Ktm – Ready to Race

STRATEGIC OPTIONS

KTM has considered different the following alternatives to grow the business:

1. Geographical expansion to take advantage of other growing markets.

1. Product expansion either entering a new market segment (on-road motorcycles) or by diversifying into ATVs.

Each option will be individually analyzed to balance its pros and cons in order to advise and recommend the best direction to take KTM.

Option 1: Geographical Expansion

KTM is considering a geographical expansion to take advantage of other growing markets. They’ve considered investing in the United States, to continue investment in Europe due to the European Union expansion and also to invest in developing countries. Each option’s pros and cons will be analyzed to determine with geographical expansion is most profitable.

Choice 1 – Investing in United States

Pros

1. KTM’s growth of market share from 1% to 5.4% in the last decade.

2. Growth of off-road and on-road segments.

3. In regards to moving manufacturing processes to the US, it would solve the duty problem.

4. Easier to lower prices to dealers and to end customers.

Cons

1. US trade protectionism.

2. Time and financial resources to build a plant.

3. Difficulty in finding local suppliers for motorcycle parts.

4. Importing parts from Europe would create delivery costs and currency risks.

5. Bringing a European supplier represented additional costs.

6. Reduction of economies of scale.

Choice 2 – Investing in Europe

Pros

1. The expansion of the EU could provide potential new markets.

a. Common set of regulatory standards

b. Reduction of time spent on research and development.

c. Reduction of manufacturing and dealer complexities

2. Adoption of Euro, thus eliminating the risk of currency fluctuations.

Cons

1. Decline in European sales

2. Europe is densely populated thus possibly affecting the “off-road” segment.

Choice 3 – Investing in Developing Countries

Pros

1. Potential growing markets.

2. Competitors have internationalized.

Cons

1. Low margins on high volumes

2. Problems with defending brand name

3. Geopolitical risks

4. Adaptation to local preferences.

Option 2: Product Expansion

Again with this 2nd option, KTM has two possible choices to consider. They could either enter a new market segment such as on-road motorcycles or they could diversify into all-terrain vehicles (ATVs). Once again, both choices’ pros and cons will be analyzed.

Choice 1 – On-Road Motorcycles

KTM had two main options if it wants to expand into on-road bikes: they could either join with another firm or develop their capabilities in-house.

POSSIBILITY 1: JOIN WITH ANOTHER FIRM

KTM has the option of acquiring a smaller company or merging with one closer to its size. The first company thought of was Moto Guzzi which was considered the “European Harley Davidson” but this idea was rejected due to the difficulty of operations because of political uncertainties, complex regulatory regimes and thorny labor relations in Italy, along with the high expected cost of acquiring the company. A second company that was considered was Ducati whom combined tradition with state-of-the-art technology. The pros and cons are as follows:

Pros

1. Used a “desmodromic timing” system which enabled better performance and maintenance over the life of the bike.

2. Diversified product mix: dual-sport, sport-touring, super-sport and naked bikes.

3. Excellent financial performance and steady top line growth as seen in Figure 9.

Cons

1. Was located in Italy resulting in the same operational difficulties as Guzzi.

2. Merger

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