South Korea’s automobile company, Kia Motors Corp. (KIA) is in talks with the Government of Tamil Nadu about the possibility of moving a $1.1 billion plant out of a neighboring Indian state, Andhra Pradesh. KIA had to relocate its recently completed plant as the state government of Andhra Pradesh changed its industrial policy and the company wanted to move to the neighboring state of Tamil Nadu.
KIA’s Plant at Andhra Pradesh
In 2017, KIA got approval for the 23 million square facilities at Andhra Pradesh and had completed the building of the new plant in December 2019. The company officials earlier cited the plant “a vital part” of its long-run global production network which would also manufacture vehicles like its Seltos SUV for both the Indian and overseas markets.
As per Reuters, the Andhra plant was KIA’s first facility in India which has an annual capacity of some 300,000 units and created 12,000 direct and indirect jobs. Soon after the inauguration of the Andhra plant, the company was facing struggles as the present state government interfered due to policy changes.
A source reported to Reuters, KIA was reported having a talk with the government of Tamil Nadu, an Indian state which is harboring for many major auto-parts suppliers, about the possible relocating of its Andhra plant.
According to an official who knew the matter told Reuters on Wednesday, “(Kia) are facing problems (in Andhra Pradesh), they have been in preliminary negotiations with us … There is a secretary-level meeting next week, we might have more clarity then.” Following the news of its plant relocation, Kia officials responded that it had a long-term commitment to the Indian market and as for now, it would focus on the full capacity of its Andhra plant “before considering further expansion.”
New State Regulations of Andhra Pradesh
The new Andhra government, after taking charge in the state in 2019, had announced to review the agreements signed between the former government and several companies including the renewable energy sector. The new policy of the state government provoked several foreign investors and affected several contracts signed with the former state government.
Among others, KIA was hit hard after the new state government in Andhra announced a policy that sought a mandatory for the companies to reserve 75% of all jobs for locals from the state in July 2019. According to the source, KIA has been in trouble to find suitable employees from locals and was severely affected by the urgent intervention of the new state government.
Reuters has reported that the Indian state had the separate regulatory system on foreign investor protection law which sometimes were totally different from the central government’s decision. According to a source close to KIA, “This is a problem for all companies including Kia … the cost of moving the plant would be too high and would set the company back by about two years and they have made huge investments” referring to the news of relocation of KIA’s plant.
Considering relocation within months of the inauguration, it posed a huge challenge to KIA on how to execute the plant shift from one state to another. However, a source explained that moving the plant to Tamil Nadu would help KIA in reducing logistics costs due to the closer distance of the parts suppliers located at the new state.
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