Effort to transport domestic success

By Peter Marsh
Published: January 25 2006 18:30

A gleaming motorcycle plant in Chakan, near Pune, is intended to be the springboard for a move by Bajaj Auto, India’s second biggest maker, to become a global force in the business of small motorcycles and scooters – a field of transport in which Asia accounts for easily the biggest fraction of the world market.

The ambitions of Bajaj – the fourth biggest maker of motorised two-wheelers in the world behind a trio of Japanese companies – underline how several leading Indian manufacturers want to use their fast domestic expansion during the past few years as a base for building up sales elsewhere.

In other industries in India, Bharat Forge, Sundram Fasteners – part of the TVS conglomerate – and Amtek are trying to do something similar in the field of automotive components. Moser Baer, a large maker of data storage disks, is building its presence in the world electronics sector.

Bajaj, headed by Rahul Bajaj, the chairman, has been helped by rapid increases in demand in India during the 2000s for small motorbikes, and a fast growing form of transport among urban dwellers. An important part of Bajaj’s progress has been heavy emphasis on labour-saving production techniques designed to increase the sophistication and quality of the company’s products and a new focus on design and development.

The latter has required the hiring of 250 extra development engineers in the past five years, to bring the company’s total complement of design staff to 650, out of a workforce of 10,500. Against the notion that Indian manufacturers are likely to base their strategies on using large numbers of poorly paid workers to capitalise on India’s cheap labour costs, Sanjiv Bajaj, one of two of Rahul’s sons involved in the business, says Bajaj has sought to reduce the number of low-cost employees, replacing them wherever possible with machines.

“Low-cost workers do not provide consistent products,” he says. A test bed for Bajaj’s production ideas – which it reckons will work out useful for a period of international expansion which it hopes lies ahead – is the Chakan plant, which opened in 1999 at a cost of $60m. It is the newest of the company’s three plants, all based in India.

Many of the production ideas in the plant were suggested by experts from the Japan Institute of Plant Maintenance, which advised Bajaj during the late 1990s on new manufacturing routines.

In step with the opening of the Chakan plant, Bajaj cut its overall workforce by more than half, even while pushing up overall sales and production volumes considerably. Since the late 1990s, the workforce has fallen from 23,000 – a process that necessitated a lengthy court fight with groups of workers who argued that their redundancies went against India’s strict labour regulations governing employment protection. “It was a tough battle and we ended up paying a lot of people compensation,” says Sanjiv Bajaj.

However the company reckons the process of basing manufacturing on automated processes more akin to those common in high-cost countries will set the scene for a big push to increase Bajaj’s global presence. “Direct labour [factory worker] costs are now only about 4 per cent of our operating costs,” says Mr Bajaj. “For a company like ours in India you’d be more likely to see this figure at around 20 per cent.”

He says that as a consequence of the new capital intensive methods and reduction of employees, Bajaj’s productivity, as measured by value-added per worker, has risen three-fold since the late 1990s. Such a good productivity performance, the company says, is vital if Bajaj is going to make a decent job of competing globally against Honda, Yamaha and Suzuki.

Bajaj’s position is helped by the Indian market in these machines being the second biggest in the world after China, accounting for sales in 2005-06 of a projected 7m to 8m units, compared with 11m to 12m for China. The total world market is estimated at between 35m and 40m machines a year, with other Asian countries also having a strong position in terms of demand. The US, western Europe and Japan, in contrast, account for sales between them of only 3m to 3.5m motorcycles and scooters a year.

“Bajaj now accounts for about 5 per cent in units of world demand of motorised two wheelers [excluding mopeds],” says Mr Bajaj. “But we’d like to expand this to more than 10 per cent in five years’ time – something that would require us to more than double our output.”

In 2004-05, only Rs6.9bn, or less than 10 per cent of Bajaj’s total sales of Rs63.4bn, came from sales outside India, all from exports. Out of the company’s total production in 2004-05 of 1.8m vehicles, 1.5m were motorcycles and the rest were scooters and three-wheeled auto-rickshaws, a form of transport used in many Indian cities and villages as rudimentary taxis and goods carriers.

The company wants to build up non-India sales in the next five years to 30 per cent of its output by volume, partly by expanding exports but also by building plants outside its domestic base. Bajaj is planning this year to open factories in Indonesia and Nigeria. “After this we could open up new factories in Pakistan and Iran,” Mr Bajaj says.