Cruise Control...

(column by Karan Mehrishi)

“The game is not over!” proclaims Bollywood actor Hrithik Roshan in the latest promotion of the much hyped, upcoming Yash Raj film Dhoom-2. The movie promises to edify all that the original blockbuster Dhoom stood for and wow audiences with high voltage drama, death defying stunts and breathtaking visuals. The promos take you from speeding trains to rush hour traffic to cliff hanging sequences within seconds. While this is instant déjà vu for the fans of Dhoom, a section of you might be wondering, “Where are those bikes?” The Hayabusa 1300s and GSX R600s of Dhoom in fact captured the fascination of the youth and induced a sense of nomad biking fever in them. The movie was followed by an unprecedented surge in aspirational value for the motorbike. But it seems that the game ‘is’ over for those mean machines, at least in the Dhoom sequel. Let’s move on to the real world now.

In a country like India, where affluence is still a pipe dream for millions, the bike segment has been serving the common man since years. The sector has been the single largest contributor to India’s phenomenal rise as a major fuel consumer. It is a windfall now for Indian bike enthusiasts, as latest models like Bajaj Pulsar, TVS Apache & Hero Honda Glamour Fi can now be seen on just any Indian road. While bike sales are on a consistent growth path, there are two trends worth noting. Firstly, the premium segment (125cc – 150cc) is clearly outstripping the executive (less than 125cc) segment in terms of growth rates. Secondly, easy finance schemes are resulting in more and more customers going for cars. The proposed compact car by the Tatas is already creating hype. Speculation is rampant with regard to how the two wheeler segment will evolve in the face of these emerging trends.

Dr. Rossis & Nikky Haydens

The past few months have seen exhilarating competition in the premium segment with the launch of the Apache 150 in May 2006. The bike has received rave reviews, as the market share of TVS has increased to around 12% in the period from April-July 2006. Already, the Apache is the number 2 brand in the premium segment, beating Honda Motorcycles, though still far behind Bajaj Pulsar. Says K. N. Radhakrishnan, President, TVS Motor Company, “Riding high on the style and design quotient, TVS Apache has met with wide acceptance amongst youth and upwardly mobile professionals.” The premium segment saw sales figures of 384,409 units in the period from April-July 2006, a growth of 42.07% over last year. In the same period, the executive segment recorded sales of 1,668,558 units, growing by 16.66%. Quite a few new launches in the premium segment like Hero Honda Karizma 250 Fi, Bajaj Pulsar 220 DTFi and Yamaha Gladiator 250 are on the anvil.

The premium segment focuses more on technology and flamboyance. According to Shahwar Hussain of The Auto Magazine, “The 100- 125cc segment is huge, contributing to nearly 90% of the market, but the premium segment will soon overtake it as more people will now buy premium segment products.” Meanwhile, there are enough proponents of the executive segment, with the high selling Hero Honda Splendour, Bajaj Platina and TVS Victor. Manufacturers maintain 70-80% of total production capacity for this segment. Radhakrishnan puts it thus, “The launch of value-added bikes in the entry level economy segment has brought a fresh lease of life to the 100cc category.” As the segment attracts middle income groups, product range is oft en extremely diverse and allows buyers to have bikes custom made. Hero Honda,with sales of 982,000 units for the period from April-July 2006, is the market leader followed by Bajaj with sales of 394,000 units in the same period.

(End of Karan Mehrishi column)

What about the Schumis?

Car penetration rates in India have been one of the lowest in the world – 7 per 1,000 people. Clearly, there is a lot of aspiration to own a car. Compact cars have been at the forefront, selling 221,598 units in April-July 2006-07 alone (growth of 31.26%). Capacity expansion plans by all players indicate immense positivity regarding sales growth. Cars like the Honda Jazz and Chevrolet UV-A are due for launch. But technically, total car sales still form around 10-12% of motorcycle sales in India. The sector is further aided by easy financing. Will the two sectors come at loggerheads at some point? Prasad Narasimhan, VP Marketing, TVS, disagrees, “A bike is an aspirational product. I think the buyers for the two products (bikes & cars) are vastly different.”

