The report says that the three scooters that the company is planning to bring in are - Django, Satelis

125 and Speedfight 3, all of which are already on

sale in European markets. The Django 125cc scooter with its retro-styling will take on the Vespa LX 125.
The Satelis belong to the motor-scooter category, thus will fight against the upcoming Hero ZIR 150 and Honda PCX 150. Whereas, the Speedfight 3
is an entry-level scooter that is available in different capacities in the European markets.
1.
2.
3.
4.
5.
6.
7.
8.
9.

Advantage of being French in India

Positioning of the brand and communication
Dual brand strategy
Can they move into premium bikes
+ve s of partnering with Mahindra
Target segments, product portfolio, pricing, manufacturing, distribution
and sourcing.
Why india ? whom to target ?
Pestal analysis technological factors is important
Check on entry strategies for other bike manufacturers entering india

10.
So what went wrong for Peugeot India?

Wrong entry strategy in 1994, with the wrong partner.

The second coming was too late.

Brand building never took place. Peugeot could have setup a small network and brought in completely built units from France to create
an aspirational brand.

Not committing investments for the Indian market.

Wrong products offered to Indians. The Peugeot 309 was highly dated when it was launched in India.

Players in india :

Bajaj Auto

KTM Motorcycles

Bajaj-Kawasaki

DSK Hyosung

Harley-Davidson India

Hero MotoCorp

Honda India

LML

Monto Motors

Mahindra 2 Wheelers

Piaggio

Royal Enfield

Suzuki India

Triumph Motorcycles India

TVS Motor

BMW Motorcycles

Yamaha India

Yo Bykes

Previous partnership :

1.
2.
3.
4.
5.
6.

