Cost Leadership - Bajaj Auto Ltd.

Agenda 
Introduction 

About Organization  PESTC Analysis  SWOT Analysis Porter¶s Model TOWS Matrix Cost Leadership as Strategy CPM (competitive profile matrix- containing the IFE / EFE matrix) Conclusions & Recommendation

this strategy usually requires a considerable market share advantage or preferential access to raw materials. or some other important input.Cost Leadership Strategy.Introduction ‡ This strategy emphasizes efficiency. ‡ The associated distribution strategy is to obtain the most extensive distribution possible. . By producing high volumes of standardized products. labour. the firm hopes to take advantage of economies of scale and experience curve effects. ‡ Maintaining this strategy requires a continuous search for cost reductions in all aspects of the business. ‡ New entrants or firms with a smaller market share may not benefit from such strategy since mass production. Low cost leadership becomes a viable strategy only for larger firms. ‡ To be successful. mass distribution and economies of scale will not make an impact on such firms. components.

state-of-art two-wheelers in India. . Chakan & Sidcul. €PARTERSHIP: Bajaj Auto has a technical tie-up with Kawasaki Heavy Industries of Japan to produce a range of the latest. €LOCATION: Bajaj Auto has f our plants at Akurdi .and threewheeler manufacturer and is well-known across several countries in the world. Waluj. €Bajaj Auto started its operations in 1945. as in importer of two and three wheelers. €Founded in 1926 by JAMNALAL BAJAJ. €BUSINESS: Currently it is ranked as the world's fourth largest two.The Journey So far .

who are knowledgeable. These stores are called " Bajaj Probiking". Ahmedabad. Around 1. ‡ 139056 units exported in 2008-09. ‡ Bajaj has identified a segment of customers 'Probikers'.‡ The company has a network of 498 dealers and over 1. ‡ Largest Exporter of Two & Three Wheelers. appreciative of contemporary technology. Chennai. Navi Mumbai. Bajaj Auto is in the process of setting up a chain of retail stores across the country exclusively for high-end. Chandigarh and New Delhi.000 and below. viz in Pune.9001(Quality Systems) and ISO-14001 (Environment System) certification. . Eight such stores have been opened. The current dealer network is servicing these outlets. Hence. Probikers need to be addressed in a meaningful way that goes beyond the product. Hyderabad. they are rendsetters and very choosy about what they ride.400 rural outlets have been created in towns with population of 25. Kolkata. performance bikes. a growth of 25 percent over 2007-08. ‡ ISO .500 authorised service centers and 162 exclusive three-wheeler dealers spread across the country.

CURRENT MARKET SHARE .

Indeed. It conveys to everyone our intention to constantly inspire confidence. Our customers are the primary audience for our brand. In doing so. Everything we do must always reinforce the distinctiveness and the power of our brand. our Brand Identity is shaped as much by their belief in Bajaj as it is by our own vision. They define it in terms of brand identity.Vision & Mission (BAL)  Bajaj doesn't have a straight vision or mission statement. brand essence (derived from mission) and brand values. we ensure a special place for ourselves in the hearts and the minds of our customers .  ‡ ‡ ‡ ‡ ‡ ‡ ‡ Our Brand Identity Our Brand is the visual expression of our thoughts and actions. We can do this by living our brand essence and by continuously seeking to enhance our customers experience.

By challenging the given. Bajaj strives to inspire confidence through excitement engineering. Our brand essence encapsulates our mission at Bajaj. By exploring the unknown and thereby stretching ourselves towards tomorrow. ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Our Brand Essence Our Brand Essence is the soul of our brand. . Our Brand Essence is Excitement. It is the singular representation of our terms of endearment with our customers. today. It provides the basis on which we grow profitably in the market. Blending together youthful creativity and competitive technology to exceed the spoken and the implicit expectations of our customers.

