Bajaj on Solid Partnerships

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We are admirers of Rajiv Bajaj. We have discussed here how he dispassionately burnt bridges with the scooters segment and led Bajaj to its position as the third largest motorcycle manufacturer in the world in less than two decades from a standing start. We enjoyed his ride so much that we made a video on the same topic here.

We have also waxed eloquent (again and again and again and again and …) about our undying, eternal love for win-win relationships. The readers probably think we sound like a broken record on this particular trait - and if you do that means we are doing our job.

However, as we covered here, there is a particular flavor of win-win that is different.

It is (relatively) easier for a business to create a win-win relationship across all points in the value chain as compared to creating a win-win relationship with a peer at your point in the value chain. That is, it is (again, relatively) easier for a business to take care of customers, suppliers and community as compared to a win-win relationship with a competitor. And the reasons for this is the unchanging human nature - ego (who gets the credit, who gets what responsibility), culture (this is not how we do things), etcetera.

The nature of things in this world is that if something worth doing is particularly difficult to do, then an entity having the ability to do that something comfortably over time, enjoys a particularly sustainable competitive advantage.

We think the ability to work with others (primarily your peers) falls under this bucket and is a particularly under-rated competitive advantage. In a true partnership, magic is created. Mathematical rules tend to go out the window and 1+1 becomes 11 and not 2.

Let us explore this with another Indian example - Bajaj Auto.

Rajiv Bajaj is very clear thinker and a cool strategist. Despite having no education in marketing, (he completed his masters in Manufacturing Systems Engineering) he is probably one of the sharpest marketing brains in the country. Entirely self-taught in the subject, he considers Al Ries (from whom he learnt the importance of focus) and Jack Trout (of the ‘Positioning’ and ‘Differentiate or Die’ fame) his gurus. In fact, under Jact Trout’s mentorship, Rajiv Bajaj began seeing Bajaj Auto as less of a technology or engineering company but more as a marketing company.

Driven by the strong home-grown engineering skills and shrewd marketing strategies, Rajiv Bajaj shepherded Bajaj Auto from scratch in 2001 to the third largest motorcycle player in the world. Through carefully planned and designed launches like Pulsar, Boxer, ‘V’ and others it dominates some of its core categories.


(Above) Bajaj Pulsar, the most successful own brand of Pulsar so far

But quite early Rajiv Bajaj realized that he could not achieve his ambitions on his own.

Partnerships start with humility: While Bajaj Auto had exceptional engineering capabilities, world class manufacturing capacity with great quality and some strong brands, it was not enough. For Rajiv Bajaj’s ambition was to be the largest motorcycle player in the world. And to be the largest, his brand basket was not enough. He needed to be present in all categories of motorcycles. And to be present across all categories, he needed strong brands in each category. The ‘Bajaj’ brand, despite its strength was not enough.

To fill the large gaps he went in search of partnerships. As Rajiv Bajaj says:

"I have always said we are a marketing company more than technology or an engineering company. And all marketing is basically about brands and all brands are about attributes they stand for. The sharper the attribute, the stronger the brand. We are a company that makes a Boxer for Africa (largest selling brand in the continent), ‘V’ in the solid commuter segment in India, Pulsars and Avengers for the world. And all these brands together are in the 100-250cc range represent some very good options for what I would call commuters at large.

But beyond 250cc, somewhere commuting becomes less important and riding becomes more important. And to my mind, above 250cc and till 750cc, this is where the next big opportunity is, not only in India but worldwide. And essentially it is in two parts.

Once again speaking of attributes, there could be brands which could be in this space in the sportier, sharper, hard-riding space. And there is at least equally another opportunity the easy riding or, as sometimes I refer to, as the lazy riding almost segment. "

KTM (“Sportier, Sharper, Hard-riding”):


KTM AG is an Austrian motorcycle formed in 1992 but traces its foundation to as early as 1934.KTM is known for its off-road motorcycles (enduro, motocross and supermoto). Since the late 1990s, it has expanded into street motorcycle production. In 2007, Bajaj took a 13% stake in KTM, which was increased to 48% in 2013.

A large portion of KTM motorcycles are today manufactured in Bajaj’s factory in India, and then sold in India and exported to various parts in the world. From 65,000 units ten years back, KTM sells about 250,000 units today of which Bajaj manufactures about 100,000. It might be a coincidence but almost every year since 2012, KTM has been hitting record high production, revenues and profits. Since 2012, it is the largest motorcycle manufacturer in Europe. And now it is on the verge of becoming the largest premium bike brand in the world today.

KTM’s brand and product positioning are completely different from that of Bajaj’s. As Rajiv Bajaj says, it is a sportier, sharper, hard-riding brand which attracts certain category of customers. And Bajaj would have been to manufacture but never have been able to market and sell it as well without the brand.

