Bajaj

Strength
1. Excellent brand presence and marketing in India
2. Extensive research and development focus and highly experienced player in
the motorcycle segment
3. Widespread distribution network across India
4. Wide product range in terms of price, quality and categories
5. Featured in the Forbes Global brands list
Weakness
1.Not a global brand despite high volume production
2.Lack of performance bikes like major international brands and sports bikes &
cruisers
Opportunity
1. Bajaj Auto says its $2,500 car, which it is building with Renault and Nissan
Motor, will aim at a fuel-efficiency of 30 km per litre
2. Cheaper variants for tapping more in the rural segment
3. Premium sports bikes for urban areas
4. Constant growth in the two-wheeler segment
Threats
1.Cheaper imports from countries like China
2. Entry of international brands
3.Other motorcycle players have a strong brand presence
Competition
Competitors
1. Yamaha
2. Hero Motor Corp (Hero Honda)
3.TVS
4.Suzuki
5. Harley Davidson
6. Royal Enfield
7. Ducati
Rivalry among existing firms High. The two-wheeler industry
is categorized by intensecompetition mainly between the three
majors Bajaj Auto, Hero Honda & T V S Motor Co. There arealso
some small players who are gaining market share such as LML &
Kinetic. The industry isconstantly witnessing price-cuts, freebies
& product launches. Threat of Substitute Product High. The
two-wheeler industry face direct competition from theautomobile
sector. With the increase in disposable income & increase in bank
finance people preferto have cars rather than two wheelers.Thus
the demand for cars affects the demand for two-wheelers. If the
demand for cars fall thedemand for two-wheelers will rise.
Barriers to entry High. The barriers to entry & exit are high. The
three big players dominate thetwo-wheeler sector - Bajaj Auto,
Hero Honda & T V S Motor Co.The investment required to
compete with these giants would be significant. Thus it is very
difficultfor newcomers to enter this sector. The industry
attractiveness is low not due to profit margin butdue to intense &
well established competitors. Bargaining power of suppliers
Poor. The two-wheeler industry they rely on only a few
selectedvendors. Thus the bargaining power is poor. Around
60%-90% of the product is outsourced thus thesuppliers have a
direct impact on the companies cost & profitability. Bargaining
power of buyers High. The bargaining power of the buyers is
high. There are a varietyof products available to customers to
choose from. The customer is treated as a king.The marketers
have segmented the market into three categories namely entry
level, executive & premium category. It has been observed that
companies which have ignored the customers havesuffered
Bajaj Auto, which once operated without a marketing
department, but instead had adispatch department. However the
rules of the game have changed. The customer should be
thefocus of all activities. All activities Production & Marketing
should be done keeping the consumer inmind.



Bajaj Auto Ltd is the second largest producer of two-wheelers in India, a drop
from their preliberalisation position of being market leaders. They are,
however, the largest exporters in this segment, which is in part due to the
recent strategies that they have followed, including a shift towards more R&D
intensive investment, and an attempt to cater to all segments of the society. In
this report, we propose to present a holistic view of the automobile industry,
mentioning the various challenges and opportunities available, and Bajajs
role in the same. We start out with looking at Bajajs current position in the
two-wheeler market, and analyse that with respect to the current macro-
economic scenario (in terms of the PEST analysis) and the industry scenario
(in terms of Porters Five Forces Model). We also map the changes in PEST
to changes in the Five Forces and analyse Bajajs strengths and weaknesses
with respect to these. Thereby, we find out whether these changes can be
exploited by Bajaj and give our recommendations as to what their future
strategy should be. Our analysis comes up with the conclusion that the two
wheeler industry, though it is facing a slight downturn today, is still highly
lucrative and is likely to provide immense future potential for Bajaj, as is
evident from the forecasts for the industry. Accordingly, we make several
strategic recommendations which we expect would give Bajaj competitive
advantage over other players, and would enable them to regain their strong
hold on the two-wheeler industry.
Contents
INTRODUCTION
BAJAJ AUTO came into presence on November 29,1945 as M/s Bachraj
Trading Corporation private limited. They started fresh by selling two and
three wheeler in India and obtained a license from Government of India to
manufacture and it went public in 1960.In 1970, it rolled out its 100,000th
vehicle. In 1977, it managed to produce and sell 100,000 vehicle in a single
financial year. In 1985,it started manufacturing at Waluj close Aurangabad. In
1986,it be able to to produce and sell 500,000 vehicle in a single business
year. In 1995,it rolled out its ten millionth vehicle and manufactured and sold 1
million vehicle in a year.
