In this assignment we tried to look into the Baja Auto’s own position in Indian domestic market and how it has performed in last year compare to local rivals. In addition, we suggest company to invest directly in America’s automobile industry as America and India is more or less similar in terms of operating multinational organisations. As, it is a long term investment and high risk strategy for company, we clinically analysed new market scenario and different aspects of it.
1.0 Competitive Position
Baja Auto is ranked as the world’s fourth largest two and three wheelers production company. It is in two wheelers and three wheelers Indian market since 1945 and recognised brand across Asia, Middle Eastern countries, Latin America. Bajaj Auto shares 26.70% of two wheelers market in India, fairly behind Hero Honda Motors which has 41.35% Indian customers, and ahead of TVS Motor Company which holds 18.14%. But when it comes to three wheelers vehicles, Bajaj Auto clearly control the majority of the market with 58.60%, much ahead then Piaggio Vehicles 32.70%. Bajaj’s closest competitor in two wheelers market is Hero Honda Motors. Hero Honda sold 3.72 million two wheelers units, almost double then Bajaj, who managed to sold 1.28 million units. Bajaj Auto is the country’s largest exporter of two- and three-wheelers.
During 2008-2009, Bajaj Auto’s international sales achieved an all-time high of 772,519 units of two and three wheelers, representing a growth of 25% over the previous year. (Sources: Automobile Industry report -2012, India). Though, there is a huge difference in terms of selling units between three major players of India’s two wheelers, their growth rate is almost similar to each other. Hero Honda Motors enjoys 15.4% growth in 2012, and it was followed by TVS Motor and Bajaj Auto with 13.3% and 13.2% respectively. (Sources: Annual reports of Bajaj Auto, Hero Honda Motors and TVS Motors-2012). In plant wise capacity Bajaj Auto clearly out plays its competitors. Bajaj Auto has 4 active plants compare to 3 of each for Hero Honda motors and TVS Motors. Therefore Bajaj has upper hand in terms of number of units’ productions. Bajaj Auto’s plants are capable of producing 5 million units of vehicles compares to Hero Honda’s 4.75 million and TVS’ 4 .50 million of units. (Sources: Automobile Industry report-2012, India).
Adopted from Automobile Industry report-2012, India.
2.0 Market Entry Bajaj Auto is highly recognised company throughout the world and has vastly experienced management team. In addition, it has its own technology labs, engineering colleges and very strong labour power. Apart from having a fair amount of domestic market share, it is a leading exporter of India. Bajaj is famous for manufacturing two and three wheelers which have good fuel efficiency and strong outer body and comes in very cheap prise compares to other manufacturers. It is right time for the company to move forward and make its own base in well developed country like The USA, which help company to reduce the good amount of money spent on exporting its products to Latin America and Africa and moreover, America itself has huge crowd who are struggling with current worldwide economic downfall and looking for cheap available options. 2.1 Reason for Entering Into the USA Market
PESTLE analysis is an useful analysis tool to evaluate future plans and it helps organisations like Bajaj Auto who is going to enter in new business environment to understand the risk associated with its next move .PESTLE helps company to analyse its position, potential and direction in new market place.
2.1.1 Political Situation of the USA It is very important to assess political condition of new working field before moving abroad. It helps company like Bajaj to make its business strategy. America is strong democratic country like India the motherland of Bajaj Auto and this will work company’s favour as it knows the pros and cons of such a political environment.
The US has the largest and most technologically powerful economy of the world, with per capita GDP of $49,800. US Business companies have more flexibility than any other part of the world in decision to expand their capita plant. . At the same time, they face higher barriers to enter their rivals’ home markets than foreign firms face entering US markets. It is lucrative industry to enter for foreign company like Bajaj Auto.
America’s population is 316,668,567 which consist of 79.96% white, black 12.85%, Asian 4.43%. 40.2% of America’s population is 25-54years old. 82% population is urbanised and an annual urbanisation rate is 1.2%. 99% of total population is literate.
highly diversified, world leading, high-technology innovator, second largest industrial output in world; petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, mining. Bajaj Auto will enjoy a good amount of success due to technological expansion of the company which is comparably low in India.
2.1.5 Legal America has strong, fast legal system which gives every individual a fair chance to appeal decision of the court. Supreme court is the highest body who makes the final verdict on any legal issue.
Air pollution resulting in acid rain in the US ; the US is the largest single emitter of carbon dioxide from the burning of fossil fuels; water pollution from runoff of pesticides and fertilizers; limited natural freshwater resources in much of the western part of the country require careful management; desertification. Bajaj Auto developed the technology in recent years and some of its vehicles run on CNG and LPG which reduce the amount of carbon dioxide. This technology gives company an edge over its competitors to gain confidence of the US government to enter into their market. (Sources: http://www.cia.gov/library)
2.2Market Attractiveness DIAMOND MODEL Source: Porter, M. (1990) 2.2.1 Firm strategy, structure and rivalry As mentioned earlier, Bajaj Auto is famous for producing light weight two and three wheelers vehicles which have good fuel efficiency and strong body and it’s new for American population. There is no strong competitor in market at the present that can threat the position of Bajaj Auto in its production range. Bajaj Auto manufactures couple of motorbikes like Pulsar, Duke, and Discover which is heavy but it will not be a good idea to launch them in America as Harley Davidson, Yamaha motors, Kawasaki motors have strong hold on American customers. Bajaj Auto follows hierarchical strategy which resulted in advantages within industries and it helps company to gain upper hand in competition with major players.
2.2.2 Demand Conditions Light motorcycles, the summary say, will outperform other ICE product types and maintain their position as the largest single segment of the motorcycle market in America. This will be due to several factors, including the fastest population growth of any region, the lowest median age and the lowest (but climbing) per-capita GDP. (Source: world demand motorcycles grow). This is good future aspect for Bajaj Auto to succeed in international adventure.
2.2.3 Factor Endowment America has strong and large factor endowments compare to Western Europe. The US has comparative advantages of skilled workers, infrastructure, open market entry for international companies, natural resource and technology. Romalis (2004) provides a quasi-Rybczynski prediction, “if a country accumulates a factor more rapidly than rest of the world, then that country’s production and exports will systematically shift toward that more intensively use that factor.” The US has well developed technology when it comes to motorbike industry and that attracts Bajaj Auto to gain an entry in this market.
2.2.4 Related and Supporting Industries The US is rich in producing natural resources like iron, lead, petroleum, natural gas. In addition America has the world largest coal reserve with 491 billion short tons accounting for 27% of the world’s total.(Source: http://www.cia.gov/library). Strong supply chain of motorbikes engines parts, raw material for motorbike body, leather and machineries are always key factors in success of automobile business and America provides all these features to Bajaj Auto.
2.3 2.3.1 Target Market Young, universities’ students, African and Asian immigrants, middle class families and small vendors should be first priority as a target market for Bajaj Auto as they share large number of total American population (see 2.1.3). Above mention customers have limited resources of income and other responsibilities and therefore they always look out for cheap available option. The kind of two and three wheelers Bajaj Auto produces are low in prise and have high fuel efficiency. These two points will work in company’s favour and manage to pull big crowd. Once company get established, it can launch the range of heavy weight vehicles to provide competition to giants like Yamaha, Royal Enfield, Honda and Harley Davidson.