The partnership has progressed so well that both partners have decided to deepen it this year. Bajaj, which holds 48 per cent in KTM AG, is now looking at transferring this component to the parent company, KTM Industries AG, where Pierer Industrie holds 62 per cent. In the process, the parent company’s stake in KTM AG will be up from 51.7 to 99.7 per cent.

The partnership is strengthening beyond just ownership. The next phase of the partnership will now see some Husqvarna (more than a 100 year old brand with origins in Sweden) bike models also made at Chakan (Bajaj’s factory in India) and shipped out to other regions. KTM had acquired this Swedish brand from BMW Motorrad five years ago and has worked successfully towards its revival. Bajaj plans to launch this vehicle as early as in the next few months.

Why was the partnership so successful? While KTM brought the brands and the design, Bajaj brought in the low cost manufacturing capability. Together, the partners were able to create great products at competitive prices backed by strong brands, which is generally a winning combination. Thus, while what neither player going alone would have been able to accomplish alone, they were together able to far outstrip their expectations in a span of ten years.

Triumph (“Easy / Lazy Riding segment”):

In Aug 2017, Bajaj and Triumph announced a global partnership to make deeper inroads into the so-called middleweight (engine capacities of between 250cc and 600cc) motorcycle market in India, and the world. This tie-up would be a strategic non-equity partnership. The alliance will help the firms leverage each others’ strength—Bajaj Auto’s manufacturing and engineering capabilities and Triumph’s positioning as premium luxury brand with global reach.

Quite similar to the KTM arrangement, it is clear how this is a win-win proposition for both companies as it would enable Triumph to significantly expand its global reach by entering new higher volume market segments (which it currently does not operate in), especially within the emerging markets around the world. Bajaj would gain access to the iconic Triumph brand, and its great motorcycles, enabling it to offer a wider range of motorcycles within its domestic market and other international markets.

Rajiv Bajaj has mentioned that he had been in touch with Triumph for ten years before both partners felt comfortable enough to come together to “create some magic” as they have done with KTM.

And he also says, “We had one piece of the puzzle that was missing, which was an association with a premium brand in this space.”

With this tie-up, Bajaj would have bikes ranging from 100cc to 650cc and across categories like commuter, sporty, street-bike, and easy riding.


Just take a moment to consider what Rajiv Bajaj has achieved through his focus and business acumen. In less than 20 years he has reached #3 globally and has inspired enough confidence in global brands with long tradition and rich histories like KTM, Husqvarna and Triumph to partner with him.

It would be best to end this on Rajiv Bajaj’s take on how Bajaj views partnerships:

"We have a 33 year old relationship with Kawasaki which is still functional. The best manifestation of that today is that we still work together in the market in Philippines where we are usually Number 1 or 2 in that market. Consider this, we are the only Indo-Japanese venture or the Indo-Italian venture that still continues to not just survive but to thrive. So I think it says something for Bajaj that it is still with its partners for 33 years, although all other JVs or collaborations have fallen by the wayside.

Consider also relationships with both Kubota (on the diesel engine) and KTM. Look at how well we have done. So I think there is a way to go about a successful partnership and I think we understand that well. To me it rests on three points -

The first is mutuality. This has to be a big enough reward at the end of the process to satisfy the dreams, aspirations, appetite of both partners. If that is not there, then that relationship won’t last. That is the starting point.

The second point is reciprocity. Both partners have to bring, not just day 1, but on day 2, at the tenth year, twentieth year - they have to continue to bring unique value to the relationship. It can’t be that because you are an Indian company, you have certain domain knowledge, you bring in certain value for the first year, first five years, first ten years and not after that. Then that relationship does not last. I think the reason we are still with KTM, Kawasaki and Kubota because in terms of our own technology, world class quality, engineering skills, our cost competitiveness - we keep adding value to the relationships. And if I may say so, also in terms of our understanding of brands, markets, position, perception, consumer, etcetera.

So reciprocity also means that in a partnership both partners have to sacrifice. Otherwise ego gets in the way.

The third and the last one is complete transparency. We have complete transparency in every aspect of our business with both our partners _ Kawasaki and KTM.

These are the three reasons why I feel have such solid partnerships. And I don’t see why our partnerships should not be perpetual.

And we need the partnerships. While, We as a company enjoy scale and an operational excellence as a result of that scale. In all humility, while Bajaj might be a really slick factory, the brand does not have the charm or an aura that a KTM or a Triumph has. So then what is the option. The option is then either, then to go, with your ego essentially, and say, ‘No, Bajaj is a great brand and I am going to make every single product under this name and take it to the world.’ It won’t work. I call it the Volkswagen Pheaton phenomena. The moment Volkswagen made a large car as expensive as S Class, nobody wanted it.

So the answer is to come together in healthy, positive partnerships."


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Sources:

KTM/Bajaj Bonding All Set to Deepen

Triumph For Bajaj

KTM Wiki

Bajaj & Triumph Announce Partnership

Triumph Motorcycles & Bajaj Auto tie up

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