Indian Two-Wheeler manufacturers and their foreign alliance

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Mahindra recently acquired 51 per cent of Peugeot’s scooter division – a company relatively unknown at least from the Indian perspective. Not that Mahindra is famous for its accolades in the two-wheeler industry, but the two relatively unknown brands together have an opportunity of creating greater value together and not just for the Indian market but internationally as well.

Over the last couple of years, many Indian companies have formed alliances either by buying a company completely, or forming an alliance by buying stakes in the respective ventures. Each of these tie-ups provide a win-win situation and with our prime minister’s ‘Make in India’ campaign chances are we will see more of such alliances from Indian companies. 

So what makes companies go out and look for new partnerships and alliances? The answer must be apparent from the previous two paragraphs, opportunities and growth. Growth is the major motivational factor for business houses to venture into new deals and partnerships.  India in itself provides a potential of 1.25 billion customers to them, and while that in itself is a serious number, there is an opportunity of getting at least some more from the partner’s local market. 

Till a few years ago, most of the Indian two-wheeler manufacturers were concentrating mainly on the domestic business due to its vast sales volume. But of course there is a limit to growth in one specific market and also on extra risks involved in limiting itself to one specific market. The presence in multiple countries then automatically helps in getting more business and revenues and helps limit losses related to economic turmoil. And at times, the foreign markets drive the growth quickly aided by low manufacturing costs..  The best example is KTM and Bajaj – the bikes like the RC390 and 390 Duke are manufactured in India and exported worldwide including KTM’s home country. Both the products have propelled KTM’s growth worldwide and also in India, but simultaneously aided Bajaj in building better products and also generate more employment here.

At the ground level – partnership helps in technology sharing. Every company spends a significant amount on technology – it is either in time required to develop a product or a technology from scratch or in terms of money and potential partner that will help with technology and product needs. Most of the companies in India have started in this fashion and HeroHonda, Kawasaki Bajaj are the best examples. So depending on their future business strategies and approval from their stakeholders, some companies partner with foreign companies; it could either be through a minority or majority stake. There is always a risk of starting from scratch as the competitor would be ready with their new product within few days the company starts its own “identical” project.

Just to clarify, these alliances and acquisitions benefit the Indian market the most. Let’s look at the one of the most famous alliances – Bajaj Motorcycles and KTM. The Pune-based manufacturer first bought 14 per cent stake in KTM, only to take the number to 47 per cent in the next few years. The result of this alliance was, Bajaj manufactures few motorcycles for KTM in their Chakan facility – a way to keep costs low and export it worldwide and in return, KTM lets Bajaj use their technology and expertise to develop their products back home. This is a win-win situation for both the companies. KTM wanted to be world’s biggest off-road motorcycle company and Bajaj wanted to go global with its products, so lending each other their expertise does make sense for good business. 

Hero MotoCorp – the world’s largest motorcycle company, after ending their 26- year-old alliance with Honda, started investing heavily in research and development. This was because majority of its products were powered by Honda engines. But Hero wanted to move forward quickly and that’s why last year Hero MotoCorp acquired 49.2 per cent stake in an American motorcycle racing team, Erik Buell Racing. The reason here was the same – take their technology expertise, apply it in their products and go global. Hero MotoCorp, who is loaded with cash, entered into agreement with AVL Engineering - the world’s largest privately owned engine developer. These partnerships resulted in three new engines – 100cc, 110cc and 250cc and few new updated motorcycles like the 2014 Karizma ZMR and Karizma ZMA. 

TVS Motor Company wasn’t going to be standing by and watching and decided to go aggressive with their future strategy. It entered into an agreement with BMW Motorrad to jointly develop sub-500cc motorcycles. While majority of the development will be done by the German manufacturer, TVS will manufacture these motorcycles at their Hosur facility. This agreement will involve both these companies offering their own vehicle derivatives, which will be sold through their own distribution channels. This basically means, if the companies co-develop a 300cc motorcycle platform, BMW will have its own bike in this platform and TVS will have one for themselves. It’s the same thing Bajaj and KTM did with KTM’s 200cc platform – the result was the KTM Duke 200 (premium) and the Pulsar NS200 (budget). 

Mahindra two-wheelers is using the same route. It entered the industry by buying Kinetic and till now they have been doing well. Mahindra is putting further effort in establishing itself in the market and for that it is taking help from a foreign technology partner by acquiring 51 per cent stage Peugeot’s scooter division. 

The quest to outperform each other might create many more alliances and partnerships that is expected to help the industry overall. With huge cash reserves and a positive outlook towards the economy, these manufacturers will surely take the “Made in India” two-wheelers to each and every part of the world.