Bajaj Auto India’s second largest and world’s fourth largest motorcycle manufacturer is looking for three way alliance with Austria’s KTM and Japan’s Kawasaki. The purpose of creating this three way alliance is to combine the R & D and global distribution strengths of the three companies. According to Rajiv Bajaj, MD Bajaj Auto “KTM is keen on manufacturing cost structure learning’s from Kawasaki and we are keen to broaden the existing Bajaj-Kawasaki partnership too.”
He also said that no immediate equity participation likely by Bajaj in Kawasaki or vice versa. Why Bajaj is keen to set partnership with KTM and Kawasaki and why Bajaj has selected KTM and Kawasaki? Let’s have a look
Kawasaki heavy industries ltd is originally started as ship building company based in Japan. Beside motorcycle & all terrain vehicles it also produces personal water craft, ships, industrial plants, tractors, trains, small engines and aerospace. Kawasaki’s motorcycle division is very small compare to its other divisions. But the fact that major brand recognition has come from Kawasaki motorcycle division. Kawasaki rolled its first motorcycle of 125 cc in 1960.
In 1966 it produce W1 (650CC motorcycle) then after the company started producing sports high performance motorcycle. The secret of Kawasaki’s success is in designing and manufacturing products that offer balanced performance, high quality, reliability and excellent fit and finish. Kawasaki motorcycle division has produced some class leading motorcycles such as Ninja, Kawasaki Z series, Vulcan. Its main focus is to develop high performance motorcycles.
KTM was founded in 1934 by Engineer Hans Trunkenpolz in Mattighofen, Austria. In the 1953 it rolled out its first motorcycle with just 20 employees. KTM is well known for it’s off ride bikes. Beside motorcycle it also produces bicycle, moped and cars. While many of motorcycle manufactures have shifted their models from two strokes to four strokes. KTM still continued its two strokes models (Kindly note that it has some motorcycles which has two strokes engines).
With conventional two strokes engine advantage of cheaper manufacturing cost and cheaper maintenance, KTM also made their motorcycle to pass stricter green standards. It has very big market share in two stroke motorcycle segment. KTM has produced some class leading motorcycle like Duke, Supermoto and LC4 series,
Bajaj Auto came into existence on November 29, 1945 as M/s Bachraj Trading Corporation Private Limited. Bajaj Auto rolled out its first motorcycle in 1986 named KB100 in collaboration with Kawasaki followed by KB125. In 2001 it produce its first all indigenous motorcycle pulsar followed by Discover in 2004. Today it produces Boxer, Platina, Pulsar, Discover and Avenger in motorcycle segment.
Bajaj has industry leading EBITAD (Earnings before interest, taxes, Depreciation and amortization) of 20% which is highest in Indian auto industry. It has mastered the art of low cost structure. To be noted that the low cost structure has emerged of manufacturing efficiency, focused marketing expenses and vendor management. For example as seen in case of DiSAil Cylinder by Yamaha which gives 60% better cooling performance and cost 30% less than cast liner sleeves cylinder.
Kawasaki motorcycle majorly produces class leading high performance motorcycles which none of KTM or Bajaj has. KTM mostly deal in class leading off road bikes which none of Bajaj or Kawasaki has. On the other hand Bajaj produces low displacement street bikes which are better than of Kawasaki and KTM. So, all the three players majorly operate in three different segments.
Bajaj has technical tie up with Kawasaki since 1986. Bajaj has very cordial relation with Kawasaki till the date. In fact the design of Platina (wind 125), boxer and Avenger (Eliminator) is originally of Kawasaki and Bajaj still pays a minor royalty to Kawasaki for Platina and Boxer. Bajaj also sells its motorcycles through Kawasaki distribution network in many exporting countries. For example in whole Philippines where Bajaj sells 1,00,000 numbers a year, sold through Kawasaki network. Kawasaki also sells its Ninja through Bajaj networks in India.
Bajaj bough 14.5% stake KTM in 2007. As if date it has 35.2% stake in KTM. KTM has wide presence and well established dealer network in European market. Beside this it has good technology for two stroke motorcycle. Bajaj and KTM are also jointly developing two concept bikes called Race and stunt (one bike is christened KTM125 Duke.)
Bajaj has good relationship with Kawasaki and it owns 35.2% stake in KTM which makes this deal to be likely happen.How this Tri-alliance will benefit to all the three partners?
- All three players would be able to share their dealership network which means reduction in cost, better distribution network and increased volume. For example KTM is planning to sell 1,00,000 units by end of 2013 using Bajaj dealership network. Kawasaki already has sold more than 500 Ninja through Bajaj dealership network.
- Joint technology platform would help to reduce cost substantially for all three players. Yamaha used Vixion platform for developing YZF R15. Same way Bajaj can use KTM platform to develop upcoming motorcycles or vice a versa.
- Synergy effect (In simple terms 1+1=11) will make all the three players globally more competitive. Other players like Yamaha and Honda operate in every engine capacity and segments and these three players operate in different segments.
- KTM would able to learn manufacturing cost structure of high displacement motorcycle from Kawasaki and low cost structure from Bajaj. Kawasaki would be able to learn Bajaj low cost structure and advanced technology of off road bikes from KTM. Bajaj on other hand would be able to compete globally with global giants like Honda and Yamaha by KTM and Kawasaki partnership.
- The major benefit for all three players would be not competing in each other’s segment. For example in India, Bajaj bikes will be in the range of Rs. 30,000 to 1,25,000, KTM will be in the range of Rs. 125000 to 2,50,000 or 3,00,000 and Rs. 3,00,000 and above is the range where Kawasaki will be placed.
Bajaj is seeking its 70% of revenue to come from export which of course will take years to achieve. The Tri-alliance is the part of the same strategy which will help Bajaj to develop new engine and vehicle platforms for global market. A final decision on the alliance is expected by the year end.
- Mahavir Kothari