Bajaj Auto Ltd.

Question 1

What challenges confronted BAL in 1993?

1. Economic forces

By the 1990s, the Indian economy was undergoing structural change, and imports were largely unregulated. Since 1990, consumers had felt the pinch of recession, inflation had averaged 13%, interest rates had shot up, and consumer purchasing power had dropped considerably. In 1993, demand for two-wheelers had declined substantially, the Indian two-wheeler vehicle industry suffered from chronic overcapacity due to the economic recession and the increase in the range and volume of consumer goods available to Indian consumer. This had given a big impact to BAL sales.

2. Technological forces

In the perception of the Indian consumers that Japanese products as being higher-tech, more modern, and better finished than domestic products. Thus, BAL also lacked design capability and the ability to translate new products from concept to commercialization as fast as its Japanese competitors. BAL’s main constraints were a lack of sufficient skilled R&D personnel and the slow response of suppliers. Furthermore, dealers were complaint that BAL had not kept up with competitor product introductions and that recent BAL new product launches had experienced number technical problems.

3. Sociocultural forces

Besides, there are problems that faced by BAL when BAL need to do advertising and promotion. The existence of 15 different languages in India meant that the same commercial could not always be used throughout India.

4. Competitors

TVS

Manufactured mopeds and motorcycles and had an equity collaboration with Suzuki for motorcycles.

Escorts

Manufactured motorcycles in a technical collaboration with Yamaha.

Kinetic

Manufactured both scooters and mopeds and had an equity collaboration with Honda for scooters.

Hero

Manufactured motorcycles and mopeds and had an equity collaboration with Honda for motorcycles.

LML

Manufactured scooters in collaboration with Piaggio.

Which were of its own making?

The one which is its own making is that BAL lacked design capability and the ability to translate new products from concept to commercialization as fast as its Japanese competitors. There was research shows that BAL’s average cycle time for a new model was four to five years, compared with two o three years for Japanese manufacturers. On the other hand, BAL also lack of sufficient skilled R&D personnel and the slow response of suppliers. Moreover, the new product that launched by BAL had experienced a number of technical problem. These were the problem that at its own making. In a nutshell, BAL should solve these problems in stead of only keeping everything cost competitive only.

Question 2

Could BAL rely on the domestic market to achieve its corporate goals or should it expand foreign operations?

In 1993, the marketing department’s objectives were to increase annual sales to 1 million units (retaining at least a 50% domestic market share) and achieve share leadership in all three two-wheeler subcategories as well as in the three-wheeler segment.
BAL’s product strategy was to provide consumers with a full line of competitively priced two- and three-wheeler products. The objectives governing product development were to protect market share by, providing consumers with what they wanted, matching competitor product features by constantly improving existing products, and periodically introducing new products. Besides, BAL’s products were renowned for being rugged, reliable, and fuel efficient. Perceived as reasonably priced, BAL products were also known for their low maintenance cost, good spare parts availability, and good resale value. By using Porters Diamond framework, BAL will be able to identify whether to rely on the domestic market or expand foreign operations to achieve BAL’s corporate goals. First of all, let’s look at the Factor condition in Diamond framework. In India, it contains of 15% of the world population, it means that there are high level of workforce in the country. There are sufficient natural resources and large capital resources in India which enable BAL to produce at a lower cost production. Thus, BAL also has great financial support network and widespread distribution network. In 1993, BAL faces the first threat where the Indian two-wheeler vehicle industry suffered from chronic overcapacity. The overcapacity occurred dude to India suffered from economic recession in the early 1990s. It also causes India’s consumer felt the pinch of recession; inflation of 13% and thus consumer purchasing power had dropped considerably.

Bajaj on internal analysis found that it lacked of the technical expertise to deliver competitive goods, the design know-how, and the immediate inability to support the onslaught of competitors. All these forced Bajaj to look for an international partner who could bring in technology and also offer some basic platforms to be manufactured and marketed in India. Kawasaki of Japan is a world-renowned manufacturer of high performance bikes. 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. BAL gets further support from the Australian company which provides R&D capabilities, so this can minimize the technology gap between Japanese.

The rivalry between BAL and other companies, force all players to create new product or product line to keep competitive advantage. BAL in order to be able to compete with Japanese manufacturer, BAL need to keep on improves the existing products. To increase the sales and market shares, BAL set up the marketing department in 1993.

