An Interview with the General Manager of Loncin Mr. Gong Hui
More and more efforts are increasingly made to develop overseas markets by the Chinese motorcycle industry. China's domestic motorcycle sales plummeted by 3 million units whereas motorcycle exports surged 3 million units in 2011. The domestic sales decline and exports surge evenly distributed the sales of China's motorcycle products. Chongqing Loncin Import & Export Co., Ltd became the No. 1 Chinese motorcycle exporter with an export value of USD 300 million last year. Such achievement was not enough to satisfy General Manager Mr. Gong Hui. In his opinion, the decline of domestic sales and exports surge just indicated the beginning of another round of fierce competition. Over 400 Chinese motorcycle manufacturers and motorcycle exporters will experience more intensive market competition overseas. What's more, motorcycle manufacturers from emerging countries like India are also trying to gain a piece of cake from overseas motorcycle markets.
When will the difficult situations that Chinese motorcycle manufacturers face end? Mr. Gong Hui is also trying to find an answer. He places high hopes on the Japanese way of development. Chinese motorcycle manufacturers will have the strength to face market competition when only a few giants are left to survive.
Mr. Gong Hui who just returned from his visits from tropical countries insisted to view news online, especially the news about China's Vice President Mr. Xi Jinping who's on overseas visits. Mr. Gong Hui was well aware of the fluctuating global political and economic status last year. The European debt crisis and Iranian political turmoil may directly or indirectly affect the sales of Mr. Gong Hui's motorcycle products. He hopes he can tell the future development of motorcycle industry through the diplomatic remarks made by the Chinese leadership.
1. Started with Vietnam
Chongqing Motorcycle Manufacturer Eyes the Global Markets
Chongqing Morning Paper (CMP): Loncin was the number one motorcycle exporter in China in 2011. Could you elaborate on Loncin's development progress on overseas markets?
Mr. Gong Hui (GH): Loncin began exporting motorcycles in 1999, and its first overseas market was Vietnam. Then, Loncin began to develop some other Asian countries including Indonesia and Burma. After that Loncin started to expand to the markets of the Americas and Middle East.. From there, Loncin made its existence on African and European markets. Loncin gradually diversified its overseas markets. Its motorcycle export value reached USD 300 million, and motorcycle exports accounted for 50% of its total motorcycle sales in 2011.
CMP: What changes occurred on the overseas markets over the past 12 years? What was it like in Vietnam when Chongqing motorcycle manufacturers first exported motorcycles there?
GH: The immediate success that Chongqing motorcycle manufacturers had when they first exported motorcycles to Vietnam was the result of their sudden appearance on the Vietnamese market. At that time Vietnamese market was dominated by Japanese motorcycles. It didn't have any psychological preparation for the arrival of Chinese motorcycles. A great batch of Chinese motorcycles was exported to Vietnam with pretty low prices, and they soon occupied the majority of the market. However, Chinese motorcycle manufacturers were only concerned with price competition rather than quality competition, so the reputation of Chinese motorcycle products was affected. When Japanese motorcycle producers integrated and optimised their global industrial chain and launched low-priced motorcycles on Vietnamese market, Chinese motorcycle manufacturers got into difficulty. What's worse is that Chinese motorcycles had no demand when Vietnam's local motorcycle makers began to produce motorcycles. Now China mostly exports motorcycle parts to Vietnam.
Vietnam is copying the development process of Chinese motorcycle manufacturers'. They import motorcycle parts to assemble and brand them with foreign brands. They will launch their self-owned brands when they are developed and accumulate enough strength.
2. Overseas Investment
Chongqing motorcycle manufacturers still have a long way to go
CMP: The Chinese motorcycle industry has been advocating the idea of establishing factories overseas and promoting the development of the industry by investment in recent years. It seems that this idea didn't yield good results?
GH: the current popular way is for Chinese side to choose its overseas partners and set up joint venture companies overseas, but the sales rights and sales channels are owned by its overseas partners. This way of development contains the growth of Chinese motorcycle manufacturers. Loncin's way of developing overseas markets is to well establish market channels first, and then set up its factories later.
However, this way is not as easy as it sounds. Outstanding local dealers are not willing to share their sales channels with us, and we are not willing to cooperate with ordinary dealers. Local dealers have many choices as there are quite a lot of Chinese motorcycle exporters, so our discursive power is relatively weak at negotiations.
Currently, the economic returns from the overseas factories of Chongqing motorcycle manufacturers are not satisfactory.
CMP: is that the price to be paid for developing overseas markets?
GH: teamwork is the key for Chinese enterprises to survive overseas. The team can be either sent from China or recruited locally. Its leader should have capability, integrity and morality. Cooperation problems between the Chinese team and its partner are factors leading to the failure of the overseas factory of a Chinese enterprise. Choosing a good partner, and having an internationalised, localised and dedicated team are the foundation for an outgoing Chinese enterprise to develop and survive.
Japanese enterprises encountered the same problems in the past. Now, they have gone through these difficulties, and have gained technology, market and management experience, and secured their dominating position on overseas markets.
CMP: How long will it take for Chinese enterprises to develop well overseas?
GH: if there has to be a time for Chinese motorcycle enterprises to succeed in developing overseas markets, that'll be in the future when the Chinese motorcycle industry has only giant motorcycle manufacturers in existence. Like that of the Japanese motorcycle industry, overseas partners have only a few choices, so they will have to respect you and listen to you. Currently, there are 'too many' Chinese motorcycle manufacturers competing against one another. That's one of the reasons why Chinese motorcycle enterprises are not developing well overseas.
3. Overseas Markets
There are still 10 years of opportunity for the Chinese motorcycle industry
CMP: in your opinion, what's the current development trend of the motorcycle industry?