The company is headed by Rahul Bajaj who is worth more than US$1.5
billion.According to the author of Globality : competing with Everyone from
Everywhere for Everything, Bajaj has grown task in 50 countries by creating a
line of value for-money bikes targeted to the different preference of entry-
level buyers.
(Kwenkbodenmille, 2008)
SWOT ANALYSIS:
WEAKNESS
Strong cash base but hasnt been invested
efficiently.
Not a strong internation brand despite high export
volumes.
Distribution network is not as strong and
extensive as Hero Honda.
STRENGTH
Highly experienced management.
Extensive R & D focus.
High performance products across all categories.
Number one position in exports.
Collaboration with BAFL for financing.
High economies of scale and scope.
OPPORTUNITIES
Rising disposable income.
Increase first time in motorbike buyers
Decline in interest rate for two wheeler financing.
Shift from entry level motorbikes to performance
oriented bikes
Inadequate public transportation infrastructure.
Low operating cost.
THREATS
Imitation of designs and technological
Innovations by competitors is easy
Foreign players coming in India, especially
Low cost Chinese motorbikes manufacturers
Declining margins due to increasing
Competition
Source: New Research Report on Companies and Markets, 2008
PESTEL ANALYSIS :
POLITICAL:
Investment policy- 100 per cent foreign direct
investments (FDI) are allowed in companies
through the automatic approval route-
(STRENGTH)
International companies can invest in India either by picking up a 100 %
equity stake or by acquiring a share jointly with another company in the auto
and auto ancillary segments.
Policy aims to promote a globally competitive auto industry in India
Import policy (STRENGTH)
In order to protect the domestic industry and restrict likely imports, the
government still sets high duties on these imports.
Fiscal regulations (STRENGTH)
In order to protect the domestic industry and restrict likely imports, the
government still sets high duties on these imports.
Excise duty -Two-wheelers and key raw
materials (STRENGTH/ WEAKNESS)
Changes in duty rates have an impact on demand too. In 2001-02, the excise
duty on the <75 cc engine capacity two wheelers was lowered. This caused a
shift in consumer preference from mopeds to motorcycles.
Value added Tax (STRENGTH/ WEAKNESS)
State governments charge value added tax (VAT) or local sales tax and other
levies. The change from local sales tax to VAT is expected to have benefited
the two-wheeler industry in the form of lower tax incidence.
Emission control laws (STRENGTH)
India has one of the most stringent emission norms in the world.
Safety laws (STRENGTH)
Tighter emission standards have edged out two stroke motorcycles, which
emit high levels of hydrocarbons and particulates vis--vis four-stroke bikes.
ECONOMICS:
Interest Rates(STRENGTH)
Large firms have a cost advantage due to lower rates of interest they are
charged while applying for loans (lower risk involved).A lot of capital is needed
to enter the industry as initial outlays on investment are high, thus higher
interest rates would prove as a disincentive to enter the industry.
WEAKNESS:
The buyer needs information on interest rates as these help determine
whether or not it is economical to make a purchase. Customers are highly
price sensitive and higher interest rates may lead to higher prices if the buyer
needs a loan to make the purchase.
Inflation (STRENGTH)
Inflation increases cost of purchase for different players differently, depending
on the inputs and sources, may make it difficult for new players to enter.
Inflation may affect the prices of different models differently, thereby making
some players better off than the others, as customers may face costs in
switching players, which may again make it difficult for new players to enter.
WEAKNESS:
The buyer is highly price sensitive, and changes in prices affect the industry
as a whole as buyers may not be in a position to buy a more expensive
product.If inflation affects the two wheeler and four wheeler industry
differently, then inflation could well have an adverse impact on this sector
Economic Prospects (STRENGTH)
A lot of capital is needed to enter the industry, which may be difficult to come
by if the economy is not doing well, and relatively easier to obtain if the
economy is doing well. In times of economic boom, there are a large number
of buyers. Switching costs involved in switching to substitutes. Easy to switch
between suppliers.
