When Friends Turn Foes

The year 2015 was tough for Hero Motocorp and its boss Pawan Munjal. The patriarch of the family-run business, the highly respected, Brijmohan Lal, had passed away. The challenge and threat posed by erstwhile partner, Honda Scooters & Motorcycles India (HSMI), was relentless and ominous. A second successive poor monsoon meant that rural India, a market dominated by Hero, would remain sluggish. The numbers reflected this in September 2015. While dispatches crossed the magic 6,00,000 mark, half yearly sales during April-September were lower compared to those in the corresponding period the previous year.

Changing consumer preferences made the future look even bleaker for Hero. Suddenly, scooters were replacing motorcycles as the aspirational mode of personal transport for the young middle class. While motorcycle sales were stagnating or even declining in some cases, scooter sales were galloping. It is here that Honda seemed to hold all the aces. Thanks to its powerful R&D, Honda was able to launch modern, smart scooters that captivated young urban Indians.

The Darkest Hour
Having parted ways in 2010-11, Hero was badly hampered by lack of access to its own R&D facilities which could design new models. But just when the future looked bleak, pieces began to fall into place ones again for Hero. For one, it gate crashed the scooter market with two models, Duet and Maestro. This segment has been completely dominated by Honda Activa.

As of now, Hero has managed to capture 23 per cent of the scooter segment. Not bad for a company that appeared clueless about two years ago. Of course, it continues to be the king of the motorcycle segment. What seems to have helped a lot is the Rs 850 crore R&D hub that Hero has set up in Jaipur.

Hero’s CMD Pawan Munjal says, “In spite of many hardships, the company has grown from strength to strength.” He says the company’s next mission is to become a global brand. In a little over five years, the company has begun exporting its product to 32 countries. It also has a manufacturing facility in Columbia.

Battle For Leadership
As the country’s two-wheeler market is set to touch 55 million units by 2026, the ongoing competition between the two auto giants shows a classic example of how a desi and a foreign company operate to outdo each other. And yet, Honda seems relentless in its pursuit of market leadership. In fact, for both Hero and Honda, the battle for supremacy goes way beyond market share. That happens when friends turn foes.

Honda has been the one company in India which has been successful in launching products that have given birth to an entirely new segment. In 2000 it disrupted the market with Activa and in 2016 with Navi, a crossover between a scooter and a bike. It is this aggressive approach by Honda which has helped increase its market share from 13 per cent in 2011 to over 26 per cent in 2016. The company is looking to touch the 5 million unit per year mark by March 2017.

A Milestone Year
Keita Muramatsu, president and CEO, HMSI says, “Fiscal 2016-17 is going to be Honda’s most definitive year in India. I am excited that with the new fourth plant, we will be able to delight more than 5 million new customers in one year for the first time in Indian operations.”

Undisputed leadership in such a fiercely competitive market is impossible. Experts say that it is too early to predict who will lead the market in the near future. Abdul Majeed, partner and auto expert at PwC, says the Indian two-wheeler market hasn’t reached a saturation point to put one company ahead of the other. He adds that competition between the two is rather different from the usual desi versus foreign battle. “While Hero has to defend its domestic market share and grow in the international market, Honda’s main focus will primarily be to penetrate deep into the Indian market.”

The Fringe Players
As of now, Hero has more than 6,000 touch points across the country whereas Honda has 4,300 outlets. In all this, do spare a thought for 10 other two-wheeler companies in India that seem to be fighting for crumbs. While companies like Enfield (Bullet), Harley Davidson and Triumph are happy to grow rapidly in their niche segments, it is the other major players that seem to have become “collateral damage” in the ongoing war between Hero and Honda.

Who can imagine that, not too long ago, Bajaj Auto was the undisputed king of two-wheelers with a 75 per cent market share? With fiercely ambitious new players like Mahindra determined to make a mark, the fight for crumbs will get as brutal as the battle between Hero and Honda for supremacy.

arshad@businessworld.in