INDIAN INSTITUTE OF MANAGEMENT

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1
TI Cycles : Corporate Strategy (A)*

In 1994-95 TI Cycles, a part of Tube Investments Limited, had incurred a loss of Rs. 2.98
crore. It had slipped to the number three position in the industry. Its sales in the domestic
market had flattened. It was slow in responding to the new market needs. Its lead-time in
reaching the market was three to four weeks. It had lost its faith in its ability to deliver
according to the deadlines of dealers. There was a situation where cycle parts that reached
the central warehouse could not be assembled into complete bicycles owing to
mismatches arising from poor co-ordination. As a result, trucks used to wait for five to
six days to get their consignment of ready to assemble bicycle kits.

TI Cycles had incurred a loss of more than Rs.1.00 crore on export operations alone. The
orders from Europe had declined. It had to decide whether to keep its independent export
unit running or close it down. The heads of marketing, manufacturing and product
development who had pioneered the efforts of product development and new product
introduction had left. Mr. Padmanabhan, who was holding the position of Vice President
of TI Cycles since 1989 had also left the company for other prospects.

Against this background I was asked by Vellayan, Managing Director of Tube

Investments Ltd. to take over as the vice president of TI Cycles.

Mr. Ramkumar, General Manager, Finance, of Tube Investments Ltd. told the case writers, as
above, as he reflected on the situation he was in. Ramkumar, 38, a post graduate in management
from the Indian Institute of Management, Ahmedabad, and a Cost Accountant, had to decide
whether to accept the offer or not. In his capacity as General Manger, Finance, he had helped the
company raise funds through Global Depository Receipts (GDR) to support its export operations.
Before joining Tube Investment of India, the holding company, he was in charge of the finance
function at TI Cycles itself.

Company Background

TI Cycles was promoted by the family of Murugappa Chettiars in September 1949 in

collaboration with Hercules Cycles & Motor Co. of U.K. to indigenously produce complete
bicycles and bicycle parts, and substitute imports. The factory at Ambattur, a suburb of Madras,
now Chennai, Tamil Nadu state, was commissioned in 1951. It was a significant technical and
managerial challenge to put up such a unit in an industrially less developed region. The family
had also promoted other enterprises like Tube Products India Ltd., TI Diamond Chain, TI Miller,
Wright Saddles India and TI&M Sales. Together they formed the Tube Investment Group. Tube
Products India and TI Cycles were merged to form Tube Investments Ltd. In the 1930s and 40s
the family was involved in money lending in Burma, Malaysia, Sri Lanka and Vietnam. In 1940
the group decided to give up banking and venture into manufacturing. It set up Ajax Products
Limited and began manufacturing steel products and abrasives. The business interests of the
family covered diverse areas such as sugar, plantation, confectioneries and ceramic ware.
1*
Prepared by Professor Mukund R. Dixit and Professor Abhinandan K. Jain. Key performance figures in
the case are disguised. The authors are grateful to the executives of TI Cycles for their co-operation and
support in writing the case. The financial support for this case writing project was provided by the
Research and Publications Committee of the Indian Institute of Management, Ahmedabad.
Teaching material of the Indian Institute of Management, Ahmedabad, is prepared as a basis for class
discussion. Cases are not designed to present illustrations of either correct or incorrect handling of
administrative problems.
Copyright  2002 by the Indian Institute of Management, Ahmedabad.
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Since its inception, the members of the Murugappa family had shown keen interest in the growth
of TI Cycles. It was a ground for inducting younger members into business. However, since 1983
the family members had withdrawn from day to day management of TI Cycles. The leadership
was handed over to professionals. In 1994-95, Mr. Vellayan, a member of the Murugappa family,
was the managing director of Tube Investment Ltd. and Mr. Subbiah, an elder member of the
family, was the Chairman. The family believed in the values of fairness, truth, honesty and human
considerations in treating people in managing its businesses. The family advocated strict
adherence to the laws, regulations and rules of the land. It was also keen on making a distinct
contribution to the well being of the society. See exhibit 1 for a statement of values and beliefs.

The initial production of cycles in 1952 was 36,000. This increased to 89,000 in 1955. The mark
of million cycles was reached in 1960. The second million mark was reached in December 1963
and third in April 1967. In 1994-95 the total production of cycles was 19,46,000.

Product Range over the Years

The early emphasis of TI Cycles was on manufacturing quality bicycles as per the design and
drawings from the collaborator. It started with the assembly of `Hercules’ brand of standard
cycles in its plant at Ambattur, in 1951. `Hercules’ brand was promoted as a life companion. It
was aimed at the office goers and workers. The product created a market for indigenous bicycles
in India. Encouraged by the success of `Hercules’ the company introduced a new brand,
`Phillips’, for the student segment in 1955.

Both `Hercules’ and `Phillips’ were the registered trademarks of Hercules Cycles and Motor
Company of UK. `Philips’ was followed by a sports cycle called `BSA-SLR’ in 1964. The
product was slim with features like small tyres and wire breaks. It was aimed at the upper middle
urban youth. It introduced a special cycle for ladies with cross frame that was easy to climb on to
and ride. The company offered its models in black and green colours.

Cycles, till early 70’s, consisted primarily of the workhorse 'Standards' models. TI Cycles was
the largest producer and marketer of bicycles in India.