GH: More and more motorcycles will be exported, and less and less motorcycles will be sold domestically. Generally speaking, the Chinese motorcycle market will shrink with the improvement of Chinese road infrastructure, the development of electric vehicles and the ban on the use of motorcycles in Chinese cities, and overseas markets will be the major motorcycle markets. Chinese motorcycle sales were 15 million domestically in 2010, and the figure was reduced to 12 million in 2011. Oppositely, Chinese motorcycle exports stood at 8 million units in 2010, and the figure surged to 11 million last year.
Chinese motorcycle markets still have potential. Motorcycles will be used more as recreational tools rather than transport tools in the future. Motorcycles will have more than 10 years' demands on the Chinese markets.
CMP: Who are the rivals of Chinese motorcycle enterprises overseas?
GH: mostly are Japan and India. Japan is a traditional motorcycle exporting country. The output of only one Japanese motorcycle manufacturer Honda exceeds those of all Chinese motorcycle manufacturers. Chinese motorcycle makers should also be vigilant about Indian motorcycle companies which produce medium and low end motorcycles like Chinese motorcycle enterprises do.
4. European Debt Crisis
Its influence is seen globally
CMP: what influence does the European and US debt crisis which began last year have on the motorcycle industry?
GH: the biggest influence is that the amount of foreign exchange reserve of emerging countries slumped, and the collection time of Chinese enterprises is prolonged. American and European investors in the emerging countries began to withdraw money for the economic stimulation of their home countries as an act of responding to the calls of their governments. A great deal of capital was injected to Europe and Americas, so the amount of foreign exchange reserve of emerging countries slipped accordingly. The above factors along with the control on foreign exchange reserve affected Chinese enterprises' cash flow.
The payment cycle of exporting enterprises was generally prolonged for one month, and is likely to get worse, so their costs are increased. Meanwhile, capital backflow will also downturn the local economy and affect sales. Currently, the major work of our overseas branches is to urge buyers' to make payment timely.
Meanwhile, the European and American debt crisis will also depreciate their domestic currencies, increase the prices of Chinese products locally and reduce their market competitiveness.
CMP: In fact, there is a series of political turmoil apart from the economic crisis. What affect does this have on overseas markets?
GH: Let me give an example of recent event. Last year many Chinese enterprises which have branches in Iran withdrew their staff workers due to the escalation of its political situation. The staff of our branch office in Iran came back home last month, and their rent will due in the coming May, but we are not planning to make them stay any longer.
The political situation directly affects economy. Iran's currency has depreciated by 50%, and the ability of its banks' transaction is also limited due to reasons like economic sanctions imposed by America and Europe. Now we are working hard on overseas payment collection, and we take whichever currency available there, be it Japanese yen, RMB, American dollar or Euro.
In addition, Iran's customs policy is very strange. Any goods left without reception at its ports for 3 months, the local customs has right to auction the goods. Many enterprises lost a great deal of money for this. We timidly exported products worth USD 2 million to Iran early this year. We'll go and see what happens.
CMP: what lasting effect will the unstable Middle Eastern markets have?
GH: Chongqing motorcycle manufacturers mostly export their products to the Americas whereas Guangdong motorcycle manufacturers mostly export their products to Middle Eastern countries. The fluctuating Middle Eastern status will make Guangdong motorcycle manufacturers leave their Middle Eastern markets and join the competition in the markets of the Americas.
Overseas markets are far from stable, Chinese motorcycle enterprises which have branches there should do their best to tide themselves over the difficult times.
Interview Background: the current situation of the Chinese motorcycle industry is grim, or 'beset with troubles internally and externally' as said by many industry insiders. Chinese motorcycle export has slumped greatly since the beginning of 2012. The slow recovery of European economy, the political climate and policies on key markets like those in Middle East and Africa lead the export of Chinese products including motorcycles to plunge. As for the Chinese market, the ban or limit the uses of motorcycles in Chinese cities are still there, and currency inflation makes motorcycle consumption gloomy. These facts have great impacts on motorcycle sales in China. However, there are different opinions. Along with the worsening traffic conditions in China and also the measure of control on cars by local governments represented by Beijing, Shanghai, Guangzhou and Hangzhou, and also the sales slump of electric bikes and motor assisted bikes, there seems to be a favourable turn for motorcycle sales in China. The Chinese motorcycle industry is now in a dilemma again as for going forward or going back, or continuing to input or just progressing steadily. At this special timing, CHINAMOTOR interviewed the general manager of China's best representative motorcycle company so that we can learn how they would deal with the changes and their unique perspectives and viewpoints for the future development of the Chinese motorcycle industry.
Zoe: According to China's import and export data in June 2012 released by the General Administration of Customs of the People's Republic of China, the increasing amplitude of the Chinese motorcycle export was not cheering. What major factors do you think have caused this? How should Chinese motorcycle manufacturers cope with such internally and externally troubled situation?
Xiao: There are two major reasons for the negative growth of Chinese motorcycle export and domestic motorcycle sales: one is the shrinking market demand due to the global economic downturn, and the other one is that Japanese and Indian motorcycles have taken up the market shares of Chinese motorcycles.
In the face of the internally and externally troubled situation, Chinese motorcycle manufacturers should think calmly and deal with it deliberately and reposition themselves with a clear mind. They should work on and adjust the planning for their mid and long term development, and never carry out the vicious competition again like they did before, and should implement transformation and upgrading, and improve the comprehensive competitiveness of Chinese motorcycles together with other Chinese motorcycle manufacturers, so that they can transform crisis into opportunities in times of market fluctuation and transform 'Made in China' products into 'Created in China' products.
