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Harley-Davidson:
Market Entry Strategies in India
Anita M*
T
aking full advantage of the post-liberalization economic boom in the country, the Indian
motorcycle industry is on an expansion mode. Motorcycle manufacturers around the
world are keen to utilize this opportunity to set up operations in India. This is marked
by the proposed entry of the US superbike manufacturer, Harley-Davidson (H-D) into the
country. Its entry into the Indian market was restrained by the stringent emission norms and
high import duties levied by the Indian Government. In April 2007, the emission norms were
relaxed by the counter trade agreement between the US and India. Still, H-D is daunted by the
high import tariffs applicable as on 2007, which have virtually doubled the prices of their
bikes. It faces competition in India from Japanese motorcycle manufacturers, who have queued
up with plans for the premium bikes market. These manufacturers already have a strong hold
in the Indian motorcycle market with their various other brands on road and availability of
inland facilities. Despite the accessibility of various market entry strategies, H-D has announced
that it would confine itself to the import route to enter the Indian market. Time alone can tell
when H-D, the most iconic US motorcycle will traverse the Indian roads.
* Research Associate, The Icfai Business School Research Centre, Chennai, India. E-mail: murugan.anita@gmail.com
1
“Even Rural India Shining: Survey”, http://www.expressindia.com/fullstory.php?newsid=85866, May 2, 2007.
2
Ibid.
Case Study
© 2008 The Icfai University Press. All Rights Reserved. 49
Figure 1: Domestic Market Share of Automobiles in 2006-07
Three-wheelers
4% Passenger
Vehicles 14%
Commercial
Vehicles 5%
Two-wheelers 77%
Source: “Market Share”, http://www.siamindia.com/scripts/market-share.aspx
Council of Applied Economic Research (NCAER), India’s premier economic research institution,
has forecasted that motorcycle demand will increase during the period 2002-03 to 2011-12
(Table 2).3 The increase in consumers’ disposable income favors the sale of motorcycles. These
issues have created a market opportunity for motorcycle manufacturers. But the increase in
fuel prices and the proposed infrastructural development in mass transport system such as,
roadways and railways may decrease the demand for motorcycles. However, the impact of
these factors on the industry may be felt in the long run.
To attract the customers, the industry has reduced prices, introduced freebies and is launching
improved brands throughout the year. The result of this motorcycle wave is the wide choice of
vehicles for the consumers to choose from (Annexure 1).4 The available vehicles are categorized
according to the type of use and engine capacity from 50cc-1200cc and above.5 Tables 3(a)
and 3(b) gives details on the classification based on engine capacity and type of use.
3
Mukhopadhyay Dripto (2004), “Indian Two-Wheeler Industry: A Perspective”, http://www.fadaweb.com/
itw_ industry.htm
4
“Motorcycles in India”, http://auto.indiamart.com/motorcycles/
5
Cherng Eric and Kosnik Thomas J (2004), “The Global Motorcycle Industry – 2003”, edcorner.stanford.edu/
downloadMaterial.html?mid=472&fileId=907, January 17.
Note: Compound Annual Rate of Growth during 2002-03 and 2011-12 is presented in parentheses.
Source: Indian Automobile Industry: Optimism in the Air, Industry Insight, NCAER; Mukhopadhyay Dripto
(2004), "Indian Two-Wheeler Industry: A Perspective", http://www.fadaweb.com/itw_ industry.htm
Source: Cherng Eric and Kosnik Thomas J, “The Global Motorcycle Industry – 2003”, edcorner.stanford.edu/
downloadMaterial.html?mid=472&fileId=907, January 17, 2004.
According to the findings of 2006 Motorcycle Total Customer Satisfaction (MTCS) study6
conducted by TNS (a leading global automotive market information company), the consumers
were satisfied with the performance of more than 50 models across India.7 The key factors that
consumers look for in a motorcycle are product quality, performance and design, after-sales
6
The study represents the responses of more than 8,700 new motorcycle buyers towards the performance of
more than 50 models in the key areas of sales satisfaction, product quality, motorcycle performance and design,
after-sales service, brand image, and cost of ownership. The TCS index score provides a measure of satisfaction
and loyalty that a given model or brand enjoys among its customers.
