Innovation, Technology and Competitive Strategy: Bajaj Auto

Transcription

Innovation, Technology and Competitive Strategy:
Bajaj Auto and the Motorcycle Market (A)
November 20, 2009
This case was written by Swarna Kumar Vallabhaneni, Research Associate and Rishikesha T
Krishnan, Professor of Corporate Strategy, both at the Indian Institute of Management Bangalore,
based on publicly available information. The case draws on a project submission made by Anuradha
S, Radhika AR and Radhika Tandon, all students in the Post Graduate Program, 2007-09 at IIM
Bangalore. This case was developed solely as a basis for class discussion. It is not intended to serve as
an endorsement, source of primary data or an illustration of either effective or ineffective
management.
© 2009, Indian Institute of Management, Bangalore
Innovation, Technology and Competitive Strategy 2
Innovation, Technology and Competitive Strategy:
Bajaj Auto and the Motorcycle Market (A)
Bajaj Auto was the undisputed leader of the Indian two wheeler industry as long as the scooter was
the customers‟ preferred vehicle. However, it was unable to maintain this position after motorcycles
came to dominate the industry. In 2006-07, Bajaj Auto was the second largest motorcycle
manufacturer in India, having sold 2.38 million motorcycles, but was a distant second behind the
market leader, Hero Honda.
Bajaj was historically strong at the higher end of the motorcycle market (150cc+). Rahul Bajaj, the
Chairman of Bajaj Auto had set a goal of “supplying 4 million motorcycles out of a projected market
of 10 millioni” by 2010. To reach this target, Bajaj planned to move into the 125cc segment
aggressively. The company intended to introduce a new engine platform in 2007, which it hoped
would “show how customers can enjoy low emissions at low costs; and demonstrate that there can be
both good performance and great fuel economyii” The #3 player, and a keen rival of Bajaj, TVS
Motors, was eyeing the same segment as Bajaj and preparing to launch the 125cc Flame. Matters
came to a head in September 2007, when Bajaj sought a court injunction against TVS‟s launch of
Flame on grounds of patent infringement.
Historical Policy Environmentiii, iv
The two-wheeler industry in India dates back to the 1950s. The industrial policy till 1969 restricted
import of vehicles and complete kits, encouraged firms to manufacture automobiles locally and
allowed foreign collaborations. Though automobile production was a licensed activity and installed
capacity was regulated, foreign collaborations were encouraged.
The 1970s brought tighter regulation across the board through the introduction of the Monopolies &
Restrictive Trade Practices (MRTP) and the Foreign Exchange Regulation Acts (FERA). MRTP
curbed the growth of large firms like Bajaj and FERA restricted foreign investments. The regulations
resulted in technological stagnation, and few new technologies or products were introduced in the
1970s. During the same period, new developments in material design spurred a worldwide movement
to high-strength, low-weight materials, leading to lighter vehicles and more efficient engines. These
developments passed India by as Indian firms lacked access to such technology. Indian motorcycles in
the 1970s were characterized by low fuel efficiencies and high weight. The only players in
motorcycles in this period were Enfield India (Royal Enfield – 350cc), Ideal Jawa (Yezdi – 250cc),
and Escorts Ltd (Rajdoot – 175cc). All three players were present since before 1970.
A series of policy changes starting from 1980 ushered the industry into the modern era. The
modernization program in 1980 allowed technical collaborations with foreign players, and the broadbanding policy of 1985 let manufacturers launch products in adjacent product segments. All
automotive segments were delicensed between 1991 and 1993, and automatic FDI approval limits
were increased to 51% in 1991 and 100% in 2002.
These policy changes allowed major global manufacturers – Honda, Suzuki, Yamaha, Kawasaki and
Piaggio - to enter India through various collaborations, and spurred the growth of the two-wheeler
industry. By 1990, India became the second largest market in the world after China (Exhibit 1). The
new entrants introduced smaller and lighter motorcycles, which were more relevant to demographic
and infrastructural conditions in India. The incumbent players – Enfield, Jawa and Escorts - with their
large motorcycles could not compete and were soon relegated to being niche players.
2
Market Structurev, vi
The two-wheeler industry was led by scooters till the early 1990s – motorcycles crossed scooters only
in 1998-99. In the 1990s, motorcycles were perceived as better styled, more powerful and economical
than scooters. As a result, motorcycles came to dominate the two-wheeler industry (Exhibit 2).
The motorcycle market was characterized by high double-digit growth and a multitude of new product
launches, with players competing fiercely on almost every plank – pricing, style, power, fuel
efficiency, pedigree, etc. The market was dominated by the 75-125cc segment (economy segment)
with first-time buyers being the bulk of the customers and price points starting at Rs. 30,000.a The
economy segment contributed to 79% of sales in 2006-07 (See Exhibit 2). Competition in this
segment was based on value for money. In addition to price and fuel efficiency, customers were
highly sensitive to EMIs,b which depended on prevailing interest rates. Tighter lending standards at
the dealer end since mid-2006 contributed to slowing down of the segment, with growth falling to
single digits.
