To study the operational strategies of companies in 2 wheeler industry and decide whether the operational strategies are aligned to the competitive priorities of that company. The companies chosen for this study are Hero MotoCorp and Bajaj Auto Limited. INDUSTRY ANALYSIS:
India is the second largest two wheeler market in the world, next only to China. The two wheeler industry segment largely comprises motor cycles, mopeds, and automatic scooters. The yearly sales are pegged at around 13.5 million units. The Indian two-wheeler (2W) industry recorded a growth of 14% in 2011-12. Although the YoY volume growth of the industry remained in double digits, the pace of growth during the last quarter was at its lowest gear in the last three years. The deceleration in growth was contributed mainly by the motorcycles segment which grew at a much lower rate of 9.2% (YoY) in Q3, 2011-12; even as the scooters segment continued to post 20%+ (YoY) expansion. Overall, the domestic 2W industry is expected to report a volume growth of around 13% in 2011-12 as the growth is expected to fade further in Q4, 2011-12 due to base effect. In an environment where the northward movement of inflation, fuel prices and interest rates has been the nemesis of the Indian automobile industry at large, the 2W industry has been the most resilient which is reflected in its healthy volume growth of 15.0% (YoY). The growth has been supported by various structural positives associated with the domestic 2W industry including favourable demographic profile, moderate 2W penetration levels (in relation to several other emerging markets), under developed public transport system, growing urbanization and expected strong replacement demand, besides moderate share of financed purchases. The landscape of the Indian 2W industry is set to evolve as several new players are keen to enter into the Indian market which would further intensify competition; most existing players plan to extend/ strengthen their reach into the rural and semi-urban markets to harness incremental growth opportunities; and manufacturers are showing increased thrust on new product development and repositioning to tap new customer segments. These dynamics would ensure that business does not remain as usual for the large incumbents as market share may change hands to some extent. Nevertheless, the existence of strong product capability, wide distribution network and established supply chain will continue to be the necessary conditions to sustain competitive advantage and achieve economies of scale The Indian motorcycles segment continues to be dominated by Hero MotoCorp which has maintained its market share at over 55% in the domestic motorcycles segment over the last five quarters. The top three players accounted for 89.5% of the industry’s volumes in 2011-12 (92.0% in 2007-08), with Honda Motorcycles reclaiming its spot as the third largest player, a position which it had lost out to TVS in the previous quarter after having retained it since Q4, 2009-10. In the 75-125cc segment of motorcycles (that represented 71% of total motorcycles sales volumes in 9m, 2011-12), Hero MotoCorp continues to be a strong market leader with a share of 74.2% in 2011-12. In the >125cc segment of motorcycles, while Bajaj Auto continues to account for nearly half the segment’s volume, Yamaha has been the fastest growing having improved its market share from 8.1% 2010-11 to 10.1% 2011-12. In view of the higher than expected demand, several OEMs had faced capacity constraints in their supply chain for select components which resulted in persistent demand-supply gap for few models, resulting in long waiting periods at dealers’ end. To overcome this, most players currently have plans to expand production capacity which would entail large capital expenditure (capex) both by Original Equipment Manufacturers (OEMs) as well as suppliers. While this may pull down the profitability metrics of industry participants over...
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