Futuris finds its niche in 'Detroit of the East'
AUSTRALIA'S largest car parts maker, Futuris, has embarked on an ambitious Asian growth strategy even as the industry in its home country is shrinking.
Futuris has doubled its production in Thailand in the past 18 months, and this week opened a second plant. Sales are running at more than $80 million a year.
The executive general manager of Futuris Thailand, David Chuter, said: "Since 2005, we have embarked on an internationalisation strategy. We see this enormous growth potential. We don't have to be greedy, just a fair share of this is going to get us into millions of products a year."
Futuris, a supplier of car seats and interior trim, made its international debut in China, where it began to produce car seats for car maker Chery.
The auto parts group, owned by listed agriculture services group Elders, has enjoyed strong growth in the world's largest car market. China's Chery has grown from a small niche player producing 70,000 cars a year into an industry giant that churns out 700,000.
Futuris is building a new plant in China to cater for the increased demand. But Thailand is its fastest growing centre and the company has won new contracts to supply US giants General Motors and Ford.
Futuris's new factory at the Hemaraj industrial estate, dubbed the "Detroit of the East", is right next to Ford's new plant.
"They [Ford] are only operating at 30 per cent capacity there and the growth opportunity is huge," Mr Chuter said.
Hungry for more business, Futuris is also targeting Japanese car makers based in Thailand, which account for more than a third of total production capacity. "We have been invited to quote [for Mazda], we are down to the final stage," Mr Chuter said. "If you are going to be successful in Thailand, you really need [to find] your way into supplying Japanese car manufacturers."
It will be no easy task for Futuris as Japanese car makers such as Toyota and Honda have their own well-integrated network of suppliers.
"You got to wow them and give them a very healthy excuse as to why they can't use one of their own suppliers," Mr Chuter, an industry veteran of 25 years, said
Futuris's success is in stark contrast to other Australian car component manufacturers, which have to deal with ever-shrinking volumes and the high dollar crimping exports.
Even so, the Australian trade commissioner in Thailand, Greg Wallis, estimated there were close to 20 parts makers in the country.
With low volumes and high labour costs, Australia has lost its competitiveness as a destination for car manufacturing.
At the same time many Asian countries have been offering strong incentives for global car manufacturers to set up production.
For example, Thailand's Board of Investment - the country's investment promotion agency - offers a seven-year tax holiday for car makers.
Mr Chuter said Futuris did not move to Thailand just because of tax incentives. "Yes, [Thailand] has great incentives, they are an enabler, but they are not the reason why we are here," he said.
"We are here to grow and take advantage of opportunities in the marketplace."
He is critical of the Australian government's investment policy and said it offered few incentives for new vehicle manufacturers.
"Unfortunately, Australia competes in a global marketplace and there is hardly a country elsewhere in the world that does not throw money at incentives, particularly in Asia," he said.
When asked about offshoring, with the prospect of more Australian jobs being sent offshore, Mr Chuter said people misunderstood the subject - it is more about following demand.
"It is not about cannibalising what you do in Australia or moving factory. What we have done is move to markets like China and Thailand and supply into the local market."
Thailand last year produced 2.4 million vehicles - of which 170,000 were exported to Australia, including the popular Toyota Hilux - while Australia made a little more than 200,000 cars.
The deputy secretary-general of the Thai National Economic and Social Development Board, Porametee Vimolsiri, said the country was projected to produce 3 million vehicles a year by 2017.
The reporter travelled to Thailand as a guest of the Thai government.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free