New Delhi: Japan’s Yamaha Motor Co. Ltd plans to develop the world’s cheapest two-wheelers in India to compete with rival Honda Motor Co. Ltd in emerging markets, including China and India.

The two models to be conceived and developed in India is expected to be ready in two years, the company said in New Delhi on Tuesday.

Rival Honda, India’s second largest motorcycle company by units sold, has a 19% share in the local two-wheeler market. In comparison, Yamaha still has a minuscule presence.

Yamaha expects the cheaper products to help it increase sales in the country where the motorcycle market is dominated by Hero MotoCorp Ltd and its former partner Honda.

Two-wheelers that cost less than 45,000 account for 65% of sales in Asia’s third largest economy. Honda, which makes the world’s cheapest motorcycle and sells it in China and Nigeria, has not introduced the model in India. In local currency, the product costs 32,621 in China. Yamaha plans to sell its cheaper scooter and motorcycle at 27,230. Yamaha is also looking at exporting the low-cost two-wheelers to China, the Philippines and some of the African countries, said Yuh Motoyama, senior general manager, motorcycle business operations. “We are looking at a large capacity for these products and production for these will happen only in India," he said, without elaborating.

Currently, Yamaha’s cheapest model is available at $700 (around 38,500 today) and is sold in China. In India, its 110cc Crux motorcycle is priced at 38,000.

“The target price for them (scooter or motorcycle) is $500, which is kind of a benchmark and a bit difficult to achieve. But we aim to achieve it as we will be making it from scratch here in India, which will give us a cost advantage," said Motoyama.

To support such products, the company said that it will set up its second integrated research and development centre in Chennai, after it announced the opening of its first R&D facility in Greater Noida on Tuesday, its second outside Thailand. It also carries out R&D activities in countries such as Italy, China and Taiwan. It has set up a team of 80 engineers who will work under Sanjeev Chugh, divisional head of Yamaha’s local R&D.

The company said that the first objective of its R&D facilities will be to develop the first of the two proposed low-cost models by 2013 followed by one each for the Indian market and overseas.

Toshikazu Kobayashi, managing director, Yamaha Motor Research and Development India, said the company is facing price competition in developing markets.

“This coupled with heavy development cost in Japan has forced us to develop products at the market place in shorter period and to reduce production cost by concurrent engineering near the market," Kobayashi said. “We will upgrade our development capabilities year by year." Yamaha has been trying to turn its India business profitable after being present in the country for more than 25 years.

“We have broken even last year by selling more than 5 lakh units," said Hiroyuki Suzuki, chief executive and managing director, India, Yamaha Motor. “This year the target is to sell 7.1 lakh units. As we focus more on exports, we want to take advantage of the cost models in India, which are more effective than China."