There was a significant shift towards the 125-250cc segment (executive segment), which grew at a far
greater pace than the market. By 2006-07, the executive segment accounted for more than 20% of
total motorcycle sales. Two factors drove growth in this segment: firstly, greater disposable income,
and hence a desire to make lifestyle statements, and secondly, greater brand management by firms to
preserve operating margins. This segment was not as price-sensitive as the economy segment, and
buying decisions tended to be influenced by styling, design, power and branding.
Industry Playersvii
The market was highly concentrated with three players – Hero Honda, Bajaj Auto and TVS Motors –
accounting for nearly 93% of sales in 2006-07 (Exhibit 3). Moreover, the market shares of the three
players remained relatively stable since 2001-02.
Hero Honda, a joint venture between Honda Motors and the Hero group, was an early entrant in the
motor-cycle market, and was soon the market leader. Honda technology was extensively used in
product development as well as manufacturing. This helped Hero Honda establish a reputation for
quality products and strong brand loyalty, particularly in rural areas. Starting with their “Fill it, Shut
it, Forget it” campaign in the 1980s, Hero Honda associated their lineup with fuel economies and
value for money. The company supported its product lineup by expanding its dealer network,
particularly in the rural areas, and setting up a subsidiary to provide easy credit to buyers. Hero Honda
dominated the economy segment with 67% market share in 2007 (Exhibit 4). However, they were
weak in the executive segment with a market share of only 12% (Exhibit 5).
Bajaj Auto was a major player in scooters, selling scooters since 1945 and manufacturing them since
1959. Bajaj entered motorcycles in collaboration with Kawasaki, but focused on motorcycles only
when scooters started declining in the 1990s. Caliber, launched in 1998 was Bajaj‟s first success in
motorcycles, and Pulsar, launched in 2001, the first blockbuster. Bajaj historically concentrated on
the 150cc+ segment (Pulsar, Avenger, etc.), and led the executive segment with nearly 60% market
share in 2007. Bajaj made large investments in R&D resulting in strong new product development
capabilities and innovative features like Digital Twin Sparkplug Ignition (DTS-i).
a
The exchange rate during 2002-07 was around Rs. 45/USD.
EMI stands for Equal Money Installments, and is the monthly amount payable to the bank or financial
institution financing the purchase. Financial institutions regularly advertize their loans on basis of EMIs.
b
3
TVS Motors was the third major player in motorcycles, with 13% share in 2007. TVS entered twowheelers with India‟s first locally designed moped in 1980. TVS, in a joint venture with Suzuki
Motors, launched India‟s first 100cc motorcycle in 1984. However, TVS could not take advantage of
their early entry with Hero Honda dominating the motorcycle market in the 1990s. TVS saw success
with the launch of the 110-cc Victor in August 2001, resulting in their motorcycle market share
zooming upto 19% in 2002-03. TVS continued to focus on fuel economies and emission controls and
followed up with the launches of Centra and Star (both 100cc) in 2004. The success of Victor,
however, could not be replicated, and Hero Honda continued to be strong in the economy segment.
In addition to the TVS launches, Bajaj had launched Caliber-115 in 2003 and CT-100 in 2004 – both
in the economy segment. The new launches from Bajaj and TVS had the effect of attacking Hero
Honda‟s base.viii Hero Honda resorted to a price warix by intensifying the Hero 1001c scheme, and
introducing various dealer subvention programs. Hero Honda had the strongest financialsd of the three
players (Exhibit 7). The price war had a major effect on the industry dynamics. The boundaries
between the economy and executive segments started getting blurred, and a new segment was forming
at the 125cc mark, which was being positioned as the best of both worlds.x This segment was to
deliver on fuel economy as well as style. The two smaller players – Bajaj and TVS - decided to focus
on the 125cc segment when it became unsustainable for them to continue the price war. TVS planned
to launch Flame, and Bajaj lined up to reply with XCD-125 in late 2007.
Technological Evolution of the Industry
Since the 1980s, there were numerous technological developments in the industry, propelled by new
statutory regulations and market requirements. Tighter emission norms, introduced in 1991, forced the
move from two-stroke engines to four-stroke engines across the market.e While four-stroke engines
generated comparatively less power, they generated much lower emissions.
With fuel economies in the economy segment and power and styling in the executive segment
emerging as the key buying factors, firms chose to focus their innovation efforts on engine
technology. The emphasis was on modifying various aspects of the engine to generate better fuel
economy and/or greater power. Since ignition systems help in emission controls as well as
combustion efficiency, and hence power and fuel economy, this was a major area under the spotlight.
The ignition mechanism in a two-wheeler engine consists of three major parts – fuel injection,
ignition and combustion, and exhaust. Fuel injection mechanisms control the flow of fuel and fuel-air
mixture to the engine, while ignition mechanisms (spark plugs, etc.) ensure combustion of fuel
completely and in a synchronized manner. Advances in either part help in fuel economies and power.
Innovation and Technology Strategies of the Major Players
Hero Honda
Hero Honda depended on Honda Motors for design and innovation. Honda entered motorcycles in the
1950s, when they developed an engine that transformed bicycles into mopeds.xi The four-stroke 50cc
c
The Hero 1001 scheme was effectively a price discount of Rs. 1,001.
