Can Hero do without own R&D?

Rakesh Batra

Leader,Auto Sector E&Y

No,it needs in-house research capability

THE Hero Group cannot without an in-house R&D,given the size and scale of its current operations,competitive market conditions and customer and shareholder expectations of the brand as the market leader.Its own R&D capability is important from three perspectives products,customers and brand.The twowheeler industry,like other automotive segments,is a volume business that is driven by new products with better mileage performance and greater driving comfort.This requires regular model upgrades,more fuel efficient engines and other changes to the range of products offered to its customers.Besides,as one of the largest motorcycle manufacturers in the world by volume,Hero would need to have its own R&D capability to position the brand globally.There has to be a clear value proposition associated with the brand for the customers to be able to differentiate it from the other brands.Technology plays an important role in brand positioning.Such is the nature of the auto industry and all mature global players in this industry have a strong internal R&D capability.
An in-house R&D capability would provide Hero control over its product portfolio decisions,driven by customer expectations and the markets it would operate in.In a global playing field,product needs can vary across markets.This requires the ability to leverage platforms across these various markets to be able to control product development costs and optimise product profitability.Besides,with the emerging trends towards electric vehicles,the market leaders need to ensure that they are able to develop and offer these products as part of the product range.Such development in new technologies/products is not possible unless you have an internal R&D capability that can also be a source of the first-mover advantage in future.Hero can,of course,seek another international technology partner,but that would probably come with similar conditions as its existing partner Honda.That would prevent it from achieving its aspiration to be a global player in the two-wheeler market.

R L Ravichandran
CEO Royal Enfield

It can outsource R&D in the near term

AFTER 2014,Hero Group has to compete with Honda,the worldwide market leader.Its other competitors are Suzuki and Yamaha of Japan,with Suzuki leading in scooter volumes and Yamaha in greater than 125cc bikes.Bajaj is already a leader in the premium commuting segment of bikes,partnering Kawasaki in the supersports range & KTM in Offroaders.TVS has gained a predominant position in scooters.Bajaj & TVS have strong in-house R&D teams and successfully launched products over the last three decades,be it in scooters,commuter bikes or sports premium segments.Bajaj and TVS strenghtened their product development skills,even when they were associated with their technology partners.

Today,Hero Honda enjoys supremacy of design and styling whether in vehicle engineering or power train,and meets stringent emission compliance,thanks to Honda.But to sustain the lead in future with no demonstrated in-house R&D track record will be a tall order.HMSI has made significant inroads in India,with its sales of scooters and motorcycles hovering around a million units.With its second plant on the anvil and the launch of new sports and commuting bikes slated in 2012,sales are poised to reach 2 million in 2012 and 2013.This will be 40% of Hero Hondas volumes.Bajaj is consolidating its sharply-defined product/brand strategy.It will also look at scaling from three million to four million.

These companies have planned a clear strategy by creating additional marketshare by segmentation and new products.Hero Honda has to perfect the art of winning all the test matches without losing the one-dayers.It takes 36 months to create a complete new bike from the stage of concept to commercial production.

Hero can outsource R&D if it has an existing strong team and product development experience and wants to co- develop and validate a new engine,new vehicle or new parts.Ultimately,even if Hero outsources the basic specifications and design,the house of quality of any new product has to be created by Heros own R&D.