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Hero Case

Essay by   •  January 5, 2013  •  Case Study  •  1,062 Words (5 Pages)  •  1,004 Views

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The license raj that existed prior to economic liberalization (1940s-1980s) in India did not allow

foreign companies to enter the market, making it an ideal breeding ground for local players. Local

players were subject to a very stringent capacity licensing process, and imports were tightly controlled.

This regulatory maze created a seller's market, with customers often forced to wait 12 years just to buy

a scooter from companies such as Bajaj. In 1980 Bajaj had a waiting list that was equal to about thirteen

times its annual output, and by 1990 this list had doubled. Clearly, there was no incentive to implement

proactive strategies to woo the customer. In a 1980 interview with a local magazine, Mr. Rahul Bajaj,

the CEO of Bajaj Auto, observed, "My marketing department? I don't require it. I have a dispatch department.

I don't

have to go from house to house to sell."

The

motorcycle

segment was no different;

with only

three

manufacturers--Royal

Enfield,

Ideal

Jawa,

and Escorts--there

was hardly

any significant competition

for the customer.

While

this segment was dominated by Enfield's

350cc Bullet,

the only motorcycle

with a four-stroke

engine at the time, Jawa

and Escorts

also had a fair share of the middle and

lower

end of the market.

The winds of change began to take hold in the mid-'80s when the Indian government started

permitting foreign companies to enter the Indian market through minority joint ventures. Under these

relaxed regulations, the two-wheeler market witnessed a veritable boom with four Indo-Japanese joint

ventures; namely, Hero Honda, TVS Suzuki, Bajaj Kawasaki, and Kinetic Honda all lining up to target

the Indian consumer market for motorcycles. The simultaneous entry of four players into this underserved

market helped boost motorcycle revenues to stratospheric heights. For the first time, the market dynam-

ics changed in favor of the Japanese players in both two-stroke and four-stroke vehicles, and the Indian

manufacturers who had held sway for such an extended period of time were suddenly cornered. The

entry of these new foreign companies transformed the very essence of competition from the supply side

to the demand side. Confronted with a larger array of choices, the consumers were regaining their

influence over the products that they bought. In keeping up with these higher customer expectations,

the industry accelerated the launch of new models, and every company was trying to outdo the other in

terms of styling, price, and fuel efficiency. The technological expertise that the foreign companies brought

to the marketplace helped increase the overall quality and reliability of the products quite significantly.

The old-guard companies soon found themselves under pressure to improve their offerings and bring

their products on par with their global counterparts.

Two-wheelers include all motorized vehicles using a two-wheel chassis (e.g., motorcycles, scooters, and

mopeds).

1

2 A09-03-0012

1

The Indian Consumer

Two-wheelers had become the standard mode of transportation in many of India's large urban centers.

Increasing urbanization, saturation of cities, and the lack of adequate roads helped to propel demand

for two-wheelers. The two-wheeler was typically a prized possession in the average Indian household. It

was normally used to transport both people and goods, substituting for a car that was prohibitively

expensive. While a two-wheeler normally cost around Rs. 40,000 [1 U.S. $ = 49 Rupees (Rs.)], an

entry-level car was priced around Rs. 300,000. Two-wheelers had long road lives, and were often used

for even 15 years, passed down from one generation to the next. However, in global terms the market

was far from mature. Industry watchers reported that India had a penetration rate of 10% as of the late

1990s (107 two-wheelers for every 1000 adults), far below the penetration rates of other developing

countries. It was clear that the manufacturers had a lot of ground to cover.

There were indeed visible signs that the companies were gearing up to address this growing market.

While

the production

and sales of motorcycles

grew substantially (CAGR

of 22% between 1996

and

2001), the performance

of the other two segments of two-wheelers was poor.

Scooter production

grew

...

...

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