Hitherto, technology transfer to the Indian two-wheeler industry took place mainly through: licensing and technical collaboration (as in the case of Bajaj Auto and LML); and joint ventures (HHML). A third form - that is, the 100% owned subsidiary route - found favour in the early 2000s. A case in point is HMSI, a 100%
subsidiary of Honda, Japan. Besides the below mentioned technology alliances, Suzuki Motor Corporation has also followed the strategy of joint ventures (SMC reportedly acquired equity stake in Integra Overseas Limited for manufacturing and marketing Suzuki motorcycles in India).
Technological tie-ups of Select Players
Nature of Alliance Company Product
Bajaj Auto Technological tie-up Kawasaki Heavy Industries Ltd, Japan Motorcycles
Technological tie-up Tokya R&D Co Ltd, Japan Two-wheelers
Technological tie-up Kubota Corp, Japan Diesel Engines
HHML Joint Venture Honda Motor Co, Japan Motorcycles
KEL Technological tie-up Hyosung Motors & Machinery Inc Motorcycles
KEL Tie up for manufacturing
and distribution
Italjet, Italy Scooters
LML Technological tie-up Daelim Motor Co Ltd Motorcycles
Hero Motors Technological tie-up Aprilia of Italy Scooters
Compiled by INGRES
With the two-wheeler market, especially the motorcycle market, becoming extremely competitive and the life cycle of products getting shorter, the ability to offer new models to meet fast changing customer preferences has become imperative.
In this context, the ability to deliver newer products calls for sound technological backing and this has become one of the critical differentiating factor among companies in the domestic market. Thus, the players have increased their focus on research and development with some having indigenously developed new models as well as improved technologies to cater to the domestic market. Further, with exports being one of the thrust areas for some Indian two-wheeler companies, the Indian original equipment manufacturers (OEMs) have realised the need to upgrade their technical capabilities. These relate to three main areas: fuel economy, environmental compliance, and performance. In India, because of the cost-sensitive nature of the market, fuel efficiency had been an interest area for manufacturers. It is not only that the OEMs are increasing their focus on in-house R&D, they also provide support to the vendors to upgrade the technology and also assist them striking technological alliances.
2-stroke v/s 4-stroke
The single most important change in the 2-wheeler market is that of the movement from the 2- stroke to the 4-stroke engines driven by environmental and fuel efficiency concerns. The 4-stroke engine, by virtue of burning fuel more completely than the 2-stroke, emits lesser pollutants as well, as vital factor as
emission norms move from tail-pipe norms to engine norms and the margins themselves become tighter. Because a 2-stroke engine gets a power stroke twice as often as a four-stroke engine, it puts out about twice as much power (and makes twice as much noise) as a four-stroke engine of the same size. Hence in times when emission and fuel wasn’t as much a concern, powerful bikes used the 2-stroke engine.
Secondly, a 2-stoke engine is exposed to much more wear and tear in pressure and combustion than a 4-stroke, with the result the 2-stroke engines need a good deal more high quality lubricating oil than the 4-stroke. The net result is that 2-stroke engines can be quite expensive to run. In the consumer market, the cruiser and economy segments sell much more than the motor or premium range where the power/ weight ratio is key. The 4-stroke engine adapts well to longer and continuously running times, combusting fully and with less pollutants. Newer developments in fuel injection and timing in4-stroke engines have improved power / weight ratio as well, so that many of the disadvantages of the lower power in 4-stroke are gone now- much the same way as MPFI and common rail injection in diesel have improved efficiencies for cars.
Emission standards
India is adopting increasingly stringent emission standards, which have a direct implication on engine design and quality. 2-stroke engines are already passé, while the four strokes are being continuously upgraded to reduce both tailpipe emissions and engine emissions. Today India is adopting the Bharat II and III norms for emissions, which are as stringent as those in the European markets.
Companies Hero Honda
Hero Honda is India’s largest motorcycle company with 2004-05 sales of 26.2 lakh units, giving it a market share of 51.5% in motorcycles. Founded in 1984 in a joint venture with Honda Motors, Japan, Hero Honda is one of the most profitable and smoothly operating JVs for Honda Motors anywhere in the world, giving it a foothold in one of the world’s largest and fastest growing two wheeler markets.
