- The motorcycle industry has shown rapid growth over past 4 years and is expected to be doubled in next 4 years (i.e. a total market of 1,000,000 units)
- Keeping in view the impressive results of the manufactures of Japanese two-wheeler - it has been noticed that entry of the Chinese bikes has so far not given any serious jolt to the market share of Honda, Yamaha and Suzuki.
- It clearly shows that the Japanese bikes have not been seriously hurt yet by the entry of Chinese bikes. Customers still prefer the Japanese bikes due to its quality durability, and value for money. Hence, a particular segment of the society, having little liquidity, is buying the Chinese bikes.
- In case of Atlas Honda, sales of Honda motorbikes might not grow in Karachi, due to theft and snatching cases otherwise sales in the upcountry markets are expected to grow swiftly. Profitability will greatly depend upon important factors of “quality standards and the resale value” of Japanese bikes.
Competition
The total number of approved Motorcycle assemblers / manufacturers by “Engineering Development Board” (EDB) in Pakistan has reached to 29, which include three Brands of Japanese origin while remaining 26 being produced indigenously with the help of Chinese technology. The Japanese bike-makers are:
Actual Production of these Japan based Bike manufacturers are as follows:
Competition from Chinese Manufactures
Gone are the days when Honda, Yamaha and Suzuki had virtually ruled the Pakistani roads. Time has now changed. Chinese bikes of various names are now running side by side with the Japanese. Following is list of these 29 assemblers / manufacturers (local and imported) and their production capacities approved by EDB.
Company and Competitor’s Market Share in all Product Segment
(2001 – 2004)
(In Units)
Company and Competitor’s Market Share in all Product Segment
(2001 – 2004)
(Value in 000)
Industry Driving Forces
Social-Environmental
Driving Forces
Economic Forces:
The current improving economic scenario of Pakistan is acting as a catalyst by further giving acceleration to the currently already booming motorcycle industry. The improving economic scenario especially on the agriculture side is helping the motorcycle manufactures increasing their sales further. The GDP estimated at 6.8% in 2004/2005 while good crop expected during the following years is going to give a boost to the motorcycle industry, as its rural sales are growing above 50% and constitute the major percentile of revenue for the motorcycle industry. The main sources of income for most of the farmers are their crops and good crops means for motorcycle manufacturer’s good motorcycle sales. Therefore, the growth on the production of food crops (which accounts for 65 to 70 percent of the cropped area) and all the major crops of Pakistan which are also exported are going to earn a fairly large amount of foreign exchange. Thus, contributing a foremost part in GDP and GNP and meaning future growth in motorcycle industry.
Also, employment in motorcycle industry has increased substantially, as new capacities and suppliers have come on line.
Political Forces:
Nearly 80-86% of the raw materials required for manufacturing motorcycles in Pakistan are imported, so costs are also exposed to currency fluctuations risk. Any devaluation of the Rupee currency will make the raw materials much more expensive making it unfeasible for the Japanese motorcycle manufacturers to maintain their quality standards. Government policies regarding local manufacturing also affect the whole industry. Local manufacturing is favored by government. Hence the policy has shown better than expected results.
Bargaining Power of Customers:
The humongous increase in the variety of motorcycles in the recent years is leading to giving the consumers a great amount of choice and it is getting more and more difficult to entice and prevent the consumers from brand switching. Many new features inherent in latest bike models are increasing the customer expectations a great deal for the future. A competitor launching newer models with stress on reduced price for our price-sensitive economy is also proving as a serious threat in the near future. The price is one of the key issues which is faced by the Japanese motorcycle manufacturers.
Bargaining Power of Dealers:
As the motorcycle variety is increasing so are the dealers bargaining power. Increased profit margin offering by competition is creating pressure on companies to increase their dealer’s profit margin and start paying more attention to their dealer’s demands. Most companies do have exclusive dealer networks all over the country but other dealers who carry the variety off all the motorcycle manufacturers have to be given some attention so that they promote the manufacturers requirements and interest.
Technological Forces:
New and new features are being added by new motorcycle manufacturers to entice the customers towards them. Existing manufacturers, who need to stay ahead of the game, must have to upgrade their facilities and get state of the art equipment to retain their customers by innovating and giving their motorbikes the edge and value for money. On the other hand, a manufacturer can opt for using cheap technology to sell the final product later at cheaper price (Chinese technology).
