Two-Wheelers in India and Market Strategy
June 6th, 2008
A while back Pierre and Kyle posted on the topic of cheap cars in India and the market for them. Click HERE to refer back to their posts.
Periodic Cal Poly MBA Trip blog follower Sin Yaw Wang then jumped into the discussion and raised the following point:
The car is way too expensive for India that, by the way, does not have the road system for more cars. What India should have developed is an electric bicycle industry like China. At US $300 each for high-end model, they are (more) affordable and easier to manufacture. They also pollute much less.
Of course, they also make less money for companies like Tata. Hmm, what’s good for the company is not for the country. Maybe that’s why there should be a stronger government. Oh, never mind, that will be China.
Today’s WSJ contains a nice article on his point, Riding Two-Wheelers in India: Honda Bets the Middle Class Will Chose Its Motorcycles Over Rivals’ Cheap Cars.
The article points out that while most of the world’s auto global giants are rushing to supply low-cost cars to the masses in India, Honda is taking another route and focusing on motorcycles. I would loved to have been in the board rooms listening to the debate and discussion on whether to go car, bike or motorcycle in India.
Time to buy a few shares of Honda stock?
Entry Filed under: India, Pre-Departure
9 Comments Add your own
1. Eric Kvilhaug | June 8th, 2008 at 5:50 pm
Although I am by far not a Honda fan, with respect to their cars; their motorcycles are actually quite good. A terrible Honda motorcycle will still be an upper end product in most developing markets. I am quite surprised by the decision, hopefully they can make a good at it. What will be interesting is the size of the motorcycles after some time. As per my discussions with Dr Isaac Chang, my 1000cc (thousand) street bike is unheard of in Asia, 50cc (fifty) is much more common.
2. Glenn Hughes | June 8th, 2008 at 9:18 pm
Viewing videos of the traffic conditions in the cities in India make me wonder why anyone would want to purchase a small car. The larger the vehicle, the less maneuverable it becomes, which in large cities where there is fast paced traffic that needs to turn on a dime creates need for a small vehicle that can turn on a dime. Even here in the U.S. people are switching to smaller cars or in the extreme like most of my friends are switching to two wheels. With price conscious consumers who think about the long term effects of their acquisitions they will realize a higher return on their investment with the purchase of a motorcycle.
3. Catriona Banks-Orosco | June 9th, 2008 at 9:24 pm
Interesting article. Motorcycles make economic sense in congested cities. It’s definitely easier to maneuver a motorcycle through traffic too. I am always amazed to see how families can fit 4 people on a motorcycle, but it seems to work. Honda is smart to try to position itself to take advantage of market forces. The article points out the gap Honda leaves as consumers move from a motorcycle to a car. The price jump for Honda products is large, but it sounds like Honda may be able to capitalize on the “sweet spot” with its cars. Because China and India’s economies are growing so quickly there is a real advantage to developing a good reputation. I think Honda is trying to figure out the best way to serve these markets and trying to offer a variety of products to suit consumer tastes.
Honda stock is sounding like a good idea.
4. William Jencks | June 11th, 2008 at 9:49 am
The answer to this question is obviously to develop a motorcycle or 3-wheeler that claims similar profit margins to the low cost cars that Tata is producing. This should be easy due to the difficulty of producing such a low cost car. That way what’s good for the company WILL be good for the country, especially taking into consideration the higher fuel efficiency and limited impact on the environment that motorcycles have. Of course the electric bike idea is interesting, and works for short commutes, but electric bicycles generally have very limited speed and distance thresholds, and certainly aren’t lady killers like Honda’s aptly named “Unicorn” which targets urban males.
I agree that most Indians probably are not going to shell out the extra cash to get from a nice, upscale motorcycle to the lowest quality car you could ever buy (the Nano), which has one windshield wiper, and virtually no amenities. Of course there is a market for these low cost cars, I just personally wouldn’t enter that market.
5. Adam Windham | June 11th, 2008 at 9:13 pm
Targeting the low-cost motorcycle market almost seems like a no-brainer for Honda. Unlike most of its major competitors, Honda has a lot of experience in manufacturing two and four-wheel personal vehicles. As mentioned earlier, manufacturing a low-cost car can be very difficult; at best you are going to have to seriously sacrifice on some of the amenities to achieve a competitive price. As India’s infrastructure improves the demand for more cars will likely increase, but in a country that is already plagued with traffic problems, and efficient and easily maneuverable motorcycle/electric bike might just be the ticket. Overall I think this is a smart move by Honda, one that the company can easily fold into its current capabilities without having to spend a great deal of up front capital retooling their manufacturing process.
6. Jeff Mohr | June 12th, 2008 at 6:49 am
One of the things I have been grateful for over the past 9 months is the ever sharpening realization that our way is not necessarily the best way (government, culture, religion). I bring this up with respect to Sin Yaw Wang’s point that “Hmm, what’s good for the company is not for the country. Maybe that’s why there should be a stronger government. Oh, never mind, that will be China.” There is a legitimate question of whether India would be better off with a stricter government that pushed economic development forward. India has such great potential but seems to be missing out on great opportunities because of its lack of infrastructure. I do feel that the motorcycle is and will be for some time into the future an integral part of the transportation market in India. Plus motorcycles are one of the things Honda does best. After seeing the videos of traffic in India, I would be scared to think how bad it would be with double the number of cars…
7. Witold Sadowski | June 12th, 2008 at 8:50 pm
I agree with those above… Honda, which makes amazingly good quality motorcycles, is making a good bet entering the Indian moto market (esp. in the congested cities). Not only is it way more affordable - both to purchase and maintain (esp 4-stroke), but much more practical to use - maneuverable, consumes less gas, easy to park, handles poor roads well, etc. Also from a safety perspective, I would assume it would be more safe to ride a motorcycle in India than in the US - lower speeds and less cars to hit. It’s also fun to ride!
8. Sarah Ybarra | June 13th, 2008 at 8:29 am
I do not know whether or not it is safer to ride motorcycles in India than it is in the US. However I have heard that the traffic in India is insane. It is said that the streets are packed with people, cars, 3 wheeled autos (taxis), wildlife and, of course, people weaving in and out of these numerous obstacles. I get the strong impression that although it might be exhilarating, it could possibly be very dangerous to ride a motorcycle in India. In light of this, I think more and more Indian will turn to this type of transportation because it will be easier to maneuver their vehicles among the city traffic. I do think it is extremely smart of Honda to enter into this market and I believe it will be a huge success. Not only will it cost less to manufacture but it will be better for the environment and at this time they will have few competitors.
9. Matt Fencl | June 13th, 2008 at 1:30 pm
I owned a motorcycle my last two years at college and only sold it to raise money to go back to school. I can tell you that as soon as I get the money together I’ll buy another one. Of course, I didn’t purchase mine to cut through the morning traffic which is really their selling point in India. In Kansas, “splitting lanes” is actually illegal. California is one of the few states where motorcycles are allowed to maneuver between slow moving traffic. I look at the difference in regulations as having the law suit the needs of the state. Traffic jams in Kansas are laughable considered to the traffic in LA. Similarly, the traffic in India requires people to drive two-wheel vehicles…is simple adaptation. Most Asian motorcycle manufacturers also priced below their American, British, and Italian competitors. I see Honda doing very well in India.
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