BAJAJ Auto: SWOT and PESTEL Analysis

INTRODUCTION

BAJAJ AUTO came into existence on November 29,1945 as M/s Bachraj Trading Corporation private limited. It started off by selling imported two and three wheeler in India .In 1959, it obtained a license from Government of India to manufacture and it went public in 1960.In 1970, it rolled out its 100,000th vehicle. In 1977, it managed to produce and sell 100,000 vehicle in a single financial year. In 1985,it started producing at Waluj near Aurangabad. In 1986,it managed to produce and sell 500,000 vehicle in a single financial year. In 1995,it rolled out its ten millionth vehicle and produced and sold 1 million vehicle in a year.

The company is headed by Rahul Bajaj who is worth more than US$1.5 billion.According to the author of Globality : competing with Everyone from Everywhere for Everything, Bajaj has grown operation in 50 countries by creating a line of value -for-money bikes targeted to the different preference of entry- level buyers.

(Kwenkbodenmille, 2008)

LITERATURE REVIEW

Swot Analysis’

SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. Opportunities and threats are external factors.

In SWOT, strengths and weaknesses are internal factors.

Strength could be:

• Your specialist marketing expertise.
• A new, innovative product or service.
• Location of your business.
• Quality processes and procedures.
• Any other aspect of your business that adds value to your product or service

Weakness could be:

• Lack of marketing expertise.
• Undifferentiated products or services (i.e. in relation to your competitors)
• Location of your business.
• Poor quality goods or services.
• Damaged reputation.

In SWOT, opportunities and threats are external factors.

An opportunity could be:

• A developing market such as the Internet.
• Mergers, joint ventures or strategic alliances.
• Moving into new market segments that offer improved profits.
• A new international market.
• A market vacated by an ineffective competitor.

A threat could be:

• A new competitor in your home market.
• Price wars with competitors.
• A competitor has a new, innovative product or service.
• Competitors have superior access to channels of distribution.
• Taxation is introduced on your product or service. (Gerry Johnson, 2008)

PESTEL analysis of the macro-environment

There are many factors in the macro-environment that will effect the decisions of the managers of any organisation. Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change. To help analyse these factors managers can categorise them using the PESTEL model. This classification distinguishes between: (Anon., 2011)

Political factors-

These refer to government policy such as the degree of intervention in the economy. What goods and services does a government want to provide? To what extent does it believe in subsidising firms? What are its priorities in terms of business support? Political decisions can impact on many vital areas for business such as the education of the workforce, the health of the nation and the quality of the infrastructure of the economy such as the road and rail system.

Economic factors-

These include interest rates, taxation changes, economic growth, inflation and exchange rates. As you will see throughout the “Foundations of Economics” book economic change can have a major impact on a firm’s behaviour.

Social factors-

Changes in social trends can impact on the demand for a firm’s products and the availability and willingness of individuals to work. In the UK, for example, the population has been ageing. This has increased the costs for firms who are committed to pension payments for their employees because their staffs are living longer. It also means some firms such as Asda have started to recruit older employees to tap into this growing labour pool. The ageing population also has impact on demand: for example, demand for sheltered accommodation and medicines have increased whereas demand for toys is falling.

Technological factors-

New technologies create new products and new processes. MP3 players, computer games, online gambling and high definition TVs are all new markets created by technological advances. Online shopping, bar coding and computer aided design are all improvements to the way we do business as a result of better technology. Technology can reduce costs, improve quality and lead to innovation. These developments can benefit consumers as well as the organisations providing the products.

Environmental factors-

Environmental factors include the weather and climate change. Changes in temperature can impact on many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a significant issue for firms to consider. The growing desire to protect the environment is having an impact on many industries such as the travel and transportation industries (for example, more taxes being placed on air travel and the success of hybrid cars) and the general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities.

Legal factors-

These are related to the legal environment in which firms operate. In recent years in the UK there have been many significant legal changes that have affected firms’ behaviour. The introduction of age discrimination and disability discrimination legislation, an increase in the minimum wage and greater requirements for firms to recycle are examples of relatively recent laws that affect an organisation’s actions. Legal changes can affect a firm’s costs (e.g. if new systems and procedures have to be developed) and demand (e.g. if the law affects the likelihood of customers buying the good or using the service). (Anon., 2011)

SWOT ANALYSIS:

