HE'S BROUGHT BAJAJ AUTO BACK FROM THE BRINK...

» In 2000, all Bajaj two-wheelers lost money. Today, all segments are profitable, operating margins are the highest and the Pulsar is a cash cow » Four years ago, Bajaj was at the #4 position in motorcycles. Today Bajaj is a clear #2 » From 1995, Bajaj has been making bikes, but few succeeded. The CT100, Pulsar, Discover, and the to-be-launched Avenger are changing that » Volume growth in 2004-05 in motorcycles was the highest in the industry, at 41.6 per cent. A 33 per cent increase is targeted for 2005-06 » In the mid-1990s, warranty costs were as much as Rs 400 per vehicle. Today they're down to Rs 18

...AND HE'S NOW FIRMLY ON THE GROWTH PATH

» Take the Bajaj brand into the seven million motorcycles South-east Asian market, by perhaps buying into Kawasaki » Enter China, which accounts for close to a third of world sales, perhaps in a JV with Taiwanese majors like Kymco and Sym » Chip away at Hero Honda's strength in the mid-segment by changing the complexion of that segment with new products just below and above 125 cc » Relaunch a range of scooters by changing the proposition; they won't look and behave like scooters any more » Launch a more contemporary three wheeler, and a four-wheeler goods-cum-passenger light transportation vehicle for intra-city purposes

They're calling it the avenger. By June, each employee at Bajaj Auto Ltd. (BAL's) plant at Chakan-on the fringes of Pune-will make an extra vehicle per day. Currently the 800-strong workforce produces 2,400 Pulsars (150 and 180 cc) and Discovers in two daily shifts. Come June, Chakan will be rolling out another 800 motorcycles. At first glance, these would look suspiciously similar to BAL's earlier attempt at a cruiser in the guise of the 175 cc Eliminator. That product, priced in the Rs 90,000 bracket, wasn't a rage, although it served the purpose of announcing that BAL could also make bikes high on style and power. The Avenger is pretty much the Eliminator, but then again it isn't. Certainly not the engine. BAL's R&D team has mounted the best-selling Pulsar's 180-CC DTS-i engine onto the Eliminator (which didn't boast a too-advanced power plant), re-engineered the frame for a more refined drive and, most importantly, been able to slash the cruiser's price to around Rs 63,000, thanks largely to the economies of scale that are go be gained by increased volumes of the Pulsar (30,000 of which are bought every month).

The Avenger-another name Rajiv Bajaj, Managing Director since April 1, was toying with was "Aura", reveal company officials-may not end up as one of the many high-volume warhorses Bajaj's r&d and product engineering team is currently prototyping, but there's a clear message in the branding: That Bajaj is back. From the brink. With a bang.

With a vengeance.

Five years ago, things were so bad that BAL's future as a two-wheeler manufacturer appeared bleak, with the one-time champion getting relegated to fourth position, and profits from two-wheelers non-existent. Today, BAL is a clear #2 with close to a 30 per cent market share, although it is still some distance away from leader Hero Honda, which accounts for one of every two bikes sold. Profitability isn't an issue any more, with operating margins in the 15 per cent region, making it one of the most profitable automobile companies in India. "The situation was fundamentally rotten... as a two-wheeler company we might not have existed... today the trend is in our favour... we've been #1 before, but right now being smarter is more important," says Rajiv, who began his career at BAL on December 19, 1990-he remembers the day-after returning from the University of Warwick with a Master's in systems engineering.

