With a target to sell six million two-wheelers in 2017-18, Honda Motor Co. will be breathing down the neck of Hero MotoCorp Ltd, India’s largest two-wheeler company and its erstwhile joint venture partner in India. Hero MotoCorp sold 6.6 million units in the year to March, compared with Honda’s five million in India. Six years after the separation, Noriaki Abe, chief executive for Honda’s global motorcycle business, talked about the difficulties in snatching marketshare from Hero in rural markets, Honda’s inability to introduce a model that will rival Hero’s Splendor or Passion, and changing the mindset of a lot of Indian buyers who are still in love with Hero. Edited excerpts:
You will now be the chief executive for Honda’s global motorcycle business. That means your involvement with India will get even more intense.
India is our biggest market now. Last year, India operations exceeded volume of Indonesia.
What are your expectations from this market now?
We have a very challenging target for next year (2017-18). In this year (2016-17), Honda Motorcycle India could not reach the original target because of demonetisation. Such a loss will pass to the next fiscal, which means the target will be very, very high.
Basically, we will have to sell one million more next year. The target is to sell six million units.
Your ex-partner, Hero, has not seen the kind of growth you have seen. How long will Honda take to surpass Hero in sales volume?
Luckily or unfortunately, the market has changed. The income of consumers is growing in urban areas. That helped us grow in India, because we have scooter models, which is very apt for urban ride. But in rural areas, Hero is very, very strong. We never give up, but it is very difficult to penetrate in rural areas. Improvement of the economy is reflecting on consumers’ choice in mass motorcycle field, and that will help us because the income of the rural area may improve gradually. Infrastructure of the country will improve and, then, many consumers will reach out to our products. We would like that to happen in motorcycle business in India. But, with some respect, Hero is very strong.
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Your two-wheeler sales are driven by scooters. What stops you from introducing one brand that can change Honda’s fortunes in the motorcycle segment?
To beat the Splendor? (laughs)
Scooter is still the mainstay of our business plan. We are trying to launch many models in the motorcycle field. But in 110cc segment, we could not find one very strong scooter to compete with Splendor. But, variety of our line-up in motorcycle field surely stimulates our consumers’ mind.
What is ironic is Splendor and Passion brands were actually built on Honda technology and engines.
Technology is one thing, but we learnt many things in our partnership with Hero. One of the most important things is cost structure, supplier network. We need to make similar network in the automobile field also to make our company more impactful. Price is one thing and mindset of customers is another. We have launched similar models like Hero’s in the motorcycle segment but it is really difficult to change the mindset of the consumer, which is a main issue.
If your target is six million for next year and Hero’s annual sales is about 6.5 million, it should not take you long since Hero is not growing as fast as you.
Mass population is in rural areas, where we have many things to do. There, consumers are committed to Hero. So, we could not reach the real India. That’s our interpretation, but we can never give up to reach such area also. In urban area, there is new India, which has accepted Honda; but older India has not yet, which is our interpretation. So, it is quite interesting.
In the car business, do you see origin of product development moving to India anytime soon?
Not soon. It will take time. Motorization in the motorcycle field is occurring now. Market is growing. But real motorization in automobile may happen in the middle of next decade. That is our expectation. So, we have sometime around 10 years. But, during such period, we have to face the new regulation, especially with environment-friendly regulation, which is very important for every manufacturer. Such kind of a change in battlefield may help us again. We are very optimistic. Indian market is very important for two decades because the potential of growth is very huge. If the country is conducted properly by the government here, the growth would be exponential.
There has been a lot of consolidation in the global auto industry like Toyota-Suzuki or Toyota-Daihatsu. By nature, Honda has not been a company that would go for such strategic decisions.
We don’t have such kind of alliances. But to make new technology and components, we already have a partnership with General Motors. We are open to partners but not in India. Toyota-Daihatsu in many ways are related companies. Two-three years ago, Toyota announced to have first Toyota and second Toyota. Second Toyota is for emerging markets and First Toyota is for developed markets. In that sense, below second Toyota, they needed Daihatsu.
For example: Volkswagen already has that kind of culture. They have Audi as the top brand but Skoda is for mass market. Toyota is aiming for such kind of a model; but in Asia region, such European mix has struggled. Similar (is the case) with Ford and General Motors.
In case of Honda, in Asia and especially in Asean countries, we are very successful. Our business is based on strong motorcycle sales; brand is well known. In automobile, we are a premium brand. But, if we were affordable to the consumer there, our volumes will grow automatically. That is happening in Malaysia and Indonesia.
It has not happened in India though.
In India, competition is very difficult in Maruti. Situation is very difficult and different here. Taste and mindset of consumer is very different. India is a huge country and more than double of entire Asean. We have to recognize that India is different. In short term, we will use our global expertise to strengthen our premiumness in Indian market. But we must continue to learn. In motorcycle operations, we are gaining market share and volumes but still a long way to go to reach Hero.