TECHNOLOGY ACQUISITION BY HERO

Hero Moto Corp is the world's largest two-wheeler

company in India where its market
share is about 56% in 2011-12. Its other local
competitors
and Yamaha. During 2010-11, its total unit sales was
in India are Bajaj, TVS, Honda
5402,444 two-wheelers, which
showed a growth of 17.44%. The total net operating income during this
period was Rs.
19401.15 crores. The management of Hero always tried to maintain
over its competitors. For example, in
technological edge
year 1980, two-wheeler market was dominated
by two-stroke engine technology. Hero, took a strategic decision to go for a four-stroke
engine technology, which resulted into products that had better fuel efficiency and yet
involved lesser maintenance costs [2]
For about 27 years, it had an enduring technology sharing arrangement with Japanese
firm, Honda Motors. However, in December 2010, they decided to end this association.
Accordingto Mr. Anil Dua, Senior Vice-President (Marketing and Sales) of Hero Honda
Motors, This (technology) is something which we are very excited about. This (going
solo without Honda) is anopportunity to develop our own R&D." [3]
Tomaintain continuity in Hero's business, it retained a licence agreement with Honda
till 2014 13]. For this, Hero Group has to pay Honda 45 billion yen (about Rs 2,450
crore). AccordingtoMrRavi Sud, Chief Financial Officer, Hero Honda Motors Ltd., "We
have the right to use the (Honda) technology in perpetuity for the existing models as
part ofthe arrangement... Earlier, we had to take Honda's permission to make a change
even on the design graphics but now we can change the engine or gearbox or develop
on the platforms, if we wish, on our own." 14
its own
Hero must have counted the number of days during which it has to develop
ties with Hero, is likely to
strength in technology. Honda, after breaking its long-term
become its closest competitor.
.
 Hero MotoCorp was on a look-out for a new global partner for
technology acquisition.
After evaluating quite a few options, it signed a technology-sharing agreement with Erik
Buell Racing (EBL), which is a US motor cycle firm, in year 2012.
Hero MotoCorp carefully evaluated the EBL's technological superiorly in customised
super-bike, which needs tremendous capability to conduct in-house R&D. Hero actually
needed this support for its existing range of products like 225cc Karizma ZMR motor
bike and forthcoming new models. Under the
agreement between Hero and EBL,
Hero would buy technology from EBL without
sharing profit
or a part of ownership.
Compared to its earlier technology sharing tie-up with Honda, this was a paradigm
shift. According to Mr. Pawan Munjal, CE0 of Hero Moto Corp, "It is a very flexible
partnership where they (EBL) will develop cutting-edge technology, based on our needs
and market demands." [2]

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Hero's strategy for technology acquisition has two facets: short-term and long-term.
On a short-term basis, it is attempting to get technology upgrades from EBL on a need-
to-need basis. For this, it has to maintain sufficient cost reserve. It has also invested in
retaining the licencing arrangement with Honda till 2014.
On a long-term basis, it is making capital investment in setting-up its R&D base at
Daruhera, a fast developing auto-components manufacturing hub in Haryana, which.is
the neighbouring state of national capital Delhi. Up to Rs 800 crore was earmarked in
year 2011-12 for setting up its fourth plant and R&D activities. According to Mr. Anil
Dua, "We are making investments for equipments and people...If there is an opportunity
we may acquire some firms. When we are looking around, we may find strategic suitable
partners and theoretically saying, yes we can acquire them." (3,5]
On strategic partnership with EBL, Mr. Pawan Munjal said, "This is in keeping with
my objective of quickly scaling up our own in-house R&D capabilities to a global
two-wheeler technology powerhouse by leveraging a network of strategic international
alliances. Erik and his team have been working closely with our engineers and designers
to develop Our next generation range of products with cutting-edge technology and
first-of-its-kindfeatures. The Indian two-wheeler industry is set to evolve, and it is only
natural that as the market leader, we are driving this change. As a part of this plan, Erik is
going to play an integral role in giving shape to some of my dream two-wheelers for the
discerning youth of today. So my R&D team and Erik's team together have made some
definitive progress in this direction, and we will
hopefully be putting a few scorchers
on the roads soon."
EBRis likely to provide support in establishing this R&D base. EBR Chairman, Eric
Buell is reported to have said, "We are
already customising
Corp using frugal Indian engineering expertise that would betechnology
for Hero Moto
different kind of two wheelers..We plan to bring in some bikesavailable for developing
that would have global
appeal and can be locally manufactured."