Zoe: Foreign motorcycle manufacturers entered Chinese motorcycle market one by one on a large scale in recent years. According to a staff of Harley-Davidson China, American Harley-Davidson already has 11 exclusive stores in China, and the number will reach 12 by 2012 year end. Mr. Mirko, CEO of Ducati Asia Pacific told CHINAMOTOR previously that they had planned to set up 7 exclusive stores in China. Victory and BMW motorcycle have also been eyeing Chinese motorcycle market for a long time. Many foreign motorcycle manufacturers adopt the way of sales in motorcycle clubs, and this way is developing very fast. Can this inspire China's big motorcycle manufacturers in their sales and expansion? What do you think this way of sales?
Xiao:The fact that world famous motorcycle manufacturers are present on the Chinese market and also constantly developing their business indicates that China's standard of consumption is rising and that there are certain numbers of consumption groups for high-end motorcycles in China. This enlightens big Chinese motorcycle manufacturers to give great attention to high-end motorcycle market and also the segmented market.
The direct sales and sale by agent in clubs by the world famous motorcycle manufacturers have become rather successful sales modes and also sales experience. Brand awareness contributes to the sales of exclusive stores and clubs, and superior services and the zero contact with consumers at exclusive stores support the continuous upgrade of brand awareness. In this way, the mutual promotion is going on a sound development track. The essence of this kind of sales mode is its 'service supported sales'.
Zoe: Intermot, Eicma, Mexico trade show and the American Dealer Expo once produced substantive effects for exhibitors, such as reaching purchase intention, order negotiations and brand promotions. However, many exhibitors say that the substantive effects produced by the trade shows are weakening. What do you think of the current trade show economy and the effects of the trade show? What are other effective ways of promotion overseas apart from professional trade shows? The premise for brand promotion is the quality and R & D of a product, how to accelerate the R & D speed of a best selling product while guaranteeing the consistency of its quality? What's the inner core competitiveness of Yu'an? How to use one's own core competitiveness to transform this kind of comparable competitive edge to sustainable competitive edge?
Xiao: Professional international trade shows indeed provided platforms for Chinese motorcycle products to go on the international markets, and also boosted this process. However, the market brand pattern and cooperation pattern have been formed preliminarily after many years' development. International motorcycle trade shows are now less effective in helping motorcycle manufacturers find orders or develop new clients. Instead, the international trade shows are now returning to their original roles: the platforms for the release of new products, new technologies and new concepts so as to boost the upgrade of a brand image. Similar to car international shows, they are not to form direct trade.
I think finding the right way of marketing is an important sales method on overseas market. For an enterprise and a brand to achieve absolute advantage on the market, they must learn to deeply analyze, deeply research the market and then judge and position themselves accurately, and then carry out their plans carefully and thoughtfully, until then they can finally succeed. As for promotion method, I think the way of combination promotion and coverage promotion should be adopted.
Product and quality are very important elements for brand promotion. I think we should carry out product R & D like a master playing chess: take one step first, then predict two more steps, and then imagine the next three steps.
The core competitiveness of the Chinese motorcycle hasn't really been formed yet. However, it will mostly rely on the organization competitiveness, staff competitiveness, culture competitiveness of an enterprise to boost the formation of its product competitiveness, distribution channel competitiveness and price competitiveness, and at last form strategic alliance with its cooperation partners. Then, the brand competitiveness will be formed after the partnership competitiveness. The core competitiveness of our enterprises will be formed based on the cohesion of all competitiveness.
Zoe: India's several major motorcycle manufacturers including Bajaj, Hero and TVS are unusually active on the international markets. They have become best sellers on many markets which are also the important destination markets of Chinese motorcycles. In addition, Shanghai Sundiro Honda released several high cost performance Honda motorcycle models on overseas markets since year end 2010. This gives great pressure for China's own brands. On the overseas markets, Chinese motorcycle manufacturers face pressures from major international motorcycle manufacturers, and also have vicious competition with local motorcycle manufacturers. Their market shares are taken up greatly. What effective countermeasures should Chinese motorcycle manufacturers adopt to deal with such situation?
Xiao: It is true that the competitive advantage of the Chinese motorcycle industry is weakening on overseas markets, and the product quality and profitability of Chinese motorcycle manufacturers are deteriorating and their sustainable development ability is also weakening due to the vicious competitions on some markets. Japanese motorcycle manufacturers are leading sellers on the international markets, and India's major motorcycle manufacturers including Bajaj, TVS and Hero release their own high cost performance motorcycles. Chinese motorcycle manufacturers face grim situation on the international markets. I hold that Chinese motorcycle manufacturers should wake up and have a clear mind. They should plan their strategic planning and positioning as early as possible, be sure of their development targets and directions, do a good transformation and upgrading of their products with its resources and strength, also initiate the transformation and upgrade of their management. An enterprise can only be successful by taking its own differential and professional development strategy, and carrying out the strategy carefully and unremittingly. I think the real countermeasures are the planning and implementation of their long-term development strategies and plans.
Zoe: Could you please brief us on the development progress of Yu'an? On the significant events during Yu'an major development stages? On the positioning of Yu'an and its brand? On the guideline and guiding ideology during its development? On the current production scale and annual productivity of Yu'an?
Xiao: Established in 1986, Yu'an started its business with spring manufacturing, and then gradually increased productivity and added new businesses; Yu'an began to produce absorbers in 1996, and then began making motorcycles in 2002 after making absorbers for motorcycles and cars; it carried out the research of car engine in 2003, and then began to manufacture and sell mini cars in 2005; it achieved the overall development of making cars, motorcycles, car engines, and absorbers.