WEAKNESS:
These buyers are highly sensitive to price, but in times of good economic
conditions, prices may no longer remain important criteria as disposable
income of the population also goes up. Rapidly growing industry, particularly
due to bright economic prospects.
SOCIAL:
(STRENGTH/WEAKNESS)
Age of the Population : As the demographics of India is skewed towards the
youth, more and more people are likely to tread unknown paths.
Population have a strong/weak opinion on green
issues
More educated people are focussed towards greener issues, which Bajaj has
been able to address significantly.
TECHNOLOGICAL:
Substantially increasing investments in
production capacities(STRENGTH)
Do large firms have a cost or enactment advantage in your segment of
the industry?
Is a lot of principal obligatory to enter your industry?
Establishing partnerships in India and abroads
Is there a large number of buyers relative to the number of firms in the
business
Proficiency in Understanding Technical Drawings,
specifications and well conversant in all Global
Automotive Standards (STRENGTH/WEAKNESS)
Do large firms have a cost or performance benefits in your fragment of the
industry? Are there any brand-named product differences in your industry?
Does your product or service have any trademarked geograpies which give
you lower costs?
Increased raw material costs
Increasing costs due to business cycles, rising steel and oil prices
(Kwenkbodenmille, 2008)
RECOMMENDATIONS:
1) Use excess capacity present to produce ungeared scooters for women.
The female population constituting around 50 per cent of our addressable
population contributes less then 10 percent of the total two-wheeler demand.
With urban markets with addressable male population getting saturated,
players will have to aggressively target the women population for expansion.
2) Review product mix, focus on R&D to bring new products in market
Demographics show increased youth population
Young people fashion savvy
3) Focus on Rural market: Rural markets currently contribute around 45 per
cent of the industrys demand. However, going forward, with urban markets
getting saturated, analysts expect a rise in demand from rural markets. To
address the changing dynamics, BAJAJ would have to resort to aggressive
rural-centric sales and promotional activities. BAJAJ would have to alter
marketing strategies by focusing on rural oriented adverting on mass media,
educative road shows and create aspiration values for the products, and
expand their sales distribution network.
Introduce low cost models
Develop sales distribution network which is currently weaker than other
players
For rural youth, introduce low cost trendy vehicles
4) Increase focus on exports and penetrate new
markets:
With domestic demand for two-wheelers slowing down, it would be
increasingly important for BAJAJ to look beyond boundaries to partially
mitigate the slowdown. BAJAJ would accordingly have to develop products
suitable for different markets; high investments are required for setting up
manufacturing facilities and for building a reasonable level of brand equity. Till
now BAJAJ focussed only on economy class and developing country markets,
but now in those segments it is facing competition from cheap Chinese
players. Therefore need arises to penetrate new markets like USA and UK.
CONCLUSION:
Bajaj auto faces stiff competition from the Market leader Honda and closest
rival Suzuki. It is because they are not able to create reliable brand image
among their customers. They need to focus on developing their products that
can give better experience to their consumer.
From the survey, it is seen that Bajaj is only able to somewhat satisfy their
costumers from their products. They need to create a great sense of joy in
their customers by offering unmatched product features and service that will
make their customers loyal to the brand and this will greatly help Bajaj in
increasing its market share.
Bajajs product prices are in comparison with its leading competitors. The
problem is that consumers do not think that Bajaj has that much value and
hence prefer to buy other brands. Bajaj need to offer more competitive pricing
and better promotions to sell their motor cycle better.
APPENDIX:
PEST ANALYSIS: Mapping changes in PEST to
changes in 5
Force Model
POLITICAL
Changes in
Macro Force
Effects on
Five Forces
Reasons
Srength/ Weakness
Reasons
Government Policy
--
--
--
--
Investment
policy- 100 per
cent foreign
direct
investments
(FDI) are
allowed in
companies
through the
automatic
approval route
Threat of New
Entrants
( Low )
> International
companies can invest in India either by picking up a 100 %
equity stake or by
acquiring a share
jointly with another
company in the auto and auto ancillary segments.
> Policy aims to
promote a globally competitive auto industry in India
Strength
Although the new policy
brings in many players in the circuit, Bajaj can use its own strengths to
leverage upon its own new opportunities
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Import policy
Threat of new
entrants
( Low)
Bargaining
power of
buyers (Low)
In order to protect the domestic industry and
restrict likely imports, the government still
sets high duties on these imports
Strength
The new regulation is a shot in the arm for Bajaj as it would hinder any foreign
player bringing latest bikes into the Indian market. Also the consumers would
now have to stick to Indian
TW manufacturers and Bajaj being a major player would definitely have an
advantage.