Kinetic & Honda

Tvs and Suzuki
Escorts Yamaha
Bajaj ktm
Hero Honda
Tvs bmw

Changing Business Environment: Case of Hero & Honda

In 1984, Hero Group of India signed a joint venture agreement with Honda Motor
Corporation, forming Hero Honda1. The facility was to be located at Dharuhera in North
India. The shareholding pattern was: Hero Group 26%, Honda Motor 26%, Financial
Institutions 37%, Others 11%.
This strategic alliance, between an Indian firm that got its start making bicycle parts, and
the worlds largest motorcycle manufacturer, signaled Hondas foray into the Indian market
for motorized two-wheeled transport. Though the market had already attracted the entry
of competitors such as Suzuki, Yamaha, LML and Kinetic, Hondas top management team
and Heros founder and CEO, Brijmohan Lall Munjal, envisioned substantial promise in the
Indian two-wheeler market.
GAUGING MARKET ATTRACTIVENESS
A cursory overview suggested that the Indian market was attractive on account of its
absolute magnitude and high growth. India could lay claim to a population of roughly 730
million in 1984, growing at a rate of 2.1 per cent per year. Extrapolating that rate of
growth, the Indian population was projected to grow by 160 million people in the 1980s
and to exceed 1 billion people by 2000. Not only was the total population of India
enormous, but the Hero Group also concluded that the adult age group with the highest
propensity to purchase two-wheelers (1565-year-olds) was expected to increase to more
than 500 million by 1990 and to an approximate 700 million by 2006.
The birth of the Indian two-wheeler industry can be traced to the small beginnings that it
made in the early 1950s when Automobile Products of India (API) started manufacturing
scooters in the country. Although API initially dominated the scooter market with its
Lambrettas, it was soon overtaken by Bajaj Auto Limited. In 1959, they obtained
government approval to manufacture two- and three-wheeled motor vehicles, under
license from Piaggio. The license raj that existed prior to economic liberalization circa1980s
forbade foreign companies to enter the market, making it a protected playing field for
domestic competitors. Local players were subject to a very stringent capacity licensing
process, and imports were tightly controlled. This regulatory labyrinth created a
monopolistic market, with customers often forced to be waitlisted a decade just to buy a
scooter from companies such as Bajaj. 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 with domestic alliance partners.
Two-wheelers had become the standard mode of transportation in many of Indias large
urban centers. Increasing rural-urban migration, urban population density, and the lack of
four wheeler-ready roads were all factors that increased 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, an entrylevel car was priced around Rs. 300,000. Two-wheelers were durable, often used lasting
more than a decade. However, convincing Honda, a first-world company, to commit
investment to a market where 35 per cent of the population was in penury, was more
difficult. An extenuating factor was growth in the per capita incomes of the population,
expected to grow by 5.2 per cent over the next ten years. Importantly, even in the early
1980s, the country was wealthy enough to support an infrastructure of 1.4 million
kilometers of highway. However, in global terms the market was far from mature. Industry
watchers reported that India had a penetration rate of less than10% as of the mid-1980s
(87 two-wheelers for every 1000 adults), far below the penetration rates of other
developing countries. Obviously, bike manufacturers had substantial scope to grow.
Marshalling the implications derived from these realities, Hero convinced Honda that a
large population coupled with an emerging-market economic situation constituted an
excellent setting for affordable, motorized, two-wheeled scooters. Honda also saw the
potential. With air pollution from industry and vehicle emissions topping Indias
environmental concerns, governmental authorities had become increasingly strict
regarding emissions regulations. These regulations made environmentally friendly vehicles
more attractive, and two-wheelers with their fuel efficiency and low emissions fit the bill.
Honda also recognized that Asian countries such as India and China, with their huge
populations and relatively low levels of economic development, were likely to embrace
two-wheeled vehicles as a popular means of transport. In short, India offered a large and
growing market for two-wheelers, supported by several favorable macro-trends that bade
well for the future.
HONDAS ENTRY STRATEGY
In consonance with FIPB regulations, Honda opted to join hands with the established
bicycle manufacturer Hero Cycles, a company with proven manufacturing, distribution and
management practices. Founded by Brijmohan Lall Munjal and his brothers in 1945, Hero
Cycles was an ideal partner for Honda. In business for four decades, Hero had
manufactured and distributed bicycle parts and bicycles in India for as long as Honda had
produced motorcycles. With strong distribution channels and supplier networks, the Hero
Cycles name was reputable. The Munjal familys management practices had led to
exceptional results, low employee turnover, and zero industrial unrest in their history. The
company used modern manufacturing concepts such as just-in-time supply chain
management, team-based manufacturing performance evaluation, and rigorous quality
management programs. Most importantly, Heros management brought an intimate
familiarity with the Indian economy, government, business culture and people.
MACRO-TRENDS AND THE TWO-WHEELER MARKET
In the 1980s, the motorcycle with a four-stroke engine was Hero Hondas most popular
two-wheeled vehicle, providing inexpensive and reliable transportation to Indias largely
rural population and growing middle class. In two-stroke engines, the fuelair charge is
drawn through an unlubricated crankcase, and the lube is separately introduced into the
air-fuel mixture to lubricate engine parts. Exhaust and intake processes are conflated, so a
third of the unburned fuelair charge can be discharged. The fuel economy advantage of
four-strokes derives from the use of crankcase lubrication.
However, four-stroke engines need a camshaft and valve train which impose a volume and
weight penalty over two-strokes, and are also therefore more expensive to purchase. But
four-stroke engines were superior to the incumbent two-stroke engines in multiple areas.
Not only did they produce less pollution than the two-stroke engine, but they also provided
greater fuel-efficiency and were more long-lasting than the more powerful two-stroke
engine. The total cost of ownership diminished considerably due to the ameliorated fuel
efficiency, product durability and lower repair costs. Despite burgeoning pay packets,
frugality and thriftiness were essential values of Indias middle-class consumer. Hero
Honda had the first and for many years only four-stroke vehicle (except for Royal Enelds
346 cc four-stroke). As its early ads said, Fill it, shut it, forget it.
Hero Honda had seen something that all the motorcycle manufacturers had missed. The