The most significant event was the cooperation with Dongfeng Auto to make and sell cars, achieving great leap forward development.
The development positioning of Yu'an: become a car manufacturer with annual capacity of making millions of cars, and develop in accordance with the strategic target of 'creating a sound, long-term enterprise with strong vitality, and aiming to become a leader in the industry'.
Currently, Yu'an has the production capacity to manufacture 500,000 unit cars, 250,000 motorcycles and 6 million absorbers every year.
Zoe: We have put forward the slogan of 'from Made in China to Created in China' for many years, but still many enterprises just did the simple appearance imitation, lacking substantial progress. They are left behind by international famous motorcycle manufacturers in the R & D of modularized products, the engine improvement of large displacement motorcycles, and brand new appearance design. In the light of such current situation, can you advise Chinese motorcycle manufacturers on how to gradually set up a product R & D system so that Chinese motorcycle manufacturers can achieve sustainable creation?
Xiao: The overall technological level and quality of Chinese motorcycle products are no match to those of international famous motorcycle manufacturers. The basic reason for this is that Chinese motorcycle manufacturers are obsessed with the expansion of production and sales scale, and are ignorant of infrastructure construction. Their comprehensive manufacturing level and industrial level are low so that the industry cannot be upgraded. Many Chinese motorcycle manufacturers have already realised the problem, and started to work on the development of core technologies such as the development of large displacement and EFI engines from the simple appearance imitation. However, the production for market order and short-term difficulties continuously interfere with the transition of Chinese motorcycle manufacturers from 'Made in China to Created in China'. It is a long-term and continuous process for Chinese motorcycle manufacturers to achieve this. They should begin with infrastructure construction first.
Large displacement motorcycle development is in Yu'an strategic planning, but the program is still in the evaluation stage. There are difficulties and risks to manufacture large displacement engine due to the overall industrial base and motorcycle technical base of China. So, we are planning to import international mature power platform for the R & D of our large displacement motorcycles.
Zoe: Currently, Qianjiang and CFMOTO have released their large displacement motorcycles which are favourable on the Chinese market. These two large displacement motorcycles also greatly boosted the brand effect, and satisfied the consumption desire of young Chinese people. In terms of overseas market, consumers in South American countries begin to see motorcycles as leisure tools instead of their commuting tools. Large displacement and characterized motorcycles are now in a sound development phase. Does Yu'an have any plan for large displacement motorcycle development? What stage is it in currently?
Xiao: For the development of large displacement motorcycles on the segmented market, large displacement motorcycle manufacturers have features like superb quality, outstanding technology and small production scale. Making large displacement motorcycle is very important for brand promotion. We have large displacement motorcycle development plan in Yu'an's strategic plan and product plan. Currently, we are in the stage of preparation, and our large displacement motorcycle products are planned to be released in 2014.
Zoe: What are Yu'an's most popular motorcycle models on the Chinese market? What are the displacements of their engines? What are the output, sales and exports of Yu'an motorcycle in 2011? What about the sales performance of Yu'an in China in the first half of 2012?
Xiao: The current most popular model is sport bike, mostly three models (827, 826 and 921), and their displacements are between 150cc and 250cc. The sales of sport bike accounted for 55% of Yu'an total motorcycle sales last year, and the figure this year is over 60%.
Yu'an's motorcycle sales in 2011 were over 140,000 units. Motorcycle exports accounted for about 70% of Yu'an total motorcycle sales last year, and the figure for 2012 is about 65%. Yu'an major markets in China are in China's Southwest and Northwest regions, such as Yunnan, Guizhou, Chongqing, Sichuan and Tibet. Sales performance in Tibet is good. We can sell 10,000 motorcycles there with just two models of our motorcycles in a year.
Zoe: Currently, a few Chinese motorcycle manufacturers have partnerships with big foreign motorcycle makers. Jianshe celebrated its 30th cooperation anniversary with Yamaha in April. The cooperation of Qianjiang and Benelli has achieved substantive results. What about Yu'an regarding cooperation with overseas motorcycle manufacturer?
Xiao: We have plans for strategic development such as international cooperation and joint venture establishment. Currently, we are still seeking and selecting targeted cooperation partners. Our way of cooperation includes partnership for selling foreign branded motorcycles in China, OEM, setting up a joint venture in China or establishing a factory overseas. We have the intention of making a breakthrough in international cooperation. We hope to have complementary advantages with famous international motorcycle manufacturers.
Zoe: What are Yu'an's major overseas markets, their characteristics and their requirements for Chinese motorcycles? Who are its major rivals on these markets? What is the increasing proportion of self-owned brand?
Xiao: Yu'an's major overseas markets are in Europe, Southeast Asia and South America. Europe has high quality requirement and price is not a primary negotiation prerequisite; Southeast Asia favours characterized and high cost performance motorcycles because the motorcycle culture there is rich and people know of motorcycle greatly; South America gives great attention to price advantage, but begins to turn to look at cost-performance value and characterization of motorcycles.
These markets require the constant quality improvement of Chinese motorcycle products while maintaining their price advantage.
Yu'an's major rivals on these markets are Chinese motorcycle manufacturers. We are continuously developing our own advantage to specially work on sport bike market. Meanwhile, we will boost the development of self-owned brand greatly.
Zoe: As affected by 'the ban or limit the use of motorcycles' in Chinese cities, the major motorcycle markets are still in the rural areas. It is an indisputable fact that both the price and profit of motorcycle are low. 'The ban or limit the use of motorcycles' in China has become a chain restraining the development and upgrade of the Chinese motorcycle industry. The industry lacks of high-end motorcycle development process. Chinese motorcycle manufacturers are having a hard expansion experience on the overseas markets as they lack of core competitiveness. When do you think the ban on the use of motorcycles in Chinese cities can be abolished, and when will the boom era come for the Chinese motorcycle industry? What should big motorcycle manufacturers do regarding the abolishment of the ban in China? How to effectively handle the urban motorcycle markets after the abolishment of the ban?
