The only way out seems to be technical innovation which can give a low volumes company advantage.
The Indian two wheeler market is increasingly becoming a price warfield. Everyone and their competitor wants to win the title of the 'World's cheapest bike' and the cutsomer has become the King, actually more like God!
But I often wonder if this price based competition is good for the health of the industry. Isn't everyone eating their own margins in the quest for greater marketshare and farther market expansion? And where does this leave smaller players like LML (going through some very tough times as of now), Kinetic (good scooters, questionable field network, trying hard in motorcycles) and even Yamaha and TVS? I am not even talking of Hero Motors.
A big guy like Hero Honda or Bajaj Auto can arm twist suppliers to deliver parts cheaper, which I am sure the suppliers won't mind doing considering the volumes that these two guys offer. Both the Munjal and Bajaj families are also typical in the way they promote companies run by their brothers, cousins, in-laws etc. etc. So Bajaj Auto can always ask for cheaper rates from a Varroc or Auragabad Electricals while Hero Honda can do the same with MAC or Munjal Showa or Omax Auto. But what happens to LML (still makes a lot of its components, very archaic), Kinetic (mostly independent suppliers), TVS (Sundram Group suppliers, who anyways act independenlt, very professional but is it the best way forward?), Yamaha (independent suppliers) or a new entrant like Suzuki (they will buy components from anyone except a Munjal family or a Sundram company)? Without volumes, one is not in a position to get the best prices.
Without the best component prices, the price of the final product goes up. But then you have to fight Bajaj Auto. So you reduce the selling price of the bike. Then your margins nosedive!
This seems to be a vicious circle to me : Low volumes > High component prices > High final price > Still lower volumes > Low profitability or another way forward may be Low volumes > High component prices > Low final prices > Compromise on margins > Low profitability. Still another way forward may be like this Low volumes > Low component prices (I compromise on component quality) > Low final product price > High volumes > Low dependability > Low customer satisfaction > Low volumes > Low profitability. Thus the fat gets fatter while the small gets smaller and may eventually get wiped out.
The only way out seems to be technical innovation which can give a low volumes company advantage over a high volume one. Unfortunately low volumes low profitability also means that you don't have major money to invest in R&D. Or in some cases, like TVS, where R&D does get a priority, it is mostly copied very quickly by rivals as most of the R&D is supplier driven. So a Centra loses its technical advantage to a CT 100 very quickly. After all the battle field is of 100cc bikes, not battle tanks.
The other way out of this vicious circle is by concentrating on niches. Indian bike manufacturers till now have focussed on street commuters only. A high percentage of the market is shifting to a low margin, high volume game and smaller manufacturers need to get out of this rut to survive. So Kinetic should not be doing a Boss and TVS should not be putting its energies into a Star or even a Centra. Small companies should be focussing on 150cc + niches and experiment with new bodystyles. Performance and quality should be the marketing weapons rather than price.
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Indian two wheeler industry - Survival of the fattest
