BAJAJ AUTO LTD.

Global Business - Case 3

Professor Dr. Sheng Deng

Course MBAB 5P22

TABLE OF CONTENTS

EXECUTIVE SUMMARY..... 3

INTRODUCTION ...... 3

ANALYSIS..... 3
CONCLUSION...... 9

RECOMMENDATIONS... 10

EXECUTIVE SUMMARY

The project report deals with an Indian two-wheeler and three-wheeler company Bajaj Auto

limited. The case analysis begins with the challenges faced by the company due to

environmental factors like recession, increasing competition and changing government

regulations and how the company performed during that time. It explains and analyzes the

evolution of the Indian market in the two and three wheeler segment and provides steps and

recommendations to help BAL respond to increasing competition what it should do in the

future such as retain market share or expand operations to developed or developing countries.

The report also explains why BALs exports had been so weak and analyses whether the goals

set by the company was achievable or not. The report goes on to analyze whether the

company should rely on domestic markets to achieve its goals or should it expand foreign
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operations. Among the export markets, which markets are most lucrative and will prove to be

beneficial for BAL as well as where BAL should focus is analyzed further on in the report.

The report finally concludes by giving recommendations to help BAL achieve its goals.

INTRODUCTION

Bajaj Auto Limited is an Indian two-wheeler and three-wheeler manufacturing company. It is

the world's third-largest manufacturer of motorcycles and the second-largest in India. It is the

worlds largest three-wheeler manufacturer. Bajaj Auto came into existence in 1945 and

started off by selling imported two and three wheelers in India in collaboration with Piaggio.

Competing with everyone from everywhere for everything, Bajaj now has operations in 50

countries by creating a line of bikes targeted to the preferences of entry-level buyers.

ANALYSIS

Challenges Faced by BAL in 1993:

In early 1990s, due to economic recession, the high inflation and high interest rate lowered

Indians buying power, leading to declining demand for two-wheelers in India. Also the

increasing competition from Japanese companies had shrunk Bajajs market share in

domestic market. Consequently, Bajaj first faced overcapacity in production. Besides,

increase in fuel prices forced Indian consumers to emphasize on fuel cost savings, requiring

Bajaj to seek efficient and effective R&D capability to design more fuel-efficient models

which its Japanese competitors had already developed. However, although Bajaj had

abundant funds to support its R&D on fuel-efficiency models, the lack of capable R&D staff

caused its incompetence to market reliable fuel-efficiency vehicles to domestic consumers. In

addition, Bajajs dealers were confronted with tightened profit margin on selling Bajajs

products, which challenged BALs attraction to dealers.

Performance of BAL in early 1993:

BAL was the largest manufacturer of scooters and third-largest manufacturer of two-wheeler

and three-wheeler in the world, as well as the lowest-cost manufacturer of two-wheelers in

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the world. Although having obtained such reputation in 1993, BAL had to defend its domestic

market share due to the challenges discussed above. BALs scooters and three-wheelers

contributed to most of its profits, which allowed it to provide low-cost vehicles consistently

in order to keep domestic market. Besides, domestic consumers search for fuel efficiency

drove BAL to focus on product development, but still it was unable to catch up to its

Japanese competitors R&D capability and speed. In addition, the intensified competition

forced BAL to ensure its effective distribution to its dealers and expand its dealerships to 330.

The competition also made BAL plan to reinforce its brand equity by enormous and broad

advertising and promotion.

Evolution of Indian market in the specific segment:

In 1969, the market was favoured for the domestic products as Government of India imposed

various regulatory restrictions that made foreign firms difficult to enter into its domestic

market. It further limited the import of technological products and encouraged domestic

production. Also, quantity of production at domestic market was restricted. These political

factors provided unique opportunity to BAL and led to develop leadership in domestic market

but they lacked efficiency and did not have to compete with a lot of other companies. Further,

the demand of its products were outgrowing while it was unable to meet these demands due

to quota limits leading to an average 10 years waiting for its products. This scarcity factor

provided a unique value to its products and developed a well-known brand in the India. Thus,

BAL did not require spending on sales and marketing promotion in 1970s. Since 1980s,

Government of India has introduced new import and export policies shifting towards a free

market. This has relaxed quota limits and allowed foreign investments. This has allowed BAL

to enter in collaboration with Kawasaki for motorcycles and moped designs. This led to the

introduction of many joint ventures and lot of new companies came into the competition like

Hero Honda, Piaggio, escorts, etc which brought with them new technologies and had a

major impact on the market. Meanwhile, the demand for the two-wheelers and three wheelers

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increased exponentially. BAL also had much advancement in its manufacturing plants with

all the new technologies and gaining economies of scale. By 1993, BAL was the largest

manufacturer of scooter and worlds 3rd largest manufacturer of two-wheeler and three-

wheeler vehicles while it maintained its cost-leadership strategy. In fact, BAL used these

unique political factor opportunities to modernize plant facilities with high production

efficiencies.

