STRATEGIC MANAGEMENT PROJECT

On

BUSINESS ENVIRONMENT OF HERO MOTOCORP

Submitted To: Mr. Vivek Singh Tomar

Submitted By: Tanvi Gupta MBA-HR A-20

AMITY BUSINESS SCHOOL AMITY UNIVERSITY UTTAR PRADESH SECTOR 125, NOIDA 201301, UTTAR PRADESH, INDIA

MACRO ENVIRONMENT ANALYSIS 1. Political- Legal Factor: Political- legal environment factor particularly in a mixed economy like ours, and affects the working of business organization significantly. The Indian Auto industry is harmonizing both safety and emission regulation with international standards for sustained growth. Government policy impact on petrol prices: petrol prices determine the running cost of two wheelers expressed in rupees per kilometer. Petrol prices are the highest in India as GOI subsidizes kerosene and diesel. Improvement in disposable income: With the increase in salary levels due to entry of multinationals following liberalization process the disposable income has improved exponentially over the years. This will have a multiplier effect on demand for consumer durables including two wheelers. This is already witnessed in improved demand two wheelers. Implementation of mass transport system: many states have planned to implement mass transport systems in state capitals in the future. This will have a negative impact on demand for two wheelers in the long run. But taking into account the delays involved in the implementation of such large infrastructure projects; we expect the demand to be affected only five to seven years down the line. 2. Economic Factor: Marketers need to consider the trading company in short term and long term. Economic factors have major impacts on how business operate and how to they make decisions. Domestic and global factors ensured that economic growth slowed down significantly during 2011-12 after two strong years in Hero Motocorp said by the chairman. Global macroeconomic and financial uncertainty, weak external demand, elevated level of prices, widening twin deficits and falling investment combined to adversely affect the growth. Structural weaknesses, in the form of policy uncertainty, inflation and rising interest rates weakened the growth environment further. Though India outperformed most of its peers in terms of growth, its potential and actual growth slowed. After tightening monetary policy till October 2011, the Reserve Bank paused hiking policy rates, and affected a cut in March 2012. However, the growth rates remained weak at the time of writing. 3. Social Factor: Social factors that include the demographic and cultural aspects of the external macro environment. These factors affect the customer needs and size of possible market. Hero Motocorp has been setup on 40 acres of land along the Delhi jaipur highway. The center complete with wide approach roads, clean water, and education facilities for both adults and children. Hero Motocorp taken up by the foundations include: Raman Munjal Memorial Hospital, Raman Munjal Sports Complex, Vocational Training Center, Adult Literacy Mission, and Rural Health Care. 4. Technological Factor: During the year, the Company profoundly emphasized on enhancing the existing technology landscape and also ushering in new technologies to improve upon its operations. Hero Connect, the Companys Dealer Management System, was expanded further. By the end of the year, the system was successfully deployed at 645 dealerships across the country. In the next step, the system will be in the process of being deployed further to the nexttier of customer touch-points. Besides this, various other IT applications were enhanced during the year in order to provide them with better collaboration capabilities. The Company also

undertook efforts to improve its operational efficiency and supply chain. Enhancement was also done in the analytics area to ensure the organization had a strong decision support system. Besides, an advanced system for business reporting and dash-boarding has been deployed to ensure reporting processes are made more effective. 5. Environmental Factor: Integrate Environmental attributes and cleaner production in all business processes and practices with specific consideration to substitution of hazardous chemicals, where viable and strengthen the greening of supply chain. They continue the product innovation to improve environmental compatibility. Example: Among two wheelers, the selected models, Splendor and CD 100 are most eco friendly two wheelers. HERO ELECTRIC TO FORAY INTO OVERSEAS MKT CHANDIGARH: Bike maker Hero Electric has decided to foray into overseas market starting with exports of e-bikes to SAARC countries this year and also plans to set up a new Greenfield assembly unit. "We have plans to export 4,000-5,000 units of bikes this year to SAARC countries to tap overseas markets," Hero Electric Managing Director Naveen Munjal said here. Stating that the company would have exclusive dealers in the neighboring countries for its exports project, he said, "Initially export will account for 1516 per cent of total sales." The two-wheeler industry has been hit hard by the prevailing high interest rates as well as the credit squeeze in the market. Hero is looking at the non-banking finance company (NBFC) route to get into the retail finance market, on the lines of its rival two-wheeler companies Bajaj Autos Bajaj Auto Finance and TVS Sundaram Finance of TVS Motors. When contacted, the Hero spokesperson said: There is nothing concrete at this stage. We are looking at various possibilities to increase financing options for our products in the market.