Over the years the company tended to offer its products in two distinctive ranges:

Work Horse for day today use of middle and lower income customers, and specials for multiple
uses, like trekking and racing, of high-income customers. The two types of bicycles were different
in the features offered. A work horse cycle was a standard cycle in black colour with horizontal
handle. The sports and racing cycles had thicker tyres. They also came with multiple colours, wire
breaks, thin frames and thin tyres. The range of cycles targeted the adults and children, male and
female segments separately. The cycles were marketed under 'Hercules' or 'BSA' brands. In all
there were 13 variants sold under the `Hercules’ brand and 29 variants under the BSA brand. The
variants were built around alternative designs of carrier, cover chain, tyres, basket attachments,
frame shapes trainer wheels. They also targeted different customer segments.

For example, `Hercules Captain', aimed at the 15 year and above gents segment, was a 20” high
cycle with no frills except a hard saddle and a chain cover. 'Hercules MTB Jr.' aimed at the 8-12
year old boys segment, had oversized tubing frame, solid deflected plate, carrier, stand and wheel
reflectors. It was offered in red colour. 'BSA Lady Bird Jr.', aimed at the 8-12 years old girls
segment, was a cross tube frame slim cycle with a carrier, specially designed wire mesh basket,
chain cover and a stand. It was offered in blue colour. In 1994-95 the price of `Hercules’ brand of
cycles ranged from Rs.1,450 for Hercules kids in the 4-7 year age group to Rs.2,275 for Hercules
cannon barrel meant for kids above 9 years. The price of ‘BSA’ brand of cycles ranged from
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Rs.1,300 for 'BSA Snow White', meant for children in the 2-4 year age group, to Rs.2,235 for
'BSA Lady Bird'.

Operations at the Ambattur Plant

The Ambattur unit began with the assembly of completely knocked down kits imported from the
collaborator. The indigenisation of the components began with the commissioning of components
manufacturing units in 1954 at Ambattur itself. The management decided to make all parts under
one roof, as there were no reliable suppliers of parts in and around Madras. The unit started by
producing parts for standard black coloured `Hercules’ bicycles. An executive remarked, “In
those days producing parts that fitted to each other was a commendable engineering effort.”

The key parts were the frame and the fork made from steel tubes. To the frame and fork assembly
were fitted the various parts of the bicycles like tyres, mudguards, handles, brakes and carriers.
Fitting the frame and the fork together was the most critical operation. The technology used to
join the various metal parts was called “dip brazing”. The technology called for dipping the parts
to be joined in a bath of molten brass and allowing the molten metal to enter the gap between
two parts and solidify. This was a very tough and hazardous operation. It led to wastage by way
of excess deposit of brass on the parts. The excess metal was recovered by dipping the joined
parts in zinc acid. This operation released zinc fumes and caused pollution. It also restricted the
shape of the frame to a `triangle’. This technology was changed in 1985 and a new technology
called ‘charge brazing’ was adopted to join the parts. In this technology fine particles of brass
were charged into the cavities of the two parts and heated at high temperature. This saved the
metal but consumed more energy. This technology was replaced by welding. The parts were
welded together using welding rods. Welding created the possibilities of alternative shapes and
facilitated the introduction of luxury and sports bikes.

The frames and fork assembly was painted in the painting shop. Earlier the parts were dipped in a
paint bath. This was discarded in favour of spray painting in which fine particles of paint were
deposited on the parts by a spray gun.

Organization of the shop floor

The shop floor was organized along technical processes like cutting, machining, welding and
painting. All equipments needed to make a family of parts were housed in one hanger of the shop
floor. For example, frames for all the varieties of cycles were produced in one location and all the
painting was done in another location. The parts were sent to a central warehouse for packing and
dispatch. The cycle was dispatched to the dealer in completely knocked down condition. The
components needed to assemble four cycles were grouped together and packed. On the
experience with this organisation of the shop floor an executive commented:

The initial layout of the plant was for a single type of cycle. Hence the company did not
experience confusion at the stage of assembly. Over time the company introduced
variations of `Hercules’ and a category of sports bikes. Despite the introduction of variety
and considerable increase in capacities, the organization of the shop floor did not change.
The parts were shifted to the central warehouse without verifying whether the
complementary parts were produced in other units for assembling the full cycle. This led
to non arrival of parts for packing the completely knock down kits, increase in
inventories, and considerable increase in waiting time for the trucks outside the central
warehousing facility. A queue of trucks waiting outside the gates became a common
sight. The time delays resulted in late deliveries to the dealers. This made them lose faith
in the company’s ability to deliver as per promised schedule.
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In 1994-95, 60% of the trucks waited for more than 96 hours and 31% of the trucks waited for 48
to 72 hours to receive their consignment. The remaining 9% waited for 72-96 hrs. The other
issue was the discrepancy in delivery. 27% of the consignments delivered was not as per the
dealer’s orders.

