JV drives into East African market

China's AVIC-JAC Motors East Africa is setting up shop to market and service the JAC light truck

JAC Motors, a Chinese light-truck brand that is the third best-selling light-truck make in the world, has become No 1 in most parts of Africa.

It is only one of the transformations taking place with Chinese products.

While such products have relied on low cost due to inexpensive labor, things are beginning to change as quality improves and robots take over more of the production process in China, says Lyrida Lu, director and vice-general manager of AVIC-JAC Motors East Africa Ltd, a joint venture between AVIC International Beijing Co Ltd and JAC Motors from China.

The company recently opened a dealership in Nairobi.

In an interview with China Daily, Lu says that in the past, China mainly relied on human capital to produce its goods while the rest of the developed world used machines. This considerably reduced production costs for Chinese products, which also translated to lower prices.

"China's manufacturing industry is now moving from overreliance on human labor to robots, which is now making the pricing of Chinese brands sometimes even higher than those from other markets. At JAC Motors for example, we now use 90 percent robots to produce our engines as opposed to human labor used in the past," he says.

Lu also attributed the gradual increase in costs of Chinese products, especially motor vehicles, to raw materials, despite recent reductions in iron ore and oil prices, and the exchange rate. He says China's currency, the yuan, has been on a steady rise against many other major world currencies.

AVIC-JAC Motors East Africa officially entered the Kenyan market on Dec 12, although Lu says other Kenyan companies were already marketing the vehicles in East Africa long before.

"Our vehicles have been in the East African market since 2006. Stantech Motors and Simba Colt Corporation were our partners in the past," Lu says, adding that the JAC brand will in the next two to three years feature the three top-selling models in Kenya.

"JAC is No 3 in the world in terms of sales and, in most parts of Africa, we are also No 1. For example, in Algeria we sell over 6,000 units per year. Egypt, Zimbabwe, Zambia and Mozambique are also markets where we are dominating," he says.

The company, with offices at the Savannah Business Park, a few meters from Jomo Kenyatta International Airport, also has dealerships in Ghana, Niger, Namibia, Nigeria, the Democratic Republic of Congo and Burundi.

During the launch of the affiliate company in Kenya last year, Wang Guangjun, the vice-general manager of AVIC International Beijing Co Ltd, and chairman of AVIC-JAC Motors (E.A) Ltd, said the scale of the light-truck market in Kenya increased by 33 percent last year to reach 6,100 units, a feat that was only fourth after Algeria, South Africa and Egypt.

Lu says the company is focused on providing just a few models initially so as to better provide after-sales service to customers in terms of countrywide parts and service through their network of dealers.

Currently, the company has dealers in Kisumu, Eldoret and Nakuru to provide customers with spare parts wherever they may be in Kenya.

At the moment, they are only offering the N48 and L75, both 2.5 ton trucks, as well as a 4 ton and 7 ton truck. Lu says they will slowly introduce the prime mover, a heavy duty truck, and tipper, a dump truck that can lift its hinged box and dump its contents, when the company gains a firm grip on the market.

"We are focused on providing quality to our customers. Therefore, we will not be confusing customers with too many models in the market. After establishing ourselves in the market, we will set up an assembly line and provide several other models with different technologies.

"We are offering very competitive introductory prices for our trucks. We have also partnered with two local banks, NIC and Chase banks, to offer our customers 100 percent financing for both purchases and leasing."

Apart from the two banks, the company also has a partnership with Alios Finance, a pure financing company, to provide customers with a variety of financing options.

Lu says the company is mainly targeting logistics companies, bakeries, factories, wholesalers, farmers, wholesalers and delivery companies as potential customers for their light trucks.

Already other Chinese truck companies such as FAW, Foton and Sino truck are competing in the Kenyan market for the growing construction industry business. Lu, however, says construction companies, and he singled out China Road and Bridge Corp, have not shied away from light trucks as they also provide necessary services such as staff transportation.

Foton East Africa Ltd has set up the biggest assembly plant in East Africa on the outskirts of Nairobi and is targeting the construction sector. The plant can produce 10,000 trucks a year.

While Foton and the other truck manufacturing companies are importing complete knock-down kits, a complete kit needed to assemble a product, to assemble them locally, Lu says AVIC-JAC Motors East Africa is importing assembled trucks.

"We do not take advantage of the tax exemption on locally assembled units as we import fully assembled trucks. This is to ensure that quality standards are maintained as the units are fully assembled using machines in China," he says.

The Kenya Revenue Authority imposes a 25 percent import duty on all vehicle imports, while exempting CKD units. The measure is aimed at protecting the local vehicle manufacturing industry from cheap imports.

Depending on the market response, which Lu says is looking promising, they will be aiming at expanding into the wider East African market, which includes Tanzania, Uganda, Rwanda and Burundi, by setting up regional production, sales, service and parts centers.

The company has sold an average of eight to nine vehicles monthly since December, with the biggest deal being with global soft drinks company Pepsi-Co EA Ltd this year. The company leased 10 trucks in the first phase of its fleet improvement project. Lu expects the company to place more orders this year.

Since President Uhuru Kenyatta's government took power in 2013, it changed its transport policy from buying to leasing all government vehicles. The government leased 1,200 vehicles for the National Police Service in October 2013. Most private companies have since followed the cost-cutting policy to save on initial as well as maintenance costs.

With a total work force of 13, of whom 10 are locals, Lu says AVIC-JAC Motors East Africa has been continuously training local staff on technical aspects of truck maintenance. This is done once a week for two hours.

Lu says apart from the company's aggressive social media platform, it also has regular road shows, special introductory prices and packages to market its brand in Kenya. This year, it held one road show in Machakos county and plans shows in other parts of the country.

Lu says newspaper advertisements as well as billboards are other marketing strategies used to grow sales in the Kenyan market.

For China Daily

(China Daily Africa Weekly 06/26/2015 page19)