Market Entry of Automobile Company - Essay Example

 Introduction: The automotive industry is one of the world’s most significant economic sectors by revenue. Its contribution to the global economy is prominent. With new motor vehicles being launched every other day in the market, the automobile market is definitely going global in a superfast way. As companies are promoting and focusing on international market exposure at the maximum level possible, competition goes higher. Along with it, there is a growing requirement of strategy development and implementation in order to keep stayed in the forefront of the global market. Talking more particularly about the motorcycle market, the international scenario is witnessing a lot of competition and market pressure from the leading motorcycle manufacturers conquering developed markets while entering developing and promising ones. Growing customer demands have shown the increasing needs of motorcycle production in almost all major manufacturers including global leaders like Suzuki and Yamaha. International Motorcycle Market Report by Powersports offers the following statistical data of Suzuki and Yamaha: Year 2005 (Total production unit) 2006 (Total production unit) Suzuki 42,168 46,209 Yamaha 38,626 40,585 According to the Japan Automobile Manufacturers Association (JAMA), the four largest motorcycle manufacturers in Japan (that is, Honda, Kawasaki, Suzuki and Yamaha) boosted domestic output by 2.1% along with its production unit increasing from 154,645 in October 2005 to 157,942 in October 2006. Their exports to the United States also experienced a considerable increase from 61,326 units to 65,641 units during this phase. With regard to the aspect of customer choice, JAMA showed that during 2005-6, the motorcycle market of the United Kingdom was mainly dominated by supersport models. In the UK market itself, the supersport segment accounted for a significant 22,492 units in the motorcycle and scooter category with Honda ruling the roads of the UK. While motorcycles dominated the markets of larger nations like the US as well as smaller ones like Brazil, scooters led sales in Italy during this period. The primary objective of the presentation of such data and information is to highlight the issue of growing consumer demands of motorcycles across the globe. Especially in terms of the developing economies, it is considered as one of the most successful and fast booming industries in the world. Demand for motorcycles in developing countries is being driven by a number of factors. However two aspects are more common among developing economies: Poor public transport infrastructure Increase in purchasing power levels In terms of developed nations, the following factors are prominent: Increasing gas prices Increasing car users causing traffic Growing interest for sports bikes among the younger generation Moreover, awareness of the international trends is another demand driver for the increase in motorcycle purchases. As the international trend suggests, the growth of the two-wheeler market is going to continue for some time. Global motorcycle demand has been growing at a remarkable rate. The trend also specifies the differences in customer choice and purchase with regard to different economies. More particularly, larger bikes tend to dominate the market volumes of developed nations whereas smaller bikes rule the market of developing countries. However, it also signals another interesting trend of the two-wheeler market – demand for larger bikes is doing the rounds in developing nations like India and China. Nonetheless, small bikes are more likely to remain as the constant consumer demand in the foreseeable future. Objectives: This paper prepares a management report with regard to the market entry strategy of automobile companies and more particularly, the two-wheeler manufacturing companies. It also briefly addresses the issue of internationalisation of the two-wheeler companies while taking care of related aspects such as growing competition in the international motorcycle market, strategy development and implementation for market advantage, and so on. in this context, the paper provides a case study analysis of Harley Davidson’s entry into the Indian two-wheeler market. A quick glance at the international two-wheeler market: Current trends in the international motorcycle market are showing impressive developments in increasing consumer demands for two-wheelers. In short, motorcycle market is here to stay boosted for some time. Starting with a developed economy of that of the United States, the US market for motorcycles is worth ₴14.6 billion. Report by Packaged Facts shows that the US two-wheeler market is booming with a wide range of supersport bikes including cruisers, sports bikes, touring and dirt bikes. The sale of supersport bikes alone accounted for a remarkable 91% of motorcycle sales in the US market in 2004. One of the driving forces behind the bikes sales has been the increasing gas prices due to which motorcycle consumption is now witnessing a significant transformation in core