Innovation. ± ± Perfection Perfection is how we set new standards. It is a value that makes us worthy of credibility through integrity. Speed and Transparency. Learning ± ± Learning is how we ensure proactivity. ± Transparency ± ± . ± ± Innovation Innovation is how we create the future. of trust through sensitivity and of loyalty through interdependence. Transparency is how we characterise ourselves. It is a value that exhibits our determination to excel by endeavoring to establish new benchmarks all the time. It is a value that provokes us to reach beyond the obvious in pursuit of that which exceeds the ordinary. It is a value that embraces knowledge as the platform for building well informed. It is a value that keeps us sharply responsive. ± ± Speed Speed is how we convey clear conviction. Our Brand Values ‡ We live our brand by its values of Learning. and decisive actions. mirroring our commitment towards our goals and processes. reasoned. ‡ Bajaj will constantly inspire confidence through excitement engineering. Perfection.

000 and will compete with Tata Nano. ‡ The ULC would cost Rs. ‡ Bajaj Auto Ltd is determined to release Ultra Low Cost Car in 2011. higher productivity and lower input costs. ‡ The Bajaj-Nissan-Renault design team worked on the car for more than a year.100.BAL Objectives of the year ‡ Expand company s international presence and export numbers of two wheelers ‡ Introducing upgraded pulsar model in May 2009 and brand new models for exceutive segment in the second quarter in 2009 ‡ Focus on better product mix. ‡ The ULC project is entirely controlled by Bajaj. . It is designing and producing the car and it will also control the supply chain.

The first milestone was achieved by applying stringent norms applicable from April 1. 15% up to 75cc and 25% above 75cc. The Government of India (GOI) wants the automobile industry to achieve a major improvement in emission levels in two steps. The price of the two-wheelers varies across the country due to variation in registration charges. The components used for manufacturing two-wheelers are charged an excise duty of 15% the industry has been asking GOI to reduce this excise duty to 10%. ‡ ‡ ‡ . which confirm to Euro II norms.PESTC Analysis Political/ legal Factors: ‡ The excise duty on two wheeler. The second hurdle has been set with a dead line of April 1. 2000. 1996. which previously ranged between 10% to 30% according to the engine capacity was rationalized in 1991-92 budgets to only two-categories viz. this mainly affected manufacturers of 100cc category in the early nineties. Since then the excise duty structure for two-wheelers has been left unchanged till 1999-2000 budgets. state taxes and octopi levied by the states. this confirms to Euro I standards. Reduction in customer tariffs on imported components as well as excise concessions to fuels-efficient vehicles up to 100cc. 200-400 per vehicle. scooter prices were reduced by Rs. As a result. due to rationalization of duty structure the excuse duty up to 72cc vehicles was increased to 16% while for those above 75cc decreased to 24%.

. Changes in prices of second hand cars The second had car prices small cars have come down sharply in the recent past. Improvement in disposable income: With the increase in salary levels.Economic Factors: The improvement in Asian market is expected to improve the two-wheeler exports in the year 2000 and grow by 8% till 2001. This is already witnessed in improved demand for 2-wheelers in 1999 compared to a meager growth in 1998. This will have a multiplier effect on demand for consume-durables including two-wheelers. Therefore any change with respect to any of these has to be closely watched to assess the demand for two and three wheelers. A further drop in second hand car prices will lead to pressure on the two-wheeler majors who plan to release higher end scooters and motorcycles. this will lead to exports of 0.1 million two-wheelers in 1999 to 0.11 million in 2001. the disposable income has improved exponentially over the years. This well shift the demand from higher end two-wheelers to cars and affect the demand for two-wheelers negatively. Availability of credit for vehicle purchase The availability and cost of finance affect the demand for two and three-wheelers as the trend for increased credit purchases for consumer durable has increased over the years. due to entry of multinationals following liberalization process and fifth pay commission.