Environmental Forces:
New government laws regarding environment are a great threat for some of the major players of the market in the near future. The government has imposed a ban on motorcycles, which are of 2 stroke and/or 70 CC or less than 100 CC, to travel on highways, sue to environmental pollution concerns. If the ban is stretched to rural and urban areas as well, it would create negative impact on sales of motorcycles of these categories to those segments which use motorbikes as a mode for traveling for a long distance.
Main Entry Barriers
Companies who would want to produce good quality product will have to import of high technology parts is one of the main factors which increases cost. Very high tech parts are mainly imported from Japan but spare parts and raw materials are also being imported from China as well. Importing Chinese technology will make thing easier for a company in short run because raw material imported from China is of poor quality which will deteriorate the product quality. Many existing companies are importing raw materials from China and producing low quality products. They are selling these products at cheaper prices to attract the market. The price wars which started 4 years ago are one of the main issues going on between the Chinese assemblers/manufactures and the Japanese manufacturers. The Chinese are offering motorcycles at cheaper prices, taking all the price sensitive consumers away. Chinese bikes are still cheaper by at least Rs. 15,000 as compared to their competitors.
- Deletion Program enforced by the Government
The government is focusing on localization of spare parts through their deletion program to safe guard the interests of the local manufactures and to reduce the price of the motorcycles, to create more jobs and to reduce the dependence on foreign parts for manufacturing and assembling. This is also done to reduce the assembling done by the Chinese manufacturers and turn it around into manufacturing. To further discourage imports of entire motorcycles the government has enforced 90% of the import duty on entire motorcycle (end product) as known as CBU in duty terms. High tech parts imports though are allowed and have a 30% import duty known as CKD in duty terms. (See on next page)..
- Local Industry Competition:
The total no of motorcycle manufacturers and assemblers have risen to 29 in the recent years leading to a very competitive environment and leading an ongoing continuous war for customers. The Chinese especially in the recent years are challenging the Japanese manufacturers by offering motorcycles at cut throat low prices.
- Global Competition Uncertainty
Another thing to worry for motorcycle manufacturers is that with effect to the WTO Agreement the Pakistani market will become open for Global Competitors and the likely hood of new entrants mainly India entering the Pakistani market will be very trouble some for them. The Indian motorcycle manufacturers have an enormous variety to offer and their motorcycles quality matches that of the Japanese manufacturers while they maintain the same pricing as of china which is very cheap. The Pakistan market constitutes of only 500,000 motor cycles per year while the India market constitutes of nearly 5 million motor cycles per year.
Tariff Structure for Motorcycle Sector
Key Success Factors
- Quality
The major success factor in the Motorcycle industry is of providing quality products at premium prices. The leading motorcycle manufacturers use the latest technology and hence provide products that are very effective and give bikes more resistance against attacks from harmful natural deterioration. The overall motorcycle industry is ISO 9000 CERTIFIED which further provides quality assurance of the motorcycle. The industry can be further portrayed through the Japanese manufacturers’ implementation of the KAIZAN QUALITY principles.
- Distribution
The distribution system serves as an effective key success factor. Every leading manufacturer follows its own distribution structure. This is mainly because the major manufacturers in the industry believe in establishing a strong distribution network that will distinguish them from competitors. The overall industry mostly follows a company to exclusive dealer network.
- Pricing and Resale Value
Pricing serves as a key success factor for the motorcycle industry. This is because majority of the players (Chinese motorbikes manufacturers) charge low prices. The price acts as a main restraint in final purchase of the motorcycle.
Chinese motorbikes manufacturers are in the market with low pricing compared to Japanese manufacturers, in order to attain high market share and high sales growth. However, fact should be remembered that whether a customer pays less or more, he wants value for money too; he wants good quality at all levels.
In addition, customer especially those from rural areas, also want high resale value for a bike.
- Brand image
The motorcycle industry relies on the important key success factor which is the brand image in the consumers mind.
- Research & Development
Continuous research & development is undertaken by the major players in the industry. This gives them an edge over other industry players, by providing new and improved products, designed to meet customer needs and choices, at a faster pace.
- Durability/reliability
The motorcycle durability and reliability stands out as the second main key success factor (after resale value) for the rural market. The customers mainly from low income group and rural areas, who will keep bikes for long period, want durability and reliability assurance. A motorcycle should be durable for longer experience.
- Cheap maintenance
There maintenance expenses of the motor cycle industry are not much high. Maintenance costs are cheap and parts are easily available.
- Discrimination free environment
The overall industry follows a positive work force environment and a well adapted discrimination free organizational culture.