In June 1992 Lucas Engineering Consultants (LCE), a UK based engineering consulting

company, was appointed to study the layout of the shop floor and make suitable
recommendations. LCE had carried out a similar assignment for the TVS group of companies that
had its business interests in two wheelers and auto components. They had recommended to TVS
that the shop floor should be organised along cells that made a set of parts that made a complete
assembly or sub assembly. By 1994-95 LCE had made a detailed study of the shop floor layout
and the causes of imbalances. It had noted that the technologies and requirements of parts of the
various ranges of cycles were different. Hence it was advisable to reorganize the shop floor along
modules and not along parts. The switch over from parts based to module based organization
called for communication with and retraining of workers and supervisors. The issues in managing
change in a tradition and hierarchy bound organization needed to be thought through.

Reaching the Customer

Initially fully assembled bikes were sent to the market. To save the cost of transportation and
improve logistics, the format was changed to sending ready to assemble kits to the dealers. The
components were put in a cardboard box and dispatched to the dealers by truck. The dealers
received the cycles in completely knocked down (CKD) conditions in cases. Each case contained
5, 6, 10 or 16 cycles. The dealer assembled the cycles before sale. The dealers assembled the
parts into full bikes at their premise. The technicians of the dealers were trained by the dealer
himself.

The company had its dealers in 993 towns out of 4,313 in India. It was represented fully in towns
with a population exceeding 1 lakh. However, in smaller towns with population of less than one
lakh, TICycles's representation was partial. Some dealers appointed sub-dealers to expand their
reach. The dealers and sub-dealers could stock other brands of cycles as well. A few dealers
stocked automobile ancillary parts and consumer durables in addition to cycles.

The company canvassed for sales through the company appointed sales representatives. The sales
representative booked the orders from the dealers and passed them to the central marketing office
at Ambattur. The sales representatives of TI Cycles dealt primarily with the dealers. The
marketing office passed the orders received from the representatives to the production unit for
planning the production.

The dealers viewed TI Cycles as a supplier of special category cycles. They had lost interest in
selling the standard category of TI cycles. They expected the company to innovate in features,
styles and accessories, and give them an opportunity to charge premium prices. The fancy cycles
attracted customer to the stores. This was reinforced by the behaviour of the sales representatives.
A marketing executive remarked:

When our sales representatives met the dealers they encouraged them to book orders for
specials. They mentioned the standard category reluctantly.
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Competitiveness of TI

TI Cycles faced competition from Hero Cycles Limited, Atlas Cycles Limited, and Avon Cycles
Ltd. All of them were located in the North. TI Cycles had established a name and reputation for
quality. Till the early seventies, being a dealer of Hercules cycles was a symbol of prestige. It lost
its exclusivity when competitors from the North entered the industry and built leadership
positions on the basis of lower price. (See the appendix for the evolution of the bicycle industry in
India.) In the sixties TI cycles was a price leader with a price of Rs.198 for BSA cycle and Rs.172
for Hercules. Hero from Hero Cycles Limited and Atlas from Atlas Cycles Limited sold their
cycles for Rs.140 and Rs.150 respectively. In seventies TI Cycles sold its BSA for Rs224.95 and
Hercules for Rs.205.90. Hero Cycles and Atlas Cycles had increased their prices to Rs.170.30
and Rs.181.60. In the early nineties TI had increased its prices to Rs.1475 and Rs.1270. Hero
Cycles and Atlas Cycles had increased their prices to Rs.1090 and Rs.1176. Avon from Avon
Cycles Limited sold its cycles at the lowest price of Rs.690.

In 1994-95 Hero held 47 per cent of the `standard’ market, followed by Atlas with 27 per
cent. TI cycles share was 12 percent while Avon’s share was 14 per cent. The specials
segment, constituting about 35% of the total cycle market was expected to grow by more than
20,000 per month and TI Cycles lead this segment with 50 per cent market share followed by
Hero Cycles with 35 per cent and Atlas with 10 per cent.

An executive remarked:

Since our company had started the industry in India the general psychology was that the leadership
would continue owing to the technical sophistication of the product. Hero Cycles intuitively
learned to make the cycles on its own and offered value for money. It competed on price and
tapped the price conscious segment, which turned out to be the largest segment in the country. We
lost our leadership position in 1978 when our employees went on strike, and the strike lasted for a
year. This enabled competitors to strengthen their position. The company got marginalized in
north and was almost forced to vacate the northern market.

Competing through new products

With the increase in competition in the standards segment, TI Cycles chose to create the category
of special cycles in 1969-70. The specials cost more and were aimed at specific segments like
sports, ladies bike and use in mountainous regions. In 1989-90 the company introduced the
Mountain Terrain Bike (MTB) range in response to Hero’s Ranger. These cycles called for
production of frames of different shapes. This was possible through welding. The executives of
TI cycles had noted this during their trips abroad. TI installed the welding equipments and
experimented with this technology. The other companies soon followed and challenged TI cycles
in the specials as well with their strategy of value for money.

The launch of "Street cat" in 1995 resulted in favourable launch response and an opportunity to
sell the bikes at a premium. It helped TI build a distinct segment as well: It introduced the
dimension of `fashion’ in ATB segment distinct from TOUGH the traditional platform of ATBs.
Exhibits 2 and 3 provide the stories on these new product launches.

Hero had maintained its lead over TI in the MTB range till 1994. In early 1995, TI Cycles
introduced the first bike with front shock absorbers and in 1995 'Rockshock FST' with front and
rear shock absorbers.

