Harley-Davidson's India
foray By Siddharth Srivastava
NEW DELHI - Harley-Davidson Motor Co, the
US-based manufacturer of distinctive large-engined
motorcycles popularly nicknamed "hogs", and an
iconic symbol of American machismo and biker
culture, has set its sights on India after opening
its first dealership in China.
Harley is
looking to tap the growing population of young
Indians (500 million under 25), many earning high
incomes and keen for that extra kick in life. The
firm is studying the market in Vietnam as well.
Chief executive officer Jim Ziemer said this year
that the motorcycle maker anticipates very
positive long-term potential in the Asia-Pacific
and Latin American markets.
Harley
executives have been holding discussions with
Indian officials and looking to address the two
major barriers to entering
India, namely stringent
emissions standards and tariffs of more than 90%,
since the company's initial plans are to import
motorcycles rather than building a factory.
Vietnam recently agreed to end its
outright ban on large-displacement motorcycles and
lessen its tariffs by more than 60% over the
coming years, as part of a trade pact with the
United States. And a Harley dealership opened in
Beijing last month, marking the company's first
venture in China since at least World War II.
In a presentation made to Indian
officials, Harley has argued that large bikes
(with an engine size of over 500cc) could not
reasonably be expected to comply with the
stringent emission norms that India has for
two-wheelers. in North America and Europe, these
mean machines fall under more lenient emissions
norms since they are categorized as "highway
bikes" in contrast to "city bikes". In the US, all
vehicles over 228cc fall into this relaxed
category. Presumably, the company asked for the
same regulatory treatment in India.
Harley
garners a whopping 62% of the US market for
motorcycles in the 850cc-or-more category. The
company, which reported global revenues of US$5.34
billion in 2005 with a net income of $960 million,
has been focusing on foreign markets, as it
believes that international sales growth will
continue to outpace domestic growth. Foreign sales
make up 20% of the company's sales and grew by 15%
last year, more than three times last year's rate
of domestic sales growth, 4.2%.
More than
80% of Harley's revenue comes from its motorcycle
sales; 15% comes from spare parts and accessories,
and the remainder from apparel and personal
accessories. It also licenses its logo, which has
become quite a profitable side business for the
Milwaukee, Wisconsin-based firm - $41 million of
revenue in 2004, or almost 5% of net income.
It is still unclear whether the Indian
consumer will take to Harleys, which are perceived
as luxury products overseas, in contrast to their
blue-collar image in the US. Until recently,
imported high-end motorcycles have not done well
because of cheaper local options (100-500cc), and
the fact that two-wheelers in India are purchased
mainly for practical purposes, not to make a
"lifestyle statement". BMW, an earlier aspirant to
the Indian luxury-bike market, barely managed to
sell a handful of premium bikes in the country,
because of buyers committed to the indigenous
local option, the Royal Enfield.
Currently
Chennai-based Royal Enfield's Bullet (originally a
British icon, now owned by the Eicher Group) is
the only product in the 500cc range, and has
emerged as the leader in a niche segment of
leisure cruisers. The firm's Lightning 500 model
tries to replicate the distinctive Harley design.
In 2004-05, the company sold 32,000 units (mainly
350cc bikes), a 10% growth over the previous year.
Other high-end bikes, such as the Hero Honda
Karizma, are in the less-than-250cc category.
The overall indicators for motorcycles in
India are good. Rising incomes and cheap loans
have helped drive a vehicle boom in India, now the
world's largest market for motorbikes after China.
Japanese motorcycle manufacturer Yamaha
and BMW too have been talking to the government to
allow bikes over 500cc to be imported and waive
"homologation" (testing for fitness on Indian
roads required to import new models of cars) for
products beyond the 500cc engine range.
According to figures released by the
Society of Indian Automobile Manufacturers (SIAM),
motorcycle sales soared by 17.1% in the domestic
market and touched 5.8 million units (a market of
nearly $4 billion) in 2005-06, against 4.9 million
units in 2004-05. Overall, the two-wheeler
segment, including scooters and motorcycles, grew
13.6% at more than 7 million units against 6.2
million in 2004-05.
Bike exports in
2005-06 grew a massive 39%, with Bajaj Auto and
Hero Honda, the two main domestic players, leading
the charge. Close to 400,000 bikes were shipped in
2005-06. New entrants Honda Motorcycle and
Scooter, Suzuki Motor, and Yamaha Motor are adding
capacity and launching new models.
Lately,
the Royal Enfield bikes have enjoyed a resurgence
in India after the release of the new models
Thunderbird and Machismo. A model called Electra,
which is a slicker version of the classic 350cc
bike with electric-start kit, is also popular.
Demand for high-end bikes such as the Kawasaki
Ninja and Suzuki Hayabusa has also grown.
Indeed, Harley has reason to be hopeful in
the current context. Disposable income in the
hands of young spenders is growing rapidly, with
annual per capita income rising 62% over the past
six years. Corporate India has registered the
highest increase in salaries in the world,
non-resident Indians have overtaken Chinese
expatriates in the volume of remittances, and
there are visions of an Indian economy growing at
10%, though this has been somewhat dampened by the
rise in oil prices. Gross domestic product growth
in the past three years has been more than 8%.
Youth icons such as actor John Abraham and
cricketer M S Dhoni, with their fetish for dirt
bikes, have added to the appeal of motorcycles.
A recent survey by a leading advertising
agency revealed that Indians are brand-conscious
and willing to spend more for quality. About 56.5%
of the affluent Indians surveyed said they
preferred well-known brands, in comparison with
46.9% in Singapore and 47.5% in Thailand.
The luxury-trends report from Ledbury
Research advises companies to start focusing on
India. The latest household income survey from the
National Council of Applied Economic Research
estimates that the number of families with annual
incomes of more than $230,000 - prime potential
customers for Harley and other high-end bike
purveyors - will double from 20,000 in 2001-02 to
53,000 by the end of 2005, and will grow to
140,000 by 2010. The United Kingdom has 400,000
families at this income level currently.
According to Merrill Lynch, India has
registered a 14.6% increase in the number of
high-net-worth individuals (HNWI) in 2005. Led by
Asia and North America, the world's HNWI wealth
grew by 8.2%, to $30.8 trillion, according to the
World Wealth Report 2005, released in New York by
Merrill Lynch.
Harley-Davidson motorcycles
are unique in design, attract a loyal following
and retain their resale value quite well in
contrast to other vehicles; many can even be
resold at a higher price, providing a further
attraction for customers. When investment appeal
is added to the brand's cachet and outlaw image,
Harley-Davidson might find the voyage to India
well worth the effort.
Siddharth
Srivastava is a New Delhi-based
journalist.
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