- Strong asset position
The motorcycle industry has a very high strong asset position in the market. This lets them easily acquire latest technology upgrades which are necessary to produce newer and better bikes. The motor cycle industry has a strong asset power in case of investments due to high visible growth.
- Strong fuel economy
It is so economical that the almost whole industry claims says that “in 1 litre you can drive up to 60 km. This way the industry is offering best fuel average as compared to the rising petrol prices. This economical advantage to the customers attracts mostly rural areas and underdeveloped regions having poor infrastructure, which are facing price rise in petrol as a highly essential threat.
- Drive Comfort
This KSF is in relation to the quality of the motorcycle. Industry is offering attractive drive comfort measures which act as a very essential key success factor. It is an important feature for customers who are traveling on long routes (like sales people); they acquire comfortable drive for smoothness in road grip of the bikes.
- Training programs:
Extensive training programs to customers, dealers, mechanics and other important employees. This relates mainly to the awareness increase program in form of training provided to internal employees as well as external customers. The training increase knowledge about the product features, functionality and necessary safety measures/techniques. The training programs have been very successful in improving customer satisfaction and internal motivation of quality assurance of the product of the motorcycle industry.
Past Performances
Ratio Analysis
SWOT Analysis
Strengths
Product
- Brand name image
- Market leadership – Enjoying 56% share
- Efficient performance
- Durability/Reliability
- Quality – ISO Certification
- Easy availability of Spare Parts
- Strong asset position/increased profits with each year
- High resale value
- Low maintenance costs
- Technical expertise – Benchmarking Honda, Japan.
Price
- Reasonable price of genuine parts
- Cheap maintenance
Place
- Well established dealer network
- Accessibility to major towns and cities; improving delivery to nearly all parts of Pakistan
Promotion
- Successful Promotional campaigns via TV and Newspaper channels enjoying extensive viewer ship
People
- Management/non-management work as a single unit, as a team
- Highly loyal, committed and motivated employees
- Hardworking, experienced and qualified staff
- Technological and managerial know-how
- Job evaluation which is totally performance based, gives staff incentive to work harder each time
- Bonuses and reward system for employees
- Trainings given to dealers, motorcycle mechanics and users
Processing
- TQM principles practiced in work processes
- Kaizen (continuous improvement) principle in all processes
- State of art plants and equipment
- ISO 9002 certified
Physical Environment
- Frank and congenial work environment
- Positive work climate and organization culture – single code of dress supports to maintain discrimination free work environment
Others
- Customer loyalty
- Old and established brand name
- Safety guidance given to customers.
Weaknesses
- After sales customer service not up to the level actually expected by the customer.
- Less of a proactive approach to different matters, reactive approach applied more
- Limited investment in high technology equipment
- Price higher than prevailing competition in market, which gives customer thoughts about nearest substitutes available
- Bike launching new features as those of new entrants in market
- From customer point of view, in case brand is unavailable for a long time, high pending level allows customer to switch brand
- Credit availability schemes no well managed and customer not informed about them
- Customer conscious of bike as a status symbol refrain from buying available Honda brands. It is considered more of a family bike
- No safety measures installed in bikes against snatching dilemma prevalent in Karachi.
Opportunities
- Growing motorcycle market – Estimated bikes 500,000 by the end of 2005 compared to 300,000 in 2004/2005
- Improving economic scenario of Pakistan by contributing more through increased selling – GDP estimated at 6.8% in 2004/2005. Good crop expected next year.
- Customers realizing quality matters, as problems are already cropping up in new entrants models
- Initiatives and proposals in process for coping with increased demand of bikes
- Newer segments introduced with entry of new models, design, which still have huge potential for growth
- Karachi, a segment which has tremendous potential for growth and profitability.
Threats
- Many new features inherent in latest bike models increasing customer expectations a great deal for the future
- WTO (World trade Order) opening local markets for global competition
- Competitors launching newer models with stress on reduced price for our price-sensitive economy proving serious threat in near future
- Theft and snatching of bikes increasing, reaching 2500 bikes in period of January -May 2004
- Ban on 70 CC bikes in rural areas
Year-Wise Comparison of 2 Wheelers Snatched/Theft up to 31st December 2004
TOWS MATRIX
Company is shown to be as internally strong as it has aggregated score of 2.95 which is above the normal average of 2.5.
The Company is able to respond adequately to the future opportunities and the threats its faces as its score is 2.7 which is above the average score of 2.5.