user group of two-wheelers. Similar scenario can be accessed in the UK motorcycle market as well. Although there is a vast gap between the numbers of motorcycle and scooter users, and car users, the number of motorcycles in use has been increasing at a faster rate of more than 71% in the last three years, compared with a 24% increase in the number of cars in use. Interestingly, the motorcycle market of the developing economies bears more relevance and vigour. Going by the statistical records, China is the largest two-wheeler market in the world. It is followed by the Indian market that is showing only the sign of growing faster and wider. During 2009-10 alone, more than 10 million two-wheelers were sold in India, most of it being motorcycles. The Indicus report has shown that motorcycles as a segment has grown at a remarkable rate of 17.4% in the last 20 years in comparison with other two-wheelers growing at a meagre 1.8%. The period also saw significant growth in the annual sales of motorcycles in the country with its share in the two-wheeler market rising from 30% to 80% during that phase. Further, this growth has marked the beginning of tremendous success with regard to the market entry of big brands in the international motorcycle market queuing up for the Indian market. More specifically and technically speaking, the JAMA report of 2010 offers a better and clear picture of the international motorcycle market: Motorcycle production figures by manufacturer in 2010 Motorcycle Units Change from 2009 (%) Honda 201,007 +2.5% Suzuki 167,606 +3.7% Yamaha 182,734 +11.5% Kawasaki 112,752 -8.4% Others 76 +7.0% Total 664,175 +3.0% There was an increase of ₴0.272 million in the total value of motorcycles exported for the calendar year 2010, which increased from ₴4,414.293 million in 2009 to ₴4,414.565 million in 2010. Calendar year 2010 motorcycle export share by destination country (%) Countries Total (Units) Share (%) 2009 (%) Change (%) Asia 40,791 8.3 9.6 78.2 Middle-East 3,886 0.8 0.7 98.2 Europe 228,072 46.2 38.8 108.1 North America 106,251 21.5 33.6 58.2 (USA) (88,074) (17.8) (29.5) (54.8) Central America 5,348 1.1 1.0 101.3 South America 33,515 6.8 3.6 169.5 Africa 25,662 5.2 4.5 105.1 Oceania 49,939 10.1 8.2 112.0 Total 493,464 100.0 100.0 90.7 While the US motorcycle sales declined significantly in 2010, the European motorcycle sales also continued to fall during the summer in 2010 with a steady decline in countries such as Germany, the UK, France, Denmark, Greece, Poland, Norway and Sweden. Coming to the Indian market, the Indian consumption is likely to shift significantly toward international trends signalling the market entry of big brands into its domestic market. India has now entered a stage where the Indian companies are likely to become the preferred suppliers for motorcycles. Harley’s entry into Indian market - a case study: This section will look briefly into how big motorcycle brands are going through a paradigm shift by entering into smaller economies as part of their expansion in the global market. This statement is further supported by a case study on the market entry of Harley-Davidson in the Indian two-wheeler market. Harley-Davidson is the most iconic US motorcycle manufacturer that has made its official entry into the Indian two-wheeler market in the mid of 2009. Earlier, Harley-Davidson bikes were restrained from entering the Indian market due to strict emission norms as well as high import duties. However, relaxation of these norms in 2007 as part of an Indo-US trade agreement has made its entry easy into the Indian foray. Firm Motivations for internationalization: The biggest obstacle faced by Harley-Davidson bikes while entering the Indian market is that of the heavy excise duties and emission rules. Definitely, this is the major disappointment in the importation of these high-capacity powered two-wheelers. Considering the depth and relevance of this significant obstacle, Harley-Davidson has developed its objectives and motivations for its entry into the Indian market. A number of factors are to be mentioned and discussed in this context, which are the main reasons behind the company’s Indian venture: The booming two-wheeler market of India is the main driving force behind Harley’s Indian venture. Harley-Davidson understands and aims at accomplishing the young Indian dream of riding heavyweight motorcycles. Harley’s international venture into India or more specifically, into the Asian market is also driven by the competitive urge of outnumbering its Japanese counterparts that are currently ruling the Asian two-wheeler market while flying high in other continents as well. Harley-Davidson is aimed at increasing localisation along with upcoming manufacturing plant in India. This is relevant in the context of avoiding high excise duties and emission rules. Entry Strategy: Entering an automotive market in a developing nation like that of the Indian motorcycle market is indeed a difficult task for a foreign investor. In fact, such investment involves both advantages as well as high risk factors. First of all, the