The Bajaj Way

Beating Hero Honda, the leader in motorcycles, which sold half of the total 5.2 million mobikes in the market last year, and regaining the tag of #1 two-wheeler manufacturer in India, is of course a priority. But these days Rajiv (38) along with brother Sanjiv (36), is seeing a bigger picture-a picture not just restricted to the domestic market, but one that's painted across close to 90 per cent of the global market for two-wheelers, and one that is five times larger than India. Simultaneously, Rajiv plans to chip away at Hero Honda's dominance in the executive segment, which is the largest, accounting for half of all bikes sold, with the six-month-young Discover 125 cc, and a number of variants around it, just above 125 cc and below. He'll do so by riding on the product development skills endorsed by consumers who have lapped up the Pulsar at the premium end-800,000 Pulsars have been sold in the last four years, and recently in January production peaked at 1,150 Pulsars a day. The Pulsar itself-a segment that didn't exist until Bajaj launched it-will be extended into a higher cc level, possibly 200 cc, perhaps even 250 cc. The ct 100 at the entry level, which would have just completed sales of 1 million since launch last May, will also be tweaked to pave the way for a couple of variants. The objective: Command a price via innovation and differentiation. "Be it the Honda Activa in scooters, or the ct, or the Pulsar, the most expensive product is the segment leader. The whole theory that India is a price-sensitive market is bull****. Only the unimaginative feel that way. The Indian consumer will pay if he sees value, for which there has to be enough innovation in the product. We are about to launch a new, upgraded ct 100 to celebrate its first anniversary. Hero Honda celebrates anniversaries by giving price discounts, we do it by making better products," quips Rajiv.

"We'll tap 90 per cent of the global market, which is five times the Indian one. In 5-7 years, India will be just one of our businesses" Sanjiv Bajaj Executive Director/ Bajaj Auto	"By the third quarter of 2005, our target is to get a 40 per cent share of the executive segment (so far dominated by Hero Honda)" S. Sridhar General Manager, Two-wheeler sales

Meantime, BAL will also climb up the knowledge ladder by developing higher-powered bikes, right up to 250 cc-and maybe some day up to 2,000 cc-exploiting the huge unlocked opportunity that will play out in the Indian two-wheeler market, maybe not so much for volumes but for chunky profits (the higher you go up in cc, the higher are the profit margins). Once the Bajajs master the development of higher-range bikes, it will pave the way for an entry into European and us markets. In three-to-five years, BAL could use a dual brand approach in Europe-similar to the Toyota and Lexus strategy-by acquiring a European brand that will enable a quick ramp-up and a dealer front-end in that region. Much before all that, though, in 18-24 months BAL would have unveiled a range of scooters that, well, won't look and behave like scooters, but might cost as little as one. And, yes, Bajaj might just be ready in a couple of years with a four-wheeled, light, affordable, transportation vehicle that could take the shape of a city car.

Doubtless most exciting is Bajaj's plan to enter the Asean region, Latin America (primarily Brazil) and China. "In five-to-seven years India will be just one of our businesses," says Sanjiv, Executive Director in charge of the international business (he's also head of finance). As Sanjiv sees it, Bajaj can launch products in these markets positioned some-where between the Japanese majors and the low-cost Chinese models. If Japanese 125-cc bikes cost $1,500 (Rs 66,000) and Chinese bikes $700 (Rs 30,800), Bajaj could get in at $1,000-1,200 (Rs 44,000-52,800) with a similar model. "We could even give a 150 cc for $1,500," adds Sanjiv, revealing BAL's obsession with providing the customer "more for the same price".