While Hero Honda was primarily a motorcycle company, Bajaj and TVS had strong positions in three-wheelers
(auto-rickshaws) and mopeds/scooterettes respectively which they could manage for greater margins.
e
Emission regulations were passed for petrol vehicles in 1991 and diesel vehicles in 1992. Norms have been
progressively tightened, e.g., permissible level of carbon monoxide emissions was decreased from 12-30 g/km
of CO in 1991 to 4.5 g/km in 1996, 2.0 g/km in 2000 and 1.5g/km in 2005.
d
4
Supercub, introduced in 1958 was a tremendous success, making Honda the leader of motorcycle
sales in Japan. Honda entered the US in 1959. While Honda‟s first success in the US was the
Supercub, Honda moved quickly into higher mainstream segments with its “You meet the nicest
people on a Honda” theme. By 1964, nearly half of all motorcycles sold in the US were made by
Honda, and Honda emerged as the leader in every segment. Honda‟s motorcycles were all based on
four-stroke engines. Although Honda developed two-stroke engines in 1970s to improve racetrack
performance in smaller bikes, four-stroke engines remained the mainstay of Honda motorcycles.
Hero was primarily a leading bicycle manufacturer before entering two-wheelers in 1980 with a
moped - Hero Puch. Hero‟s success in bicycles was widely attributed to superior supply chain and
vendor management capabilities. Hero Puch remained Hero‟s only two-wheeler product until the
formation of Hero Honda, and was not a market success.
Hero Honda was formed as an equity joint venture between Hero Group and Honda Motors in January
1984 to address the Indian motorcycle market. The two partners each had 26% equity, with the
general public owning the rest. Hero Honda slowly built up the requisite infrastructure and expertise
to work effectively with Honda and leveraged Honda‟s global R&D for its design and technology.
Hero Honda‟s R&D was online with Honda‟s global facilities. This allowed Honda to transfer design
data and best manufacturing practices instantly to Hero Honda.xii
As a result, Hero Honda was the first to market with several technological innovations, starting with
the first 4-stroke bike CD-100 in 1985. Later, Hero Honda launched the first Indian four-stroke bike
to feature a five-speed gearbox - CBZ in 1999, and pioneered electronic fuel ignition (EFI) when it
released Glamour FI in 2006. EFI replaced the traditional carburetor with an Electronic Control Unit
(ECU), which monitored the operating conditions, and dynamically changed the fuel flow for greater
fuel economy. EFI was previously available only in cars, and was adapted by Honda for bikes.
Hero Honda‟s own internal R&D focused on value engineering, and was directed towards localization
and integration. Hero Group was able to transfer its historical competencies in supply chain and
vendor management to Hero Honda. As a result, Hero Honda developed a large array of vendors and
helped them build products as per Honda specifications and acceptance criteria. Hero Honda‟s R&D
also focused on understanding evolving needs and expectations of Indian users, which allowed Hero
to give feedback to Honda very early in the design process.xiii
Bajaj Autoxiv
Bajaj Auto had a very different innovation strategy. Bajaj had historically dominated scooters, a fact
that remained constant even with the entry of LML Piaggio and Kinetic Honda post deregulation in
the mid-80s. Even till the mid-90s, the mainstay of Bajaj was the long running Chetak, which was
based on a 25-year old Vespa model. Bajaj focused on adaptive changes to Chetak, e.g., developing a
150cc engine which was more suitable to Indian conditions. Bajaj‟s reputation for „value for money‟
and reliability, built over the years, led to continued domination in the scooter market.
Bajaj entered motorcycles in 1985, having signed a technical collaboration agreement with Kawasaki
of Japan to produce 100-cc two-stroke motorcycles. Kawasaki was part of a large conglomerate,
which had presence in ship-building, railways, rolling stock, automobiles, steelmaking, aircrafts, and
construction. Kawasaki entered the motorcycle industry in the 1950s, and historically competed in
higher-end segments. 250cc+ bikes accounted for more than 60% of total Kawasaki sales in 1980, and
continued to make up more than 55% through the 1980s and 1990s.xv
5
Unlike Hero Honda, the Bajaj-Kawasaki alliance was not a joint venture, and involved no equity
participation from Kawasaki. The first product was the KB 100 launched in 1986, which performed
poorly in the market. The “KB” design was found to be ill-suited to Indian conditions. A modified
version was soon launched in the market, which had a better sales performance.
Bajaj soon realized that Hero Honda had succeeded in moving the market to four-stroke vehicles.
Bajaj‟s first four-stroke bike was launched in 1991 – the Kawasaki Bajaj 4S Champion. This was a
100cc bike, and took Hero Honda‟s existing CD-100‟s value proposition head-on, with a fuel
economy of 87 kmpl (against CD-100‟s 80kmpl). Bajaj‟s advantage was short lived as Hero Honda
again changed the shape of the market with Splendor. The Splendor was a „modernized‟ design, but
with the same engine as the CD-100, making style a major selling factor, in addition to fuel economy.