shift in demand was towards the consumers originating from rural areas, Tier 2 and 3
cities, and the middle-class office-goers in Tier 1 cities. For these customers, the fuel
economy of a four-stroke engine was a bigger draw than the looks and the power of twostroke bikes.
EVOLUTION OF TWO-WHEELER PREFERENCES: FROM SCOOTERS TO MOTORCYCLES
Scooters, on which a 100150 cc engine is enclosed in a metallic body below the seat,
were the preferred vehicle type amongst two-wheelers, on account of their secure luggage
space, the possibility of carrying two passengers, and the provision for a spare tire.
Besides, women risked getting their garments tangled in the exposed wheel spokes of
motorcycles. In 1988, to understand its market better, Hero Honda conducted an extensive
market survey, collecting some 25,000 responses. The survey told Hero Honda a surprising
story. Scooters were no longer the vehicles of choice. Motorcycles were to become the
two-wheel vehicles of the 1990s. The principal reasons were the combination of a shift in
demographics and increased purchasing power among the youth.
With burgeoning numbers of young professionals with large disposable incomes, and
college students with affluent parents, the need for a family vehicle, with the advantages
discussed earlier, declined, with a corresponding growth in the demand for individual
mobility. With their more rugged appearance and higher road speeds compared to scooters
(because of larger diameter wheels), motorcycles respond to these changing needs. Also,
cultural changes, in terms of womens clothing, have made motorcycles less problematic.
Bikes were perceived as more stylish. Hitherto, scooters were preferred to bikes due to a
perception of better safety (scooters were estimated to skid less frequently). The
widespread usage of helmets narrowed the safety advantage scooters possessed over
bikes; moreover, the danger associated with bikes actually drew the younger user away
from the staid scooter! The development of fuel-efficient bikes also reduced the
conventional fuel-economy benefit of scooters. Further, iconic scooter manufacturers
(Piaggio, Innocenti) were located in countries like Italy, whose soft power in terms of
cultural influence was on the wane. Comparatively, bike manufacturing majors (Honda,
Harley Davidson) hailed from economic powerhouses like Japan and the US.
By 2000, motorcycles were the choice of 60 per cent of Indias two-wheeled customers, up
from 33 per cent in 1996. By making efforts to gauge and understand its market and the
trends therein, Hero Honda cemented its reputation as a market-driven company, one that
anticipated and acted upon these trends.
THE FRUITS OF EXCELLENT MARKET INSIGHT
In 2000, Hero Hondas Splendor model became the worlds largest selling motorcycle. It
now sells more than a million units a year. In 2001, Hero Honda became the largest selling
two-wheeled manufacturer in India, with 50 per cent of Indias motorcycle market. In
2002, Hero Honda sold 1.4 million motorcycles, becoming the largest two-wheeler
company in the world. Hero Hondas dominance cannot be ascribed merely to the size and
growth of the market. In that case, the dice would have been loaded in favor of larger
incumbent business groups like Bajaj. Success can be attributed to a keen understanding
of macro-environmental changes: social, technological, macroeconomic, ecological,
political, legal and demographic. Honda and Hero were confident of significant market
potential for motorized two-wheel vehicles in India, given the sheer size of the Indian
market and its emerging middle class. At the same time, they understood the limitations in
the still-modest purchasing power of their target customers, so they offered products
whose reliability and overall economy were unmatched by their competitors. By reading
the market correctly, Hero Honda was able to finally topple the formidable scooter king
Bajaj in 2001. To recover lost ground, Bajaj drew on technology from Kawasaki and jazzed
up its portfolio, emphasizing high-end motorcycles. For a while it looked as if a newly
revved-up Bajaj would reclaim the crown.
But the economic recession in 2008 played to Hero Hondas advantage. Bajajs strategy of
moving away from the lower segment to concentrate on high-end bikes backfired when the
economic cycle turned down and consumer confidence dipped. Heros ability to identify an
underserved market one that was large and would grow and match its offering to that
markets needs were the twin attributes that distinguished them from incumbents who had

targeted more upscale urban customers with quite different needs.

Now that Hero has separated from Honda, how do you think it can grow in the market?
The same question has to be asked of Honda too? What should their possible strategies
can be, more so when there is yet another challenger- Bajaj?

12ImportantThingstoConsiderBeforeBuyingaTwoWheelerforLadi
es
8 Comments

7LatestModelofTwoWheelersforIndianWomen

The5BestSellingModelsofHondaActivaScooter

2013TVSJupiterVsHondaActiva-iComparisonByWalkThroughIndia
Gear less two wheelers are the first choice of Indian men and women, Easy to drive and easy to handle capability makes it very popular
among the teenagers as well. Before buying a two wheeler for girls, here is the list of important things that one should check, Resell
Value,side stand, Feature, Body Balance, mileage and Budget. Walk Through India comparison and Important things to consider women
bikes.
Source -Idiva

Brand
There are number of two wheeler manufacturers in India such as Honda, Suzuki,TVS,Hero and Mahindra. Honda and TVS are two most
trust able brands in Indian market, The brand value also help in re-sell of bike.