GROWTH DESIGNS

R&D head Joseph: The Pulsar man The pulsar might have been the most high-profile manifestation of Bajaj Auto Ltd.'s (BAL's) R&D, design and product engineering skills, but it isn't as if R&D was a stranger earlier at the Akurdi headquarters of the Pune-based two and three-wheeler giant. A couple of decades ago Bajaj developed the blockbuster rear engine three-wheeler; the once best-selling M-80 too was an original. The problem for BAL though is that somewhere down the line-between the late-1980s and the mid-1990s-the focus shifted from product development to high-volume manufacturing. Long waiting lists meant customer rejection was non-existent, which in turn meant there was little reason to shift the focus on to product improvement and away from volumes (in 1997-98 the company produced all of one million scooters, which included of course the Chetak and a range of variants not too different from the bestseller). Such monotonous production also meant machines were inflexible and manufacturing processes rigid, discouraging improvements and innovation. The short point: R&D was forgotten. "R&D is like art: You can only get better by practice, otherwise you degenerate," points out Abraham Joseph, one of the five members of the core team that set out to change things at BAL along with Rajiv Bajaj, and now head of BAL's R&D division, tucked in a corner at Akurdi, away from the bustle and din of the production and assembly lines. The Pulsar gave Joseph, and Bajaj, the confidence to believe that they could develop world-class bikes that could command the highest price tag in the market. When Joseph began work on the Pulsar he knew he had to build the best mobike in the country-anything less would have meant the end of Bajaj as a two-wheeler maker.After the Pulsar, Joseph got cracking on modifying the engine of the Boxer (which was on a Kawasaki platform) to develop a more fuel-efficient, rideable, powerful and refined two-wheeler. Result: The CT 100, which is doing almost two times the sales of the Boxer, even as it is priced the highest in the entry-level segment. The Avenger, the old Eliminator mounted with a 180-cc Pulsar engine, is the next product that will roll out from the Bajaj stable, and there are at least five more projects Joseph is working on currently. "Bajaj today is driven by engineers, not managers," thunders Joseph. It's easy to see why. And how.

Rajiv reveals that partnering Kawasaki-by buying a stake in its Asean operations-is an option for fast ramp-up (rather than creating capabilities from scratch). "Kawasaki has a presence in every Asean country in terms of plant, dealer network, vendor base. It's hypothetical, but the best thing to happen would be if Bajaj would take this over, because Kawasaki's interest in this region is waning... they want to build a better helicopter or a bullet train. One way to get onto the fast track in Asean would be to purchase this. It is something we discussed with the seniormost team of Kawasaki last month, not that we'll buy them out, but how we can work together. And that applies to Brazil also." What might make the Kawasaki alliance in South Asia work is the respect the Japanese major has for Bajaj. "Kawasaki was our initial benchmark. Today, Kawasaki acknowledges we are better than them in terms of productivity and quality (in lighter bikes)," says C.P. Tripathi, VP, Operations.

Then there's China-close to a third of the global market. "The market's there, and it's huge, maybe not in profitability terms-everyone from Honda to Toyota has not made money there. We have to find a smart way to go there," says Rajiv. One such smart way would be to find a partner familiar with the Chinese market. "Taiwanese companies Kymco and Sym are looking for some kind of partnership (with Indian companies). Theoretically it would be very interesting if Bajaj could combine forces with someone like that," suggests the MD.

THE BIG BREAK FROM THE PAST

Engineering head Shrivastava: Blazing a new trail Chakan was started out of frustration," is Pradeep Shrivastava's favourite way of providing a reason for Bajaj Auto putting up a new plant in the late 1990s, some 45 km away from the Akurdi plant (and the headquarters) in the back of beyond, at least at that time. For Rajiv Bajaj and his core team, the objective was clear-cut: To create a break from the past that refused to let go of built-in systemic rigidities, and inflexible equipment and manpower; a past that was making it impossible to attain the much-avowed goal of producing Japanese quality in India-something Rajiv badly wanted to prove was very much possible. Even if systems and equipment could be changed overnight, there was something else prevailing in Akurdi (and Waluj, the other Bajaj plant near Aurangabad) that just couldn't be remoulded. "It would have been difficult to do what we're doing in Chakan in Akurdi because the mindsets (at Akurdi) weren't changing," adds Shrivastava, who's also head of Engineering at Bajaj Auto. A walk through the Chakan plant-which currently produces Pulsars, Discovers, and soon, the Avenger-reveals the obviously perceptible differences between this unit and Bajaj's older ones. The average age of the 800-odd cell-members (workers, if you insist) is 24, three-fourths of them are engineers, and the good part of course is that they carry no baggage from the past, which makes them open about learning. They're largely multi-skilled-as doctors and firefighters, for instance-and aren't wasted on roles like supervision and inspection, which Shrivastava terms "extraneous, non-value-adding" exercises. Unsurprisingly, Chakan has been producing 2,400 two-wheelers a day, which means three vehicles per employee, as against the average 0.8 vehicles per day at Akurdi (Bajaj's total workforce stands at 10,500). That figure will soon go up to four vehicles by June once the Avenger hits the market, with 1,600 Discovers being rolled out, along with 1,600 Pulsars and Avengers. Going forward, Shrivastava says all high-end models will be made at Chakan, even as he reveals "an implicit faith" in the capabilities of the R&D division. The equation between the two is evident in the fact that R&D developed the Pulsar, and since then over the past four years Chakan has turned out 800,000 of them.