Xiao: In fact, Chinese motorcycle manufacturers don't want to see the government place ban on the use of motorcycles in cities. Because this constrains the upgrade of Chinese motorcycle products and technology, and destroy the conditions for their sustainable development. We hope that today or tomorrow that the government will abolish the ban. However, it is still unknown in reality that when the government will do so.
I suggest that motorcycle manufacturers not to put too much effort and attention on the ban abolishment. Instead, they should do a good marketing job, and create a market environment for the benign development of the industry. Then, I believe the political environment will also turn better. Large motorcycle manufacturers should unite inside the industry association to discuss and make proposals, plans, self-discipline terms, rules and regulations, and then submit to the government as feasible solutions for the abolishment of the ban.
After the abolishment of the ban on the use of motorcycles in Chinese cities, the market demand for high-end motorcycles especially sport bikes, street bikes and cruisers will increase. Motorcycle manufacturers should make an overall improvement for their products' appearance, maneuverability, power performance, comfortableness, safety features, and durability, and also plan at the same time their marketing channels and service networks.
Zoe: What will the future of China's foreign trade be like during the transformation period in the coming three to five years? What is the development strategy of Yu'an in the coming few years? How to effectively integrate the resource superiority of the two-wheeled, four-wheeled vehicle industry as well as the parts and components industry so as to further improve the brand influence of Yu'an overseas?
Xiao: In the coming three to five years, China's foreign trade will not change much in volume, but product category will be greatly segmented. This is what I mentioned a few times previously: transformation and upgrading. The transformation and upgrading of an enterprise can trigger the transformation and upgrading of its products, and boost the transformation and upgrading of marketing to accelerate the transformation and upgrading of enterprise management.
The core idea of Yu'an motorcycle's strategic planning for the coming few years is: devote itself in becoming China's leading professional sport bike manufacturer in accordance with international standards and using car manufacturing platform.
We put forward a cooperation concept-the entire value chain share development achievements, and integrate the resource superiority of two-wheeled vehicles and cars. Here the entire value chain means that a core strategic alliance should be formed among clients, suppliers, and staff so that a strong competitive edge and brand influence can be formed both at home and abroad. This will also boost the successful transformation and upgrade of a company so that it can make its due contribution to the transformation and upgrading of the Chinese motorcycle industry.
We also hope that Chinese motorcycle industry can keep expanding and prospering everywhere in the world in the future, and put the role of 'Created in China' products into full play.
Many thanks to the Executive General Manager Mr. Xiao for his interview with CHINAMOTOR. We wish that Yu'an can keep up its remarkable achievements both in the markets at home and
1.535 million motorcycles were assembled in Pakistan during the 2010/2011 fiscal year. Of these 55% were Chinese branded motorcycles and 45% were Japanese. Chinese motorcycles are BIG in Pakistan, but can the industry continue to grow in the face of Japanese opposition? There is no one more qualified to give us the inside information on the Chinese motorcycle industry’s influence in Pakistan than Muhammad Yousuf Shaikh, who I know simply as ‘Yousuf.’
Yousuf is responsible for many administration roles in Pakistan including being a member of three sub-committees of the Karachi Chamber of Commerce and Industry (KCCI), Customs and Valuation, Imports and Anti-Smuggling and Fairs and Exhibitions. He is also the President of the Association of Motorcycle Importers of Pakistan the PCMIC and the Pakistan Motorcycles Importers Forum. Yousuf is currently importing completely built-up units of the MoonStar brand of motorcycles from China and will be importing semi-knocked-down units of the same brand for manufacture at is own factory in the future.
Yousuf feels that local manufacturing of Chinese motorcycles as well as its imports have not only offered people an affordable choice but have also helped to push down prices and increase demand for 2-wheelers in Pakistan. I have a word with Yousuf-
David- There are many people that say that the Chinese two wheelers imported or locally made are inferior to traditional Japanese brands made locally, what do you say to this?
Yousuf- Chinese brands have been able to make inroads in to the market to a level where they are making up half of all the 2-wheelers sold in Karachi and are also making a niche for themselves in the agricultural belt in Punjab. In short they have been able to push sales to record levels creating a competition that was never there before. The very fact that the imported as well as locally produced two wheelers have been able to bring competitiveness in to a market otherwise dominated by expensive traditional brands even when subjected to discouragingly high duties have not been to the liking of vested interests who wanted to keep on enjoying the monopoly in the absence of imports.
David- Discouragingly high duties? Please elaborate
Yousuf- The duty of motorcycles in a completely built up form is subjected to a 90% duty. The rate of duty for the semi-knocked-down units is the same which discourages progressive assembly. Interestingly in the 2002-03 budgets the import duty on CBU was substantially reduced by 30% to 75%. However, just a few months later the duty was increased back up to 90% where it remains today. I am unable to understand the reasons to take away the major portion of duty relief in a matter of months but that’s not all! The import of 2 wheelers despite the all too obvious benefits to the people is systematically discouraged in many other ways.
David- For example?
