Strategy: Can Hero Ride Solo?

STRATEGY
Can Hero Ride Solo?

Minus Honda, the company revives its strategy to stay ahead.

By Shamni Pande

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For about six months now, a team of seven in Hero Honda's upscale Basant Lok headquarters in Delhi has been busy working on an internal mission code named 'Project OM'. The team's brief is simple: consolidate the motorcycle giant's marketshare and expand manufacturing capacity.

If the crack team is in overdrive, visiting dealerships all over the country, dreaming up new products and knocking on customers' doors, it is for good reason. On the first dawn of 2005, the 16-year-old company will wake up to a life without its Japanese partner, Honda Motor Co.

Worse, the partner whose superior four-stroke technology has helped turn the bicycle manufacturing Munjal family into the largest motorcycle manufacturers in the country, will turn a competitor with its own portfolio of two-wheelers.

Is there life for Hero after Honda? "It is not a question of life after Honda, but of having the best life with Honda under an already jointly committed policy of prosperous co-existence," declares Pawan Kant Munjal, 46, Director & CEO, Hero Honda Motors.

To be fair to the Munjals, the joint venture's success has as much to do with the Indian partner's exceptional management skills as the Honda technology. Not only does Hero Honda have better working capital management skills than its competitors, it also has superior distribution and supply logistics. Agrees Manindra Gupta, 28, Auto Analyst, SBI Capital Markets: ''The Munjals have strong supplier and dealer linkages. It would be hard for Honda to replicate that."

That's a big reason why of all Honda's 50 global JVS, Hero Honda is one of the most successful. In the last 10 years, it has sold three million motorcycles and churned out net profits at a staggering rate of 60 per cent for each of the last five years. A stock market darling, its scrip quotes at a steep premium over those of its rivals. Says S. Arun, 38, Analyst, SSKI: "In the medium term, there is no threat to Hero Honda's leadership, though profits may be pressurised."

The Gameplan

Revving Up Hero's Gameplan

Invest Rs 200 crore to beef up marketing and manufacturing

Add 100 dealers and their extensions over the next one year

Push annual sales to one million mobikes by 2001

Deepen customer relationship with new schemes

Build or buy technology to keep new products happening

The Munjals, who also own the largest bicycle company, Hero Cycles, are hoping that four years is time long enough in which to deploy and leverage strengths intrinsic to the Munjals' way of management. For starters, Hero Honda is investing Rs 200 crore over the next two years in a bid to expand capacity and widen the gap between itself and its competitors. By 2001, it plans to touch the one million (hence, Project OM) sales mark and, by 2004, have a customer base of eight million. Ergo, while old brands like Street are being spruced up, two new ones will join the ranks after Diwali this year. Scooters is another segment that Hero will be free to enter after 2004. The technology for all this would again be sourced from Honda, says the company.

To ensure that its customers stay with the Hero name, the company is beefing up its customer servicing, creating a Hero biking community, and expanding the dealer network. In the next one year, the company plans to add 100 dealers and dealer-extensions in semi-urban and rural towns. Says Atul Sobti, 46, Senior Vice-President (Marketing), Hero Honda: ''This will help us consolidate our relationship with them and reach out to our consumers in the interior parts of the country.''

Fortunately for Hero Honda, not only is the motorcycle market roaring at 25 per cent a year, but also its overall share in two-wheelers is growing. Some analysts estimate that in the next three years, six out of ten two-wheelers sold will be mobikes. But there's competition biting Hero at its heels. Bajaj Auto, Escorts Yamaha, TVS Suzuki-and even the beleaguered LML-all plan to launch at least two models every year. Promises R.L. Ravichandran, 50, Vice-President, Bajaj Auto: ''Hero Honda had better keep an eye on us.'' Adds Arun of SSKI: ''Post 2004, its success will depend on its ability to predict market needs.''

Could Hero sell out to Honda? Munjal bristles at the suggestion. As he sees it, there is nothing like surrender in this war. It will be a fight to the finish.

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