- 04 September 2016
Harley Davidson India
Harley Davidson, the iconic Motorcycle manufacturer, could successfully adapt its culture to comply with changing environment inside and outside its home country, to better achieve or maintain its market share despite the strong competition. The company started selling an American culture of macho Caucasian cycle riders over the age of 35. Former Harley-Davidson’s CEO argued that they sold an experience, and the bike just happens to be a fundamental part of that experience. But when needed, they successfully adapted to sell to black people, women and teenagers in the US, and successfully selling outside The USA.
2- Why internationalization?
HD focused on the home market for a long time. However, Prashar, et, al. (2012) stated that the global intentions of HD manifested in its initial business phase. That intention indicated a proactive strategy against internationalisation. There are many valid reasons why HD wanted to internationalise their business, including finding new markets and more rapidly increase revenue, learning from competitive markets and prepare for any future technology change, limiting a competitor’s expansion in both home and international market and protecting home markets by limiting competitor’s capabilities.
3- Harley-Davidson Strategy:
HD strategy is to sell products to customers through independent dealers in each region. They support their dealers by providing a variety of services including training programs and customized dealer software. HD also undertakes marketing activities worldwide, targeting all types of customers. Promotion offers are also contributed between HD and dealers for local markets. Dealers also undertake some marketing efforts as a kind of cooperation with HD.
As per HD’s official website, dealers should undertake stock and sales of certain Harley-Davidson® motorcycles and related products, licensing, after sales services, Finance and Insurance (F&I), Parts & Accessories, and MotorClothes® apparel and collectibles, and merchandising with no franchise fee for obtaining a Harley-Davidson® dealership. If a potential dealer matches the criteria required for the purchase of an existing dealership, the potential candidate may be contacted for an interview. This means that they very carefully study each dealer case, and choose the awarded one.
The following is two arguably valid reasons for why that international business mode is the best suitable for HD:
1- As a Made-in-USA proud company, by exporting to international market, HD can maintain all manufacturing and economic activities in the home country. Made-in-USA products are more probably to sell a USA’s culture and experience, maintain the quality control as well as the quality reputation and product image, and linking all customers to one single source of product spirit.
2- By using independent dealer partnership, the company reduces the political and financial risks of investments. All potential risks are handled by their dealers as an agreed condition ahead of signing the contract with HD.
Appendixes A and B show the growth in international sales and in the number of dealers worldwide as a proof of the success of HD’s strategy.
India, the culturally very rich country, is very different from the USA. For a company that sells cultural experience, one can argue that it is very difficult to adapt to the new culture. After analysing the company’s overall strategy, and in order to understand the reasons behind HD’s decision to enter the Indian market, we will try to analyse and evaluate the Opportunity / Attractiveness and Risk of India as a market:
A- Opportunity / Attractiveness and Risk evaluation – favourable results:
1- According to AMB Country Risk Report released on October 26, 2012, the country was more than 1 billion population, which helped to make India the 10th largest economy worldwide if measured by GDP. In 2005, when HD decided to analyse the Indian market, the GDP growth was 9.2% which is a high rate through a global decline. That was maintained by a high domestic demand.
2- The Monetary policy was comparatively flexible due to reasonable inflation rate of 4.4% in 2005.
3- Industry wise, India is considered as having the largest number of motorcycle in the world as per statistics of several organizations like worldmapper and TMW, with an estimation of 37 million two wheelers. Motorcycling became a culture besides being transportation.
Based on above information, AMB Country Risk Report considered India market economical risk as moderate.
B- Opportunity / Attractiveness and Risk evaluation – unfavourable results:
1- Pal and Ghosh (2007) concluded that Government of India’s Planning Commission Estimate for the percentage of population below poverty line between 23.6% in Urban areas and 27.1% in rural areas in the period 1999 – 2000, declining from 45.2% in Urban areas and 53.1% in rural areas in the period 1977 – 1978. However, it is still considered that about one third of the population are under poverty line which is still a high percentage. These information shows target customers as a very tiny segment in the Indian society.
2- Going back to AMB Country Risk Report, National security in India is a concern, and the relationship with Pakistan is strained. So the report considers the Political risk as relatively high.
3- Insurance industry is regulated by government authority in India, and regulatory and accounting standards were not aligned with the international best practice. Capital markets were relatively illiquid and foreign participation was limited.
4- Prashar et. al. (2012) discussed Indian law for emission norms, as India didn’t have categorization for two wheelers to distinguish city bikes from highway ones. This has put all kind of bikes in one category and rejected big engine bikes which restricted lots of models to be exported to India.
5- Indian tariff for heavyweight motorcycle was also too high. Prashar et. al. (2012) stated that tariffs for heavyweight bikes almost doubled the price of HD bikes. This will also put lots of restrictions on which models to be exported to India.
6- Infrastructure in India needs a lot of development. The country is very big to have small number of dealers which will be a problem for reaching service centres.
7- Pal and Ghosh (2007) illustrated high inequality average rate of about 30%, accordingly, target segment people are very rich. However, Prashar et. al. (2012) stated that the country is still of a price-conscious culture, especially against mass production competitors like BMW and Honda who have the same plans for India.