Indeed, if we compare a premium segment motorbike and a mini car, we must first consider the target audience. A premium segment bike is positioned in the upper strata of the bike range, hence it caters to the needs of affluent consumers. A mini (sub-Rs.150,000) car is positioned at consumers who go for cheaper alternatives on four wheels. Hence, one really cannot compare the two. Clearly, Tata’s compact car will be targeted at the executive segment customers, but the Tatas will have to convince them on the total cost of ownership aspect. As Shahwar Hussain puts it, “Anybody who wants to ride a motorcycle will buy one, he is really not affected by cheap cars.”

Blazing The Trail

Rahul Bajaj, Chairman, Bajaj Auto is optimistic when he states, “Annual sales of motorcycles in India are expected to cross the 10 million mark by 2010.” Other players have also announced major capacity additions, in anticipation of growth. On August 18, Hero Honda has announced plans for a Rs.19 billion plant in Haridwar, Uttaranchal. According to Bridgemohan Lall Munjal, Chairman, Hero Honda Motors Ltd., “The additional capacity will cater to market requirements till 2010, thereby helping Hero Honda consolidate its market leadership.” Capacity will be expanded to 1.5 million units by 2010. Honda Motorcycles & Scooters is investing Rs.4 billion for a 2 million unit capacity by 2010.

Bajaj Auto is investing Rs.20 billion in a plant in Pune to manufacture three-wheelers & light four wheelers. Even component manufacturers are exuberant. N. K. Minda, MD, Minda Industries Ltd. states, “Given the growth in two wheelers and the initiatives being undertaken, NK Minda Group is confident of achieving 35-40% CAGR.” In conclusion, we reiterate that while the changing times may have changed customer aspirations, the aura or the perceived value proposition of the motorbike is enduring. So, bike aficionados need not worry; the ‘action’ in the segment is indeed far from over!

I’ll be back!

The scooter has been the guardian of the country’s personal mobility for almost three decades. But with the advent of meaner and more economical motorcycles, there has been a paradigm shift. Today, scooters contribute a mere 9.3% in the Indian two wheeler market, selling 293,645 units in April-July 2006. Even though the scooter market is somewhat stagnant, there have been some exciting model launches in recent times. Ungeared scooters like the Kinetic Honda, TVS Scooty, Honda Activa (and then Eterno geared scooter) and Hero Honda Pleasure are trying to revitalise a market supposedly left for the dead. Kinetic is launching a range of modern moto scooters with its Italian partner, Italjet. It appears that the scooter segment may in fact be in the process of reincarnation.

Premie Sverige

(column by Niharika Patra)

Yet another Nordic country with classic Scandinavian beauty, Sweden is referred to as the last wilderness in Europe. Famously known as the land of the midnight sun, (the sun doesn’t set in this country from May to mid-July) Sweden boasts of a standard of living that far surpasses that of many developed western countries. Not only this, few countries can match Sweden’s potential to benefit from the technology-driven global competition. Sweden influences modern Europe with its prospering economy and amazing international trade. And doing business with Sweden means market access to Scandinavia (Sweden, Denmark, Norway, Finland), the Baltic states (Estonia, Latvia, Lithuania) and the regions of northern Poland, western Russia and northern Germany.

Historia Sverige

Sweden is inhabited ever since the ice ages, but it was only with the advent of Christianity in the 12th century that it consolidated itself to form one distinct nation. King Gustav II Adolph’s active participation in the European politics during the ‘Thirty Year’s of War’ (1618 to 1648) helped Sweden establish itself among the political super powers of Europe during that time. The post-war era saw acute poverty and migration of people out of Sweden. The country remained neutral during the World War I and perhaps its non-participation helped it sneak out of the list of the poor and underdeveloped countries.

It became one of the main suppliers of steel, ball bearings, wood pulp and matches and grew economically into the list of developed countries, so much so that very oft en the 20th century is described as the “Swedish economic miracle”. Post-war prosperity provided the foundations for social welfare policies characteristic of modern Sweden. Swedish foreign policies in 1930s were more concerned with Soviet and German expansions, which gave rise to futile efforts at Nordic defence cooperation. Sweden remained neutral during World War II and it is still a non-aligned country. It became a member of the EU in 1995. The upcoming general elections will decide the fate of current Prime Minister Göran Persson of Social Democratic Party, who is leading the country since 1996.

