Preksha Tekriwal

Aastha Sharma
Vidit Mehta
STRATEGIC ANALYSIS Inayat Baktoo
Zenia Garg
Hero MotoCorp Ltd.
Shubhankar Goyal
Shivam Aggarwal
Abstract
This report tries to analyze the strategies of Hero MotoCorp Ltd. Hero MotoCorp is the largest
Indian two-wheeler manufacturer. The report is divided into various sections and opens with the
industry outlook and goes on to analyze the industry’s business environment through various
tools and frameworks. In the next section, a brief intro of the company is given followed by the
company’s analyses. The report concludes by exploring future business opportunities for Hero
that can be undertaken by focusing on strategic options.

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Contents
Abstract ......................................................................................................................................................... 1
Industry Outlook: Automobile Industry ........................................................................................................ 3
External Environment Scanning ................................................................................................................... 4
PESTEL analysis of Automobile Industry ................................................................................................ 4
Political: ................................................................................................................................................ 4
Economic: ............................................................................................................................................. 4
Social..................................................................................................................................................... 5
Technological ........................................................................................................................................ 5
Environmental ....................................................................................................................................... 5
Legal ..................................................................................................................................................... 6
PORTER’S 5 FORCES of automobile Industry ....................................................................................... 7
Threat of new entrants: Weak ............................................................................................................... 7
Competition from substitutes: Moderate............................................................................................... 7
Bargaining power of suppliers: Weak ................................................................................................... 7
Power of buyers: Moderately strong ..................................................................................................... 8
Competitive Rivalry in the industry: Very strong ................................................................................. 8
Company Analysis: Hero MotoCorp ............................................................................................................ 9
SWOT Analysis......................................................................................................................................... 10
Strategic decisions of Hero MotoCorp Ltd. ............................................................................................. 11
Hero Honda Motors Ltd. Separation ................................................................................................... 11
Post Separation impact- Hero and Honda ........................................................................................... 11
Hero’s Global Centre of Innovation and Technology (CIT) in Jaipur, Rajasthan .............................. 12
Conclusion: Prospects ................................................................................................................................. 14

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Industry Outlook: Automobile Industry
Automobile industry is highly capital intensive and is an oligopoly. In 1900 to 1960 The United
States was the first major player in the automobile industry after which in 1980s Japan took its
place by becoming most cost-efficient. Indian automobile industry started with the import of
automobiles from General Motors and Ford motors during British regime in period between
1928-1955. In 1940s Hindustan Motors and Premier Motors were established by Indian
entrepreneurs, they imported know-how from General Motors and Fiat respectively. In the period
of 1955-1974 the automobile industry started moving towards its maturity in self-reliance and
any indigenous automobile manufacturers like, Mahindra and Mahindra, Ashok Motors and
Bajaj Auto entered the market for commercial vehicles and two wheelers. In mid 1970s and later,
the liberalization period helped the industry grow. The rise in per capita income and highest
portion of Indian population has 70% of potential buyers. This dominates the sales of small and
medium cars with a shift in high end cars as well. It became the 4th largest in the world with an
annual production of approximately 4.07 million units’ sales and 9.5% year-to-year increase in
sales and is expected to grow further to become one of the major industries in the world. India’s
automobile industry was 7th largest industry in commercial sector in year 2017. The production
has increased at 7.08% CAGR between FY13-18 and manufactured 29.07 million vehicles in
FY18. US$ 20.85 billion were invested as Foreign Direct Investment between 2000-2018 in
accordance of the data released by Department of Industrial Policy and Promotion (DIPP). Even
the government has taken a lot of initiatives to boost the industry from the beginning and is still
practicing the same.

