With new factories and OEM supply contracts underpinning its growth, South Korea’s LS Mtron continues to make waves in the compact and utility tractor market.
Agreements with CNH Industrial and Claas, and in the central Asian state of Uzbekistan, are generating guaranteed sales and revenues. In addition, a new engine plant opened close to the main tractor factory in South Korea creates a competitive advantage and potential for engine sales to other OEMs.
The engine plant development follows completion of a 5,000 unit tractor manufacturing facility in Brazil last fall. It will serve the Central and South American markets and complement existing modern plants in South Korea and China. “We will achieve annual sales of KRW 1 trillion ($97 million) from the tractor business in 2016 by developing overseas markets more aggressively,” says LS Mtron CEO, Jae-Seol Shim. “We are now set to become a global leader in the tractor market.”
The tractor arm of the South Korean conglomerate LS Group had sales of approximately KRW 100 billion ($9.7 million) at the time it was launched in 2008. Last year, it topped KRW 552 billion ($53 million) and the next target is for about KRW 700 billion ($68 million).
Export sales revenues have accelerated rapidly as the tractors have moved into new markets — from just KRW 42 billion ($4 million) in 2008 to KRW 370 billion last year ($35.9 million), an 8.6 times increase over the past 5 years.
Completion of the KRW 50 billion ($4.85 million) engine plant, located near Jeonju-si, 3.5 hours’ drive south of the capital city of Seoul, is a key component of the equipment maker’s ambition of raising annual tractor capacity to 200,000 units by 2020.
It will produce 30-70 horsepower engines to the EPA Tier 4 emissions standard, which applies to smaller tractors in South Korea, the U.S. and Europe starting in 2015. With the potential to build 60,000 new design engines a year, the modern, high-tech factory could open the door to OEM engine sales and secure a competitive advantage for LS tractors in key areas such as quality, delivery and price.
The South Koreans are clearly building tractors that meet demand, not only under their own LS brand — distributed here by LS Tractor USA LLC, Battleboro, N.C. — but others too.
Claas sells LS tractors as the Talos in South Africa and some markets in eastern Europe and Central America. In January this year, CNH Industrial renewed a contract with LS for Case IH and New Holland branded compact and utility tractors first signed in 2010. This time around, the deal is for 34,000 U.S. and European spec tractors delivered from 2014 through 2018. The contract is worth around $350 million. But an extended contract for Australian and Southeast Asian markets, where the relationship with CNHI was initiated, takes the total closer to $500 million
A contract of similar initial value, but worth more in the long run, was secured toward the end of last year with Agromash Sanoat Invest LLC, a state-owned company in Uzbekistan, to supply 24,750 tractors of 36-100 horsepower over the next 4 years. There is also strategic value in the deal because Uzbekistan has been seeking a partner to help modernize its farm machinery and agricultural competency, so LS Mtron plans to supply tractor development and manufacturing technologies. It will earn a $5.3 million royalty payment in the process and use the Uzbekistan project as a springboard for sales in the wider region.
“Having successfully penetrated into developed markets like the U.S., we will aggressively explore emerging markets for higher growth,” says Jae-Seol Shim. “By turning the contract into a successful expansion case for emerging markets, we plan to actively pursue the Middle East, Latin America and Africa.”