The final country risk rating for India as per AMP report mentioned above was CRT-4 which means that the country was relatively unpredictable and the political situation was not transparent, legal and business environment was also full of uncertainty, and the capital markets were underdeveloped.
According to above analysis, one can argue that Harley-Davidson wanted to enter the Indian market strongly as they cannot just stay aside and watch competitors exploiting its high potential. As quoted by Prashar et. al. (2012), Anoop Prakash, managing director of HD India, said: “we plan to be in India for the long haul. It’s a wonderful market. There’s great diversity in the market, there are great opportunities to really think about what we are (the) models, what is the distribution approach we are going to take, what are the products that are most relevant for Indian riders”. Hence, one can see that HD wanted to enter the market despite all risks listed above, they were ready to be more flexible in terms of entry strategy than other markets in the world. Especially when considering the slowing growth in the home market and other big markets like Europe.
5- Defining the Indian Market:
Although GDP growth in India is much higher than in USA and Europe as per the data of the World Bank, still the GDP value per capita for India (1490 US$) is much less than the GDP value per capita for USA and Europe (48111 US$ and 25600 to 51200 US$, respectively). This is for the same year 2011. According to emergingmoney.com FTSE and MSCI, Countries like USA, Germany, UK ... etc are listed as developed countries and the most advanced economically, their capital markets have the highest liquidity and meaningful regulatory authorities. That definition does not apply to India. According to emergingmoney.com, FTSE and MSCI definition, one can see that India is an emerging market because it is a country in the process of rapid growth and development with lower per capita incomes and less mature capital markets than developed countries.
6- Indian market characteristics and their convenience to HD Strengths:
One can argue that HD Internationalization strategy of direct exporting with minimal investment fits the best Indian market characteristics, although it is the least profitability strategy. From one side, their strategy highly reduces investments risk in an emergent economy like India as most of the investments are done by their independent dealers. On the other side, their giant prestigious brand name makes it very easy and successful to allocate dealers. Prashar et. al. (2012) stated that when the company floated the applications for the dealers, it saw tremendous response as more than 100 interested parties applied within only seven months. The assembly plant in India, which was the second one after Brazil, was a later stage of strategy development for certain market to overcome specific difficulties. Even though, the amount of investment is still very limited comparing to other companies strategies, and it is for limited models for Indian market only.
Hence, one can argue that the four main strengths of HD’s strategy, which are related to market characteristics, enabled them to remarkably succeed in India and continue growing and exploiting the Indian growth:
1- Their prestigious products which are highly desired by target customers segment (the excessively rich elite in India).
2- Their low risk strategy of independent dealers and gradual entry.
3- Their sort of flexibility in the same strategy that allowed opening an assembly line for specific models.
4- Their strong chosen dealers who could reflect their strategy to fit that very special market with all the difficulties of financial services and after sales services offerings, and stocking and technical support capabilities.
7- Indian Market entry plan and its impacts on Harley’s worldwide and domestic operations:
According to above analysis, one can argue that HD’s expansion to Indian market can have nothing but positive effects on HD’s worldwide and domestic operations for several reasons.
First, their strategy of independent dealer makes Indian market nothing but a cash cow that was small upon entry, but had high potential of fast growth.
Second, even with the flexibility and special modification in the overall company’s strategy for Indian market, the new modifications wouldn’t have affected other countries strategy because of two reasons:
1- The control is still in the hands of HD higher management.
2- The modification is not so far from the framework of overall company’s strategy.
Third, possible risks on HD’s operations in India are:
1- Political risk. Including any potential for future wars with neighbour countries like Pakistan. In such case, only the operations in India would be affected, and it will affect equally the entire industry.
2- Increase of importing tariff and taxes. In such case, all motorbikes categorized within the new law for all competitors will be affected. HD will still be able to compete in the same level for lower tariff models. In this case, target customer segment might be affected, but this will affect the operations in India only as it has no connections to other countries or domestic operations.
3- Emission norms risks. The same conclusion of importing laws risk applies here. Any such case would affect Indian operations only as Indian’s lows have no influence outside Indians boarders.
4- Competitor’s entry and local or Chinese duplication risk. One can argue that management of HD should not really take into consideration any kind of duplications for two reasons:
A- Wither HD has operations in India or not, duplication risk will always be there. However, it will not be of high effects on international or domestic operations or sales because customers of HD buy HD’s motorbikes for three reasons: they are of a special experience, they are made by HD and they are made in US. Obviously the second and third reasons can never be duplicated. Hence, entering Indian market has nothing to do with this risk and cannot be of an impact on international or domestic markets from that perspective.
B- Indian customer segment share the same buying reasons as their international or domestic counterparts.
Competitor’s entry to Indian market on the other side can be an encouraging reason to entry into Indian market for two reasons:
A- If HD does not enter the Indian market, it will lose any possible market share to competitors in India.
B- Losing market shares in any country, and therefore losing profits they can generate, would only weakens international and domestic markets as the total revenue of the company will decline. This will also strengthen competitors’ position as they will get that profit.
The conclusion one can argue is that entering Indian market is a must for HD, and not an option. They have no other choice but competing in India to strengthen their revenue and their international position against all other competitors. Entering Indian market can be only of a positive implication on the company’s overall performance if the right strategy is followed there.