The third, slightly longer-term prong of the global gambit is to step into Europe, and eventually the US. By then, in two-to-three years, BAL's R&D team would have developed heavier bikes, up to 250 cc, even more. "Definitely acquiring a European brand (is an option), and from time to time there are proposals from various brands. One can follow a dual brand approach, like Toyota and Lexus. We are not looking at getting anybody else's product or technology or cost quality, but the acquisition will be purely of a brand that will give a quick ramp-up effect because of its familiarity in the market and access to a successful dealer network," says Rajiv.

On the financial front, Bajaj is well placed to make the financial commitments, sitting as it is on a war chest of Rs 5,000 crore, and growing. Kevin D'Sa, VP, Finance, points out that the cash base will come in handy when Bajaj goes abroad and is confronted with aggressive pricing. "Our cash reserves will help us sustain price cuts; also, we will need the money to build the brand and the distribution network internationally." Adds Sanjiv: "Cash is king in a price war scenario," pointing to the $8-10 billion (Rs 35,200-44,000 crore) cash on the Honda balance sheet as an example.

THE VENDOR COMPONENT

VP (Materials) Hingorani: Leveraging partnerships to get more out of less In April 2000, Bajaj Auto had 850 vendors supplying roughly half of the components needed. Today, the company relies on 210 suppliers, and the company makes only 15 per cent of the core components like crankshafts, camshafts, crankcases and primary gears. Last fortnight, even the petrol tank moved out of the Bajaj plants, with an Indo-Thai joint venture between Thai Summit and JBM signing up with Bajaj. "Till recently we considered petrol tanks our core competency... five years ago, frames were being made in-house; today they're not. Eight years ago we were making silencers in-house, today I have four companies making silencers for us. It's all a function of technology that's available," points out N.H. Hingorani, Vice President, Materials. Hingorani adds that Bajaj Auto will be increasing its capacity from 5,000 motorcyles a day to 9,000 in two phases. In the current year itself, targeted production is 2.5 million (motorcycles and scooters). For the rationalised vendor base, this is a huge opportunity for growth. The growth so far is nothing to be sneezed at either, thanks in the main to the rationalisation. Over the past three years, Bajaj has grown cumulatively at 66 per cent. The 200-odd vendors for their part have grown at an average 200 per cent. To ensure that these vendors are in a position to deliver quality supplies, Bajaj has arranged a number of international technology tieups. For instance, a technology alliance was formed to make front forks between the local Endurance group and Paoli Mechanica of Italy, Europe's leading front forks manufacturer, with Rajiv Bajaj himself pitching in to get the partners together. Of the 210 suppliers, 120 are pretty much dedicated, with 80 per cent of their turnover coming from Bajaj (21 of the vendors are at Chakan, with another 17 due to start up). By reducing the number of vendors, the advantage for Bajaj is that most of them become single-source suppliers. For instance, of the 552 items that go into a Pulsar, 521 (94 per cent) are from single-source suppliers. This ensures commitment as well as less duplication of development costs, which is inevitable in a multiple vendor scenario. The downside of course is higher risk that comes with a single source, but the hedge is the multi-location of the vendors, at Chakan (which also supplies to Akurdi) as well as Waluj.