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External Environment Scanning
PESTEL analysis of Automobile Industry
Political:
- Auto Policy 2002 ensured promoting automobile sector in order to attain value addition in
the economy.
- General Elections of India are currently going on. The change in government may benefit
or hamper the growth, depending upon the stance the winning party takes with regard to
the automobile industry.
- Existing government’s stance on 2 WH emission norms with the introduction of BS VI.
Only the BS VI compliant vehicles will be sold in India from 1st April 2020
- Motor vehicles Act, 1998, to regulate all aspects of vehicle enactment.
- Make in India September 25, 2014 promoting national manufacturing of national as well
as multinational company products.
- Government’s taxation policies affect the cost of the input products, affecting the final
price. The input costs increase or decrease based on the taxation policies of the
government.
- Odd Even rule in Delhi showing the governmental concerns towards pollutant emission,
which may affect the sale of personal vehicles.
- Policies of SIAM which fosters communication between the automobile industry and the
Government.
- Launch of FAME India for the promotion and electric and hybrid vehicles in India.
- In early 2018, Ministry of Power launched the New National Electric Mobility
Programme- establishing the electric charging infrastructure.
- NEMMP scheme promotes EV for 2 WH, 2 WH, 4WH, LCVs and buses.
- The government aims to develop India as a global as a global manufacturing sector.
- Government of India has helped the automobile industry grow by setting up bodies which
helped the automobile industry to carry out their research and development, also
monitoring the industry. Also, the government is providing a weighted tax deduction of up
to 150% for the in-house research and development.

Economic:
- Inflation rates affect the buying nature of the consumer. Rise in price of international raw
materials or the price of steel, it results in the increased price of motorcycles
- Concessions by the government on interest rates
- Per capita income is increasing that would generate demand.
- The manufacturing sector is increasing at 8-10% per annum.
- Financial availabilities are possible due to intermediaries.

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- Additionally, the price of certain crucial commodities has also influenced the automobile
industry. Crude oil and petroleum products always affect the automobile industries. Rise in
the world market price of these products makes things expensive and this trickles down to
automobile manufacture as well as maintenance.
- The concept of service in automobile industry has changed into customer care now, thus
encompassing the greater value to its customers.

Social
- Changing lifestyle of Indian consumers, growing the demand for automobiles.
- Convenience has become a rational tool in India therefore, increasing preferences for the
consumers.
- Increasing distances between work-place and residence.
- Increase in population and percentage of working women has affected and increased
number of earning members in a family.
- Increasing surge of two-wheeler and small cars because of their convenience and
compactness in the country of high traffic.
- Demand for luxury cars is expected to grow at a 25 per cent CAGR till 2020.
- Indian customers- highly price sensitive
- Due to price sensitivity and convenience, demand for small and compact cars is high.
- Preference for fuel efficiency in automobiles to save costs.

Technological
- Research and Development being a very important tool to put emphasis on fuel efficiency
and low carbon emission for the Indian market.
- Cost reduction through R&D.
- Government of India supporting better technology for reduced carbon emission (National
Automotive Testing and R&D Infrastructure Project)
- Changing trends such as sustainable development leading to technological innovations
such as Solar power run, Hydro energy, electric automobiles.
- Hybrids could be acceptable technology in the market.
- Alternate Fuel: increasing use of CNG and LPG instead of conventional fuel has made the
entry of new kinds of vehicles in the market.

Environmental
- With development of technology, hybrid as well as sustainable fuel engines have come into
the market having serve the environmental sensitive consumers.
- Development of infrastructure like roads, bridges, etc., affect the use of automobiles.

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- More investors are coming and opting for the manufactures of environmentally friendly
vehicles. Like e-vehicles, hybrid vehicles, etc., to conserve energy and the environment

Legal
- Auto Policy 2002 ensured promoting automobile sector in order to attain value addition in
the economy.
- Bharat Stage emission standards, April 2010 regulating the air pollutant emission from the
internal combustion engines
- Motor vehicles Act, 1998, to regulate all aspects of vehicle enactment.
- Make in India September 25, 2014 promoting national manufacturing of national as well
as multinational company products.
- The industry was given 100% foreign direct investment along with zero taxes for the
investors who export the vehicles from their Indian bases manufacturing units. This has
encouraged varied automobile companies to set up plants in the country. All this was under
Make in India project.