MICRO ENVIRONMENT ANALYSIS

1. Labors- Suppliers: Hero Motocorp, the leading two wheeler maker in the Indian market, is facing workers strike on August, 10,2012 at the plant of its two critical component suppliers in the country, demanding right to form a union as well as higher wages. The workers of Satyam auto and Rockman industries, component suppliers to the Hero Motocorp Haridwar plant. However, Hero Motocorp has been claiming that these strikes have not impacted the production of the company. 2. Customers: Hero Motocorp respect the diversity and plurality of India and have always believed in connecting with different communities in a manner that best suits and excites them the most. Whether it is Onam, Akshayatritya, Ugaadi, Baisakhi, Pongal, Ganesh Chaturthi or Bihu, Hero Motocorp celebrates regional festivals in its own inimitable way: Dhak Dhak Go! Hero Motocorp has also launched an extended warranty programme called Advantage for our customers, where customers can enjoy the benefit of Extended Warranty options. The maximum warranty is for five years or 70,000 kms, whichever is earlier. This transferrable, online all-India warranty is unique, in that it has the largest parts coverage and the lowest pricing in the entire two-wheeler industry. The programme is also tailored to ensure good customer retention for dealers and SSPs, thus helping them improve their revenues from the sale of spares and services. As on May, 2011, we had enrolled over four million customers under the Advantage programme. During the past year (on-month basis) the programme witnessed a conversion rate of 60%, unheard of in the domestic two-wheeler industry. 17% of the sales are happen through this programme. 3. Competitors: The key threat for Hero is the launch of Honda Motorcycle and Scooter Indias (Honda) Dream Yuga, which Citigroup Global Markets analysts Jamshed Dadabhoy and Arvind Sharma believe has the potential to destabilize market share in the executive segment. Further, a slowing in the domestic segment will hurt Hero more than Bajaj Auto, as the latter gets about 36 per cent of its volumes from exports. The areas of opportunity for Hero will be exports, the fast growing scooter market and the premium motorcycle segment. At Rs 1,973, the stock is trading at 15 times its FY13 estimates. Given competitive pressures at home and untried export markets, most analysts have a sell/hold rating, with price targets at Rs 1,650-1,950. 4. Financiers: Hero Motocorp, the company that marked de-growth during the preceding months of July and August 2012 amid challenging environment where erratic monsoon rains, rising petrol prices and high interest rates affected retail sales in the rural and urban areas-aggravated during the month of September marking slowdown in sales, with sales of below 5 lakh units at 404787 units against 549625 units being sold in September last fiscal, observing de-growth of 26.35%. Commenting on the sales performance, Mr.Anil Dua, Senior Vice-President (Marketing & Sales) of Hero Motocorp Ltd said that, "The sales number of September reflects the prevailing market sentiment in the automobile industry.

INDUSTRY ANALYSIS There are basically five points which are include in industry analysis and these are: 1. Industry setting: It deals with the pattern of an industry in terms of their stages of evaluation and maturation as well as geographic dimensions such as fragmented industry, Emerging industry, industry undergoing on maturation, decline industry and global industry. Acc to survey Hero Motocorp belongs to maturation as well as global industry. 2. Industry structure: The industry structure means the economical and technological factors of an industry. Structure is decided by some basic criteria such as pure monopoly, pure oligopoly, pure competition, differentiation oligopoly, monopolistic competition. Hero Motocorp belongs to the pure competition because of here the large no. of sellers are selling bikes. 3. Industry Attractiveness: every company try to increase its overall customers by various activities whatever it is marketing or other strategies. Industry attractiveness define as nature of the demand, industry potential, profit potential, entry and exit ratio. The nature of the demand: So high, as everyone can see Heros bike everywhere in India. Industry potential: The scope of Heros bike is great in whole market of India as well as in global market. Profit potential: The attractiveness of the company is high due to profit margin of the company is high. Entry & exit Ratio: Hero Motocorp doesnt have any exit barriers. 4. Industry Performance: If the performance of the company is high then profit is high, and if profit is high industry growth is high. Performance of the company can be measure from profit, task efficiency, technology and innovation. Acc to Hero Motocorp survey: Profit: The Company sold 15.7 lakh units in the quarter, up 8%. However, fore fluctuations impacted its performance. For the financial year ended March 31, 2012, the company's net profit increased by 23% to Rs 2,378 crore against Rs 1,928 crore in 2010-11. Net sales for the company rose to Rs 23,368 crore in the fiscal as compared to Rs 19,245 crore in 2010-11. Innovation: company focuses more and more behind innovation like continuously launching new model in market. Technology: Hero Motocorp uses high standard technology which can be seen in their products. 5. Industry practices: Depends on price, distribution, promotion and R&D. Price: Hero Motocorp provides full qualitative products and after sale services but they dont compromise with their pricing policy. Distribution: The sale and service centers of Hero Motocorp are now spans over 3000 points. The service network comprises of a mix of dealership, servicecenters, share points and spare parts stockiest.