STRENGTH:-

Bajaj Auto is LEADING automobile &manufacturing company in India. It is one of the India’s trusted two wheelers manufacturers. It is an operative subsidy of the Bajaj Group. Bajaj Auto happens to be the largest two and three wheeler manufacturer in India and also ranks in this field across the globe. This automobile company was established on 2 November 1945. The company was then known as M/s Bach raj Trading Corporation Private Limited. The company made a modest beginning by importing and then selling two and three wheelers in India. Today Bajaj Auto has become synonymous with two and three wheelers in the country. Some of its popular two wheelers are; Pulsar 220DTS and Kawasaki Ninja 250R.Bajaj have highly experienced management. Company mainly focus on R&D and fulfil of customer needs and requirements. (Ashwin, 2010)

Bajaj Auto has been sitting on a cash pile for over five years now. Over the next couple of years, competition in the two-wheeler market is set to intensify. TVS Motors and Hero Honda are on a product expansion binge. To fight this battle and retain its hard-earned market share in the motorcycle segment, Bajaj Auto will need its cash muscle. A look at its own story over the past five years provides valuable insight. (Anon., n.d.)

Earlier, most of the products that Bajaj exported were scooters and some motorcycles. However, in its target markets, like in India, the shift was towards motorcycles. With the expansion in Bajaj’s own range to almost five-six platforms of motorcycles, it had a better offering to export, also the reason for its stronger showing. For the last fiscal, 60 per cent of its exports were two-wheelers and the rest three-wheelers. Of the two-wheeler exports, close to 90 per cent were motorcycles. Bajaj has identified certain key markets, which hold potential. Its first overseas office established at the Jebel Ali free trade zone has been the focal point for exports to middle Africa and the Saharan nations. Egypt and Iran also continue to be strong markets for Bajaj. The other market, which would be a focus area, is South America, where the company feels it is fairly well represented in most countries, except in Brazil, the largest market. The company recently participated in a large auto exhibition in Brazil and found good consumer acceptance to products like Pulsar and Wind 125.

Thus, in India, Bajaj would see swanky four wheels jostling with our ever reliable and sturdy steed the two wheeler India is the second largest producer and manufacturer of two-wheelers in the world. It stands next only to Japan and China in terms of the number of two-wheelers produced and domestic sales respectively. Indian two-wheeler industry has got spectacular growth in the last few years. Indian two-wheeler industry had a small beginning in the early 50’s.The Automobile Products of India (API) started manufacturing scooters in the country. Bikes are a major segment of Indian two wheeler industry, the other two being scooters and mopeds. Indian companies are among the largest two-wheeler manufacturers in the world. In the initial stages, the scooter segment was dominated by API; it was later overtaken by Bajaj Auto. (Anon., 2007)

Weakness:

The promotions and ads of Bajaj are very less as compared to its competitors. Some of the products of Bajaj like Pulsar require high maintenance. It expected that by 2020 scrap generated by end of life vehicles in India would be about 2.5 million tonnes and 40% of it will come from two wheelers. But Bajaj is not capable enough to recycle the scrap generated and may impose environmental threat.

In Bajaj group there is no organized labour union and family members of employees find ready employment within Bajaj. The philosophy with regard to labour management is “Bajaj is growing, grow with Bajaj.” Bajaj workers receive a uniform allowance, as well as House Rent Allowance (HRA) and Leave Travel Allowance (LTA). Extra benefits include medical check- ups not just for workers, but also for the immediate family members. For the majority of the production workers, who are hired through contractors, these benefits are out of reach. This and other problems lead to a strike and factory occupation by 4,000 temp workers in the pune plant in spring 2006 (Ashwin, 2010)

Bajaj Hasn’t employed the excess cash for long. Bajaj has no established brand to match Hero Honda’s Splendor in commuter segment not a global player in spite of huge volumes. Bajaj Not a globally recognizable brand (unlike the JV partner Kawasaki) (Anon., 2011)

Opportunities:

Double-digit growth in two-wheeler market. Untapped market above 180 cc in motorcycles. More maturity and movement towards higher-end motorcycles. The growing gearless trendy scooters and scooterette market. Growing world demand for entry-level motorcycles especially in emerging markets.

The Inevitable Change

Bajaj on internal analysis found that it lacked –

1. The technical expertise to deliver competitive goods.
2. The design know-how.
3. And the immediate inability to support the onslaught of competitors.

All these forced Bajaj to look for an international partner who could bring in technology and also offer some basic platforms to be manufactured and marketed in India. Kawasaki of Japan is a world-renowned manufacturer of high performance bikes. Bajaj entered into a strategic tie-up with Kawasaki in late 1990s to enhance its product line and knowledge up-gradation to support long-term strategies.