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PORTER’S 5 FORCES of automobile Industry
Threat of new entrants: Weak
Automobile industry can be classified as an oligopoly industry. There are entry barriers due to
high capital requirement to enter in this industry. The high capital requirements are not limited to
setting up the manufacturing plant but also to develop an efficient distribution network and
hiring expert team. High capital requirement is not the only barrier; another barrier can be the
level of competition from pre-existing players. To enter this market at a time where the current
players have a significant market share, one needs to innovate the product or the process to gain
USP to get acceptance from the market. Any new brand would have to focus a lot on engineering
and product quality. Getting access to raw material can be easy but then achieving economies of
scale will be difficult for small players. Moreover, penetrating new markets is not easy either.
The issues of safety, reliability and durability hold utmost importance in this industry and are
salient. Buyers base their impressions of a model on the manufacturer’s previous performance on
these issues, a new entrant will have extreme difficulty. It can take many years for a new entrant
to build a strong reputation to compete. Companies need license and have to follow the
Government policies to enter this industry. Hence the threat of new entrants in this industry to be
low.

Competition from substitutes: Moderate

The threat of substitutes on the other hand exists at a moderate level. Automobile market is
highly elastic. The demand of automobile depends on loan interest rates, fuel prices, opportunity
cost (which may include investment) and cheaper substitutes (like uber, public transport etc.).
Most of the automobile purchases are made through credit and if the interest rates rise, there is a
high chance that people go for the substitutes rather than owning a car. In addition, the fuel
prices are expected to rise further in future due to diminishing fossil fuel reserves. This threat
will keep on increasing if the automobile sector fails to provide cost effective alternatives. Since
only 5% of India’s population own a car, the rest 95% relies on public transport. It can be argued
that none of the substitutes can provide convenience and accessibility, but considering India is a
price sensitive economy, people will always choose the cheaper product.

Bargaining power of suppliers: Weak

The power of suppliers is mitigated by the number of existing potential suppliers in this industry,
but switching costs are high because establishing part designs and specification requires a fair
initial investment. The automobile supply business is quite fragmented (there are many firms).
Many suppliers rely on one or two automakers to buy a majority of their products. If an
automaker decided to switch suppliers, it could be devastating to the previous supplier's business.
As a result, suppliers are extremely susceptible to the demands and requirements of the
automobile manufacturer and hold very little power. For parts suppliers, the life span of an
automobile is very important. The longer a car stays operational, the greater the need for
replacement parts. On the other hand, new parts are lasting longer, which is great for consumers,

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but is not such good news for parts makers. When, for example, most car makers moved from
using rolled steel to stainless steel, the change extended the life of parts by several years.

Power of buyers: Moderately strong

The customers of automobile industry are mostly individuals, but there are customers who buy
vehicles in large quantities. The information about the products is available freely through
various sources including internet, magazines, experts, TV etc which leads to consumer
awareness. The prices of the vehicles from various sellers are competitive and the customer
loyalty factor is present but is limited, as it is assumed if an average Indian buys a car, he will not
buy another car for at least 4-5 years. The customers are highly price sensitive and so the buyer
power remains high in this industry. Customers can easily, and with little cost, switch to other
auto dealers.

Competitive Rivalry in the industry: Very strong

The Indian automobile industry is dominated by Maruti Suzuki, followed by Hyundai. Combined
market share of these companies in 66%. Exiting this industry is not so simple either since there
are assets, which may be difficult to dispose of, high exit costs and inter-related businesses,
making it infeasible to sell a part of it. Another common barrier to exit is the loss of customer
goodwill. The Indian automobile industry is already running in surplus, implying that the market
is already saturated and highly competitive. The fact that the automotive industry is a mature one
means that competition is fierce, and rivalry will only increase over time. Industry growth is flat,
and numerous competitors with similar market shares are fighting for leadership, and all the
players have huge capital leverage.