In 1985-86, Hero Honda sold just 43, 000 units, launching its business with the CD-100; Five years later, in 2000-01, it sold over 10 lakh, and in another five years, doubled that to over 25 lakh units. In 1987, it started the engines plant as well, and produced with 100,000th bike that year. 1989 saw the launch of the Sleek, now discontinued. It was in 1994 that Hero Honda introduced the Splendor, which would go on to become the world’s single largest selling motorbike brand. In 1995, Hero Honda was producing 800 bikes a day, 4 times the number of bikes it could produce a day when it started up. By 1997, the company was producing 1200 bikes a day. In 2001, Joy and Passion were launched, and the Ambition was launched in 2002. Since then, the company launched Karizma, at Rs 80000 one of the most expensive heavy-cc bikes (250heavy-cc) in India, but which once again belied the general belief of India as a low-price market.
The company was also surprised when demand for this expensive bike came from rural and semi urban areas and it sold 2000 bikes a month for a few months.
This bike opened up a whole upper cc segment in bikes. Today Bajaj Pulsar is its biggest competitor in the 250cc range. It was the first to herald the shift from scooters to motorcycles with style, power and competitive pricing. For much of the early 1990s, established players like TVS Motors and Bajaj Auto suffered reverses as the market shifted to motorcycles. Today, the scenario is different as both these
competitors have brands that challenge Hero Honda, but market leadership still remains with Hero Honda. It was also the first to create critical mass in the 75-125cc ranges, where most brands compete. Hero Honda set a first with its dividend policy as well, announcing a 1000% dividend in 2003-04. With the motorcycle business doing well, Honda Motors announced its own entry into India but not in the segments where Hero Honda operated; also the technical JV was extended for another decade. Hero Honda sales for March 2005 were Rs 7,421 crore, against Rs 5,832 crore in March
’04. Net profits stood at Rs 810 crore against Rs 728 crore in March ’04.
Bajaj Auto
Founded in 1945 and reborn fifty years later. Bajaj auto is a revival story.
Long known for its scooters like the Chetak, which gave it over 90% of its sales for most of the past few decades, today Bajaj Auto is more known for its motorcycles, after reinventing itself in the late 1990s. Today its brands give the leader Hero Honda a run for its money in every segment of the motorcycle business; while its scooters have seen a revamp in style and power and are beginning to fight back against the brands like TVS and Honda Scooters. Its come a long way since importing 2 and 3 wheelers in 1948. In 1959, it got its license to manufacture in India, and in 1971 it introduced the 3-wheeler and one year later the Bajaj Chetak. 1976 saw the launch of the Bajaj Super scooter and in 1977, the year the company sold 1-lakh units in the
year, it launched the rear engine rickshaw. In 1981 came the M-50 scooter, which sells to this day specially in Pune and surrounding areas. In 1985, after 16 months of its foundation, Bajaj Auto’s new plant at Waluj, Aurangabad started up. This plant would produce the Kawasaki KB100 motorbike and M-80 scooters.
By 1990, the decline in the scooter market was visible, with the rapid increase in motorbike sales. Bajaj was active in the motorbike market, but not as a core line of business. As late as 1990, it launched the Bajaj Sunny, gearless scooter and until 1995, continued to upgrade and sell the scooters. From 1997 onwards, the pace of new products ramped up- Spirit came in 1998, Legend, India’s first four stroke engine scooter in the same year; and the Kawasaki Bajaj Caliber, its first serious attempt at motorbikes also in 1998. The Caliber touched 1-lakh unit sales in less than 12months, accelerating the shift towards the motorbike business in Bajaj Auto. In 2001, the Eliminator (now discontinued) and the Pulsar- its first serious blockbuster- were launched. But in 2003, the pace was frenetic. That year the Caliber 115 came in; so did the Wind 125, and the Pulsar DTS-I. Bajaj Auto sold 1-lakh bikes in just one month that year. 2004 was a brand change for Bajaj Auto, reflecting a new identity. In May 2004, The Bajaj CT 100 bike was launched, in August the 4-stroke Chetak with Wonder Gear and in September ’04, the Discover DTS-I. In June 2005, came the latest launch, the Avenger. All the excitement, and the obvious improvement in quality of Bajaj products, saw sales rise to match competition. From a market share of 24.5% in 2001-02 to 27% in 2004-05, Bajaj has gained at the expense of competitors like TVS Motors, although Hero Honda also continues to grow its share. However, at 13.4 lakh motorbikes sold in 2004-05, Bajaj Auto is now a serious player in the motorbike business.