At the heart of this grand blueprint are the talent, passion and ambition of the product development team. After all, if Bajaj is going overseas, it's taking products developed in-house to international bases. "All you need is people who can do things right the first time. Joe (Abraham Joseph, head of R&D) made the Pulsar when he was 27. These guys will make Bajaj's future," says Rajiv. (see Growth Designs).

With design and development as the backbone, Rajiv has over the past decade also changed mindsets and brought about a cultural transformation amongst the 10,500-strong workforce of today. "Everyone in Bajaj Auto had to be made committed to the philosophy of being world-class-just a few GMs or DGMs thinking that way wasn't going to be enough," says Tripathi.

And by introducing various change agents like streamlined manufacturing systems (SMS) and total productive maintenance (TPM), BAL has been able to improve productivity and quality levels, and reduce defects to near-zero on the shopfloor, at the vendor end, and on the dealer front. And the changes have been radical. Dealerships, for instance, have moved from the "landmark" 3,000-sq. ft. front-ends to 1,500-sq. ft. outlets that are "cute, sensitive and relevant to the customer. By letting go of our organisational ego we have been able to change dealer mindsets," points out S. Sridhar, GM, Two Wheeler Sales. Earlier, a dealer thought it was the company's responsibility to bring in the customer, but today 73 per cent of sales are happening outside the dealership (in banks, at homes), and 45 per cent of business is being generated at the 2,500 service centres, which are also today selling the bikes. Investment in such showrooms could be as little as Rs 1 lakh as against the conventional Rs 2 crore.

It's such efforts that could help Bajaj Auto close the huge gap between itself and Hero Honda. "I don't like talking about competition, but Honda makes us stronger. Our technology is better, our marketing is stronger and so is our vendor base," asserts Brijmohan Lal Munjal, Chairman, Hero Honda. Dethroning the king may be difficult, but then again in the past five years, Bajaj's biggest feat has been survival. The growth process has only just begun. "We've achieved small successes that have been against all odds by looking at things differently. Today we've developed, along with our products, the confidence too. Our products speak for themselves," beams K. Srinivas, GM, HRD. Best evidence of that: When Srinivas visits campuses for recruitment, few students ask too many questions about Bajaj. Most of them want to know more about the Pulsar!

-additional reporting by Amanpreet Singh

"WE SHOULD SELL 10 MILLION VEHICLES OVERSEAS"