7
“TNS 2006 Motorcycle Total Customer Satisfaction Study”, http://www.fadaweb.com/tns_2006_css.htm
Case Study 51
service, brand image and cost. According to the study, the largest market for motorcycles
comprise of the ‘first new motorcycle buyer’. The preference for future purchases of motorcycle
with higher engine capacity has also been observed in the West and the South of India.
This study highlighted the fact that existing players have begun to increase the engine capacity
of their bikes. Such cruiser bikes are marked by their striking appearance with a long wheelbase,
stepped seat, backrest and high handlebars designed for long distance travel. Dealers are
optimistic that the trend for cruiser bikes would pick up. This forward trend was also encouraged
by action plans of Indian Government.
The Government of India has commenced a development program called ‘Automotive
Mission Plan 2006-2016’ for the auto industry to make India a global production hub by
2016.8 The vision of this development program for India is, “to emerge as the destination of
choice in the world for design and manufacture of automobiles and auto components with
output reaching a level of $145 bn, accounting for more than 10% of the GDP and providing
additional employment to 25 million people by 2016”.9 There will be government intervention
through policy changes such as reduction in the excise duties. The automobile industry is also
expected to contribute through development initiatives such as improvements in quality
standards. Many foreign firms are keen to participate in and obtain profits from the growth and
development of the Indian market. One of these foreign firms is the world renowned,
Harley-Davidson.
8
“Auto Mission Plan Envisages $40 bn Investment”, http://www.hindu.com/2007/01/30/stories/
2007013007061700.htm, January 30, 2007.
9
“Automotive Mission Plan 2006-2016”, http://www.dhi.nic.in/Final_AMP_Report.pdf
10
Bose Supriyo (2006), “Harley-Davidson’s Foray in China” (Case Study), IBS Research Centre, Ref. No. 306-
243-1.
11
Rifkin Glenn (1997), “How Harley Davidson Revs its Brand”, http://www.strategy-business.com/press/
16635507/12878
Case Study 53
H-D is the market leader in the cruiser bikes segment in the US.22 The majority of its
customers are mostly ‘Baby Boomers’ in the US.23 The baby boomers are able to afford luxury
bikes and are drawn by the outlaw status and independent image offered by H-D. But, the
baby boomers are ageing. Jim Ziemer, the CEO of H-D said, “Two-thirds of our customers are
between 35 and 54” 24 (Figure 2). The problem for H-D is to attract the younger customers
without alienating the customers that buy the big motorcycles.
55
50
45
40
35
’02 ‘03 ‘04 ‘05 ‘06
Source: “Demographics”, http://investor.harley-davidson.com/emographics.cfm?locale=en_
US&bmLocale=en_US
The younger generation in the US are mainly interested in the sports bike segment. It has
been noticed that youth tend to buy motorcycles that are smaller and less expensive—in which
H-D has lesser market share.25 To cater to the needs of younger customers, H-D has introduced
various brands such as the new V-Rod.26
H-D is strategically positioned to explore new target customers to increase their foothold
in international market. H-D initiated the attempt to enter India in September 2005, when its
senior officials visited India to assess the scope for its high-end performance bikes in the
Indian motorcycle market. Timothy K Hoelter, the Vice President of H-D said, “India is among
the few motorcycle markets in the world that’s growing at a fast pace and we are surely looking
22
Bock Wally (2002), “Harley-Davidson at One Hundred: An American Story”, http://www.mondaymemo.net/
021125feature.htm, November 25.
23
Helyar John (2002), “It redefined the motorcycle industry as it roared through 16 years of growth. But as its
customers age—and the stock market slides—the ride could get uneasy”, http://money.cnn.com/magazines/
fortune/fortune_archive/2002/08/12/327029/index.htm, August 12.
24
Russell Pearlman (2006), “Getting New Riders High on the Hog”, http://www.smartmoney.com/mag/ceo/
index.cfm?story=august2006, July 11.
25
Ibid.
26
V-Rod engine, also called revolution engine was jointly developed by Porsche of Germany and Harley-
Davidson in 2002. It incorporates fuel injection, overhead cams and liquid cooling systems.
27
Anand Byas (2005), “Harley-Davidson has Indian Plans”, http://timesofindia.indiatimes.com/articleshow/
1216130.cms, September 1.