Product management, Product Development, Manufacturing, and Purchase jointly shared the new
product design and introduction activity at TI Cycles under the overall guidance of General
Manager, Marketing, and the Vice-President. A Senior Product manager headed Product
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Management Department and three Product Managers assisted him. Each of the Product
Managers was responsible for a set of products for which they prepared marketing plans and
monitored the same. Product Managers were generally either MBAs and / or experienced TI
personnel who had worked in sales and or marketing. A Manager who was assisted by three
Product Designers headed the Product Development Department. Product Designers were
engineering and /or design graduates with design / manufacturing/ quality experience.

The Product Management Department, as a part of their task of preparing marketing plans,
regularly collected sales and marketing data about TI Cycles as well as its competitors and the
industry. The data was collected through in-company sources and other secondary sources. For
managing the products, the Product Managers also designed and collected primary information
about bicycle buying, competitive positioning, product and communication testing, etc., through
reputed marketing research agencies. On the basis of relevant market information, Product
Managers generated new product concepts. The concepts were tested with target consumers
before being handed over to Product Development Department for specifications and prototype
development. Prototypes were tested with target consumers and selected dealers. During this
phase, Product Development constantly interacted with Manufacturing and Purchase for checking
out production and sourcing requirements. Adequate samples of selected models were then
produced and tested with target customers. The product testing also provided some idea about the
likely demand, which helped in planning the production

Marketing Department of TI Cycles had identified some schools in Chennai whose student profile
was similar to that of the target customers of TI Cycles. The Company had also identified some of
its dealers as the ones who could provide feed back about new products and other marketing
initiatives and policies. Besides, the company had prepared a cycle testing track (MGM) where
new models were kept for children and any body else to ride. TI Cycles used all the three (the
schools, the dealers, and the track) at various stages of new product design and development to
test their new concepts, prototypes and samples.

Competing through Outsourcing

TI Cycles suffered from a major cost disadvantage (of about 10%) because of integrated
production facilities and higher overheads. As independent entrepreneurs set up facilities for
producing bicycle parts in other parts of the country, TI Cycles saw an opportunity to outsource
the requirements of non-critical parts and reduce its costs. It started outsourcing of components
from Ludhiana, Punjab state, in 1980. It focussed on in-house manufacturing of frames and forks.
It set up a state of the art painting facility to paint the parts and cater to a large variety of bicycle
types. It led to the closure of several parts making units within the plant. Though out sourcing
helped the company reduce the absolute cost, it did not confer a relative cost advantage because
the parts had to be outsourced from the North and the company had to pay freight charges. The
cycle companies located in Ludhiana did not have to incur the freight cost. The higher costs of
in-house production and the cost disadvantage in obtaining supplies from Ludhiana had made the
location of the unit in Ambattur uncompetitive.

Export Operations

In the early sixties, TI exported completely knocked down kits (CKDs) to Africa and Middle East
markets. The devaluation of rupee in 1965 had made exports from India very attractive.
However, the company could not compete with companies from China and Taiwan. Another
opportunity to export arose in 1988 with the increase in the demand for export of bicycle parts.
This was triggered by the absence of duties imposed by European countries on Indian exports.
The European cycle importers scanned the Indian suppliers and identified TI Cycles as the source.
The export venture required that the company learnt new technical competencies in parts making,
painting and welding different from the current ones.
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In 1991 an importer suggested that the company should supply completely assembled cycles. An
assembling unit for exports was set up in Ambattur itself. The importer helped the company to set
up the assembly facilities and provided assistance in quality control. Since the unit was required
to cater to a wide variety of cycles in terms of shapes, size and colour combinations, the unit
aimed at being flexible.

The export assembly unit obtained the parts either from the parts plants at Ambattur or from the
newly set up unit in Puruthipet or from outside, assembled the bikes, and placed them in semi
knocked down condition in a container. The container was loaded on to a truck for dispatching.

In 1991-92, a four-phase international market strategy was drawn up. In the first phase, TI was to
establish credibility through entry to European Community (EC). It was planned to cover EC
countries one by one, using one customer (distributor) per country, with a low-end product and
without a brand name. The second phase was to create visible credibility in the EC. This was to
be achieved through upgrading the product from low to low-mid range, explore possibilities of
establishing a brand, and direct selling to retailers. Simultaneously, the thrust of first phase
(unbranded) was to continue to provide stability. The third phase was to substantially increase the
market share in EC through both strategies designed in first and second phases with more
emphasis on branding backed by manufacturing (mostly assembly) in Europe. In the last phase,
TI Cycles was to become a truly international player.

TI Cycles initiated measures to develop an international mindset and capabilities and achieve the
goals of above strategy. EC was selected as the key market because of tariff preference to India
and dumping duties imposed on China, the largest exporter of bicycles. The product was
improved to cater to the lower end of the market through overseas exposure, training,
participation in trade fair, technology upgradation within, and global sourcing. A dedicated
Export Oriented Unit (EOU) of 300,000 units was set up for catering to the volumes anticipated.
Also, an international subsidiary, Perry Overseas Ltd, Virgin Islands, was set up to manage the
operation.