Budget
Very important factor to be consider, You can buy a good two wheeler within a budget of Rs.60,000. Ready for little more to pay for new
launched bikes with extra features and colors.

Weight
Women should really need to take care of this point, now a days there are low weight bikes are available but its extremely important to
check the weight of the two wheelers so you can ride comfortably.

Storage
Helmet is now getting compulsory, So one should check the storge for the same and so many girls stuffs too. Also it should have enough
space for Sunday shopping items.

Mileage
A good two wheeler should give you a mileage of 35 to 40 kms per litre, Do not get confused with Highway mileage consider the city
traffic and small roads.

Height
I find this another important factor after weight, Most of the girls are at shorter side and two wheeler should not be too high else it will
uncomfortable for you.

AutoStart
Kick-starting a two wheeler is not easy for every woman, through its very simple but Check for Auto Start and battery durability.

Durablility
Check out the review of the bike, it doesnt make sense to make a hasty decision and settle for something that simply looks good and
offers more mileage.

Style&Colour
New Style and Colour are the fist choice of girls,Pink, while,black and blue are the very popular colors, cute but should be durable.

ServiceCenter
The location of your service center should be near by your area, during any emergencies you should not land up traveling long distances
for repairs and services.

LowMaintenance
Servicing and Maintenance of two wheeler is very important, It makes traveling very convenient because of low running and maintenance
costs mean you can get many miles of drive.

AvailabilityofSpareParts
All the newly launched two wheelers company does not have their spare parts easily available in the market, Consider this points in your
list for future.

ResellValue
Resell price is totally depends upon the Brand, Year and current condition of bike, A branded bike could give you better deal as compare
to other two wheelers.

Kinetic Honda (Joint VenturesStratrgic alliances)

Kinetic Honda: The Break-Up

Source: http://www.icmrindia.org/free%20resources/casestudies/Business%20Strategy%20freecasep1.htm
Details

Themes: Joint ventures strategic alliances

Period : 1998-2001
Organization : Kinetic Motor Limited / Honda Motors Ltd.
Pub Date : 2002
Countries : India
Industry : Auto and Ancillaries

Kinetic Honda - The Break-Up: Break-Up Blues

It was in August 1998 that the first chinks in the Kinetic Honda Motors Ltd. (Kinetic Honda) armor were reported by Business India. Both Honda and
the Firodias of Kinetic were quick to deny rumors of a split, though reports of the Firodias quietly raising resources to buy out Honda's stake kept
surfacing. The Firodias were even reported to have securitised the assets of their two-wheeler finance company - 20th Century Kinetic Finance (TCKF)
- to raise this money.

Trouble had been brewing since the company recorded a loss of Rs. 6 crore in the first quarter of 1998. Eventually Honda decided to put the matter
to rest and called Arun Firodia (Firodia) to Japan in December 1998.

Honda made Firodia an offer - either he buy their 51% stake or Honda would buy out his 19% stake. Analysts remarked that it was difficult for Firodia
to let go of the company that he had nurtured for the best part of his life. Eventually, Firodia negotiated a deal with Honda, to acquire its stake at Rs
45 per share, (when the market price was almost double), at a total cost of Rs 35 crore. He also signed an agreement with them for continuing to
manufacture and sell the existing Kinetic Honda models. Honda also agreed to continue providing technical know-how support in return for royalty
and technical fees from Kinetic.

Considering the fact that Honda was the world's biggest and most successful scooter manufacturer, the pullout came as a surprise to industry
observers, as it was quite unlcharacteristic of Honda Motor to give up a segment. More so, as just a couple of months earlier, Honda had been
reported to be planning to make further investments in Kinetic Honda . This was seen as a major setback for the company. It was also perhaps the
only instance of a Honda failure anywhere in the world.

Starting Problem!
In 2001, the Kinetic Group had two automobile companies - Kinetic Engineering Ltd and Kinetic Motor Company Ltd. After the December 1998 deal,
Kinetic Honda Motor Ltd was renamed Kinetic Motor Company Ltd. Kinetic's story began in 1972 with the founder H.K.Firodia buying the 'Luna'
moped's design from a foreign company. The moped, which aimed at capturing the bicycle market, went on to become such a huge success, that
Luna became a generic name for mopeds.