Fiscal
Regulations
Threat of new
entrants
( Low)
Bargaining
power of
buyers (Low)
In order to protect
the domestic
industry and restrict likely imports, the
government still sets high duties on these imports.
Strength
The new regulation is a shot in the arm for Bajaj as it would hinder any foreign
player bringing latest bikes into the Indian market.
Also the consumers would now have to stick to Indian TW manufacturers and
Bajaj
being a major player would definitely have an
advantage.
Govt policy on the
Economy
--
--
--
--
Excise duty -
Two-wheelers
and key raw
materials
Threat of
Substitutes
(High)
Changes in duty
rates have an
impact on demand
too. In 2001-02, the excise duty on the <75 cc engine capacity two wheelers
was lowered. This caused a shift in
consumer preference from mopeds to
motorcycles
Strength /
Weakness
Bajaj can as well leverage upon its strengths of benefitting from the low end
segment of Bikes.
However, as it wants to enter into newer higher
volume bikes, the Excise
duty increase may act as a weakness as well
Policy influence laws that regulate or tax
the business
--
--
--
--
Value added
Tax
Threat of new Entrants
( High )
State governments'
charge value added
tax (VAT) or local
sales tax and other
levies. The change
from local sales tax to VAT is expected to have benefited the two-wheeler
industry in the form of lower tax incidence
Strength /
Weakness
With the pressure on tax
reducing, there is a very
high likelihood that more
players jump into the
market as this only acts as an inducement.
Emission
control laws
Threat of new entrants (High/ Low)
India has one of the most stringent
emission norms in
the world
Strength
Bajaj can utilise its modern technologies to upgrade to the new emission
norms much quicker than other
players because of the
availability of capital.
However, the other existing bigger players can also leverage upon their
capital investing ability to upgrade to satisfy the stricter
emission norms.
Govt position on production /
Marketing
--
--
--
--
Safety laws
Threat of
Substitutes
(Low)
Tighter emission
standards have
edged out two stroke
motorcycles,
which emit high
levels of
hydrocarbons and
particulates vis-vis
four-stroke
bikes
Strength
With older technology/
obsolete products going ex: scooters, Bajaj can leverage upon its decades of
presence and brand to launch newer products. Also the smaller players which
eat into the market of Bajaj will now cease to exist
ECONOMIC:
Economic
Factor
Porters
Five Forces
Reasons
Strength/
Weakness
Reason
Interest Rates
Threat of
New entrants
Large firms have a cost
advantage due to lower rates of interest they are charged while applying for
loans (lower risk involved)
Strength
Being one of the biggest players in the market, risk is lower if project had
a Bajaj Auto acking
A lot of capital is needed to enter the industry as initial outlays on investment
are high, thus higher interest rates would prove as a disincentive to enter the
industry
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Strength
An existing player, Bajaj no longer faces this threat, and this is a
strength for it in the face of rising MZinterest rates
Bargaining
power of
buyers
The buyer needs
information on interest
rates as these help
determine whether or not it is economical to make a purchase
Weakness
This information is easily available to buyers, thereby increasing their
bargaining power, and is a threat for Bajaj Auto
Customers are highly price sensitive and higher interest rates may lead to
higher
prices if the buyer needs a loan to make the purchase
Weakness
Bajaj is no exception to the price sensitive rule, and rising interest rates could
pose a major threat
Inflation
Threat of
New entrants
Inflation increases cost of purchase for different players differently, depending
on the inputs and sources, may make it
difficult for new players to enter
Strength
As an existing player, Bajaj may be in a better
position than others
Inflation may affect the
prices of different models differently, thereby making some players better off
than the others, as customers may face costs in switching players, which may
again make it difficult
for new players to nter
Strength
The benefit if being an existing and established
player in the industry
Bargaining
power of
buyers
The buyer is highly price sensitive, and changes in prices affect the industry
as a whole as buyers may not be in a position to buy a more expensive
product
Weakness
Bajaj cannot maintain lower prices in the face
of inflation, as it itself faces higher costs
Threat of
Substitutes
If inflation affects the two wheeler and four wheeler industry differently, then
inflation could well have an adverse impact on this sector