This served the purpose of sustaining the market competition for a while. From 1996 to 2000, Bajaj invested hugely in infrastructure while simultaneously developing product design and innovation capabilities, which is the prime reason behind the energetic Bajaj of 21st century. Bajaj introduced a slew of products right from entry-level motorcycle to the high premium segment right from 2001 onwards, and since then its raining success all the way for Bajaj. (Anon., 2007)

Last quarter, Bajaj had impressive performance growing at a rate of 20%+ when the largest manufacturer grew at just 6%. This stands a testimony to the various important strategic decisions over the past decade.

The focus of BAL off late has been on providing the best of the class models at competitive prices. Most of the Bajaj models come loaded with the latest features within the price band acceptable by the market. BAL has been the pioneer in stretching competition into providing latest features in the price segment by updating the low price bikes with the latest features like disk-brakes, anti-skid technology and dual suspension, etc.

NCAER data for top 24 cities in India shows migration to higher income levels growing at over 40 per cent per annum. Prosperity in rural India is also a significant phenomenon, with 43 per cent of households in middle and the high income groups coming from rural India. More incomes per person, more persons will lead to a quadrupling of India’s consumer markets in the next two decades, a 2007 study by McKinsey Global institute has projected. And this will provide Company the ballast to sustain and consolidate its leadership position.

Good will of the company: If the company utilizes the good will they have gained so far from their customers, they can increase the sales performance by economizing the cost and few technical renovation of the product. With new launch they can be benefited at present market scenario like Pulsar, Ninja has huge attraction towards the younger generation because of its style, sporty look, and high accelerating power and is stable at its feet even at high speeds. (Ashwin, 2010)

Threats:

The competition catches-up any new innovation in no time. Threat of cheap imported motorcycles from China. Margins getting squeezed from both the directions (Price as well as Cost)

Finance assistance: Easy availability of finance is the main cause of sales growth and any restriction will hamper its growth prospects.

Inflation: If inflation increases cost of raw material used in production will go high and selling price may go high that may decrease demand of the two wheeler.

Technical renovation aspect: Competitor bike like Karizma splandar and apache are threat to Bajaj product like Pulsar & Discover in respect to fuel economy. So if they don’t short out in the new launches and give something extra in its engineering performance it may affect in demand of this company product. (Ashwin, 2010)

For PESTEL analysis refer Appendix

RECOMMENDATIONS:

1) Use excess capacity present to produce ungeared scooters for women. The female population constituting around 50 per cent of our addressable population contributes less then 10 percent of the total two-wheeler demand. With urban markets with addressable male population getting saturated, players will have to aggressively target the women population for expansion.

2) Review product mix, focus on R&D to bring new products in market

Demographics show increased youth population

Young people fashion savvy

3) Focus on Rural market: Rural markets currently contribute around 45 per cent of the industry’s demand. However, going forward, with urban markets getting saturated, analysts expect a rise in demand from rural markets. To address the changing dynamics, BAJAJ would have to resort to aggressive rural-centric sales and promotional activities. BAJAJ would have to alter marketing strategies by focusing on rural oriented adverting on mass media, educative road shows and create aspiration values for the products, and expand their sales distribution network.

• Introduce low cost models
• Develop sales distribution network which is currently weaker than other players
• For rural youth, introduce low cost trendy vehicles

4) Increase focus on exports and penetrate new markets:

With domestic demand for two-wheelers slowing down, it would be increasingly important for BAJAJ to look beyond boundaries to partially mitigate the slowdown. BAJAJ would accordingly have to develop products suitable for different markets; high investments are required for setting up manufacturing facilities and for building a reasonable level of brand equity. Till now BAJAJ focussed only on economy class and developing country markets, but now in those segments it is facing competition from cheap Chinese players. Therefore need arises to penetrate new markets like USA and UK.

CONCLUSION:

Bajaj auto faces stiff competition from the Market leader Honda and closest rival Suzuki. It is because they are not able to create reliable brand image among their customers. They need to focus on developing their products that can give better experience to their consumer.

1. From the survey, it is seen that Bajaj is only able to somewhat satisfy their costumers from their products. They need to create a great sense of joy in their customers by offering unmatched product features and service that will make their customers loyal to the brand and this will greatly help Bajaj in increasing its market share.

2. Bajaj’s product prices are in comparison with its leading competitors. The problem is that consumers do not think that Bajaj has that much value and hence prefer to buy other brands. Bajaj need to offer more competitive pricing and better promotions to sell their motor cycle better.