External Analysis

Industry Analysis
Strong volume growth shown by Indian two-wheeler industry over the last two-years. Grown by 25% in 2009-10 and 27% in 2010-11 to reach 13.3 million units. The growth has been driven by multiple factors including pent-up demand of the 200708 and 2008-09 period when the industry volumes were essentially flat. Various underlying factors : India s rising per capita GDP, increasing rural demand, growing urbanization, swelling replacement demand, increasing proportion of cash sales and the less measurable metric of improved consumer sentiment. Because of more than expected demand, several OEMs faced capacity constraints in their supply chain for select components which resulted in persistent demand-supply gap for few models, reflected in long waiting periods at dealers end. To overcome supply constraints and to meet the demand most players currently have plans to expand production capacity which would entail large capital expenditure (capex) both by OEMs as well as suppliers.

Porter s Five Forces Analysis:

1.   Risk of entry by potential competitors: Numerous potential competitors such as Hero Honda motors, Yamaha etc. Pose a threat in terms of replicating or coming out with revised version of the products which may be preferred by the customers. Rivalry among established companies: Industry rivalry is extremely high with any product being matched in a few months by competitor. This instinct is primarily driven by the technical capabilities acquired over years of gestation under the technical collaboration with international players. Bargaining power of suppliers: Bargaining power of suppliers is high. Suppliers of auto components are fragmented and are extremely critical for this industry since most of the component work is outsourced. Proper supply chain management is a costly yet critical need.

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4. Bargaining power of buyer:  Buyers in automobile market have more choice to choose from and the increasing competition is driving the bargaining power of customers uphill.  With more models to choose from in almost all categories, the market forces have empowered the buyers to a large extent. 5.    Substitute products No perfect substitute to this industry. Threat of substitutes to the automotive industry is fairly mild. Cars, which again are a mode of transport, do never directly compete or come in consideration while selecting a two-wheeler.  Cycles do never even compete with the low entry level moped for even this choice comes at a comparatively higher economic potential.  Numerous other forms of transportation are available, but none offer the utility, convenience, independence, and value afforded by automobiles.  Switching costs associated with using a different mode of transportation, such as train, may be high in terms of personal time and convenience, but not necessarily monetarily.

Opportunities and Threats:

Opportunitites: The production of two wheelers in India is expected to reach a staggering 17.85 million units by 2011-12, more than double of the current production level. The two-wheeler production capacity is to reach 22.31 million units in 2011-12 compared with 10.78 million in 2006-07. India is likely to export 1.39 million two-wheelers in 2011-12 compared with 590,000 in 2006-07 Entry into new markets Africa and Brazil. Entry into the 4 wheeler segment (hatchback section). Usage of the brand image to expand into newer markets /segments Non gear scooterettes. THREATS: Rising interest rates may hit auto sales and slump in the auto sales owing to inflation. Saturation in the two wheeler segment. Threat from competitors. Introduction of affordable 4 wheelers such as the Nano, Tata Ace acting like a substitute.

Internal Analysis

Competitive Advantage of Bajaj

Bajaj produces three levels of motorcycles for the Indian market: entry, executive, and premium. The company has a strong market position in the entry and premium markets while Japanese [ Honda, Suzuki etc.] dominate executive market. The strongest market position is in three wheelers - Bajaj produces a motorized rickshaw (popular transportation vehicle in India) and has almost the entire market share in India for this product. Indian consumers give Bajaj the highest ratings for product quality and durability which is one of its strengths. Over 400 dealerships and over 1,300 service centres in both urban and rural areas of India. Developed products that fit with Indian needs and can draw on the Indian consumer s sense of national identity.

 Bajaj maintains close relationships with its suppliers and strives for efficiency at every turn. Developed improved engine performance and product styling that best fit the Indian market. Developed its own version of total quality management and constantly looks for improvements for itself and its suppliers. Bajaj gives consumers what they want. With a greater understanding of its local market, Bajaj has been able to produce products that are desired by its consumers. Bajaj pays constant attention to cost reduction and efficiencies. The company has developed wind power to generate electricity for its manufacturing operations. Bajaj strives for improvements.

Strength s & Weakness Analysis:

Strengths : High experienced management. Extensive R&D focus. Widespread distribution network. High performance product across all categories. High economies of scale and scope. Weakness : Still has no established brand to match Hero Honda Splendor in commuter segment. Not a global player in spite of huge volume. Not a globally recognizable brand ( unlike the partner Kawasaki ).

Business Model
On analysis of past strategies it was found that Bajaj lacked technical expertise, design know-how and the immediate inability to support the onslaught of competitors. To overcome the above issues Bajaj entered into a strategic tie-up with Kawasaki in late 1990s to enhance its product line and knowledge up-gradation to support long-term strategies. Earlier, most of the products that Bajaj exported were scooters and some motorcycles. However, in its target markets, like in India, the shift was towards motorcycles. With the expansion in Bajaj's own range to almost five-six platforms of motorcycles, it had a better offering to export, also the reason for its stronger showing. For the last fiscal, 60 per cent of its exports were two-wheelers and the rest three-wheelers. Of the two-wheeler exports, close to 90 per cent were motorcycles. Bajaj has identified certain key markets, which hold potential. Egypt and Iran continue to be strong markets for Bajaj. The other market, which would be a focus area, is South America and Brazil is the largest market.

Other focus area is the ASEAN nations, which constitute the third biggest consumer of two-wheelers. Bajaj distributors are looking to introduce eco-friendly four-stroke auto rickshaws. At present Bajaj has taken a leaf out of the FMCG business model to take the company to the No 1 slot. The company set up separate sales channels for every segment of its business and consumers. Bajaj Auto's entire product portfolio, from the entry level to the premium, is being sold by the same dealers. The company plans to set up exclusive dealerships for its three-wheeler products instead of having them sold through an estimated 300 of its existing dealers. Bajaj Auto plans to appoint 100-150 dealers exclusively for its three-wheelers so that they can focus on the job, get in volumes and make the business viable. The company's high-end bikes sold only through premium showrooms that the company has set up in 50 locations across the country to provide its top spenders with a superior buying experience.