Bajaj Auto Ltd

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1. What challenges confronted BAL and which were of its own making? In 1980s, the government’s impact was the most challenging factor confronting BAL. It witnessed an increase in both foreign and domestic competitors because of the Indian government’s permission of foreign technology and local manufacturing capacity expansion. Accordingly, Japanese products were more preferred than domestic brands due to its durability and eye-catching design. Apart from Yamaha, Suzuki, and Piaggio, Honda who took out the major market share of BAL scooter and motorcycle segments was its fiercest rival. Since 1990, due to the economic downturn, two-wheelers vehicles were no longer the first prioritized consumer products but TVs, VCRs, and washing machines. Thus, the demand of BAL’s two-wheelers significantly decreased. There were two main internal challenges that BAL had to face. Firstly, there had been insufficient labor force in R&D field resulting in the poor product design compared to Japanese products and therefore, creating the larger gap with Honda. Lastly, no preferential credit was given to its dealers on working capital leading to the profitability pressure towards its dealers and the difficulty for BAL in building a wide dealer network.

2. How was BAL performing?
Chart 1: Sales, Operating Expenditures and Operating Profit from 1986 to 1996E

Table 1: Changes of volumes of Sales, Operating Expenditures and Operating Profit through periods  | 1986-1988| 1988-1990| 1990-1992| 1992-1994E| 1994-1996E| Sales | 795| 5098| 2013| 5283| 5971|

Operating expenditures| 1147| 4204| 2022| 5090| 5298| Operating profit| -352| 894| -9| 193| 673|

Table 2: Changes of rates of Operating Profit through periods  | 1986-1988| 1988-1990| 1990-1992| 1992-1994E| 1994-1996E| Sales | 18.92%| 102.02%| 19.94%| 43.63%| 34.33%|
Operating expenditures| 33.59%| 92.15%| 23.07%| 47.18%| 33.37%| Operating profit| -44.73%| 205.52%| -0.68%| 14.62%| 44.48%|

From 1986 to 1988, BAL showed a slight increase in Sales but Operating Expenditures regrettably had a remarkable rise. As a consequence, these created a fall in Operating profit. These were probably because BAL had the establishment of a second plant in 1985. However, between 1988 and 1990, Sales had a higher rise than Operating Expenditures; therefore, Operating Profit grew strongly. These were because the overview of market expressed the excess of the demand compared to the supply in this period. Between 1990 and 1992, although revenue rose slightly, it can be said that the speed of Sales growth subsided significantly. Concurrently, Operating Profit in 1992 was less than in 1990. These could be originated from the economic recession, market saturation, the excess production capacity and increasing competition. Finally, BAL gave an estimation of promising growth in Sales, Operating Expenditures and Operating Profit from 1992 to 1996. Hopefully, they believed that they would achieve steady rises in revenue and operating costs while profit could also acquire impressive jumps. Their belief could be supported by planning renovations in departments such as R&D, marketing, manufacturing and HR.

3. How was the Indian market for two and three wheelers evolving? Initially during 1960s, there was a shortage in the two- and three-wheelers market in India. This market had become competitive since 1980s when India permitted foreign entry and expanded production by domestic manufacturers. In 1992, India was the world’s second largest market for two- and three-wheelers in which scooters represented the largest domestic sales of 690,000 units. From 1985 to 1992, Bajaj got the highest market share of scooters while its strongest competitor – Honda – won the motorcycle sector. However, the demand dropped dramatically from 1993 due to the economic recession and the increase in volume of consumer goods such as televisions, VCRs.

4. How...
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