TOKYO -- Agricultural equipment producer Iseki will expand its Indonesian plant for tractors sold in North America and Asia by 40% next year as demand plateaus in Japan.
The factory, which now has a floor space of 20,000 sq. meters, will get an additional 8,000 sq. meters or so for parts storage and other uses. With the upgrade, some of the assembly lines will start running two shifts, boosting the facility's manufacturing capacity from about 8,000 units a year to 15,000. This will allow Iseki to supply more tractors to the U.S. market for sale by Agco under the American peer's brand.
Iseki is also considering installing additional lines and taking other steps after next year to further ramp up the plant's capacity to around 20,000 units. The planned and potential enhancements are estimated to cost nearly 1 billion yen ($9.11 million). The Indonesian factory is run by a joint-venture production subsidiary set up in 2014 with a local partner.
The Japanese company expects to generate 22.6% of its sales outside of its home market in 2017, up 1.6 percentage points from last year. The aim is to lift the number to 40% or higher in 2020.
Iseki's move follows an expansion push in the U.S. by rival Kubota, the industry leader in Japan. In April, Kubota opened a new factory for utility vehicles, used for transporting farming tools and people, in the state of Georgia. The company also moved a sales subsidiary to Texas, a big farming state. North American business accounts for about 30% of Kubota's total sales. Its sales in North America jumped 10.7% to 244.7 billion yen in the January-June term.
Demand for agricultural machinery is growing in North America. Demand is increasing particularly fast for smaller equipment, the area of strength for Japanese players, compared with larger products, for which American rivals are known. Japanese companies previously focused on Asia, where farmers are increasingly using machines. They will now ramp up North American operations as well to secure steady growth.