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Company Analysis: Hero MotoCorp
Hero MotoCorp Hero Moto Corp Ltd. is an Indian motorcycle and scooter manufacturer based
in New Delhi, India. The company is the largest two-wheeler manufacturer in the world, and has
a market share 36.9% with a 51.1% share in the domestic motorcycle share in India and is also
present in 35 countries. It has been the world’s largest two-wheeler manufacturer for the past 16
years.

• Hero Moto Corp is the market leader in the two-wheeler industry and the two-wheeler
industry is likely to remain the preferred mode of transportation due to low cost of
ownership and affordable servicing. As per 2011 Census, rural India has a two-wheeler
penetration of 14.3% of the total households as compared with 35.2% in urban India.
Thus, the rural market is expected to be the driver of growth through increased penetration
of two wheelers.
• The agreement with Honda Motor Company prevented Hero Moto Corp to expand to
other countries. The company in its earlier form i.e Hero Honda exported to only select
countries such as Bangladesh, Sri Lanka and Columbia. After its separation, Hero has
expanded at large rate and now Hero Moto Corp is currently in 35 countries and aims to
expand to 50 countries by 2020. This is will enable Hero Moto Corp to de-risk its
business.
• There has been constant growth in sales of two wheelers in the industry. Motorcycle sales
grew by 4.1%, from 10.70 million units in FY 2015-16 to 11.14 million units in FY
201617. The scooter sales registered a 10.2% growth, from 5.03 million units in FY 2015-
16 to 5.55 million units in FY 2016-17.
• Hero has a vast network of 6000 dealers and service outlets spread all over the country.
Hero MotoCorp’s affordable and efficient servicing ensures brand loyalty and thus Hero
can retain its customers.

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SWOT Analysis
Strengths Weaknesses
1. Hero Moto Corp has a huge brand equity and 1. Intense competition from Indian and
one of the biggest players in the two wheelers international players means limited market share
Indian market. growth of Hero Moto Corp.
2. Excellent R&D of Hero Moto Corp, and wide 2. Most of the products have similar features and
variety of products in every segment. low on design and innovation.
3. Excellent distribution, over 6000 dealerships
and service centres.
4. Good advertising and excellent branding &
marketing of Hero Moto Corp
5. More than 5000 people are employed with the
organization.
6. Sponsorship of many events related to sports
& racing has made Hero Moto Corp a strong
brand.
7. The brand has received several awards &
recognition for its work in the industry
8. Ad campaigns through TV, billboards, online
media etc. boost the brand image.
Opportunities Threats
Threats
1. Two-wheeler segment is one of the most 1.1.Strong
Strongcompetition
competition from
from Indian as well
well as
as
growing industries internationalbrands
international brands
2. Export of Hero Moto Corp bikes is limited i.e. 2.2. Dependence
Dependence onongovernment policies
government and rising
policies and
untapped international markets fuel prices can affect business margins for Hero
rising
3. Introduction of bikes in the premium segment. Moto
fuel Corpcan affect business margins for Hero
prices
4. Introduction of electric 2 WH motorcycles- Moto Corppublic transport will affect two-wheeler
3. Better
Ather Energy. 3.sales
Better public transport will affect two-wheeler
sales

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Strategic decisions of Hero MotoCorp Ltd.
1. Hero Honda Motors Ltd. Separation
Hero Honda Timeline:

1956 1983 1984 2001 2010

•Formulation •Collaboration •Hero Honda •Hero Honda •Separation of
of Hero Agreement Motors Ltd. Motors Ltd. Hero and
Cycles in with Honda incorporated. became the Honda.
Ludhiana Motor Co. largest 2 WH
Ltd. Japan. manufacturin
g company in
India and
globally.

Reasons for separation:

1. Honda makes a separate entry- Honda set up a wholly owned unit, Honda Motorcycle and
Scooter India Ltd, in 1999. It was the only one of three Honda joint ventures in India that
endured a testimony to the success of the venture. In 2010, they decided to launch 110cc
motorcycle cannibalizing the Hero Honda sales which had 70% market share in that segment.

