacturing subsidiary in China.

The Chennai-based company will establish a 6000-tonne high tensile fastener factory in Haiyan Economic Development Zone (HEDZ), Haiyan County, Zhejiang province in South China. The facility will make value added special fasteners as well as standard ones.

Christened Sundram Fasteners (Zhejiang) Ltd., the subsidiary will commence with an initial investment of $5 million from SFL. This will come in phases over a five-year period. Depending on assorted positive factors, the TVS firm will increase its investment in the subsidiary further. It has already programmed an overall investment of $12.5 million. The Chinese facility is expected to go commercial sometime in the first half of 2004. SFL has already a representative office in China.

The subsidiary is expected to provide job for 70-odd people in the beginning. In the near-term, it will be managed by expats from India. Sooner than later, SFL wishes the subsidiary to be managed mainly by the Chinese.

The Chinese foray is SFL's maiden `manufacturing outing' outside India. Suresh Krishna, Chairman and Managing Director of SFL, has always visualised an Indian MNC (multinational company). The China adventure by SFL is a sort of dream come true for Mr. Krishna. Will this see SFL spreading its base elsewhere in the globe? A broad grin just gives away a clue or two to what is through in the mind of Mr. Krishna.

For Mr. Krishna, China could just not be wished away. "It is a big growth market," he quipped at a news conference here today. As it set foot in China through a representative office couple of years ago, SFL had been through a thorough study of the market there. Many a multinational auto giant had already set up shop there, he said. They had been importing their fastener needs. This had even led to local automotive makers upgrading their quality standards to global levels. It's over three-decades experience in the field of fasteners and impeccable record in the international sphere had all convinced SFL to fully tap the enormous potential offered by China, he said. He asserted that the Chinese foray would go a long way in satiating the growth needs of SFL.

Though he did not see much differential between the two countries in the area of cost competitiveness, Mr. Krishna felt that a base in China could prove a strategic fit for SFL. "Some MNCs prefer to source from India. Still others go to China," he pointed out. With a production base in China, SFL (be its Indian unit or the Chinese subsidiary) at least could still prove a preferred destination for these MNCs.

According to Mr. Krishna, well-known names like Delphi, General Motors, Volkswagen and the like had already given letters of interest in sourcing their supplies from the SFL's Chinese facility. Now that a facility was coming up in China, he was confident of converting it into commercial contracts. The Chinese fastener market, he reckoned, would be in the vicinity of two lakh tonnes. The excellent growth shown by automobile players across varied segments, he was convinced, would open up huge opportunities for SFL. The initial concern of the newly coming up subsidiary would be to service the requirements of fasteners market which was getting quality conscious by the day in China. Nevertheless, Mr. Krishna did not rule out the possibility of exports from the Chinese subsidiary to neighbouring nations.

The China venture, he said, would largely be driven by quality and price concerns while sourcing inputs. Ipso facto, he did not rule out input sourcing from Korea and Taiwan, if required. All the same, Mr. Krishna was very sanguine about SFL's China foray.

Though SFL looked at a dozen locations in four provinces, it short-listed two. It, however, zeroed in on Zhejiang. Factors such as tax sops, cheap land, proximity to Shanghai had all tilted the decision in favour of Zhejiang, he pointed out.

Mr. Krishna said as fastener production was coming under the ambit of `encouraged sector', the subsidiary would get full tax holiday for the first two years and graded tax incentives thereafter for a while. Further, Haiyan County had agreed to give back the VAT for the first four years. It had also agreed to address all environment-related issues.

The county would make available 20 acres of acquired land on a 50-year lease at a concessional rate. Mr. Krishna said the bureaucracy in that country was very facilitative and provided a one-window clearance for the SFL subsidiary within the shortest time one could possibly imagine.

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