Promotion: Hero Motocorp is more concentrates on branding on the occasions such as Cricket world cup, Common Wealth Games. And also ambassadors signed with them are PRIYANKA CHOPRA, HRITHIK ROSHAN, VIRENDRA SEHWAG, and YUVRAJ SINGH. The official theme song HUM MEIN HAI HERO is composed by A.R.REHMAN.

PORTERS FIVE FORCES MODEL OF HERO MOTOCORP

Figure 1: Porter's five forces model

1. Threats of new competitors: M&M buys Kinetic, enters two-wheelers Biz: Mahindra &
Mahindra, Indias largest tractor and utility vehicle maker is buying the business assets of lossmaking scooter maker kinetic Motor Company for Rs 110 crore to gain an entry into the twowheeler market. M&M will buy the stake through a new joint venture in which it will hold 80% and kinetic the rest. Mahindra group found it natural to look at all aspects of transportation business. To this end, the group also plans to make heavy commercial vehicles. It is added that group plans to build its two-wheeler business on the back of its global sourcing expertise, experience in building differentiated brands and utilizing the strength of Mahindra finance. Kinetic Motor co. which used to have a tie- up with Honda revolutionized the scooter market two decades by introducing the gearless scooter.

2. Rivalry among existing firms in industry: The main rivalry that Hero is facing from Bajaj Auto
ltd, TVS Motor Company ltd, Yamaha Motors India ltd, Royal Enfield ltd, Honda motorcycle and scooter India ltd. In the economy segment Bajaj is the leader with 46% of the market share with boxer being the largest selling bike in this segment. In the executive segment, Hero is the leader with 67% market share with splendor and passion leading the market. TVS has launched ApacheRTR150 in last year and Yamaha Motors has launched new bikes named FZ16 and R15 is a premium segment bike in order to counter Karizma and Pulsar 220 DTSi.

3. Threats of substitute Products:

The CBZ and HUNK has taken the market by storm in the premium segment it has clearly displaced that the other models of this segment and looks like the things had remained this way for some time but there tough times ahead since Honda and Bajaj to launch a new bikes in this segment by this year which means that there is lot to look ahead from a consumers point of view. Bajaj auto ltd is the second biggest manufacturers of motorcycles. The companys recent indigenous new launches in the new 150/180/220cc pulsar which has not affected the market share of the bikes like Honda CBZ Extreme, Karizma ZMR would rule this segment till the time there are some new launches in this segment by other manufacturers. With the second-hand car market developing, a preference for used cars to new two wheelers among vehicle buyers cannot be ruled out. Nano is expected to change the automobile market in India. It would cater to a typical middle income Indian family of four who wants to avoid rain, wind and dust. The 100-125cc two-wheeler range, which comprises 90% of the two wheeler market in term of sales, is expected to affect with the launch of Nano. The face of auto industry that was redefined with the invention of fuel-efficient fourstroke engine technology is all set for new era in two wheeler industry. Its not petrol or diesel or any other fuel, but its electricity that have initiated a revolution in two wheeler industry in India. This will definitely give all the major players a ruin for their money.

4. Suppliers bargaining power:

Two-wheeler manufacturer Hero is into discussions with Energtek, a provider of absorbed natural gas products, for technology that would enable two wheelers on gas instead of petrol. Energtek, which offers absorbed natural gas (ANG), technology, has initiated discussions to supply the new technology and claim that ANG will reduce fuel cost by 50%. Here as the supplier is lone player in the market so there will be somewhat monopoly in the market. But usually it is low, due to stiff competition in market.

5. Bargaining power of customers: The customer of Hero Motocorp is very loyal. Infact Hero was
able to retain their customers by providing very good services with the help of wide range of service centers and customer services. Bargaining power of customers is very high due to availability of options. Hero Motocorp was able to control bargaining power of customers by its affordable pricing along with best quality in its products. Hero Motocorp has done very good job in order to satisfy customers. Pricing, customer service and quality is maintained.