2. Issue of exports- The shareholder agreement signed in 1984 mentioned that the joint venture
was only for domestic production and consumption. The market was evolving, and Hero
demanded to expand the market globally. Honda was completely against this since it could not
influence the independent run subsidiaries abroad.

3. Individual R&D- Hero Honda wanted to develop its own R&D.

4. Honda’s success- Honda was making its expansion stronger in India by introducing efficient
models and gaining more market share. 6. Honda’s reducing interest in venture- Honda was more
engaged in developing the Japanese technologies which were not provided to Hero Honda. Less
focus was on the development of Hero Honda.

Post Separation impact- Hero and Honda

Pawan Munjal- Hero MotoCorp CEO, in his interview briefly mentioned the challenges and the
changes that Hero faced post separation from Honda. Since Hero had to develop their own R&D,
they needed campaigns to support their brand and impose trust in the minds of the consumers.
The successful campaign “Hum mai hai hero” helped to switch fast from the JV brand. The

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challenges that Hero faced after the separation were developing individual R&D, international
business expansion and overall cost reduction- process and products.

Hero faced all the challenges and became the largest two-wheeler manufacturer in the world with
market share 36.9% with a 51.1% share in the domestic motorcycle share in India and is also
present in 35 countries. It has been the world’s largest two-wheeler manufacturer for the past 16
years. Hero's success as a solo rider is a story of India's journey into consumption adulthood.
Hero MotoCorp sold a total of 38.9 million units until the end of July 2017, overtaking the
cumulative sales of 37.4 million two-wheelers registered by Hero Honda in its 27 years. Notably,
in these six years, the share price of Hero Moto-Corp has also doubled, with the market cap
racing past 77,000 crores. Hero has seen a dip from 44% to 39% but seen progress on the R&D
front. Hero’s new products developed with its own technology helped the company maintain
over 50% share of the domestic motorcycle market. Its main product remains the Splendr, which
with sales of 2,550,830 units contributed nearly 40% to overall sales of the company last fiscal.

As of now, Hero has revamped its entire product portfolio with its own products which are
designed and developed in-house at the new Centre for Innovation and Technology (CIT) in
Jaipur. Going forward, Hero will not have to pay royalties to Honda for technology/IPR
licensing.

2. Hero’s Global Centre of Innovation and Technology (CIT) in Jaipur,

Rajasthan
Hero, in 2016, inaugurated its first in-house research and development center. This R&D center
is in Jaipur, Rajasthan and is named Centre of Innovation and Technology (CIT). This center is
built in a 247-acre area with an investment of Rs. 850 crores. This center is equipped with state-
of-the-art technology for development. It also includes a 16-km long track with 45 different
surfaces to simulate global and Indian road conditions. Dr. Markus Braunsperger, Chief
Technology Officer of Hero MotoCorp, heads this center.

CIT has imbibed advanced green technologies into its design, ensuring eco-friendly operations.
As recognition of its efforts, the Centre was granted Platinum rating by the Indian Green
Building Council (IGBC). It is the highest rated facility in India’s manufacturing sector.
Designed by international architects and design consortium, CIT maintains highest ecological
standards. Within a few years of commencing its journey, Hero has significantly scaled up its in-
house R&D capabilities to develop consumer oriented and market-relevant products. It has
already established the credentials of its R&D function with the successful launch of Maestro
Edge and Duet scooters.

The first in-house developed motorcycle of hero was Hero Splendor iSmart 110. Hero plans to
launch another range of in-house developed vehicles soon. This range includes 200 cc
motorcycles, including XPulse 200, XPulse 200T and Xtreme 200S.

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Hero has also set up another R&D center in Munich, Germany. It is a wholly owned subsidiary
of Hero MotoCorp Ltd, Hero Tech Center Germany GmbH, is located at Stephanskirchen near
Munich. It will operate in tandem with Hero's Global R&D hub, the Center of Innovation and
Technology (CIT) in Jaipur.

