Kubota dealers worldwide simply need more stock to sell and the only option is to build new factories costing 300 billion yen (AU$3.2 billion)
The factories Kubota are being forced to build both in the US and India are deemed as urgent to manufacture agriculture and construction models to fill ever expanding dealer orders.
This is no walk in the park for Kubota, as before additional sales can be chalked up, the company with need to invest a total of around 300 billion yen (AU$3.2 billion) to get additional models rolling down production lines.
This expansion is part of the target that Kubota has set to shift half its production overseas by 2030, up from the 30% Japanese manufacture in place at present.
It makes sense for Kubota to move away from homeland manufacturing as exports represent 70% of the company’s current sales. With shipping adding considerable burgeoning cost to the end products.
With current disruptive global supply chains, Kubota wants to avoid being caught in this situation again as it aims to shore up production bases in all its major marketplaces.
This factory relocation makes particularly good business sense for Kubota’s agricultural machinery and construction equipment sales as overseas markets now account for 83% of these, up from 67% 10 years ago.
Supply chain bottlenecks is costing Kubota dearly in the form of lost sales revenue and increased shipping costs is simply adding to the burden.
As Kubota starts pouring 300 billion yen (AU$3.2BN) into this market correction the company will begin building new factories in the US and move some excavator manufacturing from its main plant in Hirakata, Osaka Japan
In addition, the Kubota manufacturing plant to be built in India by 2026 is also expected to turn out tractors that are 10 to 20% cheaper than its current tractor build cost.
Kubota currently builds tractors in Thailand for export to India so there will be immediate cost savings. But Kubota doesn’t intend to leave the current status quo in place for the Indian market, as it intends to raise its market share to 25%, up from the steady 12.5% it currently controls.
Kubota gained that market share when it increased its equity stake in native Indian company Escorts to 44.8% in June 2022, through the Indian subsidiary Escorts Kubota.
The move to overseas manufacturing couldn’t come quick enough for Kubota as rising seaborne freight costs has already cut its operating profit by 28 billion yen (AU$300 million) this fiscal year.
There is only one way out for Kubota and the company is taking that lead, stick with homeland production and lose billions on shipping costs and lost sales, or set-up in your strongest markets’ backyards.
Within the next ten years the move by Kubota to replace homeland manufacture will see the brand immensely improve its cost competitiveness as it gives the company access to a wider range of local component inputs from competitive suppliers in the US and India.