The export operations showed promise of higher growth. To finance the expansion of the
exporting operation it raised $50 million through global deposit receipts (GDR) in 1994-95. The
company got itself listed on Luxumburg Stock Exchange in May 1994. The steady growth in
exports could not be sustained as the European countries imposed duty also on imports from
India. The export of frames declined from1,38,000 to 18,500 in 1994-95. The CKD exports had
increased from 1,05,726 to 1,86,126. The company’s profits before tax from export operations
declined from Rs.28.7 lakhs to a loss of Rupees one crore.

Information Technology

TI Cycles used computers for office related work like accounts finalisation, budgeting and
planning, report preparations and the like. Computers were not installed on the shop floor.

Human Resources

In 1994-95, TI cycles had total staff strength of 4016 people. The non-managerial staff strength
was 3742. The industrial relations had been cordial barring the ten-month strike in 1978. The
workers were retrenched during this period. After the strike got over the workers were re-
employed.

In 1994-95 the average wage of the worker was higher than others in the neighboring units.
However the wage cost ratio between the workers in Ludhiana and TI Cycles was 1:3. The
average age of the workers was 40. The average qualification was high school pass. The workers
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saw TI Cycles as a stable employer. The management had provided facilities for schooling,
healthcare and recreation. The TI group ran its own school for the children of its employees. The
supervisory staff and managers were diploma holders or engineering graduates.

Organization Structure and Culture

TI Cycles was organised functionally. The unit head, called vice president, was responsible for
the overall functioning of the unit. He reported to the President of TI Group. The head of
production was responsible for the production related activities – purchase, maintenance, quality
control and stores of all varieties of cycles. Similarly the head of marketing was responsible for
the marketing related activities – pricing, promotion, distribution, product management of all
varieties of cycles. He was assisted by regional managers in South, North, West and East. The
head of personnel looked after recruitment and training of personnel up to the managerial level.
Manager Finance was in charge of day to day accounting and working capital management. The
functional heads reported to the Vice President of the unit. The head of Research and
Development was in charge of product upgradation and new product development.. The Vice
President together with the functional heads constituted the unit management committee. They
met once a month and on as and when needed basis to plan and review the performance of the
unit.

On organizational culture and hierarchy, a senior executive with fifteen years in the company,
commented:

Change here is a slow process. We have grown up looking to the leader for advice and
confirmation of our action. We have not taken independent decisions on our own. As
far as technical matters are concerned the section head in-charge of the part knows best.
Similarly marketing people know best what is good for the customer. Trying to know
each other’s roles, responsibilities, achievements, and failures would amount to
interference.

The work culture was described by another executive as easy going. Each one did the task that
was assigned to him. The supervisors and managers focused on problems relating to their areas of
operations. For example, dealer’s complaints were to be addressed by the marketing executives
only. Similarly industrial relations were the concern of HR executives. Quality was the problem
of production executives. Hierarchy was respected. Everyone waited for initiatives and
instructions to emanate from the higher ups. One of the executives described the culture as “risk
averse”

In 1994-95, Mr. Vellaiyan, a member of the promoter’s family was the President of TI Group. As
noted earlier, the family members had withdrawn from day to day management of TI cycles and
handed over the control to professionals. Mr. Palini Kumar from the marketing function was the
first professional to head TI Cycles in 1983. He left TI in 1989 and Mr. Padmanabhan, also from
the marketing function, took over from him. Mr. Padmanabhan left TI in 1994.

TI Cycles had incurred a loss of Rs. 2.98 crore before tax on a turnover of Rs.208 crore. The
fixed expenses were Rs. 27.28 crore.

Ramkumar’s Dilemma

Against this background, Ramkumar had to decide whether to accept the position of vice
president of TI Cycles or not. Ramkumar’s own apprehension in accepting the offer was that TI
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Cycles had the tradition of appointing marketing executives as Vice President. The marketing
function was seen as a more important function than others like production and finance. As a
finance executive he was not sure whether the staff would accept him as their head in the
company. If he decided to accept the assignment how he should go about his task of turning
around the company was another question. He had to think through the challenges and
opportunities ahead before making up his mind.
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Exhibit-1
Values and Beliefs of TI Group of Companies

♦ Adhere to ethical norms in all dealings with shareholders, employees, customers, suppliers,
financial institutions and government.

♦ Provide value for money to customers through quality products and services.

♦ Treat our people with respect and concern; provide opportunities to learn, contribute and
advance; recognise and reward initiative, innovativeness and creativity.

♦ MAINTAIN

- An organizational climate conducive to trust, open communication and team

spirit.

- A style of operations befitting our size, but reflecting moderation and humility.

♦ Manage environment effectively for harnessing opportunities.

♦ Discharge responsibilities to various sections of society and preserve environment.

♦ Grow in an accelerated manner, consistent with values and beliefs, by continuous

organisation renewal.

Source: Company records.

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Exhibit 2
Creating the SLR Category2

The Sports Light Roadster (SLR) category of bicycles was brought to the Indian market by TI
Cycles through the introduction of BSA Aristocrat in 1969-70. The Aristocrat was positioned as
a sporty bike. It was designed as light, flashy, and colourful to attract your children. The bicycle
also had both gents and ladies models. The launch used print advertising to support the image.
Though advertising resulted in increased brand awareness, the initial high sales growth could not
be sustained. Higher price, and `flimsy’ and non-durable perception of the product were
identified by the management as the reasons.