How BAL should respond to increasing competition:

BAL needs to consider growth strategies to respond to increasing competition. Although

1980s was a period of rapid growth for BAL, the company failed to enter the developed

markets of North America and Europe. This was because of a lawsuit instigated by Piaggio

which threatened the dealers in those countries with legal actions. Hence, considering market

development now will be a better chance in capitalizing on the opportunities in this market.

BAL was losing their share to competitors such as Honda and Yamaha and the main reason

for this was slow product development. BAL took 4 or 5 years to introduce new products in

the market while their competitors introduced new products in a time span of 2 to 3 years

only. Therefore, they should seek more efficiency in product development by training skilled

R&D personnel to respond to such competition. Apart from this, BAL should also try to

improve relationships and response from suppliers if they are to tackle this problem.

Options for future growth can be a growth strategy such as diversification as well. Investing

in other Indian consumer good markets can give them competitive advantage over their

competitors and help earn more revenue in the future and better growth prospects. Since

financing for the two wheelers was discouraged by the government, BAL can improve

financial activities and gain significant market share through the diversification strategy.

Export market exploitation is also how BAL should respond to competition. In other words,

geographical diversification is equally important for BAL as unexploited markets such as the

Middle East and North Africa are attractive. BAL should consider two options for

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international expansion of its operations. Firstly, either they should consider pursuing exports

to international markets in developing countries that would require minimum adaptation for

BAL to operate and less legal requirements. The second option is to promote exports to

developed countries such as the lower end of Europe by improving the quality of products

and aiming for higher pricing with a new target market.

Weakness of BALs exports and analysis of its goals:

Bajajs exports had been weak when it started to look towards export markets. Initially,

exports were started with private sector licenses for South Asian countries. Two of the three

were not successful mainly because of external factor like unfavorable political pressures

faced by licensee with respect to imports. Later, establishing distributorships in America and

Europe was not that successful as well due to the following reasons:

1. Establishing distributorships were opportunistic rather than strategic decisions

2. Litigation slowed growth of exports which gave Japanese competitors the chance to

establish themselves in these markets.

3. Bajajs vehicles lacked local responsiveness in terms of the technology, features and the

right models (i.e. no model above 250cc and high competition in the popular 50cc

segment). It was also hard to meet all the regulations regarding emissions, noise etc.
4. Eastern Europe was a good prospect but currently lacked buying power. With respect to

export product types, Bajaj had the dominant market share for three-wheeler vehicles, but

the problem here was that market for these was relatively small and only existed in

neighboring countries. For the two wheeler vehicles, the global market had shrunk from 15

to 11 million units and was dominated by strong competitors like Honda, which hindered

growth for Bajaj. Bajajs global market share only grew 1.5% between 1982 and 1992

while there was double digit growth for competitors.

Having distributors in developing countries like Latin American countries was probably the

most successful exports decision by Bajaj with Rs. 105 million in revenue in 1992 (38% of

all export revenues). Despite being attractive, exports to developing countries faced several

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problems as well e.g. highly competitive market in China, low purchasing power in Africa,

high price sensitivity despite less stringent product specifications.

Given the fact that exports made up only 2% of sales in 1992, it is overly ambitious to have a

target of 15% by 1998. Keeping the problems discussed above in mind, the goal is unrealistic.

Currently, the developing countries need time to become more attractive, Asian markets are

highly competitive and developed countries require considerable product adaptations and

newer models. Bajajs average cycle time for a new model was 4-5 years at that time which,

coupled with lack of skilled R&D personnel, makes this target more unrealistic.

Reliance on domestic market or expansion of foreign operations:

Given the high competition and foreign collaborations in its home country, Bajaj cannot

solely rely on domestic market, as the opportunity cost of not expanding internationally

would be huge. Its best defense and offence for market share would be to diversify

geographically. To stop decline in market share in India, it can introduce new competitive (i.e.

low cost, fuel efficient, with trendy features) two wheeler vehicles to its product mix locally.