In 1985, under Arun Firodia's (H.K.Firodia's son) leadership, Kinetic tied up with Japanese auto major Honda Motor to form Kinetic Honda Motors Ltd.
(KHML) with both the partners holding an equal stake of 28.56%. The company's primary business was manufacturing scooters. Sales of spare parts
formed a minor part of the turnover. The 'KH-100,' the first ungeared scooter in India, proved to be a huge success in the initial stages.

Throughout the 1980s, Kinetic remained India's largest moped manufacturer with a 44% market share and a 15% share of the overall two-wheeler
market. A decade later, the company's moped market share halved to 22% and the overall market share figure reached an abysmal 5%. Also, in
1991, Kinetic, with a turnover of Rs 121 crore, was competing on an equal turf with the Rs 140 crore TVS Suzuki and the Rs 150 core Hero Honda .
But by 1999, while TVS and Hero Honda grew seven times over to Rs 1,018 crore and Rs 1,146 crore respectively, Kinetic just managed to double its
turnover.

A major reason for this was the fact that Kinetic seemed to have missed the pulse of the market, which was fast moving towards motorcycles. Kinetic
had no motorcycles to offer - mainly due to the Honda joint venture stipulations. (Kinetic could not make motorcycles because that meant competing
with Hero Honda.) Kinetic's financial position also took a beating in the late 1990s. While sales grew slowly, compared to its competitors, its
operating margin was the lowest in the industry because of the high import content of raw materials. Kinetic also had to shelve its plans to launch a
small, 500cc, 2-cyclinder car after a substantial sum was spent on the project .

With Kinetic Honda's fortunes declining, Firodia agreed to let Honda increase its stake to 51% in 1993, perhaps hoping that if Honda were in control,
it would bring in new products more quickly and thereby improve the company's prospects. But Firodia soon realized that this was not to be. At a
time when its competitors were spending 1-1.5% of the turnover on R&D, Kinetic Honda did not move beyond 0.31%. On advertising, Honda spent
just Rs 20 crore during 1993-98. As a result, Kinetic Honda's market share declined steadily during 1996-98.

In 1997-98, Kinetic Honda's sales grew marginally to Rs 353 crore over the previous year, but profit after tax dipped to Rs 2.16 crore from Rs 2.30
crore. This, coupled with the Rs 6 crore loss for the first quarter of 1998 made the Firodias give serious thought to parting ways with Honda. Firodia
said, "There was no growth, so we decided to review the contract." The new agreement involving the Honda stake sell-off and the technical
collaboration arrangement was signed after this. Commenting on this, Firodia claimed, "It's a win-win scheme for everybody."

Though Firodia claimed that Honda's equity sale decision was taken jointly by both partners, media reports had a different story to tell.

Souring Ties
Reports claimed that right from the beginning there had been differences between Honda and the Firodias over the issue of management of Kinetic
Honda. Firodia admitted that there were serious differences over issues like introduction of new models, advertising expenditure, marketing
strategies, etc. As a result, the company suffered in terms of growth and profitability.

Under the joint venture agreement, Kinetic Honda manufactured scooters and Kinetic Engineering made mopeds. Both of them could not
manufacture each other's products or motorcycles. Because Honda was present in the motorcycle segment with Hero Honda, the Kinetic group
remained in mopeds and scooters. This was not in favor of Kinetic because the moped market had declined considerably during the 1990s. Kinetic
had ambitions of becoming a full range two-wheeler company as it was strong in operations and also had a large distribution network.

When Kinetic developed indigenous technology for its four-stroke step-through vehicle K400, a competitor to Hero Honda's Street model, Honda saw
it as an unfriendly move.

The Firodias were unhappy about the fact that 'Kinetic,' as an umbrella brand was not being promoted. Consumers associated the name Kinetic with
scooters and 'Luna' with mopeds, but did not see them as belonging to the same business house. To support the Kinetic brand as an umbrella brand
with a number of products under it, the Firodias wanted to advertise heavily and bring out new products. According to Sulajja , "The tie-up with
Honda was limiting our competitive capabilities."

Kinetic Honda insiders claimed that Honda had always taken a 'half-hearted approach' towards managing the company. They also said that Honda
was too preoccupied with other markets such as Indonesia and Thailand which were growing much faster and where, unlike in India, Honda was
doing well. Also, Honda's margins were much higher in these markets - even a 50cc Honda scooter cost more in other parts of the world than the
lead model being sold in India. Yet, Honda scooters were considered expensive in India. Industry watchers pointed out that Honda, with all its
resources, could have easily engineered a product for the Indian roads, but was simply not interested.