In 1984, the product was revamped with a view to address the two problems. Minor product
changes were effected which led to increase in contributions by 25 per cent and better perception
of the product. This was supported by renaming the brand as BSA SLR and was backed by the
slogan, “Built like a Champion” to position it appropriately in the minds of consumers. Vijay
Amritraj, one of the best tennis players of India and Kapil Dev, a leading cricketer of the time
were featured in the ads to communicate the position of Champion and durability. TI used the
emerging TV medium to promote the brand. The BSA SLR volumes touched 102,000 in 1986.
Later, in 1988, the SLR range was expanded by TI along with non-personality based advertising
and communication. The slogan was changed to “BSA SLR: Moves like a Champion”. The sales
reached 200,000 units in 1988. Another initiative taken in 1988 was the opening of a BSA shop in
Cochin to explore a new channel. Subsequently, TI introduced a lower price SLR, branded as
Hercules Pilot, to fight the competition. TI also sponsored a popular TV Quiz programme. All
these efforts led to a sale of 25,000 Hercules Pilot and of 2,50,000 BSA SLRs in 1989.

The growth in the category did not go unnoticed by competitors. Atlas, Hero, Road Master
Industries (RMI), and Avon introduced lower priced look alike versions in mid 1984-85. These
were followed by new competition in 1988: `Royal Hunter’ from Gujarat Cycles (associate of
Hero) and `Atlas Funfleet’ range (Atlas). These later versions were not particularly successful
and were withdrawn soon. TI continued to dominate the SLR category with more than 50 per
cent share, though the market growth had gone down significantly.

21
This exhibit draws on a case by Mr. S. Ramachandar, Consultant to TI.
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Exhibit 3
Developing All Terrain Bikes3

Hero introduced all Terrain Bikes (ATB) in 1989. ATBs were bicycles of distinctive design with
sturdy and tough looks, straight handlebars, and thick and deep treaded tyres. TI was the follower
with “Street Cat” in 1990 at a price of Rs.1,000. Within a quarter of a year of its launch, Street
Cat sold 25,000 bikes. This was followed by Hercules MTBs in the price range of Rs.1600 to
Rs.1700. According to TI Cycles management, the late entry was far more determined and well
thought out. This increased both, the TI Cycles’s share in ATBs as well as helped the category
grow.

Consumer research by TI Cycles demonstrated that, in late 1995, an ATB user was typically an
urban teenager, westernized, 12 to 15 years of age, very knowledgeable about the bike and its
features. The research also showed that the decision-maker was pre-sold (before entering the
outlet) on brand and was a heavy TV viewer. His leisure activities were sports and music. Also,
peer group acceptance was an important influence on choice of brand.

The consumer research further found that the current options in the range had gaps in terms of
desirable attributes of easy handling of bike, looks, and colours. TI Cycles developed two pronged
strategies to design a suitable offer: product and communications.

The final product chosen, after testing prototypes, had thinner tyres, unique `crackle’ finishes
with a range of colours, powder coated handle bar, reflectors in spokes (of wheels) and attractive
stickers.

The communication strategy, developed on the basis of consumer research and managerial insight
was as follows:

Promise: A Fashionable Bike

Support: Range of colours, product looks, a BSA brand
Brand name: BSA Streetcat
Tone: Fun, a dash of wildness
Manner: Urban setting
Music – the executional idiom
Execution: “Boom Boom Shaka Laka”
Media Mix: TV – sports, music based channels
Print – sports, youth magazines, event sponsorship

3
2 This exhibit is based on a presentation by Mr. Suresh Kumar from TI Cycles, to students of IIM,
Ahmedabad in 1995.
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Appendix
The Evolution of the Indian Bicycles Industry

Till 1938, complete cycles were imported in India from Britain. Indigenous production with
imported components started in 1938 with the setting up of India's Cycle Manufacturing
Company (ICMCO) in Calcutta. In 1939 two more units, namely, Hind Cycles, Bombay,
Hindustan Bicycle Manufacturing and Industrial Corporation, Patna were set up. Production by
these units using imported components commenced in 1941 and 1942 respectively. Between 1947
and 1950 two units one in Madras, TI Cycles, and other in West Bengal, Asansol, Sen Raleigh,
were set up as integrated large units in collaboration with Hercules and Raleigh Group, both from
UK.

The opportunity to produce components for repairs and maintenance encouraged the setting up of
small-scale components manufacturing units in Ludhiana, Punjab. Hero Cycles Industries Ltd.
and Atlas Industries were set up in 1951 in Ludhiana, Punjab and Sonepet, Haryana, earlier a part
of Punjab state. Avon Cycles was also started in Ludhiana in 1952. In 1953 there were 500 small
and medium scale units for manufacturing spare parts and components and more than 400 units
were in Punjab. In 1954 Road Master Industries of India was set up at Rajpura at Ambala
Cantonment.

In 1958 there were twenty cycle manufacturing units with a total installed capacity of 9.30 lakhs.
Their total production was 9.26 lakhs. Not all units could sustain their entries in the face of rising
costs and controlled prices. In 1960s cycles came under licensing and price control. The cycle
producers had to get the approval of Government of India every year to get the prices increased to
match the rising costs. The number of units decreased to 9 by 1970. It had increased again to 13
by 1978. The new entrants could not sustain themselves and the number decreased again to 8 by
1987. By 1994, there were 6 manufactures with an installed capacity of 102 lakhs. The major
players were Hero Cycles, TI Cycles, Atlas Cycles, Avon Cycles and Road Master Industries and
Cycle Corporation of India, a public sector unit. The total production of cycles in 1987 was 66
lakhs. The total production by 1994 was 82 lakhs. Table A.1 provides the details.