Bajaj has an absolute advantage in three wheeler vehicles and can capitalize on it by

exporting to similar attractive markets of South Asia and developing countries like Latin

America. There is hardly any competition for three wheeler vehicles in Latin America. For

two wheeler vehicle exports, Bajaj again has an opportunity in developing countries,

especially Middle East (mainly Egypt), North Africa and Latin America, in the immediate

future as these countries require less product adaptation and Bajaj enjoys price advantage

over Japanese.

Europe can be expected to become more attractive, albeit not as attractive as developing

countries, in the future as Bajaj would have to do less customization per European country

due to harmonization of specification in Europe which was to take effect earliest by 1995.

Also, Bajaj already enjoys price advantage because Japanese competitors had to pay import

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duties. Lastly, Bajaj has taken its time and has understood how to execute technical

certifications in Europe and can now move products to market faster.

Most promising export markets for BAL Developing or Developed:

According to the management BAL had the following options for international expansion:

unsolicited approach (focus on domestic market), expand to developing (Asia, Latin

America) or developed markets such as Europe which accounted for 53% of all global

imports in 1992 according to the article.

Europe was a lucrative market, especially scooter and under-50cc segments. The benefit for

Indian producers was that Indian vehicles were subject to Generalized System of Preferences

and no import duties. At the same time, Japanese manufacturers had to pay 9% duty. As a

result, products offered by BAL had a significant price advantage compared to competition,

however, their main model Sunny did not manage to capture significant market share as it

lacked some features compared to competitors products.

BALs plan for the future was to penetrate as many markets as possible with Sunny model

and position itself as a low-end (cost-leadership strategy); as market matured and BAL gained

a foothold, market share, BAL would start updating the product line with higher performance,

higher margin products (i.e. motorcycle segment). However, European market was not very

consolidated, different countries had different technical requirements, as a result companies

had to spend considerable amount of resources and time to certify their products for sale.

In 1992, Latin America (incl. Mexico) was one the major exporting markets for BAL. GDP

per capita was sufficient enough to create a healthy demand for 2-wheeler products. BAL

exported 2,155 units to Argentina and 2,673 to Mexico. Same as in Europe BAL had a price

advantage over the competition. Japanese products were considered too sophisticated carried

high maintenance cost, deemed too high for the market in view of relatively low purchasing

power. The potential for future growth was high and BAL was assessing the opportunity to

establish technical licensing agreements in Mexico.

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In Asia, BAL first exported to Bangladesh in 1975 and established technical agreements with

companies in both Taiwan and Indonesia. The company acquired valuable experience by

helping licensees establish production/assembly plants. BAL gained considerable market

share in 3-wheeler market, especially in Sri Lanka and Bangladesh (exported 2,643 and 1,858

3-wheeler units in 1992 respectively). 3-wheeler segment BAL was known for really only

existed in Asia and it would be contra-productive for BAL to push that product in other

markets. On the other hand, 2-wheeler segment in Asian markets was projected to experience

high growth rate in the future and BAL would need to leverage its strengths and know-how to

convert that opportunity into increased sales and market share.

CONCLUSION

BAL has a number of decisions to make if it has to become a successful company in the

coming years. Several defects have been pointed out in this report with regards to the

companys operations, inefficiency, lost market share and declining sales due to several failed

management and strategic decision making. To rectify past mistakes and to follow on a path

of future growth and success the following recommendations are made.

RECOMMENDATIONS

BAL needs to consider growth strategies to respond to increasing competition as well as seek

more efficiency in product development by training skilled R&D personnel to respond to

such competition. BAL should also try to improve relationships and response from suppliers

if they are to tackle this problem. BAL should also focus on the fast growing motorcycle

segment and review its product lines to come up with new products that meets the needs of

the customers and satisfies demand. There is a huge international market for the segment

BAL operates in and hence it should bring its operations to foreign soil. Based on the article,

we would recommend for BAL to focus on developing markets as opposed to developed as

consumer preferences and purchasing power would be a closer fit to the domestic market in

India. BAL would be better positioned in those markets to counter competition from Japanese
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producers that dominated the 2-wheeler market globally. Continue export in South-East Asia,

especially 3-wheeler segment; develop technical licensing agreements in Latin America

(Mexico), scooter, low-end should be the priority; at the same time BAL would need to

diversify, probe other potential markets such as Middle East.

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