Two Wheelers in India
India is the 2nd largest twowheeler
market in the world The feeling of freedom and being one with the Nature comes only from riding a two-wheeler. Indians prefer the two wheelers because of their small manageable size, low maintenance, and pricing and easy loan repayments. Indian streets are full of people of all age groups riding a two-wheeler. Motorized two wheelers are seen as a symbol of status by the populace. Thus, in India, we would see swanky four wheels jostling with our ever reliable and sturdy steed: the two-wheeler.
Two-Wheeler Industry in India: An IntroductionThe Indian two-wheeler industry has been in the limelight recently because of its impressive performance. Hero Honda has been the largest manufacturer of motorcycles in the world for quite some time. Its motorcycle model Splendor has also been the largest selling model in the world. The last few years have also seen a large quantity of two-wheelers being exported. In neighbouring countries like Bangladesh and Sri Lanka, the Indian two-wheeler manufacturers have captured the market. Even in Africa and South America Indian motorcycles have been well received. Some of the Indian manufacturers like TVS Motors and Bajaj Auto are in the process of setting up assembly and manufacturing plants. The number of models being introduced by Indian two-wheeler manufacturers every year is also high. At this crucial juncture when the Indian two-wheeler industry is making its mark in the global market, this book ?Two-Wheeler Industry in India ? An Introduction? will make interesting reading. The book has been divided into three sections. The first section traces the evolution of the industry, its growth and the reasons for the industry being competitive. The second section delves into the issues facing the industry and future of the industry. It also throws light on the exports of two-wheelers, Government policies affecting the growth of the industry and electric scooters and motorcycles. The third section discusses the major players, Hero Honda, TVS Motors, Bajaj Auto and Electro herm India.
Indian automobile industry witnessed a growth of 23.37% in 2-wheeler segment. India is the second-largest 2-wheeler manufacturers in the world and also the largest motorcycle manufacturer in the World. Indian 2-wheeler segment includes a range of vehicles such as scooters- geared and ungeared, motorcycles and mopeds. In India there are 7 scooter manufacturers, 9 motorcycle manufacturers, 3 moped manufacturers. Bajaj Auto, Hero Honda, TVS, etc are the leading manufacturers. They have also dominated the global arena after Piaggio. Production in Indian automobile industry During cfinancial year 2005-06, Indian 2-wheeler production showed a growth of 16.40% over the
preceding year. 2-wheeler segment have been showing an upward production trend. At present, there are more than 7.6 million 2-wheeler, manufactured in Indian automobile sector.
Definition of Industry
As per Section 2(j) of Industrial Disputes Act,1947 “Industry” means any systematic activity carried on by co-operation between an employer and his workmen(whether such workmen are employed by such employer directly or by or through any agency, including a contractor) for the production ,supply or distribution of goods or services with a view to satisfy human wants or wishes (not being wants or wishes which are merely spiritual or religious in nature), whether or not,-
(i) any capital has been invested for the purpose of carrying on such activity; or
(ii) such activity is carried on with a motive to make any gain or profit, and includes-
(a) any activity of the Dock Labour Board established under section 5-A of the Dock Workers ( Regulation of Employment)Act,1948( 9 of 1948);
(b) any activity relating to the promotion of sales or business or both carried on by an establishment,
History
The Britannica Encyclopedia describes a motorcycle as a bicycle or tricycle propelled by an internal-combustion engine (or, less often, by an electric engine).The motors on minibikes, scooters, and mopeds, or motorized velocipedes, are usually air-cooled and range from 25 to 250 cubic cm (1.5 to 15 cubic inches) in displacement; the multiple-cylinder motorcycles have displacements of more than 1,300 cubic cm. The automobile was the reply to the 19th-century dream of self-propelling the horse-drawn carriage. Similarly, the invention of the motorcycle created the self-propelled bicycle. The first commercial design was a three-wheeler built by Edward Butler in Great Britain in 1884. This employed a horizontal single-cylinder gasoline engine mounted between two steer able front wheels and connected by a drive chain to the rear wheel.The 1900s saw the conversion of many bicycles, or pedal cycles by adding small, centrally mounted spark ignition engines. There was then felt the need for reliable constructions. This led to road trial tests and competition between manufacturers. Tourist Trophy (TT) races were held on the Isle of Man in 1907 as reliability or endurance races. Such were the proving ground for many new ideas from early two-stroke-cycle designs to supercharged, multivalent engines mounted on aerodynamic, carbon-fibre reinforced bodywork.