The Bajaj Kawasaki partnership continued to design and launch new motorcycles throughout the
second half of the 1990s – the 100cc Boxer, the 111cc Caliber, etc., but made only a minor dent in
Hero Honda‟s domination. In 1999, Bajaj launched a greenfield manufacturing facility, incorporating
principles from the Toyota production system. The team setting up the new facility also launched a
fresh product development effort in competition with the Kawasaki-Bajaj collaboration. While the
collaboration team was working on the 175cc Kawasaki Bajaj Eliminator, the internal Bajaj team
concurrently developed the 150cc and 180cc Pulsar.
Pulsar was developed in collaboration with Tokyo R&D, a design studio specializing in automotive
R&D. The team also created and commercialized Digital Twin-Spark Ignition (DTS-i) technology,
which incorporated two spark plugs in the combustion chamber. This generates two points of
combustion in the engine, and allows quicker and more efficient combustion, and hence better power,
fuel efficiency and lower emissions. Bajaj claimed to be the first in the world to incorporate twinspark ignition into small bore engines (i.e., less than 600cc), applied for a patent from the Indian
Patent Office at Mumbai in 2002, and was granted patent rights in 2005, apparently without
opposition at any stage. Exhibit 8 gives a brief overview of the Indian patent system.
Eliminator was launched in January 2001, priced at around Rs. 90,000. The bike proved too expensive
for the Indian market, and failed to make a dent. Pulsar was launched in November 2001, with the
150cc version priced at around Rs. 52,000, and the 180cc version at Rs. 58,000, and received rave
reviews from auto magazines. One reviewer compared Pulsar to offerings from Hero Honda, TVS,
Kinetic and Yamaha, noting, “The Pulsar would be the winner in this shoot-out even if it were priced
higher, much higher than the competition, she is that good. Thank your lucky stars then that the
Pulsar is cheaper, much cheaper than her rivals, spelling affordable biking for you and I.xvi”
Bajaj soon launched the 175cc Avenger, which was the Kawasaki Bajaj Eliminator fitted with the
cheaper, more powerful and more fuel efficient Bajaj DTS-i engine. The dual success of Pulsar and
Avenger made the executive segment a stronghold of Bajaj. Bajaj continued its collaboration with
Kawasaki, with Bajaj having developed competencies complementary to Kawasaki‟s. Kawasaki was
strong in higher-end bikes (>250 cc), and Bajaj developed the capability to design and manufacture
lower-end bikes cheaply. Bajaj acquired a stake in Kawasaki‟s operations in the Philippines and
Thailand, and manufactured Bajaj vehicles for local consumption. Bajaj later moved into other
6
developing markets, acquiring facilities in Colombia, Indonesia and Brazil. The R&D on the lowerend bikes continued, with Bajaj developing new features such as ExhausTEC.f
TVS Motors
TVS Motorsg entered the two-wheeler industry through mopeds. The flagship moped TVS50 was
developed and launched in 1980 by Sundaram Clayton, a TVS group company. Numerous models and
variants launched over the years helped TVS dominate the moped segment. TVS-Suzuki was formed
as a joint venture between Sundaram Clayton and Suzuki Motors in 1982 to develop and launch
motorcycles. The company went public in 1984, with Suzuki owning 33.7% of equity, TVS and its
associates 16.7%, and general public the rest.xvii TVS‟s stake increased to nearly 50% in 1986 when
the moped division was transferred from Sundaram Clayton to TVS-Suzuki.
Suzuki Motors was the third-largest motorcycle manufacturer in the world after Honda and
Yamaha.xviii Suzuki started as a machine supplier to the Japanese textile industry and diversified into
automobiles after the Second World War. Power Free – a motorized bicycle launched in 1952 was
Suzuki‟s first two-wheeler. The company was producing 6000 motorcycles annually by 1954. Suzuki
was the technological leader in two-stroke engines by 1961, and entered the US in 1963. Suzuki‟s
superior two-stroke engines established Suzuki‟s reputation for racetrack performance in smaller
motorcycles. The first four-stroke models were launched only in 1976.
The TVS-Suzuki joint venture launched the first-ever 100cc motorcycle in India in 1984. While this
was markedly superior to existing products, Hero Honda soon launched four-stroke motorcycles with
Honda‟s technology, which delivered superior fuel efficiency. TVS‟s in-house R&D efforts became
focused on tweaking Suzuki‟s existing two-stroke engines to generate greater mileage. Suzuki‟s fourstroke engines were designed for the GS-series, and focused on power and racetrack performance in
large bikes (750cc+). This technology could not be easily modified for smaller bikes.
Lacking a four-stroke model, TVS continued to be at a distinct disadvantage in the market. TVSSuzuki launched its four-stroke model only in 1997 by which time Hero Honda had a stranglehold on
the market. Difficulties in accessing Suzuki‟s technology and the cost of indigenising the technology,
among other issues, contributed to the split of the TVS-Suzuki joint venture in 2000.
TVS started to develop independent in-house product development capabilities even before the split
with Suzuki. TVS launched Scooty in 1994, which quickly became the leading scooterette, and
various motorcycle models throughout the late 1990s. The four-stroke motorcycle Victor, launched in
2001 was also an in-house effort, and gained TVS significant market share in motorcycles.xix
While TVS continued to develop and launch new products, none of them could emulate the success of
Victor. The surfeit of models in the economy segment from TVS and Bajaj led to the leader - Hero
Honda launching a price war. As a result, TVS decided to focus on the newly emerging 125cc
segment, with Bajaj reaching the same conclusion independently around the same time.