THE COMPETITIVE PROFILE MATRIX
Analysis:
Atlas Honda if compared to its competitors is an outstanding position and is standing at 3.5 while Yamaha is its no 1 competitor and market follower while Suzuki is in a poor position and needs to do something fast to get out of this seriously troublesome phase.
Portfolio Analysis
THE BOSTON CONSULTING GROUP MATRIX
For Atlas Honda
Market Share
High Low
High
Market growth Rate
Low
THE BOSTON CONSULTING GROUP MATRIX
Market Share
High Low
High
Market growth Rate
Low
Market Expansion Grid
Existing product New product
Existing
Market
New
Market
New Product development Plan
Product Category
Existing New
Existing
Brand Name
Existing New
New
New
Issue - Priority Matrix for Atlas Honda
Cost Structure
Local Content Scheme (Deletion Program)
Pakistan has been pursuing a useful local content scheme, which has done some good to its technological base of the automotive sector and improved its design development capabilities. The methodology adopted is that the manufacturers are offered tariff incentives for progressive local manufacture of automobiles and other engineering goods.
The Industry Specific Deletion Programs (ISDP) Targets up to the June 2005 are given here under:-
Pricing
- The Japanese bike-makers have been slashing the prices of their products to attract more buyers. The move is aimed at improving market share and customer base at a place overjoyed over entry of the Chinese bikes (local and imported). The prices of Chinese bikes range within Rs. 32,000 – Rs. 40,000.
- Atlas Honda Limited happens to be the trend and price setter for the whole industry. The other major player in the industry, i.e. Dawood Yamaha Limited and Suzuki Motorcycle Pakistan Limited are its followers. As, following a cut of Rs2,000 in the CG-125 and Rs4,000 in the CD-70 prices by the Atlas Honda Limited , the Dawood Yamaha Limited too joined the league, by announcing a reduction of Rs2,000-3,300, and so did the Suzuki Motorcycle Pakistan Limited.
- Atlas Honda follows the Cost Plus method for pricing.
- In last one and a half years, the Japanese bike-manufacturers have been making downward adjustments in their prices. For example, market leader Atlas Honda has reduced price of the CD-70 by Rs14,500 to Rs54,000 from Rs68,500, while the CG-125 price has been brought down to Rs71,000 from Rs78,500.
- Market people link the cut by Honda, Yamaha and Suzuki to the entry of Chinese bikes which created a healthy competition, thus proving beneficial for the end-users to select the bikes as per their pockets and savings.
- They said that why the Japanese bike makers did not cut the prices when they had the monopoly. They literally kept the demand and supply gap in their hands, knowing that people were bound to buy costly bikes to meet their needs.
- Chinese bikes are still cheaper by at least Rs. 15,000 as compared to their competitors. In case the Japanese bike makers further come out with another price decline of Rs. 5,000 -- the gap will drop to Rs. 10,000 in a particular 70cc models.
-
Price cut by Atlas is only aimed at further increasing its customer base and it is not due to any fear of market share erosion in the presence of Chinese bikes. Atlas Honda believes that lure of a cheap price only creates one-time purchase. However, the value concept which embodies quality and affordability simultaneously is the long term winner in the hearts and minds of vast majority of customers. As a result Atlas Honda is in the process of further investing in localization and capacity enhancement in order to accommodate the step-up demand as migration of low-end customers shifts to higher value brand. Atlas Honda’s 40 years investment in customers and infrastructure is proving to be a clear competitive advantage.
Strategic Vision
To be the market leader in the motorcycle industry, emerging as a globally competitive center of production and exports.
Mission statement /Strategic Intent
- Being known as a dynamic, profitable and growth oriented company through market leadership, maximizing export and excellence in quality.
- To ensure attractive returns to equity holders, reward employees according to their ability and performance.
- To foster a network of researchers and engineers ensuing unique contributions to the development of the industry.
- Being known as people with superior compatibilities and commitment, both as an individual and organization.
- Customer satisfaction through delivering quality and world class performance.
- Protection of environment by producing emission friendly green products.
What is being satisfied?
-
Transport, mobility and conveyance accompanied with “Quality and Affordability”.
Who is being satisfied?
- Individual customers who can either be categorized as a price sensitive buyer, status conscious buyer or adventure oriented buyer.
How Customers’ needs are being satisfied?
Business Objectives and Targets
- To maintain market leading position and double the sales by the end of 2008.
- Investing to increase installed capacity, in order to meet expected demand in coming 4 years.
- To increase localization by the end of 2005 in order to maintain and improve cost effectiveness.
- To optimize the introduction of new products by developing products with new designs and features for youngsters segment.