Invention of Two Wheelers
The invention of the first two-wheeler is a much-debated issue. "Who invented the first motorcycle?" may seem like a simple question, but the answer is quite complicated. Two-wheelers owe their descent to the "safety" bicycle, i.e., bicycles with front and rear wheels of the same size, with a pedal crank mechanism to drive the rear wheel. Those bicycles, in turn descended from high-wheel bicycles. The high-wheelers descended from an early type of pushbike, without pedals, propelled by the rider's feet pushing against the ground. These appeared around 1800, used iron-banded wagon wheels, and were called "bone-crushers," both for their jarring ride, and their tendency to toss their riders. Gottlieb Daimler (who later teamed up with Karl Benz to form the Daimler-Benz Corporation) is credited with building the first motorcycle in 1885, one wheel in the front and one in the back, although it had a smaller spring-loaded outrigger wheel on each side. It was constructed mostly of wood, the wheels were of the iron-banded wooden-spoked wagon-type, it definitely had a "bone-crusher" chassis! This two-wheeler was powered by a single-cylinder Otto-cycle engine, and may have had a spray-type carburetor. (Wilhelm Maybach
, Daimler's assistant, was working on the invention of the spray carburetor at the time). If two wheels with steam propulsion can be called a motorcycle, then the first one may have been American. One such machine was demonstrated at fairs and circuses in the eastern US in 1867. This was built by one Sylvester Howard Roper of Roxbury, Massachusetts. There is an existing example of a Roper machine, dated 1869. A charcoal-fired two-cylinder engine, whose connecting rods directly drive a crank on the rear wheel, powers it. This machine predates the invention of the safety bicycle by many years, so its chassis is also based on the "bone-crusher" bike.
Origin of Motor-Scooters
Edward Butler, an Englishman, built the first motor tricycle in 1884. The first gasoline-engine motorcycle to appear publicly was built by Gottlieb Daimler, of Bad Cannstatt, Germany, in 1885. The French and Belgians, followed by British, German, Italian, and American makers, designed the first practical engines and motorcycles.The popularity of the vehicle grew, especially after 1910. During World War I all branches of the armed forces in Europe, principally for dispatching, used the motorcycle. After the war it enjoyed a sport vogue until the Great Depression began in 1929. After World War II a revival of interest in motorcycles lasted into the late 20th century, with the vehicle being used for high-speed touring and sport competitions.The practice of attaching auxiliary engines to bicycles in western Europe and parts of the United States led to the development during the 1950s of a new type of light motorcycle, the moped. Originating in Germany as a 50-cubic-centimetre machine with simple controls and low initial cost, it was largely free of licensing and insurance regulations except in Great Britain.The more sophisticated motor scooter originated in Italy soon after World War II, led by manufacture of a 125-cubic-centimetre model. Despite strong competition from West Germany, France, Austria, and Britain, the Italian scooters maintained the lead in the diminishing market. The scooter has small wheels from 20 to 36 cm (8 to 14 inches) in diameter, and the rider sits inside the frame. Power units are placed low and close to the rear wheel, which is driven by bevel gearing or chain. Capacities vary from 50 to 225 cubic cm, and four-speed gearing is common.