In scooters, its work is still cut out. From a market share of 50.2% in 2001-02, today it holds less than 14%; in the interval, Honda Scooters and Motorcycles (HMSI) saw its share rise from 6.5% to 48.8%. TVS Motor took share from 16.3% to 23.7%. Clearly, while it has its act right in motorbikes, a lot of work still needs to be done to regain its pole position in the scooters market, which it once defined and dominated. Bajaj Auto net sales for 2004-05 were Rs 5927 crore, against Rs 4916 crore in 2003-04. Net profits were Rs 766 crore versus Rs 731 crore in 2003-04. It has also been retiring surplus manpower: today 11,531 employees run it, against 17,213 in 1999-00. A bulk of these are in the older plants, while the newest plant at Chakan, near Pune, runs with less than 500 people with a productivity much higher than in any other plant. One of the gains is that its gone from a net positive working capital of Rs 632 crore in 1999-’00 to a negative of 273 crore in 2003-04. Bajaj auto declared a 250% dividend for 2004-05.
TVS Motor
The third largest motorbike company in India, TVS Motor, rolled out the TVS 50, India’s first moped (motorized pedal cycle) in 1980. It was also the first to introduce a 100cc motorbike in India in September 1984.Another first was in 1994, when it launched TVS Scooty, India’s first scooterrette (sub 100 cc variomatic gears
scooter). December 1996 saw the launch of India’s first motorbike with catalytic converters for emission control, the 110 cc TVS Shogun. The 5-speed motorbike Shaolin came in late 1997, and 4-stroke Fiero 150cc came in 2000.In August 2001 came its real blockbuster, the TVS Victor, a 4-stroke 110cc motorbike, which the company claimed to be India’s first indigenously developed bike. Building on the drive towards more fuel and emission efficient bikes, TVS launched its Centra, 4-stroke 100 cc bike in January 2004. The 100 cc TVS Star came in September 2004.
The series of launches were needed as TVS struggled to maintain its lead in the motorbike market. In the mid 1990s, Hero Honda opened up the market in all segments, from 75-125-250 cc categories. From selling 7.1 lakh units a year in 2002-03, to 6.82 in 2003-04 to 6.4 lakh in 2004- 05, TVS Motor has found the going hard against Hero Honda and a rejuvenated Bajaj Auto. Its market share rose briefly to 19.2% in 2002-03 before slipping to 12.9% in 2004-05. It has primarily lost share to Bajaj Auto over these years. One of its concerns is that it loss has been heaviest in the key 75-125 cc segment, where its market share has dipped from 21% in 2002-03 to 17% in 2003-04 and to 12.8% in 2004-05. At the same time, it has gained market share in the 125-250 cc range up to 14% in 2004-05 from 8% in 2002-03. Clearly, the company is striving to move up the value chain, into a relatively less cluttered marketplace.
TVS Motors net sales were Rs 2875 crore for the year ended March ’05 with a net profit of Rs 137 crore, against net sales of Rs 2820 crore and net profits of Rs 138 crore in March ’04. The concern for TVS Motor comes also from the fact that falling unit sales aren’t been shored up by any price rises and bottom line profitability is being hit by rising raw material prices, which cant be passed on as a result of severe
competition. Operating margins have been squeezed as well, falling from 9.2% in April-June ’04 to 4.9% in January- March ’05.It scooters business continues to do well, where its market share went to 23.7% (2.19 lakh units) in 2004-05 from 16.2%
(1.35 lakh) in 2001-02. However this wasn’t enough to boost overall company figures. Clearly, TVS Motor is on the lookout for a blockbuster down the road – and not too far away either.
The outlook for the two-wheeler industry continues to remain rosy, with motorcycles leading the growth. Top players have forecasted a growth of about 15%
for two wheelers for FY06 in their investor presentations post FY05 results. However, this is an indicative number. It essentially means that companies expect sales to grow in two digits. Easy finance, better and more models at same or lowering price points, and fuel efficiency will drive growth. Rising fuel prices may in fact spur motorcycle sales more than mopeds or scooters who offer much lesser mileage per litre. Threats to growth of motorcycle sales are from the lowering prices of entry-level cars like the M800 (seems a distant threat, but while motorcycles have become necessities, cars are yet aspirational, if aspirations come within reach, they would become necessities shortly). Growth could be impacted by the passing on of raw material price increases to customers, as well as better scooters that take away a swathe of fence sitters between scooters and motorcycles.