The Trend Of Outsourcing In Bicycles Will Pick Up

Updated: Jan 31 2004, 05:30am hrs
The year 2000 was a landmark one for Brijmohan Lall Munjal group company, Hero Cycles. It became the worlds largest manufacturer of bicycles when it clocked the production figure of around 5.5 million bikes. Since then, things have been moving very fast at the Rs 1000 crore Hero Cycles. In a bid to get a strong foothold in the growing international market for bicycles, the company tied up with Japans National Bicycle Industries (NBI) last year, which will provide the company an opportunity to move a notch higher in the international markets.

Hero Cycles managing director, Sunil Kant Munjal is clear that the thrust will be on the international markets and he wants the export contribution to grow over the next few years. Excerpts from an interview with Sanjay Sardana of FE.

How will the joint venture with National help Hero Cycles
The strategic tie-up with Japans National Bicycle Industries (NBI) has started manufacturing high-end cycles for exports. The tie-up with NBI, part of Matsushita Electric, will not only give us international recognition in the high-end bicycle market, but also significantly strengthen our technical expertise. This combination will thereby give Hero Cycles a competitive edge and open doors for other lucrative exports markets such as the US.

Apart from this, there will be a buy back as well as contract manufacturing for National Bicycles as well.

National is initially expected to out source around three lakh cycles from us. The cycles will manufactured at the new Rs 30-crore facility set up in Ludhiana last year has already commenced operations, but the exports to Japan will start over the next few months.

What about the branding
We will have a common brand National-Heroin Japan, which will specifically mention that the product has been made in collaboration with Hero Cycles. Although there will be no co-branding on the product, but at the same time we will be branding a few products for them. However, as per the agreement, we are free to market the brand independently. The idea is to get the best of both worlds. It is still early days and we have to see how does it go further.

Will there be any clash of interest
No, there will not be any clash of interest as we will will be exporting to Japan through National. In fact we will be using their designs to export to other countries as well. National will be procuring some of he products for a few of its markets outside Japan, as a result, Hero in India will become a sourcing hub for them. The trend of outsourcing will pick-up as has been seen in auto components and business process.

What are your export plans for markets other than Japan
The thrust is surely now on the the international markets and the new plant in collaboration with National has been designed with a special focus on the global markets. Bicycle exports today for Hero Cycles currently account for almost 10 per cent or Rs 100 crore of total turnover of Rs 1000 crore. After setting up of the new facility in Ludhiana, export revenues are expected to grow by almost two and a half times to Rs 250 crore or more than 15 per cent of the total revenues. Apart from Japan, we are aggressively looking at growth in the highly developed markets including the US and parts of Europe.

What are your plans for China
We have not been able to make up our mind completely. We have looked at that market earlier also, but have not been able to convince ourselves. China is a big market; we may look at in future but we have no immediate plans for China. However, we have already started exporting some components to China in a small way. We are still studying that market before taking a plunge into that market.

Will China be a threat in the wake of the recent drop in import duties
Although China will be a big threat, but we have been competing with them for almost 30 years now. We have exporting to more than 70 countries and are confident to do well despite the drop in import duties.

The domestic bicycle industry has been very competitive. How have you coped with the situation
On the back of increasing demand, we are infact increasing out daily capacity to around 20000 bicycles from 16000 bycycles earlier. The consumer has become very price sensitive in the domestic market. Either we were supposed to lower the prices or add value. We chose te route of adding value to the product and offer the product at same price. The customer always looks for more value for the same price. This been the phenomenon across the board for consumer products and we are no exception to that.

What sort of value addition have you done
With the changing consumer preferences, we have also changed. We have been constantly adding new variants for our earlier models taking into account the consumer preferences. During the past few months, we have added 5-6 new models in bicycles, which have been taylor-made to customer preferences.