Initial Hits
Most of the development during this earliest of eras concentrated on three and four-wheeled designs, since it was complex enough to get the machines running without having to worry about them falling over. The next really notable two-wheeler was the Millet of 1892. It used a 5-cylinder engine built as the hub of its rear wheel. The cylinders rotated with the wheel, and its crankshaft constituted the rear axle.The first really successful production two-wheeler though, was the Hildebrand & Wolfmueller, patented in Munich in 1894. It had a step-through frame, with its fuel tank mounted on the downtube. The engine was a parallel twin, mounted low on the frame, with its cylinders going fore-and-aft. The connecting rods connected directly to a crank on the rear axle, and instead of using heavy flywheels for energy storage between cylinder-firing, it used a pair of stout elastic bands, one on each side outboard of the cylinders, to help out on the compression strokes. It was water-cooled, and had a water tank/radiator built into the top of the rear fender.In 1895, the French firm of DeDion-Buton built an engine that was to make the mass production and common use of motorcycles possible. It was a small, light, high revving four-stroke single, and used battery-and-coil ignition, doing away with the troublesome hot-tube. Bore and stroke figures of 50mm by 70mm gave a displacement of 138cc. A total loss lubrication system was employed to drip oil into the crankcase through a metering valve, which then sloshed around to lubricate and cool components before dumping it on the ground via a breather.DeDion-Buton used this 1/2 horsepower power plant in road going tikes, but the engine was copied and used by everybody, including Indian and Harley-Davidson in the U.S. Although a gentleman named Pennington built some machines around 1895 (it's uncertain whether any of them actually ran), the first US production motorcycle was the Orient-Aster, built by the Metz Company in Waltham, Massachusetts in 1898. It used an Aster engine that was a French-built copy of the DeDion-Buton, and predated Indian (1901) by three years, and Harley-Davidson (1902) by four.
TRENDS IN THE TWO-WHEELER INDUSTRYCompanies raising capacity to meet the growing demand All the major two-wheeler manufacturers, viz. Bajaj Auto, HHML, TYS, HMSI and others, have increased their manufacturing capacities in the recent past. The total capacity of these players stood at 7.8 million units per annum (FY2003) as against total market sales of 3.8 million units in FY2002. Most of the players have either expanded capacity, or converted their existing capacities for scooters and mopeds into those for manufacturing motorcycles. The move has been prompted by the rapid growth reported by the motorcycles segment since FY1995.HHML increased the capacity of its plants from 1.8 million units in FY2003 to 2.25 million in FY2004 and has been able to achieve 92% capacity utilisation. In light of the increase in demand for motorcycles, the company plans to set up a new plant. Since its entry in the Indian market during FY2002, HMSI has aggressively expanded its capacity.(need)Two-wheelers Purchase Trend
Growing working population
Increased access to credit and lower interest loans
Increased consumer embrace of financial products
Upward migration of household income levels
Fast paced urbanization to rise from 28% to 40% by 2020
Middle class expanding by 30 - 40 million every year
Saturday, November 8, 2008
Friday, November 7, 2008
Introduction THE Retention Malady
Don't shrug it away; it's real. Three out of every 4 software companies surveyed, and almost 1 in every 2 manufacturing and services companies confess that their retention-related woes are acute. Indeed, more than 90 per cent of the companies surveyed admit that they all have some sort of people problem although these percentages indicate the perceptions within, and not the retention-levels of, these organisations. SAMEs (Small And Medium Enterprises)-with a turnover of less than Rs 100 crore and fewer than 100 employees-feel the threat of attrition stronger than the others. On the one hand, the fewer number of employees on their rolls makes every departure significant; on the other, SAMEs are happy hunting-grounds for larger firms that can offer the best employees in such units more in terms of monetary as well as non-monetary compensation.