28
Tariff quota means lower customs duty for certain number of bikes, above which entire duty will be levied
29
Srivastava Siddharth (2007), “A Car Worth a Million Dollars in India”, http://www.atimes.com/atimes/South_Asia/
ID17Df01.html, April 17.
30
Crorepati is an individual with an annual income of Rs. 10 mn.
31
Vedpuriswar V A (2005), “The Marketing of Luxury Brands”, http://www.blonnet.com/catalyst/2005/03/03/
stories/2005030300170200.htm, March 3.
32
“Indian Luxury Goods Buyers set to Treble by 2010”, http://www.blonnet.com/2006/02/25/stories/
2006022501691200.htm, February 25, 2006.
33
Srivastava Siddharth (2007), op. cit.
34
Ibid.
Case Study 55
Indian and multinational businesses alike”.35 This boom in the Indian consumer market had
triggered H-D to enter India despite restrictions faced by it.
In April 2007, a deal was struck between the US and India in the India-US Trade Policy
Forum (TPF) based on a fair trade agreement.36 According to the agreement, India will allow
the import of H-D bikes and the US will allow the import of Indian mangoes. Under the
proposal, India will apply the Euro-3 norms for large bikes. It restricts the emission of pollutants
to 1 gm of carbon monoxide and a gram of the combination of hydrocarbons and nitrous oxide
per kilometer of vehicular run. Further, ceiling will not be placed on the number of bikes to be
imported. The idea of granting emissions standard exemption was a significant issue as India
adopted Euro-4 standards37 for large bikes to avoid over pollution in urban areas. In the light of
these breakthroughs, H-D’s market entry strategies in India play a crucial role.
35
“Continued Policy Reforms Sine Qua Non for Sustained Economic Growth in India Global Trade will be at
Risk unless Development Dimension of Doha Round is Met. India’s Statement at WTO Trade Policy Review”,
http://commerce.nic.in/May07_release.htm, May 23, 2007.
36
“Mangoes for Harley ‘Hogs’ Agreed on in India-US Trade Talks”.
37
The Euro-4 regulations are stringent norms with highly reduced weights of carbon monoxide, hydrocarbons
and nitrous oxides in a kilometre of vehicular run. These emission limits are yet to be developed and implemented
in India.
38
“Where to Meet the Perfect Machine”, http://www.harley-davidson.com/wcm/Content/Pages/Dealers/
dealers.jsp?locale=en_US
39
“I nqui r y ”, ht t p: / / www. ha r l ey- davi dson. co m/ wcm/ Cont ent / P ages/ Becomi ng_a _Deal er /
us_inquiry.jsp?locale=en_US
Kinetic acquired a
Honda Japan Collaboration Kinetic 1984 stake of Honda in
1998
For instance, Enfield India Limited began its Indian operations in 1955, through assembly
of Completely Knocked-Down (CKD) units imported from England. The CKD units attract
lesser import tariffs when compared to completely built units. As on June 2007, the import
duties for CKD are 12.5%.40 Apart from the import of CKD, Indian and foreign companies
have technical tie-ups and collaborations as in the case of Kawasaki-Bajaj and Daelim-LML.
A joint venture, as between Hero Group of India and Honda of Japan, has helped both the
companies involved, to stabilize their businesses. The success or failure of the joint venture
depends on the understanding between the companies involved. H-D’s alternative, i.e., to
build a wholly-owned subsidiary such as that of Honda Motors and Scooters India Limited,
will attract a major initial investment for infrastructural development. The company would
40
“Customs”, http://www.siamindia.com/scripts/custom-duty.aspx
Case Study 57
attract the excise duty of 16%41 which is much less when compared to the import duties
prevailing in India. However, H-D has a strong inclination towards the import route to enter
India. Government of India has allowed the import of motorcycles with more than 800cc
engine, subject to government clearances.42
H-D is expected to import 2000 bikes in three years from its entry into India. According to
analysts, the high price of the bike will deter mass imports.43 India imposes 60% customs duty
and 30% taxes on larger motorcycles, increasing the cost of the iconic vehicle for Indians.44
The entire price of the imported bike is calculated by adding the price of the bike in the
country from where it has to be bought or the country the dealer has contacts in, freight
charges, import duty and other miscellaneous charges. For instance, the smallest of the H-D,
the 883cc Sportster is priced at $6,600 (Rs. 2.9 lakhs) in the US.45 In India the price of the bike
will be nearly twice its original price. Royal Enfield, the makers of ‘Bullet’ bikes in India,
makes motorcycles with engine capacities of 350cc and 500cc. Its six models are priced at Rs.
