11 avril 2014

BAJAJ: Frugal for BOP

Hamara Bajaj!!
In recent years, the Indian two-wheeler industry has seen spectacular growth. India currently has the second fastest growing two-wheeler market after China, which experienced 42 per cent growth (2010, marketline), and followed by Germany in third with 23 per cent growth. The Indian motorcycles market is forecast to have a volume of 19,099.6 thousand units, an increase of 38.4% since 2013.
India has an emerging economy, which has allowed people access to better career prospects and a higher quality of life. These economic advances have given people the opportunity to purchase affordable transportation products, such as motorbikes. BAL was founded in 1945, it is India's largest, and the world's 4th largest two- and three-wheeler manufacturer. Based in Pune, Maharashtra, the company has factories in Akurdi and Chakan (near Pune), as well as, Waluj and Patnagar in Uttaranchal. Bajaj Auto makes and exports motor scooters, motorcycles and auto rickshaws (a two or three wheeler motorised passenger cart).

BAJAJ Auto issue:

Bajaj Auto continues to struggle in the Indian market by posting a 6% degrowth for the third consecutive month. However Bajaj has seen a 5% increase in exports this month with 1,42,009 units (against 1,35,149 units in 2013 (Marketline)

Solution:  Changing the distribution system to be able to provide motorbike to rural zone The company is going to set up separate sales channels for every segment of its business and consumers. Bajaj Auto's entire product portfolio, from the entry level to the premium, is being sold by the same dealers. The restructuring will involve separate dealer networks catering to the urban and rural markets as well as its three-wheeler and premium bikes segments. Plans are now being firmed up to rationalise its 500-strong dealership network, in some cases closing down un-viable city dealerships or asking them to move to the rural areas. The company has identified 20 cities from rural geographies, where rural dealerships will come up, including Chakan near Pune, Niphad near Nashik, and the outlying areas of Surat and Kanpur. According to M. Bajaj, "The needs of financing, selling, distribution and even after-sales service are completely different in the rural areas and do not make sense for city dealers to control this". "The city dealer is happy with the proposal since he can focus on selling motorcycles which is witnessing huge growth," Mr Bajaj said, adding that the number of city dealers will come down slightly. "But, then, they get better volumes since discounting disappears when competition is reduced."
By targeting rural areas, Bajaj Auto will need to adjust its prices for a lower income population. To take upon this challenge, BAL will need to find new,innovative ways to reduce its cost.

Frugal innovation: How does BAL do it? What does it mean?

To decrease cost of the production BAL is using standard raw materials, but in order to provide a quality products it adds the latest technological features to the bike. This can be seen as Frugal Innovation, because BAL is removing all non-essential features from a durable good. This low cost manufacturing allows the company to reduce its overall costs so they are able to sell a high quality product, at a low cost price. This approach is also seen in the second principle of Jugaad innovation book, where they promote the idea, “Do more with less”. BAL is connected to a large supplier network (200/350 suppliers) to get the cheapest standard material. They are able to use economies of scales and bargaining power thanks to their market share 17,9% (2013, Marketline)

What BAL has already done to help the BOP (charity Business, education, social, environment)

The core elements of CSR include ethical functioning, respect for all stakeholders, protection of human rights and care for the environment. The Jamnalal Bajaj Foundation has been developing these elements in selected rural areas. CSR values are followed in order to maintain the well being and needs of the local people. Special emphasis is given to health, family welfare, immunisation, supply of portable drinking water, sanitation and alternative source of renewable energy. The firm is involved in a lot of charitable activities, such as community awareness campaign and health camps, but also a large amount of employment generation programmes. The JBF is also involved in a hospital (Kamalnayan Baja Hospital) located in Aurangabad, providing specialist care, medical facilities which are not available in this region.

According to what we said previously, how BAL will be able to provide its motorbike to BOP?

By using the BOP approach, BAL is able to supply motorbikes to the majority of its target consumers in the rural zones of India. BAL is well known brand in the rural zone of India, and due to the low price of their products they can easily sell them. People can understand the company's motives and the benefits BAL can offer them.

Conclusion

After several years of competing against Honda’s Hero, BAL decided to reorganise its business structure, following the concept of frugal innovation, in order to address the rural Indian market. This approach can be considered as Frugal since it seems to follow the 6 rules mentioned in the book. Since BAL is targeting under privileged consumers the analysis of the company shows it can be considered as a BOP approach (this term might be use for MNC operating in developing economies).
Furthermore, the authors also define the western approach on innovation as “ industrialisation of the creative process led to a structured approach to innovation with the followings key characteristics: big budgets, standardized business process, and controlled access to knowledge.” This model of innovation management has 3 clear limitations: “Too expensive and resource consuming, it lacks flexibility, and it is elitist and insular” according to the authors. This differs to opinion of the market followed by BAL, which is more flexible, uses more efficient methods to address developing markets.
Enhanced by the success in India, BAL wants to export its model and implement its activities in emerging markets, such as Africa. Is their success only due to their strong national image after what they have done for the BOP in their own country? Will this strategy be as successful in other emerging countries without applying any tailored CSR approaches to their individual economies?

By  Quentin Girardeau, Thomas Hénault, Malik Simon, Vincent Pensa, Alix Lalire, Martin Leblond -
- Esc Pau MBA franco-Indien - Avril 2014.



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