To this end, TVS licensed engine technology from AVL – an Austrian engine technology house, to be
used in the new bike that was to be launched in 2007 – the 125cc Flame. The engine used Controlled
f
ExhausTEC stands for Exhaust Torque Expansion Chamber. The technology uses a small chamber connected to
the exhaust pipe to modify back-pressure and other characteristics of the engine. Bajaj claimed significant
improvement due to ExhausTEC in low/mid-range torque in a four-stroke engine.
g
The JV between Suzuki and TVS was initially called Ind-Suzuki and then changed to TVS Suzuki in 1986. The
company was renamed as TVS Motors after Suzuki’s exit in 2001.
7
Combustion – Variable Timing Intelligent (CC-VTi) technology, for which the US patent office had
granted a patent to AVL (No. 6520146) in February 2003. CC-VTi used twin spark plugs, and
controlled the richness of air-fuel mixture according to the rider‟s speed. An on-board chip ensured a
rich air-fuel ratio at the spark plug at all times, and the twin spark plugs had the effect of nearly
doubling the rate of burn. This led to more complete combustion of fuel, generating less emissions,
higher power and better fuel economies. TVS claimed that the engine generated 10% more power and
10% greater fuel economy than regular engines.
To protect their technology, TVS filed a patent on 23rd August, 2007 in the Indian Patent Office at
Chennai. The patent application named AVL as TVS‟ technology partner and referenced AVL‟s US
patent as well as TVS‟s R&D effort for 3 years.
On 30th August 2007, TVS unveiled the 125-cc Flame, based on CC-VTi. TVS had already started a
new manufacturing facility with a capacity of 400,000 units in 2007 to capitalize on the expected
success of the new bike.xx Further fuelling TVS‟s expectations, Flame received rave previews, with
one analyst calling the bike “A motorcycle that could… sweep competition and potential customers
off their feet…the new 125cc motorcycle looked really good from the word go.xxi”
However, on September 1st Bajaj threatened to file a suit against TVS for infringement of its patent on
the DTS-i technology in the Flame.
Patent Wars
Bajaj contended that TVS copied the three essential features of Bajaj‟s patent-protected invention the small-bore engine of 45-70 mm, lean burn air-fuel mixture, and twin spark plug. Bajaj demanded
that TVS change its engine technology or configuration to ensure patent non-infringement.
TVS responded to Bajaj‟s claims of patent infringement on 2nd September with a two-pronged
argument. Firstly, TVS disputed the patentability of Bajaj‟s DTS-i technology. TVS claimed that the
technology was well-known and hence, adaptation to small-bore engines was neither novel nor nonobvious. TVS referred to the search report issued by the WIPO patent examiner (Exhibit 9), which it
claimed supported TVS‟s contention. TVS went on to file a patent revocation petition at the
Intellectual Property Appellate Board (IPAB).
While the use of twin-spark plugs in itself was not novel - Alfa-Romeo and Harley-Davidson were
using the technology since 1913 and 1929 respectively, very few small-bore engines used twin-spark
plugs historically. The efficiencies generated weren‟t considered significant enough. Advances in
engine material and construction coupled with greater understanding of air-fuel mixtures and controls
led to the twin-spark plug concept being revisited. A number of patents were granted in the 1980s and
1990s (e.g., US Patent No. 4519364 to Honda and 5320075 to Chrysler) for executing multiple valve
and twin-spark concepts. Patents were granted for mechanisms to control air-fuel mixtures as well
(e.g., US Patent No. 4494504 to Honda). While these patents do not mention size explicitly, it was
understood that these engines were to be used in cars, and were larger than 600cc.
Secondly, TVS claimed that their CC-VTi technology was substantially different from Bajaj‟s DTS-i
technology, and hence there was no patent infringement. While DTS-i uses two valves (one inlet and
one exhaust), CC-VTi uses three valves (two inlet and one exhaust). TVS argued that this difference
alone demonstrated the difference between the two technologies. The two inlet valves in CC-VTi
were claimed to allow better control of fuel flow and air-fuel mixture, and hence improve engine
8
performance. TVS filed a defamation suit against Bajaj in the Madras High Court, asking Bajaj to
refrain from making any public statements against TVS.
Bajaj rejected TVS‟s arguments and claimed that the third valve in the CC-VTi technology was
superfluous.
9
Exhibit 1: Motorcycle Sales in Select Countries till 2001 ('000s)
Country
1983
1990
1995
1996
1997
1998
Brazil
157
123
201
276
405
460
442
574
692
China
n/a
n/a
7,800
8,837
9,716
7,976
10,142
12,203
12,130
France
423
333
304
336
364
362
388
371
364
Germany
392
171
406
449
454
418
398
363
339
India
759
1,854
2,558
2,920
3,008
3,263
3,646
3,868
4,107
Japan
2,418
1,619
1,213
1,220
1,188
1,063
837
780
751
735
303
309
330
356
432
546
710
850
United States
1999
2000
2001
Adapted from The Global Motorcycle Industry – 2003, prepared by Eric Cherng for Stanford
Technology Ventures Program, 2005.
