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 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?