Honda claimed that it had decided to position itself as a niche player at the upper end of the segment and that segment did not grow as much as the
company had anticipated. Company sources said, "We miscalculated the purchasing power of the Indian middle class. We thought it would go up, but
it didn't. Instead, the economy went into a tailspin and we couldn't grow." However, Honda admitted that having just a single model for several years
had worked to the company's disadvantage. But the investment required to develop and introduce new models was very high, rendering the end
product uncompetitive and hence an unattractive proposition. Honda claimed that the Firodias did not have the marketing acumen of the Munjals of
Hero Honda. Disagreements over advertising expenditure and the interference of the Firodias in the appointment of dealers widened the rift between
the partners.

Kinetic wanted Honda to increase the advertising expenditure, but Honda did not agree. Being a large organization with various decision-making
layers, Honda wasn't quick enough to react to the demands of the marketplace. The joint managing director, a Honda nominee, was changed every
three years. Thus, by the time he understood the demands of the marketplace, it was time for him to be replaced.

Unlike the Hero Honda venture, where the Munjals and Honda showed complete faith in each other and worked together as a team right from the
beginning, the Firodias and Honda reportedly never shared a good rapport. In Hero Honda, the partners had equal stakes and this made decisionmaking easier. Moreover, because of lack of competition for a long time, things were easier for Hero Honda. But Kinetic Honda had to compete with a
giant like Bajaj. Also, while the cost of making the Kinetic scooter was higher than the cost of manufacturing a motorcycle, the selling price of the
latter was Rs 10,000 more. The profitability of Hero Honda, therefore, was much more and they could afford to spend more on advertising. Also, the
Munjals could take their own decisions regarding adspend. Firodia said, "If we could have done the same, it would definitely have increased Kinetic's
visibility and volumes would have grown faster."

Honda's exit raised questions about Kinetic's survival. It was thought that the Rs 35 crore the Firodias paid for acquiring the entire stake would put a
great strain on their finances and weaken the company. Analysts were quick to comment that Kinetic would have problems regarding the
development and induction of new products. Honda's technical support limited to the existing range of products. And as the existing products Kinetic Honda and Marvel - were not doing very well at that time, the withdrawal was seen as an unwelcome development.

Survivor
Firodia denied that the dropping of the Honda tag from its scooters would affect the sales. The company introduced tough measures to facilitate
improvements on various fronts including input costs, asset management and inventory management. Kinetic realized that gaining customer and
dealer confidence would be a key task if it wanted to survive without Honda. Kinetic told its dealers about its product plans for 1999-2001 and tried
to convey to them that now on they would be selling not just Kinetic Honda scooters, but promoting the umbrella 'Kinetic' brand. This meant that
they would also be selling mopeds and motorcycles. This in turn, meant higher volumes and, thus, higher profits in the coming years. Kinetic
conducted training programs for its dealers to help them deal with customers in a better manner. On the distribution front, Kinetic gave its dealers
full range or 'pavilion' dealership. A new Kinetic logo was adopted to give the company a new corporate identity.

However, after the breakup, Firodia's immediate strategy was to push up sales by getting the group's auto-finance companies - Kinetic Leasing &
Finance Ltd. (KLFL), Kinetic Fincap and Kinetic Capital Finance (later merged with Kinetic Fincap) - to offer attractive finance schemes. Those finance
companies were strategically located to service the three biggest markets for two-wheelers in India - north, west, and south. They offered a wide
range of finance schemes (termed as Wonder Loans) to suit various customer needs. The move paid rich dividends as sales picked up considerably.
Kinetic Fincap and Kinetic Leasing & Fincap contributed 20% of Kinetic Honda's sales in 1999.

Kinetic called dealer meetings in all regions of the country to assure them of the company's strong prospects even after Honda's departure, which
had a very positive feedback. Kinetic also stepped up promotion of the Kinetic brand, using both television and newspaper ad campaigns. A
considerable amount was spent on an image-building campaign for the group. Adspend was increased from Rs.12 crore in 1997-98 to Rs.20 crore in
1998-99. A new public awareness campaign on road safety was launched. The company set up a direct sales division as well, which had 50 teams of
people going from shop to shop and door to door, informing people about the company's products and the finance schemes offered. The response
was overwhelming and around 12% of the sales came from this division in 1999. A survey conducted across nine cities showed that Kinetic had
maintained its hold, despite Honda's exit.

