India will play a much bigger global role for the company once free trade agreements are in place with the ASEAN region.

Shinji Aoyama set the cat among the pigeons early this week when he said Honda would take over the top slot in the Indian two-wheeler industry by 2015-16. The former chief of the Indian arm is now a key figure in Japan for the company’s global motorcycle operations.

His tenure here saw Honda part ways split with the Hero group and when I met him soon after, he minced no words about the challenges ahead. “In order to meet customer demand, we have to hurry up and do a whole lot of things, including introduction of more India-specific models. The priorities are new models, expanding sales channels, strengthening the vendor network and increasing manpower across the chain,” he said.

That is Aoyama for you in telling it like it is. It is no secret that Honda is targeting market leadership here by 2020. Can this be achieved four years earlier, though? Yes, so long as the market witnesses flat growth over the next three years, a point which Aoyama stressed during his recent India visit. This scenario, though, is extremely unlikely as two-wheeler makers are confident of posting 7-8 per cent growth even though the market looks sluggish right now.

Taking on the killer brands

Honda is, of course, going all out to increase capacity in India. Within a year, it hopes to clock four million units annually from its three plants in Haryana, Rajasthan and Karnataka. By then, it will have finalised its choice of location for yet another facility which is tipped to be a toss-up between Gujarat and Maharashtra. Once the Western region is covered, the Japanese automaker could even be inclined to set up a plant in the East. The eventual goal is to touch 10 million units by 2020, though this could be achieved even earlier.

Honda’s biggest challenger is its former ally and market leader Hero MotoCorp, which literally has two killer brands in the Splendor and Passion. Though they have been around for many years, they still enjoy customer loyalty, evident in their combined sales of nearly four million units annually. It is the loss of these brands after the split with the Hero group that hurts Honda and the only way to even the score is to get similar products at far more competitive prices.

The company will also have reason to feel confident because it is quickly making a mark in motorcycles while continuing to be the monarch in the gearless scooter space. Aoyama singled out Bajaj Auto for special praise, indicating that it was a force to reckon with in the two-wheeler arena, even ahead of Hero MotoCorp.

Going by the present momentum, it is almost impossible to predict how the leadership stakes will pan out in the short to medium term. Hero’s numbers continue to average five lakh units a month but there have reportedly been issues with stocks piling up at dealerships. It will be interesting to see how the sales momentum continues over the next 12-18 months, especially with competing brands from Honda and Bajaj.

Both rivals have an aggressive product line-up for a rapidly changing customer base seeking the best in technology and mileage. Their eventual buying decisions will play a big role in paving the way for new market dynamics in the coming years.

Script for Asia

Honda is determined to make India its world’s largest two-wheeler market ahead of Indonesia and Vietnam. To make this a reality, it will continue to invest in new plants here even if the market shows signs of a slowdown as is the case presently. It is equally likely that India will play a much bigger global role for the company once free trade agreements are in place with the ASEAN region. This will then see greater shipment of parts across the world, including Japan, if this means keeping costs in check.

Some months ago, Honda’s President and CEO, Takanobu Ito, made known that the company was targeting production of over 25 million motorcycles worldwide by March 31, 2017. Emerging markets, he said, would play a big role in making this goal a reality. This is where the India factor becomes critical, with Ito reiterating that Honda would “strive to further grow its motorcycle business through introduction of highly-competitive models in the 100cc segment”.

The Dream Yuga, to that extent, is only the beginning of an exciting script where Aoyama, with his knowledge of India, will pull out all stops to take the company ahead. This strategy could, perhaps, converge with a larger global script focusing on Asia and South America. For instance, going by what Ito said, Indonesia and Vietnam will see Honda offering an attractive product line-up, including scooter models.

In China and Thailand, Honda would “continue evolving strong business in each market, while continuing the growth of the operation as the base for the global supply of parts and finished motorcycle products for other regions”.

Observers believe that India will get into the picture aggressively once FTAs are in place because the capacities created here will result in economies of scale for a larger global play. Beyond ASEAN and Latin America, this could also include Africa, a market which Japanese counterpart, Yamaha, is planning to service aggressively from its India operations.

Car business

It is only appropriate to include Honda’s strategy for its car business which has not exactly set the Indian market afire during the last couple of years. This was largely owing to the fact that the company did not have a diesel engine option, a drawback that has now been remedied and will be part of its product line-up from April.

As in motorcycles, Honda will strive to keep costs in check for cars by focusing on concurrent product development. As Ito said, each of its six key regions will participate in this exercise from the early stage of development which will eventually see cost of sourcing parts significantly reduced with the largest volumes emerging from the most competitive region. India, along with Thailand, Indonesia and Malaysia, will leverage the Brio platform to produce sedans and SUVs. Likewise, it will be a nucleus nation for the new diesel engine where sourcing of parts globally will keep costs in check. Honda hopes that by 2017, automobile sales in emerging markets will double to over three million units.

(This article was published on March 14, 2013)
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