The value of exports of cycles in 1956-57 was Rs. 3.31 lakhs. This increased to Rs. 804.48 lakhs
in 1971-72. It had increased further to Rs. 371.5 crores in 1981-82. In 1994-95 the exports had
increased to Rs. 600 crores against Rs.175 crores in 1990-91. The exports were dominantly to
Europe. The rise in exports was made possible by the quota restrictions and duties on imports into
Europe from China and the absence of duties on imports from India. There were pressures on the
European union to impose such duties on Indian imports as well.

Table A.1
Number of Bicycle Manufacturing Units and their production

Year Number of Units Installed Capacity (‘000) Production (‘000)

1951 2 120 114
1958 20 930 926
1970 9 2105 2052
1978 13 3801 3686
1987 8 7240 6600
1990 6 8500 7200
1991 6 9200 7700
1992 6 9200 7900
1993 6 9200 8000
1994 6 10200 8200
Source: Company Records
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Till mid 70’s the entire domestic market of bicycles was constituted by Standards. As mentioned
earlier, TI Cycles introduced the Sports Light Roadster and led the category of Specials. The
Specials category, created by TI, which consisted of several sub-categories, continued to grow
over the years with TI leading the industry. Tables A.2 and A.3 provide the details.

Table- A.2
The Market for Bicycles in India: 1985-86 to 1994-95 (000's)

All India Growth

Year Rural Urban
(%)
1985-86 - - 5862 -
1986-87 - - 6213 5.6
1987-88 - - 6577 5.5
1988-89 5050 1638 6688 1.4
1989-90 5120 1772 6892 3.4
1990-91 4900 1720 6620 -3.9
1991-92 4550 1654 6204 -4.8
1992-93 4750 1936 6686 4.5
1993-94 4804 2000 6804 3.3
1994-95 5900 2671 8571 26
Source: Company Records

Table- A.3
Industry Trends: `Mix of Standards' Vs `Specials’ (In Percentage)

Mid 80’s Early 90’s

Industry TI Industry TI
Standards >90 75 90 60

Specials <10 25 10 40

Total Sales 100 100 100 100

Source: Company Records

Bicycle User

Research by TI Cycles had revealed that the Standard and Special bicycles had distinct user
groups. The Standard bicycle was a functional, lower price and semi-urban or rural market
bicycle. It was used as a workhouse to travel to workplace or carry loads (like milk cans by milk
vendors). The user typically belonged to 20 years plus age, lower to lower-middle income group,
blue collar/farmer/semi-skilled labour. The brands favoured were Hercules Popular (TI), Hero
Royal (Hero), Atlas Goldline (Atlas) and Avon.

The Special bicycles were used primarily for going to school and tuition/extra classes in urban
markets. They were also used for recreation. The user group consisted of students, both boys and
girls, of 6 to 16 years of age, belonging to mid to upper income groups. The MTBs which were
introduced much later than SLRs had caught the fancy of boys and constituted the premium range
of Specials. The SLRs users were mostly girls. Leading brands in Specials were BSA SLR (TI),
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BSA Mach (TI), Hero Impact (Hero), and Rockshock (TI). The break up and projections of
households in different income groups in urban and rural areas is given in Table A.4.

Table A.4
Break up of Household and Projections
(in Millions)
Urban Households Rural Households
Income Group
1994/95 2001/02 2006/07 1994/95 2001/02 2006/07
Lower (<2000 PM) 15 7 2 71 49 34
Middle (2-6000 PM) 23 30 30 40 68 89
Upper (>6000 PM) 7 15 28 5 11 16
Total 45 52 60 116 128 139
Source: company records

Regulatory Environment

The Government of India was keen on developing the cycles industry in the post independence
era. It had banned the import of full cycles in 1958, but had allowed the import of
cycle parts. The import of parts continued till 1970. Initially the prices were
subjected to voluntary price control and the capacity was licensed. All the
manufacturers were required to get their price increases approved by the
government of India. Along with indigenisation drive, the government of India had
encouraged exports. Between 1970 and 1994, the industry was delicenced and
decontrolled. The manufacturers could expand the capacity to meet market needs
and charge a price that market bore. In 1991 the government allowed the imports
of cycles and cycle parts.

Competition

The entry of competitors was facilitated by the growth of independent parts manufacturers in
Ludhiana in particular and Punjab state in general. They sold their cycles under their own brands.
The new entrants did not have to set up integrated facilities like TI Cycles. They made a few core
parts like frames and forks, did the painting, bought complementary parts from independent
manufacturers and prepared the ready to assemble kits.

Hero Cycles Ltd.