COMPETITIVE ANALYSIS While a slowing in sales volumes has taken the shine off Hero Motocorp stock, down four per cent in April against a one per cent fall in the Sensex, the expected rise in competitive pressures over the coming months and slowing industry volumes have raised concerns over its medium- to long-term outlook. A drop in crop realizations and lower two-wheeler sales has translated to a mere 2.4 per cent year-on-year growth for Hero in the month of March. Given the high base, it is likely to achieve eight to 12 per cent growth in volumes in 2012-13, estimate analysts, compared to 15.4 per cent in 2011-12. The key threat for Hero is the launch of Honda Motorcycle and Scooter Indias (Honda) Dream Yuga, which Citigroup Global Markets analysts Jamshed Dadabhoy and Arvind Sharma believe has the potential to destabilize market share in the executive segment. Further, a slowing in the domestic segment will hurt Hero more than Bajaj Auto, as the latter gets about 36 per cent of its volumes from exports. The areas of opportunity for Hero will be exports, the fast growing scooter market and the premium motorcycle segment. At Rs 1,973, the stock is trading at 15 times its FY13 estimates. Given competitive pressures at home and untried export markets, most analysts have a sell/hold rating, with price targets at Rs 1,650-1,950. Competitive pressures While the company has lined new products such as the 110cc Passion X Pro bike and 125cc motorcycle Ignitor for launch in FY13, it is likely to face increasing competition in the executive segment from Honda and TVS. While Honda will pull out all the stops to market its 110cc Dream Yuga, TVS is also expected to re-launch its popular bike, Victor, in a new avatar. Bajaj, too, is expected to launch a bike in this segment. The Street will be keenly monitoring the battle between Honda and Hero, given that the executive segment accounts for about two-thirds of overall motorcycle sales, and that Honda was until recently Heros partner (for 26 years), with equally good understanding of the Indian market. Hero currently dominates the executive segment, with 74 per cent market share. Due to an estimated slowing in the sector, Citi has cut volume forecasts for Hero and anticipates slight erosion in its market share, particularly in the executive segment. The battle in the segment, however, will be played out over a long term, with Hero unlikely to yield much in the short term, believe experts. Says the head of research at a leading brokerage firm, Though Hero MotoCorp will shed some market share, the gains for competition in the short term will be marginal, as Hero still has enough brand pull and distribution reach. As a comparison, while Hero has a 4,000-dealer network, Hondas is just a fourth of this. This will be difficult to replicate any time soon.

If the Honda bike is successful, it could generate sales volumes of 500,000-750,000 units annually. The incremental market share Honda would capture within the commuter bike segment in FY14 would be six to nine per cent, feel City analysts. Scooters, export focus Hero is also looking to improve its share of the scooter market, currently 16 per cent. Unlike motorcycles, this segment is expected to clock another year of higher volumes, with growth estimates pegged at a little over 15 per cent. The company has recently launched a gearless scooter, the Maestro. While analysts say it is too early to predict its impact on the segment (dominated by Hondas Activa), Vijay Sarthy T S and N Ravindranathan of Spark Capital say the launch is likely to impact sales of TVS Wego. Hero is also likely to test-market its hybrid scooter, the Leap, later this year. The other area which could open substantial opportunities for Hero is export, currently at two per cent of its volumes. The company has an export target of a million units by 2016-17, from just over 100,000 currently. Heros managing director and CEO, Pawan Munjal, has already indicated exports would be a focus area and the company was targeting opportunities in markets such as Africa and Latin/Central America. To compete effectively, both in the premium end of the domestic market as well as exports, the company recently entered into a strategic tie-up with US-based Erik Buell Racing. Analysts say the move will help the company turn the heat on Bajaj Auto in the premium segment and offset some of the pressure in the executive segment.

SCENARIO ANALYSIS The year 2010-11 turned out to be a year of moderation, with growing trepidation across the domains of economics, environment and geopolitics. If recovery was the underlying theme for the previous year, 2010-11s summative theme was surely uncertainty, with the massive earthquake in Japan and turmoil in the Middle East and North Africa (MENA) creating insecurity, along with volatility in crude and commodity prices. In the US, a slew of factors double-dipping home prices; a slow recovery in labour markets and weak wage growth; the fiscal contraction of state and local governments; and underlying weakness in final demand suggested that the subpar, anemic recovery for the U.S. economy might endure for a while. Barring Germany, European recovery has almost ground to a halt. The reasons are not hard to seek: fiscal tightening in UK (a leading economy), political uncertainty in Italy, recession in some Scandinavian countries and solvency problems in peripheral EU nations (Greece and Turkey) contributed to the mess. Japan, which had just begun to limp back on a path of recovery, plunged back into deflation as the impact of its natural disaster fully sank in. To make matters worse, the growth potential in emerging markets like China, Brazil and India, which had demonstrated so much promise in recent years, showed signs of getting impacted by monetary tightening and high interest rates. In 2010-11, India followed a deviant growth trajectory as opposed to last year: the fastest growth was notched in the first quarter, and the slowest was reserved for the last. In the previous year, India began growing at a comparatively slow pace, but ended with a strong kick. This sparked off hope that the economy would enter the nine percent growth orbit. In fact, economic performance was strong throughout the first half of the fiscal, with the manufacturing sector growing in double digits, and the service sector growing almost as fast. Yet towards the completion of the year, the growth rate dwindled to 7.8%; in the last quarter of 201011 it was the slowest in six quarters. Even though the manufacturing sector notched a doubledigit growth during the first two quarters of the year, monetary tightening eventually took its toll in the remaining quarters: it slowed down the pace of capital formation and kept growth in the index of industrial production in single digits.