"We thought we could address the customer issue by advertising and the dealer issue by bullying. And then we realised that people don't want our motorcycles..." Excerpts from an exclusive interview with Rajiv Bajaj. On how Bajaj came back: The issue for Bajaj was never things like its brand, or cash or dealer network or production capacity. Bajaj had everything, but as Darwin tells us, being the strongest or the most intelligent of the species doesn't ensure survival. Those who are most adaptable will survive. Darwin had also told us, if you don't use it, you lose it. If you don't develop an ability to anticipate change and be ahead of it, then when the change happens you are not ready. And in terms of how bad it was, it was very bad: On the face it would appear the industry changed from scooters to motorcycles, but that was the first layer. But if we peel off that first layer and look at the second layer, what it tells us is the move was from an old or bland style to stylish products; or from less fuel efficient to more fuel efficient products; from less expensive to more expensive products; from slower to faster products. So the move from scooter to motorcycle involves not just the form, but also some product benefits...If we had not made the transition, this company would not exist today as a two-wheeler company. Till 1995 we were at least selling scooters. In 2000 all Bajaj two-wheelers put together made no money. It's not something we say explicitly, but the only money we made was on three-wheelers and out of our financial income. The stock market knew that. Our stock was down to Rs 200-not that that is the best way to judge a company-but it showed. In terms of profitability, we didn't have a two-wheeler business in 2000. From 1993-94 onwards a slow but sure market transition started. It could be seen although nobody knew it would go this far. We lost the higher end scooter customers to LML and we certainly lost the motorcycle customers to Honda, TVS and Yamaha. Around Oct 1994, we started a small initiative on the marketing and sales side to improve the market share of our motorcycles. We were selling a lot of scooters-70,000 a month-our dealers were complacent and customers thought of us as a scooter company. We thought we could probably address the customer issue by advertising and the dealer issue by bullying them. So we started advertising and bullying. And then we realised that people don't want our motorcycles. Prof. Yamguchi, who comes to us for TPM, said "Business starts when the customer says no." Our business started when the customer said that for the same price I won't buy a Bajaj. That really sent something down my spine. That's when we sat back and analysed. We estimated Hero Honda's warranty at that time in the region of Rs 150 a motorcycle and ours was over Rs 800. The situation was fundamentally rotten. "It's very important to get the concept right... if you make an inadequate car for Rs 1 lakh, who is going to buy it?" On early initiatives in motorcycles: We started from 1995 onwards. Boxer was in the market in 1997, then came Caliber... not everything succeeded because, let's face it, the competition from Japan had probably had around 50 years to perfect things before they brought them here. They came with all their suppliers, all their experienced engineers, all their proven products; our engineers were starting from scratch, so we were bound to make some mistakes. We made lots of mistakes, but the direction was correct. On the turning point: The Pulsar was the first big thing we challenged and did right and we really stretched ourselves to achieve this. I was reading about Lexus and how they took over the market in the US (also in the nineties). Of course, their success is incomparable to us. There is a magazine quote: "Ultimately Lexus shouldered its way into the luxury car market the good old fashioned way: It made a better product." So, when our guys led by Joe (Abraham Joseph, head of R&D) said we'll make the best motorcycle in the country, we said, let's do it. If that works, everything will fall into place. It started-Pulsar development-in October 1998; by November 2001 we launched it out of Chakan. It's funny: Joe's wife was pregnant and in the hospital at that time, and we were looking at drawings etc...that's how it turned. On building a car: There is an opportunity to make a little vehicle that serves a city purpose as opposed to a full-fledged vehicle that serve an intercity purpose. In that context, a two/three wheeler maker is in a better position because the way to make it successfully depends on two things: You must evolve the specifications up from the two and three wheeler, not downgrade from a four wheeler... We can build a vehicle that can take four people and has four wheels. It will be a more elegant solution, not a carriage on the side like the Chetak. It's very important to get the concept right... If you make an inadequate car for Rs 1 lakh, who is going to buy it! On the future growth opportunities: There are two axes along which we can expand our business. There's a capital axis and a knowledge axis. Today we are at the lower end of the capital and business axis. First, keeping the same knowledge, how can we, with the money we have grow our business? The Indian market is five-to-six million vehicles, and the global market is five times that much, and most of this is the kind of vehicles we make. There are only three meaningful markets outside India: Asean, Brazil and China. So if Bajaj has the right knowledge as reflected by its products, we are competing with virtually the same products that Honda or Yamaha is selling in those markets. So if Bajaj has the right products and can successfully be a clear #2 here, why can't we take this successful formula to the other markets? Basically you have to have the courage to go there, invest there and play the game. That's Sanjiv's responsibility, his planning. And theoretically, if the global market is five times the size of India and Bajaj is selling two million vehicles in India, we should be selling 10 million vehicles overseas. Another is the knowledge dimension: Maybe only 10 per cent of vehicles (globally) are over 250 cc but Bajaj has not even hit the 250 cc mark yet and even 200-250 cc is a huge market worldwide and will be in India too soon... That's why the bigger Pulsar. And from there onwards it goes up to 2,000 cc, where the volumes are not big, but the profitability is very, very high. We are not going to stop till we cover the entire knowledge side.