In 1983, Hero Cycles of India signed an agreement with Honda Motor Corporation, forming Hero Honda. This agreement, between an Indian firm that got its start making bicycle parts, and the world’s largest motorcycle manufacturer, marked Honda’s entrance into the Indian market for motorized two-wheeled transportation. While the country was already crowded with competitors such as Suzuki, Yamaha, LML and Kinetic, Honda’s executives and Hero’s founder and CEO, Brijmohan Lall Munjal, saw significant potential in the Indian two wheeled market. Why was the market attractive?
At first glance, the Indian market was attractive because of its sheer size and significant growth. India boasted a population of approximately 725 million in 1983, growing at a rate of 2.2 per cent per year. At that rate of growth, the Indian population was expected to grow by 163 million people in the 1980s and to surpass 1 billion people by 2000. Not only was the total population of India enormous, but Munjal also knew that the adult age group most likely to purchase two-wheelers (15–65-year-olds) was expected to grow to over 500 million by 1990 and to an estimated 695 million by 2005.
But why would one want to pursue a market where 35 per cent of the population was impoverished? Mitigating this fact was growth in the purchasing power of the Indian population, expected to grow per capita by 5.2 per cent between 1983 and 1993. Furthermore, even in the early 1980s, the country was wealthy enough to support an infrastructure of 1.4 million kilometres of highway. In total, Munjal saw that a large population coupled with a substandard economic situation was an ideal environment for inexpensive, motorized, two-wheeled scooters.
Honda also saw the potential. With air pollution from industry and vehicle emissions topping India’s environmental concerns, emissions regulations had become increasingly stringent. 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 favourable macro-trends that boded well for the future: growth in numbers in the demographic group most likely to buy twowheelers, growing purchasing power across the Indian population, and regulatory encouragement. How did Honda enter the market?
Rather than enter the Indian two-wheeled market alone, 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 nearly 40 years, Hero had manufactured and distributed bicycle parts and bicycles in India for as long as Honda had produced motorcycles. And, with strong distribution channels and well-honed supplier management, the Hero Cycles name was as reputable in India as was Honda’s in Japan.
But Hero Cycles was no ordinary partner. The Munjal family’s management practices had led to exceptional results, low employee turnover, and never a day of strike in 40 years. The company used modern manufacturing concepts such as just-in-time supply chain management, multi-tasking assembly line workers, and stringent quality...