Steering in the Right Direction
Vendor Development and Foreign Partnership spell long term Success
How much has the advent of the ride-sharing industry propelled the growth of the motorcycle sector?
The ride-sharing industry is mostly concentrated in Dhaka, which is why I would say that the industry has had an impact in Dhaka city. Whereas, the rest of the country has yet to catch up. If I had to quote whether it resulted in increased sales, Dhaka city, yes, but for the country, no.
If you look at the plans of the ride-sharing companies, they aspire to service the entirety of Bangladesh, but then they also look at demand. Depending on demand, I am sure they will expand into other cities. If you look at Dhaka as a market, it’s maybe only 25% of the business of Bangladesh, so I would say that it is the rural areas, where the road connectivity is not smooth, is probably where you’ll see more of a demand for motorcycles.
What are you doing to ensure better road safety? Are there any CSR activities from the manufacturer’s side as a whole?
We are trying to work out something with BRTA, and trying to see if we can develop policies and training programs to ensure road safety. We are having dialogues with BRTA regarding two initiatives – one is road safety, the other one is training. BRTA needs to come out with a better policy on ride-sharing and how it should be performed. We as manufacturers can help them.
We are involved in CSR activities like in the past we had some training programs in terms of female training courses. We are also planning to also teach women how to drive bikes. Shohoz helmets have a TVS brand on them, so we are basically the suppliers for their helmets.
After the government cut supplementary duty (SD) on import of the two-wheeler’s components, the duty on import of completely knocked down units of motorcycle was slashed by 25 percentage points to 20 percent in 2016-17 to encourage local assembly and subsequent manufacturing. How much did the price of motorcycles go down because of this?
When you import things as a CKD (Completely Knocked Down), you pay a certain amount of duty. When the government changed the policy and gave more advantages in terms of duty benefit, they have a separate SRO called SRO155 which has three criteria – manufacturing, parts and components, CKD step. Depending on which criteria you fulfill you get better benefit. They issued a policy which said if manufacturers meet requirements like importing certain machines, and localizing some of the components so that we can fabricate the frame here in Bangladesh. We have automated machines/robots to do the welding, we are doing the painting with the paint booth, certain metal parts are being produced in Bangladesh – then you can enjoy the benefit of a reduced duty. A lot of the manufacturers are enjoying the benefit and they are passed on to the consumers in terms of reduced prices.
Can you expound on the kind of retail finance support the motorcycle sector needs from the banking sector to reach its full potential?
If you look at India, one of the huge explosions had come after the retail financing scheme started. In Bangladesh, the banks are still not able to process this, maybe because we don’t have a proper credit reporting system, so understanding the credit worthiness, or actually recovering bad debt, or loan amounts is a little bit difficult for them right now. Having said that, I think, banks can, of course, look into it because it is a huge market. A first mover can actually take advantage of this and it will probably be very lucrative, so I think if they are associated with the industry then the industry can actually grow 30, 40, 50% more if this kind of retail scheme is available.
How are price cuts, increasing purchasing capacity and thrust for faster mobility compound to the predicted 6 lakh units by the end of 2019?
There is always an organic growth in the market and it is already growing. In the last three years, we have seen that normally industries are growing 10-15%. Last year we had around 500,000 vehicles, and this year the projection is around 600,000. In addition to that what we see as the SRO benefits, if the price comes down even more, definitely then you are creating a newer market, so some people who are not able to buy before will be able to buy now, and that would probably add another 10-15% to the market. But the other ones in terms of mobility, and affordability, I think that goes hand in hand with the price. As the price goes down, people who couldn’t afford it can afford it now.
How are challenges like lack of vendor development for manufacturing required components and supply of those to manufacturers being tackled by the industry?
When we first worked with the government to develop these kinds of industries, one of our questions was the same – how are they going to help us. Initially, they wanted us to invest in all the back end things, for example, if you go to India or some other countries, most of the parts are made by vendors, and the motorcycle industry is doing the final assembly because it is very expensive and not feasible for me to make all the parts. A vendor can make parts for many companies, so their scale is much bigger than mine, that’s why we encourage the government to have some kind of vendor policy. It’s not that you should do everything in-house, but also pass it along to vendors so that vendors can develop and give us the parts that we need to assemble and manufacture the product. Maybe one vendor specializes in seats, another in metal parts, another in plastic parts, or another in aluminum casting for the engine.
The government can go to India and invite some of the Indian companies to come to Bangladesh and research and see if it is viable for these companies to develop their factories here and give them some incentive so maybe they can export back to India or some other countries. The first thing these companies will see when they set up a company is to see if it is viable or not, so their return investment is the first priority. Then secondly if they can see axillary profitability or if business comes from other revenue streams, then maybe they can be exported to a third party or countries.
What policy support does the motorcycle manufacturing industry seek from the government?
I think the government has already done a very good job of implementing a policy that is already in place. But of course, the most important thing is that a lot of times the government can change the policy. Like one year the budget is like this, then another year the budget is another way. Luckily for us working closely with the government, we’ve been able to work with the government to ensure that the long term strategy of the government doesn’t change, and that is the most important thing for us. Let’s say Honda or TVS were going to invest 200 or 300 crores in one project, if you have government policies changing every few years then it is hard for us to think long term because I am thinking I am investing 200 crores, how am I going to get it back? The most important thing for me is that the government has a long term plan, and sees it through.
For me, the motorcycle industry is a very prospective industry in Bangladesh, and we feel that Bangladesh has a huge scope to mend the infrastructure gaps in the transportation system. Definitely, this industry has a huge potential, at the same time, I think the government is doing a very a good job in helping us get there so that we can ensure better jobs, building more factories, developing vendors. So, that on itself is creating GDP output, creating more jobs. The training aspect, I think us as an industry can work hand in hand with the government.
Indian brands are a real threat for local manufacturers because Indian brands hold lion’s’ share of the market. How are local manufacturers tackling the competition?
For any business, if you want to develop anything in the automotive sector like designing a motorcycle, that can cost 100 million dollars. I am not sure the local manufacturers have the capacity to get back that sort of investment of R&D cost. The local players are struggling because they don’t have the budget, whereas India is thinking of exporting to 90 different countries, and Bangladesh is thinking about their own. I think the scale is very important so if any kind of automotive industry does not have the scale then you can’t make the money. Usually, the revenue is invested in more research and development.
Right now they are struggling, but for them to come out of it they need a foreign partner. In the 60’s India had joint ventures with all the Japanese manufactures, and now the Indian companies are independent and doing it on their own. For example, Hero was with Honda for forty years, therefore, Hero Honda then they split, Kawasaki was with Bajaj, TVS was with Suzuki. All these guys had years and years of technological supervision from Japan. Any local player looking to develop should do a joint venture with a foreign company, learn from them, and decide in a future point and time that they are ready to be independent and they can do it on their own.