3. Hero’s investment of Rs 205 crores in Ather Energy for 32.31%

The Ministry of Heavy Industries and Public Enterprises launched FAME (Faster Adoption and
Manufacture of EV) which is a part of National Electric Mobility Mission Plan (NEMMP). In
2012-13 42000 EV were sold and in 2013-14 20,000 hybrid and EV were sold, most of them
were electric low speed scooters. The NEMMP scheme promotes EV for 2 WH, 2 WH, 4WH,
LCVs and buses. Fame 2 has an increased budget from 5.5k crores to 10k crores.

“The increased budget allocation is symbolic of electric mobility gaining momentum in India. It
is a step towards curbing the influx of sub optimal performance vehicles “said by Ravneet
Phokela, executive of Ather Energy. Ather Energy has raised around $43 Million from Hero
MotoCorp, Flipkart founders – Sachin Bansal and Binny Bansal and Tiger Global. Ather is
touting the scooters ‘intelligent’ features as differentiators which include parking assistance,
remote diagnostic and onboard navigation. Ather has launched 2 models yet Ather 450 and Ather
340. It has also launched the AtherGrid Public infrastructure in Bengaluru for riders to charge in
order to curb the common problem of lack of adequate infrastructure for charging.

Adoption of environment friendly fuels is a priority for Hero MotoCorp as is propagating

sustainable manufacturing through green facilities. Micro mobility is extremely important in
India and other Asian countries since 70% of vehicles are 2-3 WH. Hero MotoCorp intends to
enhance its participation in the EV space by pursuing its internal EV programme in addition to
partnering with Ather. This is Pawan Munjal-led company’s second investment after it separated
from Honda Motor Co. in 2010. Hero has now taken a conscious call to foster innovation and
new technologies in-house and with the help of this start-up.

Hero MotoCorp has yet to develop its own electric scooters and motorcycles which will be
popular in the future market. The company is coming from the perspective of electric two-
wheelers to be a reality faster than the four-wheelers. Investment in Ather is promising since the
CEO mentions that “Ather has already booked for the 2018 inventory and are now taking pre-
orders for 2019”. Among EV startups, Ather is a first among equals. What’s so different at Ather
is that unlike other EV startups, they learnt from the mistakes of other players and, instead of
building just EVs, the Ather team has developed an entire ecosystem. This comprises the
infrastructure essential for EVs — battery packs, a battery management system, private
and public charging platforms and most importantly the Ather One ‘service on the go’. Ather
One is an all-in-one servicing solution that covers the cost of fuel, maintenance, consumables,
labor charge, and roadside assistance — all for a reasonable INR 700 per month. Ather, like
Apple, preferred to develop its own software and the entire hardware. The goal was to ensure
efficiency of its products and develop an ecosystem in the process.

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Conclusion: Prospects
The scooter market is fast growing in India, with a share of 33% in the country’s overall 2 WH
market. It has increased from 21% in the year 2013. Honda controls almost 60% of the scooter
market compared to Hero’s 12.7%. Hero should target the scooter market by using its brand
reputation in the motorcycle market. Hero scooters can be positioned as cost effective and stylish
scooters. Rising urbanization, female consumers and increasing emphasis on electrification in
automotive space portray the importance of Hero’s presence in the scooter segment.

As part of the recommendations, there should be more investment in sponsorships to increase

brand visibility. Since, EV is a topic of discussion in today’s economy; Hero should adopt EV
oriented marketing. With developments in promotion, Hero should develop the models by
making them stylish and appealing to the youth. Their target range can fall into 25-40 years, with
new developments. The brand endorsements should be given to celebrities that match with the
model, Virat Kohli can be used to promote the Motorcycles and Aliaa Bhatt can be used to
promote scooty/scooter.

A new trend has been visible where bike users are using their bikes for off road trips to
mountains or desserts. The bikes now have to be adventurous, and Hero has launched few
models, but specific focus is required in commercialization of the off road models of Hero.

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