Business Beyond Boundaries

Not only has the Swedish culture stood out of its small geographic boundaries, but also its economy, which never misses an opportunity to justify the prospects it holds for investors. Having developed its competence in technology and a well developed network infrastructure, Sweden has shown rising growth rates even at times when Europe was facing downturn. The economy recorded its highest growth in past six years during the second quarter of 2006, with a GDP growth of 5.5% as compared to same period last year (Central Statistical Bureau).

And it seems that the growth momentum would continue as OECD forecasts a GDP growth of 3.9% in 2006, much higher than the expected growth rate of 1.8% of the European region. It has posted the third largest growth rate in Europe without a single failure since 2001. A robust growth in household consumption, strong trade balances and high gross fixed capital formation are the main drivers behind this upswing in the GDP growth. The value for Swedish exports touched $180.72 billion in 2005, an impressive rise of 6.6% over the previous year (Central Bank of Sweden). Electrical & telecom equipment, machinery, passenger cars, pharmaceutical products and iron & steel are the main export items.

Imports too increased by 6.8% in 2005, reaching $152.25 billion. The import basket largely comprises of machinery, food products, crude oil, textile products and footwear. Being a member of EU and a Scandinavian country, most of Swedish trade is with other EU and Scandinavian nations, with US, UK, Germany, Netherlands & Denmark being the main trading partners. In the second quarter of 2006, Germany displaced US, becoming the top trading partner of Sweden. In 2005, the Swedish manufacturing sector accounted for 18% of GDP, while the private service sector for 45%. Swedish industry exports almost half of the goods manufactured and portrays a huge breadth in terms of production and international operations.

Ericcson, TetraPak, Electrolux and IKEA are a few of the Swedish companies which have established strong foothold in global market. Knowledge-intensive industries like IT and bio-medicine are gaining ground hold massive potential for the future. On the investment front too, Sweden’s performance is commendable. The country received $13.8 billion FDI in 2005 (UNCTAD), mostly pumped into the sectors like food & drink, IT & soft ware and financial services.

The top investing countries are US, Germany and Norway. As per a recent report by the Ernst and Young European Investment Monitor 2006, Sweden attracted 96 major FDI projects in 2005. Not only this, it takes only 16 days to startup a new business in Sweden (‘Doing business’ report, the World Economic Forum) as against the OECD average of 19.5 days. Another remarkable attribute of Sweden is that many global companies have chosen Sweden as their preferred test market as it is considered as a frontrunner in adopting new technologies and setting new consumer trends. In January 2006, Coca Cola selected Sweden as its preferred test market for the new sugar-free Coca-Cola Light soft drink.

Indo-Swedish Relations

Interestingly India and Swedish trade relations date back to 1903, when Swedish giant Ericsson supplied its first switching systems to India. Since that time, both the countries have exchanged certain high level dialogues to boost the bilateral trade and investment. However, despite the fact that Sweden is the twelfth largest investor into India, the trade with Sweden forms a miniscule 0.6% ($1.18 billion) of India’s total trade in 2005. India's exports to Sweden witnessed a 35% growth (reaching $326.39 million) in 2005-06, major export items being textile, leather, rubber articles and carpets. India's imports from Sweden during the same period reached $1,172.20 million, a growth of 25% over the previous fiscal.

Imports mainly comprise of electrical machineries, nuclear reactors & boilers and optical & surgical items. Aggregate FDI inflow from Sweden to India during the period 1991 to May 2006 stands at a lowly $472.24 million. No doubts, the growth potential in areas like e-commerce, IT enabled services, Biotics, telecommunications, wireless & cellular telephony and infotainment et al needs to be exploited. Sighting a reason for the same, Leif Pagrotsky, Minister of Trade and Industry, Sweden explains, “Swedish companies are still hesitant in investing because of bureaucratic bottlenecks and relatively poor infrastructure support in India.” Many Swedish MNCs like Ericsson, Telia, Volvo, Skandia, Electrolux, Microsoft Mobile, Vattenfall, ABB et al are flourishing in India.

IT is one of the key areas that have grabbed attention of companies from both India and Sweden, as both sides have their own expertise in this area. Perhaps, that’s the main reason for nine out of top 10 Indian IT companies have set up their operations in Sweden. The listincludes the names like Tata Consultancy Services, WIPRO, Infosys, L&T Information Technology, HCL Technologies and Cellnext Solutions. Hosting one of the most internationally integrated economies in the world, Sweden, comes as a catalyst to Indian businesses targeting Baltic region.

(End of Niharika Patra column)