70000 and the company sells around 32,000 motorcycles every year.46 The price of the bike
may hinder H-D’s business as it happened with the German large bike manufacturer, BMW in
India. The German auto maker entered India through a joint venture with the Hero Group in
1997. The arrangement was to assemble BMW high-end motorcycle parts and to sell in India.
But the BMW failed because of the bike was priced at approximately Rs. 450,000.47 Due to
low sales it reduced the price up to Rs. 180,000. Despite price reduction, sales failed to
initiate and BMW terminated its venture in the Indian motorcycle industry.48
Case Study 59
The price of high capacity bikes impedes the manufacturers. The cheapest H-D, for instance,
costs Rs. 0.4 mn in India, as much as the cost of two Maruti 800 cars.61 In India, the cheapest
car costs Rs. 0.2 mn.62 Currently, Royal Enfield is the only domestic player producing high
capacity bikes in the range of 350cc-500cc. Its costliest product, the 350cc Thunderbird, sells
at Rs. 93,200.63 All the motorcycle players hope that consumers will begin to separate luxury
from utility. The industry appears set to lap up the relaxed norms, though the industry remains
anxious about the exact demand which is projected to be in the range of 6,000-12,000 bikes
per annum. Yet, with each bike costing between Rs. 0.7 mn-Rs. 1 mn, it could create a new
motorcycle market between Rs. 4.20 bn-Rs. 12 bn.64 But with disposable income on the rise
and the growth rate of the economy close to 8.5%, it is expected that the demand would be
better than what bike makers expect.65
Pradeep Saxena, Senior Vice President, TNS Automotive India said, “The landed price
range of these motorcycles would start at around Rs. 0.5 mn and hence, the customers for that
are very limited. The super bike market would not be more than 1,000 units per annum. There
are brands like Ducati and Harley which would find customers easily but not all”.66 He added
that a company such as Honda which already has a wide network of dealers and an ongoing
business would also sell a good number of high-end bikes. BMW who quit the Indian big
bikes segment are not very confident about re-entering the market. Peter Kronschnabel, the
President of BMW India said, “Our luxury and high-end bikes are too costly to be launched in
the Indian market and that is why we have not yet decided to bring our bikes here. But if there
is demand, we may take a call”.67
As on May 2007, international markets accounted for 21.8% of the total shipments of H-D.68
Gregory Badishkanian, Leisure Vehicle Analyst with Citigroup said that India would probably prove
more favorable to H-D than Vietnam, just because of the country’s population.69 He added that “It
will most likely be a long time before the motorcycles enter the market”.70 S Sen, the Director of
Society of Indian Automobile Manufacturers, pointed that the final price of an H-D, when it does
market in India, may vary from the indicative prices that they sell at, in the US markets.71 He added,
“As a company, it can choose to increase or decrease the price of its bikes in a new market”.72
61
Ibid.
62
“Harley Davidson comes to India”, op.cit.
63
Kumar Nirbhay (2007), op. cit.
64
Ibid.
65
Ibid.
66
Ibid.
67
Ibid.
68
Rovito Rich (2007), ”Keeping Sales Revving Overseas”, http://milwaukee.bizjournals.com/milwaukee/stories/
2007/05/07/story2.html, May 4.
69
“Harley-Davidson Seeks to Expand Overseas”, http://in.ibtimes.com/articles/20060609/harely-davidson-
motorcycle-vietnam.htm, June 9, 2006.
70
Ibid.
71
Mahapatra Anirban Das (2007), op. cit.
72
Ibid.