Yousuf- The ITP (Import Trade Price) for Chinese motorcycles is fixed on a much higher scale irrespective of import price. Presently, the ITP which serves as the basis for duty and tax evaluation is fixed at $280 for 70cc bikes and %275 for 125cc bikes. The fixing of the ITP at high levels makes it impossible for the importers and the assemblers to pass off any benefits to the buyers even if the units are imported at much lower prices. It deprives the importers and the assemblers of a level playing field to pass off any benefits to the buyers. Also the import of 2 wheelers whose primary market comprises of middle and low income segments of society is subjected to higher duty than completely built up cars up to a 1000cc which are taxed at 75% whereas the motorcycle is taxed at 90%!
David- Can you be specific about how high ITP discourages imports and local assembly?
Yousuf- The export prices of CBU motorcycle units fluctuates wildly in China. The C&F prices of 70cc units range anywhere between $200-$260 while that of the 125cc fluctuates between $275 and $400 depending on the make and the manufacturer. However the ITP for the 70cc bike is fixed at $280 while that of the 125cc is fixed at a high $420. Moreover, the duty on the imports of 2 wheelers in SKD is on par with the CBU units contrary to the rest of the world where 10% relief is offered not just for 2 wheelers but for all machinery. The total impact of taxes adds up to a horrific 138%! This negates all forms of fair business and level playing fields. The fixing of the ITP at such high levels irrespective of lower import prices deny the buyers much better prices on one hand and real competition on the other.
David- What could be done about this situation?
Yousuf- It is imperative to lower the ITP, however, we feel that the import and local assembly of Chinese 2 wheelers have been discouraged systematically. The Customs and the CBR had accepted to allow a 10% reduction on the fixed ITP for import of 70cc SKDs from $280 to $252, a little later that was reduced to 5% or $266. A little later the rebate on the SKDs was slashed by $5 to $275. At present there is no ITP discount for the SKDs which are treated on a par with CBUs at an ITP of $280.
David McMullan and China Motor Magazine extend our thanks to Yousuf for a candid and honest interview. To share you Chinese motorcycle import experiences with us write to me at [email protected]
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By Zoe Fu, CHINAMOTOR
Background: Feria de las 2 Ruedas Colombia is one of the most representative motorcycle exhibitions in Latin America, which plays a very important role in bringing together the participants of motorcycle industry in this huge area. Colombia is an very important motorcycle market in the world, and whose sales volume grows at 30% to 35% year by year, which may be the fast growing market in the whole world. Colombia is also one of the most important market of Chinese products, and the market share of China-made motorcycles and spares parts is very much significant. During the exhibition, CHINAMOTOR interviewed Mr. Guillermo L. Pajon Carmona, the director of this exhibition, who will present a general introduction of Colombia’s motorcycle market in this interview.
Zoe Fu CHINAMOTOR: Good morning, Mr. Guillermo, thank you very much for accepting CHINAMOTOR’s interview. Would you please make a brief introduction of Feria 2 Ruedas. How many times has it held so far?
Mr. Guillermo: Feria 2 Ruedas is the biggest motorcycle show in Columbia, which acts as an important platform for the motorcycle industry and business in the whole Latin America. 2012 is the sixth version, it´s been successful because we are full of visitors and exhibitors this year. We have over 270 exhibitors this year and expect more than 38000 visitors from Columbia’s neighboring countries.
Zoe: What is the significance of the show in Latin America and the importance to the local motorcycle industry? Are there any other similar shows in the neighboring countries?
Guillermo: In South America the most important motorcycle industry show is held in Brazil, every other year, Salao Duas Rodas. Feria 2 Ruedas is the second most important industrial exhibition in this area. The show also plays important role in strengthening the connection between Columbia and neighboring markets. There are also similar motorcycles shows in Argentina and Mexico, but our show is better than them now.
Zoe: What are the specialties of Columbia motorcycle market comparing to the other Latin American countries?
Guillermo: I think the motorcycles are all the same, the success depends on the strength of the company to penetrate a market, and how well they respond to the market need. Today we have 5 assembly plants in Colombia, it´s a good and important advantage because there is national product, national integration, that´s why I think that there´s no difference. Some companies have been more aggressive than others, have been more strategic and developed better brands than their competitors.
We see in the future a big motorcycle demand, especially from China and India. But, there exists a big problem here in the market, after sales service. I mean, some of them don’t have spares in Colombia, they don’t pay due attention to the after service. In many cases people had to wait 2 o 3 months for their new spare parts.
Zoe: What is the significance to motorcycles to the local people?
Guillermo: A great percent of the Colombian people have motorcycles, many people ride it to work or for fun, it´s an economic transport. Columbia is a developing country and our public transportation system is not that advanced so far, and it is a bit difficult for many families to afford a car, motorcycle is a very important daily transport for many people.
Zoe: How many motorcycles were sold in 2011? Did it grow comparing to the figure of 2010?
Guillermo: According to the official statistics released by Ministry of Commerce, Industry and Tourism, the sales volume in 2011 is 490000 units, but the actual figure is estimated more than this, which very possibly reached 535000 units. The yearly growth is between 30% to 35%, I hope we can sell 600000 motorcycles this year.
Zoe: Is Columbia also affected by the global economic recession?
Guillermo: Not yet, but I think it can come any time. Now, the foreign investors are still holding strong confidence in our economy.
Zoe: Who are the top five best selling brands in Columbia?
Guillermo: AUTECO, YAMAHA, Honda, AKT, SUZUKI. Auteco is the biggest motorcycle company here, they come into the motorcycle business many years ago. Auteco represents 3 brands, Bajaj, Kawasaki and Kymco. AKT is a young local brand, which started in 2004 but it developed very fast in the past few years, and it is taking the lead nowadays in Columbia, which is also the biggest importer of Chinese motorcycles in Columbia. Besides the mentioned brands, there are also other brands like UM, PIAGGIO, Qingqi, JIALING, JINCHENG, their market share is smaller than the top five.