. which has a dominant position in premium scooters segment. Teenagers and women prefer easy maneuverability ease.Socio-cultural factors A deteriorating public transport system. The demand for scooters is price sensitive compared to motorcycles Customer preference towards fuel-efficient and aesthetics has increased. leading to higher growth in sales of premium end scooters. value for money and higher resale value. A growing middle class and increasing demands for two wheelers in small towns and rural areas. Urbanites are lured by fuel efficiency and low maintenance. to beneficiary from this trend had been in the industry. The lower end of the market looks for durability. This has induced the companies to bring in new models in this segment.

to fit catalytic converts for the existing models. With the deadline nearing. to improve upon the existing two-stroke engine. The Indian motorcycles have to either shift to four. Infect it is intensifying and greatest threat is to the leader Hero Honda.Technological Factors For the two-wheelers new emission norm for year 2000 will be an acid test as none of the present models except four stroke vehicles confirm to the norms. Nemours competitor have cropped up with their own four-stroke offering. But. the four stroke motorcycle from Enfield that catered exclusively to the 350cc plus niche. There is no shortage of competition in the motorcycle market now.stroke technology or make use of catalytic converter. To full-fill emission norms the manufacturers have three options. . The mopeds segment will be badly affected due to Y2K emission norms as none of the existing moped models confirm to the specifications. reducing the price advantage of Indian motorcycles. given the phenomenal 25% annual growth rate of motorcycle demand over the last seven years. barring of course. The temporary option for overcoming emission norms is to fit the catalytic converters. Ever since Hero Honda's first model cd 100 rolled out on April 1985. The indoJapanese motorcycle segment will be able to overcome emission norms with the technology help of respective Japanese collaborator. It has ruled. But as long-run solution scooter manufacturers have to opt for four-stroke engines or improvement in two stroke engines. But this will reduce the price difference between Indian and indoJapanese motorcycles. the moped manufacturers have to tighten the belt to meet the norms. this will increase the cost of vehicles. The Competition: Gone are those days when we could only see a Yamaha or Bullet on the road. to switch to four-stroke engines.

High economies of scope. Extensive R & D focus. Margins getting squeezed from both the directions (Price as well as Cost) TATA Ace is a serious competition for the three-wheeler cargo segment. The growing gearless trendy scooters and scooterette market.STREGTHS- Highly experienced management. Still has no established brand to match international bykes. Not a globally recognizable brand S W o T THREATS The competition catches-up any new innovation in no time. Growing world demand for entry-level motorcycles especially in emerging markets. More maturity and movement towards higher-end motorcycles. High export to domestic sales ratio. SWOT Analysis WEAKNESSHasn't employed the excess cash for long. Colombia and Central America Widespread distribution network. Bangladesh . Dominant presence in Africa and Latin America with increasing market share every year Market leader in 2-wheelers in Sri Lanka. Great financial support network (For financing the automobile) High economies of scale. . Product design and development capabilities. Threat of cheap imported motorcycles from China. High performance products across all categories. Not a global player in spite of huge volumes. OPPORTUNITY Double-digit growth in two-wheeler market. Untapped market above 180 cc in motorcycles.

Porter·s 5 Forces Model ADVENT OF BIKES AND DEMAND OF PERSONAL MOBILITY CONSUMERS ARE BECOMING DEMANDING IN TERMS OF CHOICE .

the company is shifting some of its more profitable products to the Pantnagar plant. ‡ To maximise the tax benefits available at Uttarakhand. . After the shift of these products.000 vehicles by the third quarter of 2009-10.Cost Leadership Strategy @ BAL ‡ Companies first plant was closed at Akurdi (Pune) due to the high cost of manufacturing. the plant is expected to produce around 60. which placed this location at a disadvantageous position compared to the other facilities of Bajaj Auto ‡ Company has invested in state of art technology at Pantnagar (Uttarkhand) plant. In 2008-09 the production capacity has increased by 15% as compared to the last year.