MARKET ANALYSIS This is the first macro environment mental force that marketers monitor is population because people makeup market. Consumer Markets at less than 31 two- wheeler per 1,000 citizens in 2005, India is a poorly penetrated market for motorcycles- even after accounting for a relatively low per capita income of around US$,3100 per year on purchasing power parity (PPP) basis. Indonesia, whose PPP per capita income is just 15% greater than Indias has 83 two- wheelers per 1,000 people. And Vietnam, despite having a 13% lower per capital income, has penetration of 122 two wheelers per 1000. Malaysia and Thailand are at 223 & 264 two wheelers per 1000. The fact is that with the Indian economy growing close to 8% CAGR in the last three years, there is enormous headroom from increasing two wheelers penetration in the country. What this needs are the products at different price points, sales and service set- ups across the length and breadth of the country, which are backed by attractive financing options to make two wheelers affordable to the vast majority of the population. Hero Motocorp has all three levers in places to drive this change and expand the market. Our view is that motor cycle demand in India will grow at around 15% per year over the coming years. It will be there for an endeavor to grow at a pace significantly higher that the market growth. Two-wheelers: Overall industry sales of two-wheelers increased by 15% from 6.57 million in 2005-06 to 7.57 million in 2006-07. As in the previous years, motorcycle continues to dominate the two-wheeler market. It grew at 18.8 %, from 5.2 million in 2005-06 to 6.2 million in 2006-07 consequently, the share of motorcycle in two-wheeler market further increase from 79% in 200506 to 82% in 2006-07. The industry sale of two-wheelers: Motorcycle while the motorcycle as a whole grew at 18.8% in 2007-08, Hero Honda motors sales of motorcycle increased 31.9%, which resulted in the companys market share improving from 27.8% in 2005-06 to 30.8% in 2006-07.

SWOT ANALYSIS

Strengths: 1. Hero Motocorp is good brand in Two-wheeler with a reputed customer base. 2. Few competitors have led the company to enjoy the better customer service with ISO verified and certified qualitative products with satisfaction. 3. Excellent R&D with wide variety of products in every segment. 4. Enhanced qualities and long term commitments 5. Product preference by customers 6. Good advertising and excellent rebranding from Hero Honda to Hero Motocorp 7. Excellent distribution, over 3000 dealership and service centers.

Weakness: 1. 2. 3. 4. Absence in the premium bike segment High imports for its spare parts i.e. over 30% imports. Most of the products have similar features and low on design and innovation New products did not embark predicted sales

Opportunities: 1. 2. 3. 4. Two wheeler segment is one of the most growing industry Export of bikes is limited i.e. untapped international market Upper rich segments are need to be targeted Competition is paving way of developing fuel efficient product

Threats: 1. 2. 3. 4. Competition is getting together everyday Customers are moving towards four wheeler segments Better public transport will affect two wheeler sales Dependence on government policies and rising fuel prices

REFRENCES

1. 2. 3. 4.

www.heromotocorp.com www.indiaautomobile.com www.authorstream.com http://timesofindia.indiatimes.com/business/india-business/Hero-MotoCorp-Q4-profit-up20/articleshow/12974429.cms 5. http://www.heromotocorp.com/enin/hero_admin/data_content/pdf/annual_report/Annual_Report_2010-11.pdf 6. http://www.heromotocorp.com/en-in/investors/eventsnews BOOKS: 1. Kothari,C.R. Research Methodology,New Delhi,Vikash Publishing house Pvt. Ltd. 2. Kotler,Philip,Marketing Management,New Delhi,Pearson Education Singapore,2005,11th Edition. 3. Ramaswamy&Namakumari,Marketing Management,NewDelhi,Macmillan India Ltd., 2002, 3rd Edition.