Annexure 1
Different Motorcycle Brands in India
Case Study 61
Annexure 1 (...contd)
Harley-Davidson Motorcycles
Manufacturer’s Manufacturer’s
Bikes Suggested Bikes Suggested
Retail Retail
Price (in $) Price (in $)
Sportster Softail
Buell Motorcycles
Manufacturer’s Manufacturer’s
Bikes Suggested Bikes Suggested
Retail Retail
Price (in $) Price (in $)
FireBolt Lightning
Source: Compiled by the author from: (a) ”2007 Harley-Davidson Motorcycles”, http://www.harley-
davidson.com/wcm/Content/Pages/2007_Motorcycles/2007_Motorcycles.isp?locale=enUS& cwpws/dwp/
cont-without-lash=true&swfdwp=&dwp_dealerid=&dwp_pg=&cwpws/dwp/dwp-dealer-id=
(b) “Buell Motorcycles”, http://www.buell.com/en_us/bikes/
Case Study 63
Annexure 3
H-D’s Market Entry Strategies
Japan: In 1935, Harley-Davidson licensed blueprints, tools and machinery to Japan’s Sankyo
Company. From 1935 to 1960, when it went bankrupt, Sankyo made H-D bikes in the
name ‘Rikuo’—King of the Road. In the late 1980s, H-D bought a Japanese distribution
company. By 1989, a Japanese subsidiary, Harley-Davidson Japan was founded. Regulations
in Japan required bikers with 401cc and above to pass a stringent test administered by the
country’s National Police Agency. After 1999 further regulations such as prohibitions on
tandem riding and speed limits on highways were enforced. As in 1999, the US Administration
took effort to convince the Japanese authorities to modify the rule. By the end of 2000, it
had sold 75,000 bikes in Japan. Further, H-D customized its bikes to suit Japanese tastes
and also offered tool kits. Retail sales in Japan were up, from 11,420 motorcycles in 2005,
to 13,284 motorcycles in 2006.
Brazil: Brazil imposed a tariff of more than 70% on imported motorcycles in 1995.
High tariffs doubled the cost of bikes compared to the cost in the US. The US
Administration addressed this issue in the 1996 Hemispheric Summit, and, as a result,
Brazil decided to reduce these tariffs by half, and gradually lower the tariff to 20%. In
1999, H-D commenced assembly of its motorcycles in Brazil along with its Brazilian
distributor, Paulo Izzo. The assembly of imported parts was expected to reduce the cost
as this would increase the profit margin. The motorcycles have to undergo exhaustive
tests of quality in order to assist the international pattern of the group. The line of products
of the Harley-Davidson of Brazil Ltd. constitutes of the following models: Fat Boy, Heritage
Classic, Standard Custom and Night Train. The assembly unit is to cater to the need of
Brazilian market. It operates with 10 dealers across the country. Brazil is H-D’s largest
market in Latin America.
China: In mid-2004, H-D made an agreement with Zongshen Motorcycle Company, one of
the largest motorcycle manufacturers in China. The Chinese counterpart has to act as a
distributor for H-D. The two companies sought to develop a mutually beneficial relationship.
H-D would gain the country-specific sales expertise and gain a better understanding of the
business practices, markets and distribution channels. The Zongshen Group will get the
technical know-how and gain practical insights into the marketing strategies. On March
2006, in Beijing Feng Huo Lun (FHL) was appointed as the authorized dealer. The dealership
would offer H-D motorcycles, related products including clothes and collectibles and after-
sales service. But with the addition of import duties, the cost of the bikes would be more
than its cost in the US. The Chinese Government has restricted the usage of large bikes in
urban areas due to high traffic. The FHL is located in strategic places between business
places and outer city limits and hence, it is outside the purview of motorcycle regulations.
Source: Compiled by the author from (a) Zacharias Christoph and Rajshekar N, “Harley-Davidson in China”
(Case Study), ICFAI Business School Case Development Centre, 2004 (ECCH Ref. No. 304-013-1);
(b) “Harley-Davidson to Assemble Motorcycles in Brazil”, http://www.bizjournals.com/milwaukee/stories/
1998/07/06/daily6.html, July 7, 1998; (c) “Harley-Davidson Reports Revenue And Earnings Growth For 2006”,
http://investor.harleydavidson.com/ ReleaseDetail.cfm?ReleaseID=226180, January 18, 2007.
Case Study 65
Annexure 4 (...contd)
Reference # 48J-2008-05-04-02