‡ Advanced machines have been installed in the prototype shop to enable quick and precise building and inspection of parts. XCD and all three-wheelers Pulsar. Avenger and Discover Platina.Contd ‡ Leveraging on economies of scale by producing specific products at each plant : Plant Waluj Chakan Pantnagar Products Boxer. the testing areas have been enhanced with special equipments to enable performance and durability testing from component to full assembly resulting in endto-end self sufficiency of R&D department. Platina 125 and XCD ‡ R & D has enhanced its digital computational capabilities along with the ability to prototype and test the products to even higher standards. Moreover. Platina. This has enabled Bajaj Auto to design and produce ready-to manufacture prototypes for the new generation products. .

.Contd ‡ PT Bajaj Indonesia (PT BAI) plans to move into assembling of completely knocked down parts in the latter half of 2009-10 which will attract lower duties and also expand PT BAI s product portfolio ‡ Cost efficiency with emphasis on environment : -Electrical energy saving was achieved by installation of localised portable air compressors at various shops during low production periods. real timer electrical circuits installed to switch off electrical equipments during lunch / tea breaks and during nonutilisation of production equipments. energy efficient screw compressors by replacing CPT compressors. . use of LED & CFT street lights and others. fanless cooling towers for AC plants. high efficiency reflector fittings with electronic ballasts tube lights.

drip irrigation system for gardening. startup losses in ovens and hot water generation plants and changed design of paint jigs to reduce jig stripping frequency. and ‡ LPG saving was achieved by installation of waste heat recovery system for hot water generation used in pre-treatment process of paint shop. installation of localised fresh water storage systems. reduction of hot water temperature for pretreatment. rain water harvesting and use of bio-chemical additives to reduce frequency of water change in various paint processes. use of bio-gas for cooking in canteens. three-wheeler electro-deposition (ED) painting process changed from Acrylic ED to Cathodic ED. usage of treated water for bin washing and paint shop process. .Contd ‡ Water saving was achieved by replacement of old under-ground water pipes with aboveground pipes to avoid water wastage through leakage. use of reflective coating inside furnaces for better heat retention. optimisation of loading pattern in CGC and seal quench furnaces.

2 million .35 million Rs.24.Contd Impact of measures taken 2008-09 % Electrical energy Water LPG 23 11 44 2007-08 % 23 16 12 Investment / savings Investment for energy conservation activities Saving achieved through above activities Rs.9.

Tows Matrix for BAL Tows Matrix for BAL External Factors Strengths Internal Factors Weaknesses Opportunities Can use the existing R&D capabilities for new models. Actively market electric range internationally. . Can use Kawasaki's distribution networks internationally. Threats Increase the customer centric initiatives and command more customer loyalty. Invest in new product platforms. Can invest and grow the life style segments. Invest in building world class bikes to sustain the international markets independently in the coming years like WIND 125. Improve the efficiency of the financing and the insurance arm. Must employ the cash in production and product capabilities to match competitors and for continuous export growth.

Pulsar.Recommendation ‡ Focus on High Margin Products: Around 50% of the two-wheeler consumers buy high quality products (products of executive and premium segment motorcycles). It needs to target the young age group more effectively as this group is extremely trend savvy. Scooters. Margins on these products are higher. The advertising should have a fresh look and the product should live up to the Gen-X's expectations. Below are other useful recommendations: Company should keep focusing on the fast growing motorcycle segment. Avenger. For this. and is reducing its dependence on lower-end of motorcycles and scooters segment. Now with increasing competition in the economy segment and limited scope from cost saving measures. http://www. Mopeds. High margin products . it is believed this strategy of focusing on higher margin products would enable the company in retaining its operating margins. BAL should adopt a deliberate strategy of focusing on executive and premium segment motorcycles and three-wheelers.Platina. it needs to look for joint ventures abroad.coolavenues.php ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ .com/know/gm/ashwin_bajaj_15. The company needs to tap the export market more efficiently as there is a huge potential to make India as the world's two-wheelers production base. In view of the new threat posed by Honda Motors in the scooter segment. Low margin products . the company needs to review its products line-up and launch new products to cater the changed demand. Discover. The company needs to take a look at its ungeared scooters offerings and need to adapt to the latest trends. Three-wheelers.

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