Zoe: What is the market share of China-made bikes here? What is the market share of Chinese spare parts? What is the market share of Chinese spare parts?
Guillermo: I really don´t know the exact figures yet, but one thing I am sure is the Chinese products have strong market penetration. Many motorcycle spare parts sold in Columbia are from China. But the Indian companies are very strong and there will be more Indian companies presented in 2013, both at the exhibition and in this country.
Zoe: How many Chinese exhibitors this year and does the number grows comparing with last year or not? Do you have a plan for next year? I mean the growth rate for next year comparing with this year.
Guillermo: We have 28 exhibitors from China this year, and we had 19 Chinese exhibitors in 2011. They wanted 600 square meters at the Feria 2 Ruedas 2012, it shows their big interest to get in Columbian market, and it means that we are going to have more Chinese exhibitors next year. They wanted more, but from the fair we already set space for international exhibitors, as Columbian people we have to protect our own industry and give the time to them to prepare. There is the chance for them to participate, but we also have discretion with international exhibitors.
Zoe: Do you have any suggestions to the Chinese exhibitors to get the utmost from the exhibition?
Guillermo: I think Chinese people are very hard-working, but they need to pay due attention to some details. From this show and the shows before, I feel the Chinese companies need to do some serious work at the presentation of their booths, they should have a nice publicity. Chinese is the biggest supplier in the whole world, and they should have a better image instead of the simple-looking booth. They should make their booth better decorated, this is really very important. Latin American people like the fresh-looking and eye-catching style, but their booths here are a bit boring. It is true that it is not easy for them to make the decoration like the local companies, we are having a policy for this that all of the Chinese booths larger than 15 sqms can get special support from our company.
Zoe: Chinese bikes used to be very popular here and now it is obvious that the market share shrank a lot comparing with before and Indian motorcycles are just becoming more and more influential, what is the reason, where the Indian bikes become so strong in such a short time? What is your suggestion for the Chinese bike makers if they want to get back their market share?
Guillermo: Yes, you are right. Chinese motorcycles used to be very popular in Columbia especially in 2005 and 2006. But, they made the biggest mistake in this market, which is also the most important reason leading to the failure of most of them. They don’t care about the after service, and consumers can not find the service centers to fix their bikes. Once their bikes broke, it means it has been broken forever. There is no hope for them to get properly taken care of. The quality of Chinese bikes then was not that good as well, and the percentage of good and bad quality products is half and half. India draws our attention now, they started to get interest in our market. India has highly developed motorcycle industry, and they supply great after service to consumers, and the reputation of their products in Columbia is very good and the quality is also better. Though the price is a higher than Chinese bikes, people love their brands due to the durable quality.
Zoe: Chinese government is not that supportive to the motorcycle industry, how is the situation in Columbia?
Guillermo: We used to have a resistance to the motorcycles from the government because of the social safety and accident problems, but before long the government recognized that motorcycles are very important transport to the low-income people, and it has become a life style now that we can enjoy our family and free time since it is so convenient and cost-effective. The government has to understand they couldn´t stop the growth and people’s need.
Zoe: The emission problem is a global issue for the time being, China already implemented the National 3 standard and the national 4 will be there in 2014 or 2015, what is the standard here?
Guillermo: For the time being, we don’t have a special emission standard yet, but it is said that two-stroke motorcycles were going to get out of the market soon due to that they cause too much pollution.
Zoe: I saw there are several e-bikes at AKT’s booth, what is your opinion about the E-bike’s chances in Columbia? Is there any shortage of electricity power here?
Guillermo: I have an electric motorcycle 4 years ago. E-bike has a good future in Columbia, they are not noisy, and meanwhile economic and green. Columbia government is caring the environment a lot, and in the near future, I truly think they will put due attention to the e-bike products, but not now.
Thanks to Mr.Guillermo for his frank and honest interview. CHINAMOTOR magazine will do everything to increase the awareness of Feria 2 Ruedas in China, and let more and more Chinese companies to get more information about this promising market. We will try our best to build an information and business platform for both sides.
Special thanks to Walter, Andrea, Sergio, Angela, Maria for their kind assistance during the whole interview.
Interview of Mr. Carlos De Martins, Director of DITALLY - THE MOTORCYCLE OF NEW BRAZILIAN
Background: DITALLY is a famous local motorcycle brand in Brazil, whose products include sport bike, dirt bike, cub and ATV. It is also a very significant Brazilian importer of Chinese products. Brazil is one of the most important markets for Chinese companies, especially for the spare parts companies. Due to various reasons, many Chinese companies find that entering this huge market is much more difficult than they expected. How to successfully get into this market? How to win the confidence in Chinese products from the Brazilian consumers? …... Mr. Carlos De Martins, director of DITALLY accepted CHINAMOTOR’s interview in this issue, and he will give you some answers.
Zoe: How many units of motorcycles were sold in Brazil last year? What is the number of 2010?
Carlos: According to the statistics released by the government, in 2010, there were 1.818.181 units of motorcycles sold in Brazil, and 2.044.532 units were sold in 2011, and the yearly sales is growing stably.
Zoe: Who are the top 5 best selling brands in Brazil and what is their market share and sales volume in 2011 respectively?
Carlos: The 5 best selling brands in Brazil incluede HONDA, YAHAMA, DAFRA, KASINSKI and SUZUKI. The figures of their market share respectively are HONDA 79.9 %, YAMAHA 11.6%, KASINSKI 2.9%, DAFRA 2.8%, SUZUKI 1.4%. These numbers are released in 2011. According to the government, the cubs below 50cc dont need to register and apply for the plate, so we can not get access to the official number of these bikes. Our best selling model is Ditally Joy Plus 50cc.