- To broaden export functions and prove and maintain product existence in International markets.
- Modernize the company’s operations by acquiring greater technical expertise.
- Increasing dealer network.
Overall Strategic Direction
- Accelerating Growth:
This will be achieved by increasing its overall share in the market by the matching production with demands, which will be done by producing more and innovative products and marinating low costs/cost effectiveness.
- Getting connected with Customers and showing them You Care:
This can be accomplished through after sales service and frequent customer care activities like Customer Education Program. Also training the dealers and mechanics will help as they, in turn, will train the company’s customer as part of the new Customer Care Program. Therefore, it entails large investments in dealer, service and spare parts network as well as a reliable supply chain.
- Excelling in Brand Communication & Marketing to strengthen Positioning:
To supplement the 5S activities, the company can work upon its re-initiated and stimulating advertising campaign on the electronic media. All these advertisements should reinforce Atlas Honda quality and brand itself in .consumer’s mind. This might be helpful in times of excess demand, because due to the powerful and strong recall value of an ad, a customer can be willing to wait for the company’s product rather than purchase an inferior one.
Strong media campaign will provide the base to launch Atlas Honda’s next push for market growth.
- Consistent Provision of Superior Quality:
Atlas Honda does not compromise on the quality of its products. It understands that there are increasingly knowledgeable customers who demand an affordable and value product rather than just a cheap product. Therefore, the company must maintain its TQM principles and quality control systems to ensure quality.
Market Segmentation
Segmentation is the process of dividing the total market for a good or service into several smaller, internally homogenous groups. Since Atlas Honda is a customer oriented and quality driven company, it segments its market on the basis of various different dimensions. It identifies its target audience by identifying a segment’s Demographics, Psychographics, etc.
Atlas Honda customer profile in January 2005 was made to provide information on following:
Customer Profile for CD 70
CD 70 is a “utility bike”, aimed at price sensitive buyers it is designed for those who want good quality product by paying less for purchase, maintenance and fuel. In addition customer also wants high resale value for CD 70, because second hand sale of CD 70 from one user to another happens on regular basis.
CD 70 is catering to people from all age groups, but almost 72% of CD 70 buyers fall under the age group of 21– 40.
Majority of CD 70 customers (constituting a total of 58%) have an educational background of Metric and/or FA/FSC, while the remaining generally have an educational background of BA/BSC or Masters.
80% of CD 70 customers have profession of business (35%), service (25%) or agriculture/landlord (20%). Monthly income bracket of these customers ranges from 9001 – 20,000.
CD 70 has both new and old customers. Almost 70% are old customers, who have had CD 70 in past and/or present. 18% to 20% are the new customers, who buy CD 70 for the first time.
Customer Profile for CG 125
CG 125 is designed like a “mountain bike”; best for traveling on hilly areas and uneven roads. It is mainly designed for young people, who want CG 125 for adventure and fun riding proposes. Majority of CG 125 customers fall under the age group of 18 – 30.
Sales are less for people who are 18 to 20 years old because of the income factor, as they are not self sufficient (their buying decision depends upon preference and income of their parents/elders).
Majority of CG 125 customers have an educational background of Metric and/or FA/FSC.
80% of CDG 125 customers have profession of business (35%), service (25%) or agriculture/landlord (20%). Monthly income bracket of these customers ranges from 10,001 – 30,000.
For CG 125 too, Atlas Honda has both new and old customers. Almost 70% are old customers, who have had CD 70 or CG 125 in past and/or present. 20% are the new customers, who buy CG 125 for the first time.
NOTE:
The previous bike analysis shows that there is less rate of brand switching. 70% is the time a customer prefers to buy Honda Atlas motorbike again rather than any other brand.
Customer Profile for CD 100
CD 100 is an upgraded version of CD 70. Recently launched CD 100 is designed keeping in view the “status and image conscious buyer”.
CD 100 is catering to people from all age groups, but majority of them fall under the age group of 21– 40.
Around 60% of CD 100 customers have an educational background of Metric and/or FA/FSC, while the remaining generally have done BA/BSC or Masters.
80% of CD 100 customers have profession of business (35%), service (25%) or agriculture/landlord (20%). Monthly income bracket of these customers ranges from 10,001 – 20,000.
CD 100 has both new and old customers. Almost 80% are old customers, who have had CD 70 in past and/or present, and are now purchasing CD 100 to upgrade their social image and status. Remaining are the new customers, who buy CD 100 for the first time.
ACTION PLAN