Exhibit 2: Sales of Two-Wheelers in India
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
Scooters
A1 (75cc)
1,87,442
2,38,318
2,05,867
1,32,813
50,107
25,464
A2 (75-125cc)
1,84,969
3,01,931
4,30,302
5,84,222
6,94,952
8,12,329
A3 (125-250cc)
4,57,344
2,89,943
2,50,124
2,05,393
1,63,992
1,02,824
Total
8,29,755
8,30,192
8,86,293
9,22,428
9,09,051
9,40,617
62,799
52,559
32,098
19,195
841
B2 (75-125cc)
24,15,039
32,03,347
36,58,628
41,74,520
48,05,581
51,67,623
B3 (125-250cc)
1,98,234
4,21,254
4,52,711
7,42,983
9,75,488
13,49,193
21,519
26,608
27,009
28,055
28,662
30,379
26,97,591
37,03,768
41,70,446
49,64,753
58,10,572
65,47,195
3,84,335
3,32,588
3,09,509
3,22,584
3,32,741
3,55,870
Motor-Cycles
B1 (75cc)
B4 (250cc+)
Total
Moped
-
Source: Society of Indian Automobile Manufacturers ( http://www.siamindia.com).
10
Exhibit 3: Market Shares in Motor-Cycles Market
Companies
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
Hero Honda Motors
48.80
44.96
48.76
51.51
49.79
48.18
Bajaj Auto
24.45
23.35
23.34
27.09
30.08
31.72
TVS Motors
15.57
19.19
16.37
12.91
12.95
12.88
Yamaha Motors
7.43
6.93
5.56
4.29
3.54
3.21
HMSI (Honda)
-
-
-
1.31
1.69
2.50
LML Ltd
1.51
3.23
3.86
1.43
1.00
-
Royal Enfield
0.80
0.72
0.65
0.57
0.49
0.46
Kinetic Engg
1.44
1.49
1.25
0.81
0.43
0.08
-
0.03
0.97
0.09
-
-
Suzuki Motorcycle
Majestic Auto
-
0.14
0.21
Source: Society of Indian Automobile Manufacturers (http://www.siamindia.com).
Exhibit 4: Sales in Economy Segment (75-125cc)
2001-02
Bajaj
2002-03
2003-04
2004-05
2005-06
2006-07
5,84,070
6,42,885
6,57,929
9,34,403
10,49,119
12,64,006
12,84,023
15,61,889
19,60,264
24,37,043
28,15,682
30,41,143
TVS
3,62,424
6,76,131
6,23,209
5,35,329
6,72,660
6,95,153
Yamaha
1,08,315
1,43,644
1,95,210
1,61,452
1,85,146
1,58,858
Others
1,84,522
3,22,442
4,17,226
2,69,757
2,68,118
1,64,990
Total
24,15,039
32,03,347
36,58,628
41,76,532
48,05,579
51,65,292
Hero Honda
Exhibit 5: Sales in Executive Segment (125-250cc)
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
Bajaj
16,026
1,70,060
2,83,280
3,91,324
6,97,817
8,14,854
Hero Honda
32,466
1,03,190
73,385
1,20,342
77,388
1,06,076
TVS
57,612
34,806
59,489
1,05,378
77,916
1,49,021
Yamaha
92,130
1,13,198
36,557
51,533
20,334
51,771
-
72,394
1,00,033
2,27,531
7,40,971
9,73,488
13,49,253
Others
Total
1,98,234
4,21,254
4,52,711
11
Exhibit 6: Construction of a standard single-cylinder spark plug based four-stroke enginexxii
Basic Process of Operation:
Step 1 – Intake: Combustion mixtures are entered into the combustion chamber
Step 2 – Compression: The mixtures are placed under pressure
Step 3 – Combustion: The mixture is burnt and the hot mixture is expanded, pressing on and moving
parts of the engine and performing useful work
Step 4 – Exhaust: The cooled combustion products are exhausted into the atmosphere
Basic Terms:
Bore: Inner diameter of the engine
Stroke: Stroke is the action of the piston travelling across the combustion cylinder. Stroke also refers
to the distance the piston travels.
Engine Capacity: Volume swept by all pistons of an engine in a single movement, generally measured
in cc. Engines with greater capacity are usually more powerful and provide greater torque at lower
rpm.
Spark Plug: Petrol engines are typically ignited by a precisely timed spark. The spark plug produces
an electrical spark to ignite the fuel-air mixture. The flame then travels through the combustion
chamber to ignite the entire volume of fuel-air injected into the engine.
Fuel Injection: Fuel Injection is a system for mixing fuel with air, and is now the primary fuel
delivery system in petrol engines having replaced carburettors. FI atomizes the fuel by forcibly
pumping it through a small nozzle under high pressure, and typically control the amount of fuel
injected to match the engine's dynamic needs across a wide range of operating conditions such as
engine load, ambient air temperature, engine temperature, fuel octane level, and atmospheric pressure.