primary advantage of entering the market of a developing economy results in the investor’s another opportunity to expand globally while spreading over the foreign market sphere. There is a lot of scope for competitive advantage in developing countries for multinational companies that are already global leaders. However, at the same time, there is a strong possibility of fierce competition from other globally running big brands vying for the leading position in the developing market along with the players from the domestic market. In the context of Harley-Davidson’s entry into the Indian two-wheeler market, the company has taken care of the following factors while developing its entry strategy into the market: To promote heavyweight motorcycles in the Indian market, especially among the young generation. To highlight more on the brand innovation as well as its advanced technology. To attempt at a constant pricing value of the newly launched bikes rather than any increase in the pricing. To increase localisation by establishing production plants in India. To create goodwill as much as possible with the buyers as well as the dealers. Corporate Strategy: As the Indian two-wheeler market is growing fast in recent years, the market has become a hub of endless opportunities for both domestic and foreign investors. This further indicates the chances of massive growth and expansion in the market. That is to say, competition is most likely to grow difficult and tougher for these investors. Keeping this aspect in focus, Harley-Davidson has incorporated a number of competitive strategies in its corporate planning aimed for the Indian market. The following factors are significant in developing and implementing the corporate planning for the Indian motorcycle market: To conduct market research at frequent level in order to check on the current market trends and consumer needs. To increase productivity according to the Indian consumption. To analyse the corporate strategies of the leading players in the Indian market. To develop strategies of innovation and advanced technology in order to compete with its Japanese counterparts dominating the Indian market. To plant production houses in India. To develop and promote marketing strategies. Conclusion: The motorcycle market across the world is a booming market that boasts of massive growth and opportunities in the days to come. As the process of internationalisation is happening at a fast pace in this market, foreign venture has become a familiar issue for all major and domestic two-wheeler manufacturing companies. For records, over the last decade, many Chinese companies have entered foreign markets including Brazil and other South American markets. Current trends strongly indicate the market entry of big players venturing into the relatively smaller and promising motorcycle markets. Harley-Davidson’s entry into the Indian and Chinese markets is a prominent example of market expansion of multinational companies. As consumer needs are increasing, more and more of innovation and technology is required by the manufacturers to stay positioned among the top leading groups. Therefore, boom in the motorcycle market is a definite dream-come-true phenomenon. Recommendations: Investment in the motorcycle market is an opportunity that promises handsome profits and investing opportunities. The following factors are recommended for a foreign investor to consider before venturing into the international market: Focus should be on reducing or maintaining low prices and increasing services of heavyweight motorcycles. Small competitors should never be underestimated even by leading players. Competitive strategy planning should focus on promoting innovation and developing advanced technologies. Appendices: Motor Cycle Industry Association (MCI) report of the UK market, 2006 Vehicle type Production sale in units Supersport segment 22,492 Naked segment 18,749 Scooters 16,388 Sport touring 9,867 Custom 9,773 Trail/Enduro 8,476 Adventure sport/Supermoto 8,140 Touring 3,003 Total motorcycles and scooters 98,263 Total mopeds 20,003 Best-selling two-wheelers in the UK in 2006 Vehicle Total sale in units Honda CBR1000RR 1,964 Suzuki GSX-R750 1,852 Yamaha YZF-R6 1,821 GSX-R600 1,820 GSX-R1000 1,792 Kawasaki ZX-6R 1,636 CBR125R 1,585 Yamaha YBR125 1,522 Honda SCV100 Lead 1,373 BMW R1200GS 1,287 References: 1. Johnson, J. and Tellis, G. J. 2008, Drivers of Success for Market Entry into China and India, Journal of Marketing, Vol. 72 (May), pp. 1-13. 2. 2005, The US Motorcycle Market, Packaged Facts, published in 1 November, 2005, retrieved from . 3. 2006, International Motorcycle Market Report, Powersports Business, published in 25 December, 2006, retrieved from . 4. 2009, Harley-Davidson to Enter Indian Market, India Briefing, published in 26 August, 2009, retrieved from . 5. 2010, Indian Motorcycle Market: Double-digit Growth Rates to Continue in 2011-12, Indicus, published in 25 October, 2010, retrieved from . 6. 2011, 2010 Japan Motorcycle Production Report, JAMA, published in 7 February, 2011, retrieved from . Read More