Piaggio grows among Vietnam’s paddy fields

Piaggio prides itself on its Italian legacy of chic design, but the future for the maker of Vespa scooters is on the traffic-clogged, dusty streets of developing Asia.

Like many premium brands, Piaggio is looking to the rapidly growing Asian middle classes at a time when sales in Europe and America are suffering because of economic uncertainty.

“For the two-wheeled market, we are at the centre of the world,” explains Costantino Sambuy, who heads up Piaggio’s scooter and motorbike business in Asia from his base in Vietnam. “Around Asia, there’s a new generation of affluent people looking for something more exotic, with personality.”

Last year, motorbike sales in Asia generated 133.2m euro ($195m), 13.5 per cent of Piaggio’s global two-wheeler turnover. While turnover in Europe and North America fell by 12.9 per cent compared with 2009, sales of motorbikes in Asia surged by 58.1 per cent. Group earnings before interest, tax, depreciation and amortisation fell by 1.8 per cent last year to 197.1m euro as a result of the slowdown in developed markets.

The shift to Asia is likely to accelerate given the dynamics of the global motorbike market. While there were only 1m new motorbikes sold in all of Europe last year, 1.2m were snapped up in Jakarta, the Indonesian capital, where Piaggio is set to launch this week.

Asian consumers bought nearly 42m of the more than 47m motorbikes sold last year globally, according to Piaggio, which also sells a number of three- and four-wheeled commercial vehicles.

While many multinationals set up their regional headquarters in the more developed centres such as Singapore or Hong Kong, in 2009 Piaggio opted for Vietnam, which has the highest rate of motorbike ownership per capita in the world and is one of its strongest markets.

At the same time, Piaggio opened its first wholly owned Asian factory in Vietnam, amid the paddy fields of Vinh Phuc province, about an hour’s drive from the capital of Hanoi.

Initially, the plant only produced Vespas for the local market, but it now makes other Piaggio scooters and exports vehicles around the region. Sales in Vietnam doubled last year to around 40,000 vehicles, and this year the factory hopes to produce around 90,000 scooters, 20-30 per cent of which will be for export.

Just two years after starting production in Vietnam, Piaggio has already unveiled plans to triple capacity at its plant to 300,000 scooters per year, as well as build an engine factory and a research and development centre.

The company hopes to set up a similar factory in India from 2012 and if that launch goes well it will consider doing the same in Indonesia.

Sambuy says Piaggio benefits from being close to its core customers in Vietnam. While Vespa riders are “buying a concept rather than a vehicle”, buyers of Piaggio’s other more contemporary scooters such as the Liberty and the Fly want more functionality.

So Piaggio has adapted to local needs, improving the engine technology for Asia’s more demanding scooter drivers and lengthening the seat to enable three or four people to travel on one bike, as is often done on the streets of Vietnam and Indonesia.

Many export-focused manufacturers such as Canon and Samsung have moved to Vietnam in recent years because of the low wages, which are around one-third of those in southern China.

But Piaggio is among the few that are looking to tap demand both within Vietnam and the rest of Asia. Nokia, the world’s biggest mobile phone maker by volume and the market leader in Vietnam, plans to follow suit next year.

Voluminous red tape, poor infrastructure and continuing macroeconomic instability are among the drawbacks of setting up in Vietnam, Sambuy concedes. Last week, the government cut this year’s growth target to 6 per cent, down from an initial target range of 7-7.5 per cent, while the country faces an ongoing battle against inflation.

But Sambuy remains optimistic. “This is not the first or the last bout of turbulence that Vietnam will experience,” he says. “But I’m incredibly excited because Vietnam is going through something like the Italian economic miracle.”-by Ben Bland, Vinh Phuc – FT.com

Tags: Piaggio Group, Piaggio Vietnam