12
ROCE
Dividend
ROCE
Dividend
ROCE
Dividend
3
1
Royalties Paid
0
2
Forex spending royalty/ technical0 knowhow0
10.88
4
1993
189
4
0
1
1
9.86
4
1992
170
3
0
1
1
0
0
0
-7.79
3
Income
PAT
R&D Expense
Capital account
Current account
Total R&D
1991
142
-2
1
1
Royalties Paid
1
1
7.7
19
1993
1,326
52
3
6
9
8.62
19
1992
1,280
43
1
0
1
2
4
6
12.56
19
Income
PAT
R&D Expense
Capital account
Current account
Total R&D
1991
1,221
55
3
3
Royalties Paid
6
8
18.18
4
1993
310
16
0
0
0
20.98
4
1992
277
16
0
0
0
0
0
0
27.56
3
Income
PAT
R&D Expense
Capital account
Current account
Total R&D
1991
216
16
6
6
0
1
1
42.99
4
1994
275
13
1
2
6
9
15
25.09
30
1994
1,684
146
3
1
0
0
0
14.99
4
1994
370
15
5
6
1
1
2
24.36
6
6
7
2
2
3
31.16
7
10
8
1
3
4
30.67
9
12
8
0
3
3
37.24
28
18
21
6
4
10
44.47
44
2
3
9
14
23
28.77
80
2
5
3
19
22
24.28
88
3
8
2
22
24
20.49
105
7
11
8
24
31
19.09
106
11
19
3
32
34
18.05
133
5
5
1
2
2
56.63
5
5
5
3
3
6
40.78
6
8
8
6
4
10
40.11
7
10
10
8
8
15
29.07
9
12
12
7
10
17
23.76
28
13
19
3
12
15
19.58
44
Exhibit 7c: TVS Motors Abbreviated Financials (Rs. Cr.)
1995
1996
1997
1998
1999
2000
412
623
836
1,040
1,328
1,558
34
35
54
69
82
86
1
1
6
12
18
31.64
62
Exhibit 7b: Bajaj Auto Abbreviated Financials (Rs. Cr.)
1995
1996
1997
1998
1999
2000
2,292
2,933
3,454
3,504
3,922
4,240
310
417
440
463
553
635
4
1
0
1
1
18.63
5
17
17
6
10
16
12.55
66
2001
1,841
63
17
34
29
32
61
7.48
89
2001
3,973
250
25
39
0
5
5
42.19
66
Exhibit 7a: Hero Honda Motors Abbreviated Financials (Rs. Cr.)
1995
1996
1997
1998
1999
2000
2001
484
641
783
1,161
1,560
2,277
3,392
19
26
50
77
121
192
247
16
16
5
25
30
11.26
350
2002
2,234
54
20
18
4
34
37
10.37
142
2002
4,575
518
52
42
1
6
7
63.19
350
2002
4,724
463
3
3
12
46
59
26.6
405
2003
3,142
129
20
19
10
32
42
13.44
160
2003
5,043
535
69
85
2
7
9
65.43
405
2003
5,395
581
0
0
16
60
76
23.06
451
2004
3,311
138
27
25
27
38
65
17.39
285
2004
5,917
738
90
90
7
9
17
63.18
451
2004
7,106
728
0
0
21
51
72
13.63
456
2005
3,411
139
32
34
27
40
67
14.16
288
2005
7,117
729
157
159
3
13
16
53.99
456
2005
8,945
810
0
0
13
55
68
12.61
455
2006
3,818
123
30
30
26
50
77
18.33
462
2006
9,226
1,123
212
215
11
15
25
49.98
455
2006
10,422
971
0
0
37
48
85
5.55
397
2007
4,551
66
10
21
47
68
115
17.86
474
2007
11,388
1,237
254
257
8
18
26
36.08
397
2007
11,966
858
Exhibit 7: Abbreviated Financials of Hero Honda, Bajaj Auto and TVS Motorsxxiii
13
Exhibit 8: Note on the Patent System in India
India is a signatory to the Patent Co-operation Treaty (PCT) under the WTO. The Patent Act, 1970
was amended in 1995 to facilitate compliance with WTO norms. There was a grace period of 10 years
under the WTO norms, and the new law came into force in 2005.
An invention has to fulfill three criteria for a patent to be granted. The first criterion is utility, i.e., the
invention needs to be useful in some manner. Secondly, the product or process needs to be novel and
significantly different from any existing products and processes. The invention cannot have been in
use by any other party in India or published anywhere else in the world prior to filing.
The final criterion for patentability is non-obviousness in light of prior art. Stated differently, the
invention must not be obvious to a person skilled in the relevant subject matter. The invention can,
however, improve over a prior patent, or combine prior inventions in a novel way. For example,
adding an eraser to one end of a pencil is patentable so long as it hasn‟t yet been patented by anyone
and the Patent Office judges it non-obvious. Nevertheless, this does not override the original patent. A
party seeking to manufacture such a pencil still needs to license the technology from the owner of the
original pencil patent.
