Mumbai: Indian two-wheeler makers, finding the going tough in a domestic market that is close to saturation point, are breaking new ground in markets such as Africa and Latin America. Rising labour costs in China, which is the biggest exporter of two-wheelers to these markets, are helping the Indian cause.
Bajaj Auto Ltd, which ships 30% of its motorcycle production to overseas markets, is the market leader in Nigeria—one of the biggest markets in Africa. It sells 35,000 motorcycles per month against rival Honda Motorcycle’s 6,000-7,000 units.
The Pune-based motorcycle maker exports its products to markets across Africa, South America and Asia, and is working on increasing its presence and exploring markets in North and West Africa, Turkey and Asia, said Rakesh Sharma, head of international operations.
In India, an economic downturn, high borrowing costs and increasing fuel prices have slowed sales growth. Combined two-wheeler sales in India remained flat at 57,51,267 units in the five months from April to August, compared with 57,10,176 units in the same period a year ago, according to the Society of Indian Automobile Manufacturers, or SIAM. After expanding at a brisk pace for several years, sales rose by a mere 3% in fiscal 2013.
That has sharpened the focus of domestic manufacturers on exports although even without the economic downturn, two-wheeler makers have been taking aim at overseas markets. “Exports have been a binocular strategy for the company for the last 7-8 years, irrespective of the domestic market condition. We are number one or two in most of the markets we are present in,” said Bajaj Auto’s Sharma.
To address the competitive South-East Asian markets, where Japanese manufacturers firms have a dominating presence, Bajaj is piggy-backing on Kawasaki Heavy Industries Ltd—a model it adopted for the Philippines.
Bajaj will co-brand the motorcycles as Kawasaki-Bajaj. “They (Kawasaki) have the knowledge of these markets,” said Sharma.
Other two-wheeler makers such as Hero MotoCorp Ltd and Mahindra 2 Wheelers Pvt. Ltd are also scouting for greener pastures in foreign markets. Hero MotoCorp and Mahindra and Mahindra Ltd have announced plans to enter the Latin American market in the last two months. Hero said it aims to generate 10% of its total revenue from global markets by 2016-17.
Analysts said one reason for exploring markets such as Latin America and Africa is that the domestic market is getting saturated. After expanding at a double-digit annual pace over the past decade, growth has started tapering off in India, the world’s second-largest two-wheeler market.
Exports to destinations such as Africa and Latin America offer untapped potential and would help companies offset the shrinking demand at home, suggested a 25 September report by analyst Aditya Jhawar from Espirito Santo Securities India (ESS).
“We expect Indian companies to increase their footprint in Brazil, which is presently dominated by Japanese manufacturers garnering a 90% market share,” wrote Jhawar from ESS. The other important markets in Latin America are Chile and Columbia.
Jhawar, in his report, forecast the domestic market to expand at a compounded annual growth rate of 8.7% till 2020. Two-wheelers have reached 48% of addressable households in India and 63% of addressable households in urban regions, according to ESS estimates.
Latin America and Africa have also become attractive markets as Chinese labour costs have risen, said analysts.
Labour costs in China are rising at high double digit rates and by 2015, the cost of manufacturing in China may be equivalent to the cost of manufacturing in the US, wrote Jhawar of ESS in his report, citing a study done by Alix Partners, a consulting and business advisory firm. “Our checks also highlighted that people acknowledge Bajaj’s good quality and lower need for maintenance as compared with Chinese motorcycles,” said Jhawar. According to Surjit Singh Arora, an analyst at Prabhudas Lilladher Pvt. Ltd, Chinese firms account for a major share of around 75-80% in Africa and 70% in Latin America.
Analysts said a price war among the Chinese companies, which dominate the African market, and cost pressure facing them due to the increase in labour costs in China, bodes well for Indian companies such as Bajaj Auto. The rupee’s depreciation will also make Indian vehicles more competitive.
“In our assessment, exports from Indian manufacturers are likely to grow in the region of 13-15% over the next five years,” Arora said.