On the customer front, Kinetic launched a new, aggressive and consumer-focussed marketing strategy, with the new motto 'Closer to You.' The group
launched 'Kinetic Care,' a package of post-sale and post-warranty benefits for the consumers. Several 'Kinetic Mileage Advantage' service camps
were held across the country where more than 25,000 scooters were tuned for optimal mileage free of cost. Scooter service campaigns were
organized, where spares and lubricants were offered at a discount and labor charges for replacing these spares were waived. For popularizing the K4100, 'Customer Satisfaction' camps were organized across the country. These were attended by over 18,000 customers, who got free spare parts
even though the warranty period had lapsed.

Kinetic's moves on the operations front, included opening of more depots around the country and a change in the credit policy. The Honda stake
came with Rs.400-500 million as outstanding with dealers. Once these were recovered, interest costs came down considerably. Kinetic decentralized
the distribution network and thus reduced inventory costs. Kinetic Engineering already had 20 C&F agents across the country. Kinetic used these
agents to extend its reach to semi-urban and rural areas. For example, Kinetic was able to reach places like Anand and Gandhinagar from a depot in
Ahmedabad within 24 hours. From its Pitampur plant, this would have taken almost three days. Kinetic also approached banks and negotiated deals
to reduce its cost of borrowings. Material costs were reduced by reducing unnecessary imports. To improve the mileage of its scooters, Kinetic
consulted experts from around the world and introduced a new technology in its new series of scooters, raising the mileage from 30kmpl to 50kmpl.

All these efforts soon translated into improved performance, proving the company's detractors wrong. Kinetic posted good results for both KEL (sales
rose by 20%) and KMCL (sales rose by 23%) for the first half of 1999. KMCL also wiped off the previous year's loss of Rs 6 crore and posted profits of
Rs 3.69 crore for the same period. In fiscal 2000, sales increased by around 25%.

Return of the Prodigal

In August 1999, Honda announced that it was setting up a wholly-owned subsidiary to manufacture scooters in India with an initial capacity of one
lakh units per year. The company set up an independent distribution network for the new venture. Through this $ 43 million subsidiary, Honda
planned to focus on scooters for a period of five years. Later, Hero Honda and the Honda subsidiary were to be free to expand the range to include
all two/three wheelers.

Honda's first scooter model was launched in mid-2001. Around one-third of the total proposed outlay of Rs 150 crore had already been invested by
that time. Though the contract with the Firodias prevented Honda from manufacturing the same scooter through a subsidiary or a joint venture,

Honda got around the clause by introducing scooters in a different range. A Honda official said, "This is an extremely important market for us and
there is no question of giving up the scooter business - we never give up."

Honda's decision sparked off debates in industry circles over guidelines regarding foreign companies being allowed to set up wholly owned
subsidiaries in India, when they already had joint ventures here. The Confederation of Indian Industry (CII) expressed fears that this could develop
into a trend that would adversely afect the local partners in these joint ventures.

Kinetic claimed they were not perturbed by Honda's announcement, as the group believed they were the de-facto leaders in ungeared scooters. Also,
they had the exclusive rights to manufacture the 100cc and 110cc, Marvel, DX and ZX scooters. The Firodias were not really surprised by Honda's
announcement, because at the time Honda was negotiating with them for the Kinetic Honda stake, such a possibility had been discussed. However,
many felt that Honda could eventually enter the motorcycle segment as well - something which seemed strategically wrong given the success of the
Hero Honda venture. Sulajja said, "If Honda was serious about its scooter business in India and wanted to grow in the market by introducing new
models, then why did they not do so during the 12 years that it was present in India, through its JV with us? After all, it had a majority stake and full
management control. Yes, its true that Honda has said that it will start by manufacturing a 4-stroke scooter first through the new company. But what
one fails to understand is why Honda should reenter a business by setting up a greenfield project at a whopping investment of over Rs.200 crore,
when it has barely 10 months ago exited that market, unless it has a larger gameplan of manufacturing motorcycles too."

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