Once the patent is filed, the application is examined at the Patent Office by an examiner. The system
allows for pre-grant as well as post-grant appeal of patents. The patent information is made public
after 18 months of filing, and any party is free to file an appeal for opposition of grant. One can
oppose the patent post-grant as well within one year of granting of patent at the Intellectual Property
Appellate Board (IPAB), and anytime at the High Court level. Once granted, the patent confers upon
the assignee the right to prevent other from making, using, selling or importing the product without
the assignee‟s consent for 20 years from the date of patent filing.
The patent law was amended in 2005 to be fully compliant with the TRIPS agreement.xxiv The patent
granting procedure is noted below. The only significant procedural change in the new law was with
14
respect to pre-grant opposition. While the provision for pre-grant opposition existed prior to 2005 as
well, it was made easier with the new amendments. For example, pre-grant opposition could now be
filed upto 6 months from the date of publication as compared to 3 months in the older law.
The patent system enables assignees to file for patents in all countries which are signatories to the
PCT once a patent is granted by one country. A priority claim is granted along with the patent
application, and the priority claim can be filed in the World Intellectual Property Organization
(WIPO), which provides a centralized application process. WIPO performs many of the formalities of
a patent application in a centralised manner, therefore avoiding the need to repeat the steps in all
countries in which a patent may ultimately be granted. The WIPO coordinates searches performed by
any one of the International Searching Authorities (ISA), publishes the international applications and
coordinates preliminary examination performed by any one of the International Preliminary
Examination Authorities (IPEA). Steps such as naming inventors and applicants, and filing certified
copies of priority documents can also be done centrally, and need not be repeated.
The main advantage of proceeding via the PCT route is that the option of obtaining patents in a wide
range of countries is retained, while the cost of a large number of applications is deferred. However, it
should be noted there are variations in patent laws across countries. Patents are granted individually
by each country, and patent rights do not have cross-border validity.
The new patent system encouraged corporates to use Intellectual Property as an additional tool in their
strategies. The number of Indian patent applications has more than tripled from 2001 to 2007.
As of 2008, the Indian patenting system faced a number of infrastructural issues. The first issue was
that there were only 190 examiners. The low number of examiners led to delays in substantive
examinations and resulted in lead times of at least 3 years. Second, the database of existing Indian
patents was neither fully searchable, nor completely online. This made the search process tedious.
Third, with the patent laws being relatively new, there did not exist enough jurisprudence for to
predict the courts‟ interpretation of patent disputes.
15
Exhibit 9: International Search Report of Bajaj’s DTS-I Patent Application with WIPO
16
References
i
Bajaj Auto, Annual Report 2005-06.
Bajaj Auto, Annual Report 2006-07.
iii
Tiwari, Ranawat and Lange, India’s Long March to a Global Auto Major: A Study of Government Influence on
Industry Development in Post-Independence Era, Hamburg, 2009.
iv
George, Jha and Nagarajan, The Evolution and Structure of the Two-Wheeler Industry in India, Canberra,
2002.
v
Economic Times Analysis Group, Automobiles – 2 and 3 wheelers, Mumbai, November 2005.
vi
Economic Times Analysis Group, Automobiles – 2 and 3 wheelers, Mumbai, July 2006.
vii
Ibid.
viii
The Hindu Business Line, Hero Honda: Sell, October 2004
(http://www.thehindubusinessline.com/iw/2004/10/17/stories/2004101700140800.htm).
ix
Reuters, Hero Honda sees further margin pressure, July 2004
(http://www.expressindia.com/news/fullstory.php?newsid=33822).
x
Moneycontrol.com Bajaj Auto – TVS Patent Tussle: Who will emerge winner? September, 2007
(http://www.moneycontrol.com/india/news/business/bajaj-auto-tvs-patent-tussle-who-will-emergewinner/14/35/301870).
xi
Adapted from The Global Motorcycle Industry – 2003, prepared by Eric Cherng for Stanford Technology
Ventures Program, 2005.
xii
Hero Honda, Annual Report 2005-06.
xiii
Ibid.
xiv
Adapted from Anirvan Pant and J. Ramachandran Bajaj Auto Limited: Distinctly Ahead, Indian Institute of
Management, Bangalore, 2007.
xv
xvi
Indiabike, Six-Bike Shootout, January 2002 (http://www.indiabike.com/roadtest/sixbikeo/winner.htm).
xvii
Moneyconrol.com, Company History of TVS Motor Company, October 2009
(http://www.moneycontrol.com/company-facts/tvsmotorcompany/history/TVS).
xviii
xix
Krishnan RT, TVS-Suzuki Split: Launch for Global Leadership?, Economic and Political Weekly, October 13,
2001, pp. 3885-3886.
xx
TVS Motors, Annual Report, 2006-07.
xxi
Business Standard Motoring, Fire Starter: TVS’s latest offering in the 125cc segment, September, 2007.
xxii
Adapted from various sources on Wikipedia (http://en.wikipedia.org/wiki/Internal_combustion_engine).
xxiii
Adapted from Prowess data and Annual Reports.
xxiv
Indian Embassy Press Note, The Patents (Amendment) Bill 2005 passed by Indian Parliament, March 2005.
ii
17

Innovation, Technology and Competitive Strategy: Bajaj Auto

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