Winning the export game

Alternative Fuel Systems Inc. (AFS) knows the export game. The company is achieving sales success, especially in India and other countries

January 14, 2011   by Robert Robertson

Controllers destined for Mahindra vehicles in India.

Photo: AFS

There are 7,593 miles (as the crow flies) or 6,598 nautical miles between Calgary and Mumbai, India, but the world is a much smaller place for Jim Perry. The president and CEO of Alternative Fuel Systems Inc. (AFS) knows the export game. The company is achieving sales success, especially in India and other countries, catering to a promising niche market for its electronic components and software designed for vehicle engines that run on compressed natural gas (CNG).

It made these inroads by investing in research and development, seeking out the most promising markets and establishing global partnerships to “stay close to the ground,” while streamlining logistics and using technology to enhance productivity and improve customer service.

Based in Calgary, AFS designs, develops and produces core components for the international automotive sector, specializing in the alternative fuel marketplace (primarily CNG-dedicated vehicles). The company supplies electronic engine management controllers, natural gas handling components and associated software to manufacturers of new vehicles and stationary engines, as well as to aftermarket fleet conversion specialists.

AFS and Indian partner Advantek Fuel Systems Pvt. Ltd., a manufacturer of fuel conversion kits and pollution control in New Delhi, have two major customers located close to Mumbai: Tata Motors and Mahindra & Mahindra Ltd. Tata Motors, owner of the Jaguar and Land Rover lines, is the world’s fifth largest medium and heavy vehicle manufacturer with sales of US$20.2 billion. Mahindra & Mahindra is a US$6.7 billion conglomerate with about $1 billion in annual vehicle sales.

AFS first developed an engine control system for Tata Motors’ CNG-powered ACE small truck, used for inter-city deliveries. The truck has a 1,322-pound load capacity and features a two-cylinder, 700-cc engine. Cities in the world’s most populated democracy have restricted the use of diesel fuel. According to December 2009 figures released by the International Natural Gas Vehicle Association, there are more than 900,000 natural gas vehicles and 560 re-fuelling stations in India, so working with Tata Motors and Mahindra & Mahindra was a perfect fit for AFS.

Engine controller shipments to the two companies over the past three years have now exceeded 20,000 units, and Perry notes governments in India and Thailand, which are demanding the use of CNG-only vehicles in large cities, have aided sales.

“This sales level is a major milestone for AFS. We have stated that one of our main objectives is to grow the OEM electronics side of our business,” says Perry. “By shipping our 20,000th engine controller to India, we have demonstrated significant progress toward that goal. As well, shipments to customers in other countries for both OEM and aftermarket applications have shown good growth.”

Late last year, Tata Motors selected AFS to participate in its CNG-fuelled version of the Xenon pickup truck and there are other global projects on the go nearing production. Perry says a broader customer base will drive increased sales and growth, as current customers introduce additional CNG models into their fleets.

AFS has been around in various incarnations since the mid 1980s. Its original focus was diesel dual-fuel (running a diesel engine using equal amounts of diesel fuel and natural gas). But the company decided the technology wasn’t going to be commercially successful, so it began producing natural gas pressure regulators and sold them mostly in Europe. At the time, it also made electronic control systems mainly for sale in the Middle East.

“Two or three years ago, we could see things moving away from mechanical equipment and going completely electronic,” says Perry. “The only way you can really attain good emissions is to control everything.”

Realizing AFS’s strength was in CNG, the company looked at where CNG vehicles were being built by OEMs, and as it turns out, most are made in India and Asia.

Passionate about vehicles
Pre-AFS, Perry (who graduated in 1970 from the University of British Columbia in mining and engineering) ran a small fuel-cell company in Calgary called Global Thermoelectric. The chairman of AFS invited him to join the company’s board of directors in 2002. In November 2003, Perry was asked to take over as AFS president and CEO. “All of our people are passionate automotive nuts. We like vehicles and we’re car guys,” says Perry. “AFS is a great place to work if you’re a car guy and live in Alberta.”

As a company, AFS wasn’t immune from the effects of the economic downturn on North America’s automotive industry, but the company made adjustments that kept it moving in the right direction, and its efforts are paying off.

Sales of engine management systems were up in the first quarter of 2010 by more than five times compared to the same period in 2009. And he says sales of fuel injectors almost tripled in the first quarter compared to those recorded in the same period last year.

Perry believes in staying close to the ground because it leads to global market share. He says the real challenge for any exporter is convincing customers you can handle their business. “In India and other countries, Canada has a very good reputation; however, just because they like you doesn’t mean they will do business with you. You’re not going to go anywhere without a solid partner in the country. And in India, we’re really lucky to have found our partner [Advantek Fuel Systems]. When Tata Motors began building its dedicated CNG vehicle [ACE], the AFS team made a number of trips to India and talked to all sorts of people, as did Advantek Fuel Systems.

“We spent a lot of time and effort to get in on that project, which has turned out to be very good for us,” says Perry. “And you get your return by ultimately being on production vehicles.”

Despite the 12-hour time difference, AFS keeps close tabs on its customers weekly via the internet.

“You have to take time to know customers, so they can see what you can do. It’s also about relationships,” says Perry. “I have taken many of our customers to see Banff, as they love it there. Being located in Calgary does have its advantages for us.”

The internet is giving AFS an edge in more ways than one. The company continually revises the software that goes into the CNG-production vehicles. Instead of shipping CDs by courier, which was an onerous task only a few short years ago, the Calgary office can stay in almost real-time contact with customers. “This allows us to do some things that we couldn’t before,” says Perry. “We can come up with a new version of software, test it here for a day or two, fire it over to India and they can flash it right into their vehicles.”

Steve Rodgers, president of the Automotive Parts Manufacturers’ Association (APMA), says many North American automotive parts suppliers, like AFS, are expanding their global horizons, but it’s important for them to understand a country’s economic nuances. “While they may not want to be a global parts supplier, they’re still looking for global opportunities,” he says. “The North American [automotive] market isn’t growing a lot. It will take three or four years to get back to where we were previously. Eastern Europe and Asia, however, are growing quite significantly.”

He says suppliers have to know each particular regional economic marketplace, as they really do vary. In a lot of situations, a partner can help a supplier understand local business requirements. To support global platforms, OEMs are also looking for suppliers who can do engineering in one location and potentially manufacture in two or three locations.

“This creates even further incentive to try and make sure you have some international manufacturing capability,” says Rodgers. “One has to have a bigger global footprint, so there will be continuing investments in some of these emerging opportunity countries.”

Looking to the future, Perry says it will be important for AFS to remain engaged in potential new markets and increase its global reach, especially in Southeast Asia. “To grow our business, we’ll add programs with current customers, as they know our capabilities and already have CNG vehicles in production,” he says. “In terms of adding new customers, our focus will be on the Indian and South Asian markets.”

Across Canada, the adoption and use of CNG vehicles is a ‘chicken and egg’ dilemma – few filling stations, few CNG vehicles. As of March in Alberta, for example, there were almost 3 million registered motor vehicles. At the same time, only 77 were registered as CNG vehicles (and five of those were at AFS). Once CNG vehicles become more commonplace in Canada, AFS will also succeed in its own backyard.

Rob Robertson is a freelance business writer and editor based in Burlington, Ont. E-mail

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