In stead of competing in domestic market, BAL should as well need to consider the international markets in achieving the corporate goal, because it might gives different impact to BAL. After Indian government lifted up the excessive regulations and production constraints, BAL had the opportunity to develop the export but the competitive environment in the Indian two-wheeler market in 1993 became more intense.
This had changed the Indian demand condition on two-wheeler vehicles.

BAL able to enjoy greater length of profit by expanding to foreign operation, for example, in 1992, BAL sold the vehicles to 52 countries where export sales represent 2% of total sales with recent growth coming mostly from Latin America. Thus, another advantage was that BAL need not have to pay the import duties when they import to Western Europe. Moreover, good relationship between BAL and its export markets would enhance the ability to essential automotive components as inputs. There would be great opportunities for BAL in expanding its foreign operations in order to achieve its goals and specific objectives.
Question 3

Which export markets offered the most promise for BAL? Should BAL focus on developing or developed country?

From the BAL units export by country and product line in 1992 had show that most of the revenue of BAL export trade was generated from developing country where the main market was 71,842,000 Rs from Sri Lanka, 37,608,000 Rs from Bangladesh, and 35,520,000 Rs from Argentine and 41,000,000Rs from Mexico. While, developed market had created small revenue to BAL which total from eleven developed market was just generated 24,796,000 Rs not even reach one of the main market’s revenue generated from developing market. Therefore, this shows that BAL mostly revenue is generated from developing country.

There are two criteria for assessing the potential of a market which is current segment size and growth, and potential competition. By using these two criteria, conclusions that whether BAL should focus on developing and developed market will be identify.

Current Market Size and Growth Potential

Developing Market

The market sizes for BAL to make profits were more than in developed market. There is a high demand for BAL’s product in developing market. For example in Bangladesh and Sri Lanka, demand for three-wheelers vehicle is very high due to the behavioral of consumers that use three-wheelers widely. This had help BAL to capture 90% and 95% market share of three-wheelers from Bangladesh and Sri Lanka. Unfortunately, the concept of three-wheelers as passenger vehicles was not well-developed outside Asia. It reflects that psychographic which include attitude of consumers toward a product is a key to determine the demand of them in a particular product. In a nutshell BAL has more potential opportunities to market their three-wheelers product in Bangladesh and Sri Lanka.

Besides, the market size in Latin America also large compared with developed market. There were a high demand for two-wheelers vehicle which include scooter and motorcycle in Argentine (1,128 units of scooter and 1.021 units of motorcycle) and Mexico (1,122 units of scooter and 1,299 units of motorcycle). In 1992, BAL’s export growth coming mostly from Latin America. Since consumers in developing market were low income, low purchasing power and they were more price sensitive they will acquire for more relative price product, but product performance regulations were less stringent than in developed countries.

Developed Market

The attitude toward the performance of a vehicle from consumers in developed market were higher expectation than consumers in developing market that product performance requirement were exacting, and vehicles had to meet tough regulations on emissions, noise, braking, and electrical. This attitude has been reflecting by the trends showed that mopeds were being replaced by fashionable automatic scooters in Europe.

Potential Competition

Developing Market

The competitions in developing market were lower than in developed market for BAL to compete in the current market. In developing market, BAL can generate a high market share due to their competitive advantage of their low price product since they had this sustained competitive advantage that other competitor failed to duplicate it. In Mexico, there was no competition in three-wheelers and BAL held a price advantages over Japanese two-wheelers because Japanese products appeared too sophisticated for the markets that required substantial servicing by the consumers.

Developed Market

BAL should focus on developing market but no developed market is due to the existed of high competition in developed market. Although the Bajaj Sunny held a considerable price advantages in Europe, but it had fewer features and lacked of the performing function compare with their competitor in that market. Thus, 125cc scooters that had been developed by BAL from an adaptation of traditional 150cc scooter also appealed to a limited market that were niche market of consumers with a desire for an old-fashion-style product. Furthermore, in United States the 50cc market was dominated by Japanese competitors, and BAL had no products in the above -250cc category—the other large U.S two-wheeler segment. This is cause by the stringent Japanese product standards and the cost of freight made this market difficult to penetrate and it had reflecting that BAL facing a very high competition on the developed market.

In a nutshell, base on the two criteria, it shows that developing market offered the best for BAL and conclude that growth opportunities on developing market is higher than on developed market due to high demand, low competition and there are feasible and compatible for BAL to focus on.