Hero Cycles was the largest producer of cycles. It was set up by Brijmohan Lal Munjal in
Ludhiana in 1951. He started as a small time trader of cycle parts and supplier of frames to Atlas
Cycles. He competed in standard segment. Initially, the quality of Hero Cycles was lower than
that of TI Cycles. The cycles of TI lasted a lifetime while the Hero cycles lasted for three years.
However, the Hero cycles were rugged and could take extra loads of milk cans and vegetable
baskets. Their load carrying capacity made them the preferred bike in the rural and semi urban
areas. Hero cycles invested in quality improvements, brand building and innovations in painting
and strengthened its position consistently. With the help of a closely-knit network of cycle parts
manufacturers, Hero Cycles emerged as the largest producer of cycles in the world. It introduced
innovations in painting and brought out attractively painted bikes

It was the lowest cost producer in the industry. It worked through a network of four regional
offices, twenty local offices located in each state and dealers’ offices located in each district of the
country. The dealers had direct relationship with the family members of Mr. Munjal. One of the
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TI executives pointed out that the dealers appreciated such relationships and expected the family
members of the business to interact with them more frequently. On the production side, Hero
Cycles operated through a network of 100 cycle parts manufacturers and took responsibility for
design, painting and sub assembly.

Over the years it became active in both standard and specialty bike segments. In 1989 it launched
HERO RANGER at a price Rs.800 to satisfy the need that TI had over looked, cycles for peddling
on rugged terrain. It created a new category of mountain terrain bikes (MTB). Hero had further
built its market position by diversifying into moped and motor cycle businesses with the help of
collaborations from Germany and Japan. It had also introduced fitness bikes under the brand
name 'Hero Allegro".

Altas Cycles Ltd.

Atlas Cycles Industries Ltd. was set up in 1951 by Janki Das Kapoor. In 1950 he had set up a
bicycles saddles unit. The cycle's unit was located at Sonipet in Haryana. It also had a steel tube
manufacturing plant at Gurgaon and component manufacturing division at Sahibabad in Uttar
Pradesh and Ludhiana. It exported to 40 countries and was the only company with an R&D wing
recognized by the government. Atlas had also introduced a range of fitness equipments like
exercise bicycles, walkers and steppers. Of its total production of 25,00,000, 95% of its cycles
consisted of black cycles. It also competed on an all India basis.

Avon Cycles

Avon cycles was set up in Ludhiana. It competed primarily in the standard segment and focused
on the markets in the North. It operated through a dealer network and had not set up its own
marketing offices.

The performance of various competitors in 1994-95 was as in exhibit A.1

Competition from Mopeds

The cycle industry faced competition from the motorized two wheelers. Kinetic Engineering in
West; Luna and Hero Majestic in North; and TVS in South were the key competitors. Kinetic and
Hero mopeds with over 60% of the market till early 1983-84 were in mostly work horse range. In
1984-85, TVS emerged as a strong contender in the moped market. The south market penetration
increased while the moped market gave way to motor cycles. Majestic sales dwindled with focus
on 100 cc motorcycles. Kinetic introduced on 100 cc motorcycles. Kinetic introduced 100 cc
scooters leaving the moped market to TVS.

Enfield, a south based manufacturer of `Bullet’ motor cycles decided to enter the moped market
by introducing and pricing a product at Rs.2500 in late eighties where as the bicycles cost
Rs.1000-1100. The product, called Mofa, was a gearless moped, without frills, which gave a
mileage of 100 kms to a liter of petrol. Mofa, the low-end moped to lure the bicycle prospects
failed to take off and was withdrawn. In early 90's, Bajaj Auto Limited, a leader in the scooter
market had introduced a scooterette, called Sunny, of engine capacity less than 50 cc. Sunny was
slowly getting acceptance from youngsters. By early 1995 bicycle prices grew but remained
around 2000 plus and moped prices had risen to Rs.10,000 plus.
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Exhibit- A.1
Financial Performance of Competitors (Rs. Crore)

Atlas Cycles Industries 1990-91 1991-92 1992-93 1993-94 1994-95

Gross Sales 136.72 146.15 150.16 195.73 249.03
Net sales 136.69 146.12 150.13 195.70 249.03
Cost of Production 117.34 123.55 127.45 165.04 212.54
Profit after tax 1.84 2.09 2.30 4.00 5.09
Net worth 11.19 13.11 21.24 24.94 29.55
Capital employed 18.47 19.44 27.80 30.94 53.55
Exports 5.70 5.24 4.99 9.49 6.48
Avon Industries Ltd 1990-91 1991-92 1992-93 1993-94 1994-95
Gross Sales 2.09 6.42 16.92 14.94 16.54
Net sales 2.09 6.41 16.89 14.92 16.52
Cost of Production 1.54 5.64 13.99 11.12 13.19
Profit after tax 0.15 0.46 1.81 2.2 5.09
Net worth 0.64 1.37 7.74 15.97 18.22
Capital employed 1.68 3.66 8.70 18.29 19.22
Exports 0.04 0 0.15 0 0
Hero Cycles Ltd. 1990-91 1991-92 1992-93 1993-94 1994-95
Gross Sales 231.18 312.95 365.66 398.55 462.6
Net sales 231.14 312.81 360.20 390.59 448.36
Cost of Production 204.42 274.76 312.06 341.27 399.37
Profit after tax 4.92 4.52 6.86 9.76 9.08
Net worth 35.06 39.02 45.50 53.71 72.70
Capital employed 54.70 62.36 67.54 77.48 106.22
Exports 14.84 31.77 41.57 35.38 27.75
Source: CMIE database