Weakness
Bajaj may be unable to do anything if inflation
affects the two wheeler segment more than the car industry, then people may
either prefer to buy cars, or buy neither cars
nor bikes
Bargaining
Power of
Suppliers
Inflation may make it
difficult for the players to switch suppliers easily and cheaply
Strength
Bajaj has a number of suppliers, so may not face this problem
With rising inflation, cost of purchases may no longer remain insignificant
Weakness
Inflation, though it may have a subdued impact on Bajaj, is nevertheless
likely to increase the cost of purchases to some
extent
Economic
Prospects
Threat of
new
entrants
A lot of capital is needed to enter the industry, which may be difficult to come
by
if the economy is not doing well, and relatively easier to
obtain if the economy is doing well
Strength
Bajaj no longer faces this hassle
Bargaining
power of
buyers
In times of economic boom, there are a large number of buyers
Strength
Being an stablished
player, Bajaj can leverage on its brand name to
attract the new buyers
These buyers are highly
sensitive to price, but in times of good economic conditions, prices may no
longer remain an important
criteria as disposable
income of the population also goes up
Weakness
Bajaj is coming up with new models, some more
expensive than others, however, owing to healthy economic
conditions, such models may actually be
appreciated by the
buyers, thereby
presenting an
opportunity
Threat of
Substitutes
Switching costs involved in switching to substitutes
Strength
Could be a threat if in times of economic boom
buyers are willing to switch to cars instead of
purchasing bikes
Bargaining power of
Suppliers
Easy to switch between suppliers
Strength
Due to a large number of suppliers, and Bajajs business being important
to them, good economic conditions would mean better business for Bajaj
Rivalry
among
existing
customers
Rapidly growing industry, particularly due to bright economic prospects
Weakness
Could eat into Bajajs share, thereby also posing a threat
SOCIAL:
Changes in
Macro Force Sociological(S)
Effects on Five
Forces
Reasons
Strength/ Weakness
Reasons
Age of the
Population
Threat of Substitutes (High)
Bargaining Power of Consumers (High )
As the demographics of
India is skewed towards the youth, more and more people are likely
to tread unknown paths
Strength
Bajaj has multiple options in the two wheeler segment. Thus a ready
consumer base can be attracted to its new launches
Population have a strong/weak
opinion on green issues
Threat of
Substitutes (Low)
Bargaining Power
of Consumers
(Low )
More educated people are focussed towards
greener issues, which Bajaj has been able to
address significantly
Strength
Available technologies with Bajaj has helped it to remain abreast with latest
norms
TECHNOLOGICAL:
Factor
The affected 5
Forces
Factor
Strength/
Weakness
Reason
Substantially
increasing
investments in
production
capacities
Threat of new
Entrants
Do large firms have a cost or performance
advantage in your
segment of the
industry?
Strength
Bajaj auto already a big player, have an advantage here
Is a lot of capital needed to enter your industry
Strength
Establishing
partnerships in
India and abroad
Threat of new
Entrants
Does experience help you to continuously lower costs
Strength
No 1 player in exports Bajaj Auto can always
collaborate with foreign players
Bargaining power
of Buyers
Is there a large number of buyers relative to the
number of firms in the
business
Weakness
Already faced with stiff competition, it will increase difficulties for
Bajaj
Proficiency in
Understanding
Technical
Drawings,
specifications and well conversant
in all Global
Automotive
Standards
Threat of new
entrants
Do large firms have a
cost or performance
advantage in your
segment of the industry
Strength/
Weakness
Its high economies of scale and scope gives it a cost
performance advantage in
the segment, however the
Chinese players can give it a great competition in cost
leadership
Are there any
proprietary product
differences in your
industry
Strength
Its high erformance
products across all
categories clubbed with extensive R&D facilities creates a differentiation
for its products
Does your product or
service have any
proprietary features
which give you lower
costs
Strength
Very critical, it has what it takes to be a big player, but a loose of focus at this
moment when the growth is reducing and new
players are coming can create problems
Increased raw
material costs
Bargaining power
of Suppliers
Increasing costs due to
business cycles, rising
steel and oil prices
Strength
Bajaj auto has one of the lowest RM to overall cost ratio in the industry


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