Falling sales at home have failed to douse the company's zeal to grow abroad.
Bajaj Auto is readying to penetrate the top- and bottom-end of the global motorcycle market, segments where it has been unable to compete till now.
“We cannot address these markets with the Bajaj brand,” says Managing Director Rajiv Bajaj. This known (to Indians) brand is meant, he is clear, for the middle-value segment.
So, Rajiv Bajaj is doing two things. One, developing a new brand to take on his prime competitor, bikes from China, for the yearly 14 million bikes sold in the “bottom of the pyramid” segment, where the price is less than $1,000 and Chinese bikes dominate.
Two, take a larger stake in KTM, which is among the top three brands at the top-end of the motorcycle market, selling 90,000 bikes a year. Bajaj took 14.5 per cent in KTM in end-2007. It has since raised this to 30 per cent. “In future, Bajaj will take a larger position in KTM,” says Rajiv Bajaj. “It’s not just an acquisition, the entire product planning has been tied up.” Develop bigger bikes, 500cc and above, on the KTM route, is the idea.
As for the bottom segment, the design for this new motorcycle, for which a new brand name will be chosen, is ready for launch. The plan is to launch the design in Nigeria, the largest market for the sub-$1,000 bikes outside China. The launch is just a month away, promises Rajiv Bajaj.
The design for this motorcycle is complete, he said. They worked closely with the enemy — read, Chinese suppliers — to do so. The work on this was done in India. The entire development and manufacturing is being done in China.
A note here on the background. The global two-wheeler market (see box) is about 50 million units a year. The middle segment, of 22 million units (half of these are motorcycles, of which six million a year are sold in India), is dominated by Japanese brands like Honda, Suzuki, Yamaha and Kawasaki. The Chinese dominate the bottom of the pyramid (21 million a year, of which 14 million are motorcycles).
The latter bikes, sold for $1000 or less, are often shipped for $300-$400 each. There’s no way a machine made in India or Japan can match these prices. The Chinese market alone accounts for 6-7 million of these bikes a year. Africa accounts for another 4 million, with Nigeria’s 1.5 million bike sales being 40 per cent of this.
The mid-segment bikes are, typically, sold for $1,000-$3,000. Bajaj claims it sells its 220cc Pulsar in some export markets for close to Rs 1 lakh, or $2,000. “It proves that consumers are not just looking at price but also value,’’ says Bajaj. It has managed to corner 15 per cent share of the Nigerian market.
The top-end of the market (4 million units) is dominated by niche players like Harley Davidson (200,000/year), BMW (100,000/year), KTM (90,000/year), Ducati and Piaggeo. Though the Japanese also make and sell bigger bikes (600cc and above) in large numbers, it’s the American and European specialists who command the pricing power, as consumers are highly brand-conscious.
Bajaj will focus on the mid and bottom ends, which together account for 25 million bikes a year and, as noted earlier, target the top-end (4 million) with KTM. “We will use brand as our competitive edge and position Bajaj squarely in the middle space,’’ said Bajaj.
For now, the goals are modest. Given strong competition from the Japanese in the mid segment, it wants to target just 20 per cent, or 2-2.5 million, of the 11 million bikes sold yearly in the mid segment in markets like India, South America, Indonesia and Nigeria. Of course, it wants a much higher share in India and would like to regain the 27 per cent market share it once held, from 21 per cent today.
In the bottom end of 14 million bikes a year, Bajaj believes it is better than the competition in every aspect. By going to China, it is matching the cost factor and so, would like to target nothing less than 40 per cent, or 5.5 million bikes a year, in this segment.
Theoretically, in the two segments put together, Bajaj can generate volumes of 7-8 million a year. This financial year, Bajaj would finish with 2 million motorcycles and, hence, the company needed to quadruple its output, said Bajaj.
To do this, the plan is to adopt a “platform strategy.” Take an instance from the car industry. The Skoda and the Audi share engine, transmission and floor panel. But the way the rest of the car is put together allows Audi A8 to be priced at Rs 1 crore, while Skoda sells for Rs 25 lakh.
“We have followed a similar strategy for some time, now is the culmination of that work. The basic platform is the same, whether we are addressing the middle 11 million or the bottom 14 million,’’ said Bajaj. He believed this would generate enormous economies of scale in manufacturing — in its plants, with suppliers or in its R&D, because suddenly it is not addressing 11 million but 25 million bikes.
It will enjoy economies of scale on the parts it is designing, developing and tooling or buying from suppliers. Take two bikes, one positioned in the mid-segment, the other a trim-down version in the bottom segment, where 80 per cent of the parts are common.
The first one is dressed up with features, trims, which in value terms are 20 per cent, but give an impression of a different animal.
That 20 per cent value in a car could be the trims — dashboard, AC, radio, MP4 player, power windows, power steering, etc. The other 80 per cent is what goes inside, like engine, transmission, and suspension, that customers don’t see. That’s where Bajaj said he would get his economies of scale. “I will get a total 25 million volume benefit for 80 per cent of the parts (that are common).’’
Will the volume benefit on 80 per cent of the parts help him compete with Chinese bikes at the low end? Perhaps. “If I sell (a bike) at 55,000 Nairas (Nigeria’s currency, Re 1 is N2.85), I cannot make money. My motorcycle is being sold at 87,000 Nairas. It has captured 15 per cent share and cannot grow further as there are capacity constraints. This proves that even in a market like Nigeria, people are willing to pay 50 per cent higher price if they can get better quality, durability and fuel economy,” said Bajaj.
By multiplying his scale of operations, Bajaj hopes to price his bike at a level that will help him get a sizeable presence in Nigeria and also make more money.
As for the top-end, that will be done, as mentioned earlier, through KTM. Bajaj feels that just as Mercedes has come down from S-Class to E-Class, B and A-Class, there’s no reason why KTM should restrict itself to making bikes of 800cc or 1,000cc. The idea is simple. If Bajaj sells a 400cc bike, it may get one price but if virtually the same bike is branded as KTM, it will fetch an X-plus price.
“That’s what business is all about - brands that reflect on the balance sheet,’’ said Bajaj, who after converting Bajaj into a motorcycle maker, is perhaps facing his first big challenge with sales declining for two years in a row.
Bajaj’s strategy is to grow KTM strongly (this segment is not a volume game but a profit per unit one) and will be satisfied if it can sell 200,000 bikes a year, what market leader Harley Davidson sells. Thus, Bajaj wants to sell 2-2.5 million bikes in the mid segment, 5-5.5 million in the bottom and 200,000 at the top segment.
“If our strategy is sound and our execution is effective, we should be able to get to this number in three to five years,’’ says Bajaj. “If this materialises, 80 per cent of Bajaj’s business would come from overseas, against a third today.”