Zoe: When did DITALLY start the motorcycle business? How many units did it sell in 2011? How about in 2010?
Carlos: We had some shops selling Honda motorcycles before, and in 2010 we started import motorcycles from China, in February 2010 we got the first containers. In 2011 we sold 40000 units whole bikes in Brazil, and we sold 25000 units in 2010. Most of the bikes we are selling now are the 50cc bikes.
Zoe: How many units of complete motorcycles did you import from China? Are you planning to exploit the collaboration with more Chinese companies or not? How many Chinese brands are there in Brazil?
Carlos: Actually we import bikes through CBU so far. This year in September the government will release a new tax policy, if you don’t want to pay the tax, you should have factory in Zona Franca de Manaus. Now we are building an assembling plant there, which will start next year. When it is finished, we will import through CKD. Next year, we are planning to import 50000 bikes from China. For the time being, we only import motorcycles from one Chinese brand, and we are satisfied with our collaboration. There are more than 5 Chinese brands in Brazil now, but most of them don’t use their own brand names.
Zoe: Chinese motorcycles used to be very popular in Brazil a few years ago, but due to the terrible quality problems and poor after service supply, whose market was almost completely taken over by Japanese brands. How is their quality and after service now?
Carlos: Before, the people imported motorcycles from China without any local tests, and they only did the Chinese tests. So it is very difficult for the quality control. Now, the Brazilian companies normally import one or two samples from China, and they will do very careful tests for the bikes. This test will last for a year and the bike has to pass the 50000km test. During the time, almost all the Brazilian companies will send all the problems found in the test back to the Chinese companies to improve. Their quality and after service is much better than before, but there are still some problems.
Zoe: Are there Indian brands in Brazil now?
Carlos: The Indian brands are very strong in many global markets, but for the time being, they just started in Brazil. Now, only a model from TVS is imported to the local market. But we can never neglect the Indian brands. According to some very reliable news, Bajaj has been planning to enter the market long time ago. The market competition will be much more brutal after these brands get in. On the one hand, their quality is really nice, and on the other hand, their price is supposed to be cheaper than the Japanese bikes, which will put great pressure to the Chinese brands.
Zoe: How about the difference of quality between Indian bikes and Chinese bikes?
Carlos: Generally speaking, the Indian bikes’ quality is better than the bikes made in China, but the price is much more expensive than the Chinese bikes as well.
Zoe: Which displacement is the most popular in Brazil? What kind of motorcycles is the best selling type, such as standard, cub, scooter, off-road or etc?
Carlos: 150cc bikes are the most popular models in Brazil, and street bikes are the first choice of most Brazilian consumers.
Zoe: How many local brands are there in Brazil? Do they have collaboration with other foreign brands or they have independent R&D and production system?
Carlos: There are more than ten local brands in Brazil. Kasinski, Dafra , Traxx and DITALLY are the big ones in this market.
Zoe: Many motorcycle and spare parts companies told me that it is quite difficult to get into Brazilian market? What are the reasons underneath in your opinion? What are your suggestions to them?
Carlos: In Brazil, Honda is the best selling brands and it has the best reputation and quality among all the other brands, and there is one more thing we have to pay attention to is the after sales. When people want to sell their old bikes, if it is a Honda bike, it will be very easy to sell it out plus at a very good price; the situation will be very different if it is some other brands. This is the fact in Brazil for the time being. I suggest the Chinese bikes should use the better quality spare parts to build the whole bikes. Maybe after some years, we can change this situation.
Zoe: What is the price gap between the same displacement bikes of Japanese and Chinese brands? How does DITALLY take care of the after sales service?
Carlos: The price gap between the same bikes of Chinese brands and Japanese brands can be very much big. Generally the price of the Japanese bikes are more than 20% higher than the Chinese bikes. We have a professional team back in China in charge of the quality control, and our HQ officials keep close touch with our team members in China every day for the quality control. We have big spare parts storage in Brazil for all our currently selling bikes, and we also established many service centers in our country and the network has already covered most areas. Whenever our clients’ bikes meet problems, they can send their bike straight to the service centers to make the maintenance or get new spare parts fixed in.
Zoe: What is the population of Brazil now? What is the average salary of the common working people in USD? How about the present situation of the motorcycle business in Brazil now?
Carlos: There are about 196 million persons living in Brazil now. People’s monthly income can be very different according to their jobs, but the common people can make 500-600 USD each month. Now, the motorcycle business is a bit slower than before. After the global recession, the banks become very careful when they release the loan. Buying motorcycles through paying monthly mortgage is very common in Brazil. Before 2008, it was very easy to get the loans from the bank. When it came to 2009, 2010 and 2011, the situation was still ok, but not that easy. This year, it is really difficult for people to get the pass from the bank. They need to submit a lot of documents to the bank for their assessment before they get a “Yes” from the bank.
Zoe: How is the sales of the big bikes? I mean the bikes more than 600cc.
Carlos: The market of the big bikes is very good in Brazil. All of the big brands’ heavy bikes can find their consumers here, such as MV Agusta, Harley Davidson, Triumph and all the other brands. There are 38989 units of bikes of more than 600cc sold last year. But all of the bikes are very expensive, and their market segments are not the common people.
Zoe: Can you please tell me some information of the e-bike’s market in Brazil? Have it started or not? Do you have any plan to start this business?
Carlos: The e-bike business is growing at present in Brazil. There are some companies who have already started importing e-bikes and e-scooters from China, but the market is still very new and we need a long time to educate people to use the electric transports. I think the e-bikes are more popular than the e-scooters now, we will start to import next year.