While the actual turnover-rates are much lower than the perceived threat of attrition, across industries and management-levels, they showed a rising trend that should worry every CEO. Undoubtedly, the junior management level is most vulnerable to poaching: turnover-rates range from 7 per cent in manufacturing companies to 13 per cent in hi-tech organisations. That's because junior managers, typically, experience more problems related to fit and culture than their senior colleagues. Of course, they are also more susceptible to monetary inducements at this stage of their careers.
Analysed on the basis of size, their track-records indicate that retention-levels have declined the most in mid-sized companies (with turnovers of between Rs 200 crore and Rs 500 crore). And they have either remained the same (83 per cent) or increased (17 per cent) in organisations with turnovers of more than Rs 1,000 crore. The logic in hindsight: a small organisation is an exciting workplace, with their fewer number making every employee feel wanted. And large organisations have elaborate people-management practices in place, which define the role that each individual is expected to play, and the route his or her career is likely to take within the organisation. But mid-sized companies are trapped in limbo: they are placid places to work in and, more often than not, do not have the kind of systems that their larger cousins do.
Marketing and services companies, though, would do well to look beyond the simplistic assumption that retention is a critical issue only in hi-tech industries. That may be the case in absolute terms but, while the retention-levels in 16 per cent of the infotech and telecom companies sampled have declined, they have fallen in 26 per cent of the marketing and services companies. Across industries, though, the function which witnesses the maximum attrition varies. In manufacturing and marketing companies, it is the production function. In services companies, it is the finance function. And in infotech companies, it is the line function of information technology. Evidently, the problem of retention is quite wide-spread in corporate India.
Reasons for employee movement:
Following are the reasons for professionals to change his/her job.
No growth opportunity/lack of promotion
For higher Salary
For Higher education
Misguidance by the company
Policies and procedures are not conducive
No personal life
Physical strains
Uneasy relationship with peers or managers
Retention a challenge:
Fundamental changes are taking place in the work force and the workplace that promise to radically alter the way companies relate to their employees. Hiring and retaining good employees have become the chief concerns of nearly every company in every industry. Companies that understand what their employees want and need in the workplace and make a strategic decision to proactively fulfill those needs will become the dominant players in their respective markets.The fierce competition for qualified workers results from a number of workplace trends, including:
A robust economy
Shift in how people view their careers
Changes in the unspoken "contract" between employer and employee
Corporate cocooning
A new generation of workers
Changes in social mores
Life balance
Concurrent with these trends, the emerging work force is developing very different attitudes about their role the workplace. Today's employees place a high priority on the following:
Family orientation
Quality of life issues
Autonomy
To hold onto your people, you have to work counter to prevailing trends causing the job churning. Smart employers make it a strategic initiative to understand what their people want and need -- then give it to them.
THE Retention Responsibility
Carry the Pareto Principle to an extreme: as 20 per cent of your employees account for 80 per cent of your success, focus 80 per cent of your retention efforts on 20 per cent of your people. Across industry-types, manufacturing, marketing, and services companies believe that it makes little sense to retain all their employees all the time. The real objective: retain only those people who contribute to the company's performance in terms of improving the quality of goods and services, or increasing the level of customer satisfaction.
However, hi-tech companies insist that their strategies must focus on retaining all employees. Their logic is that organisations get the kind of employee-performances they deserve. Given the high costs involved in mid-career hires, especially in software and telecom companies, it does make sense to create an environment where all their employees can continuously upgrade their skills-sets rather than let go of them.
Expectedly, the hr department and the senior management are the organisational centres vested with the responsibility of retention management. However, the process is shared: in most organisations, the hr department, the individual functions, the top management, teams, and the trade unions manage the retention function, individually and together. The choice of the unit varies across industries: 50 per cent of the companies where the union has a role to play belong to the manufacturing sector; teams are popular with manufacturing (37 per cent) and services (35 per cent) companies; and 32 per cent of the companies where the senior management involves itself in retention are infotech and telecom companies. Obviously, the high attrition-rates and the almost-perennial demand for skilled manpower in these industries is why.
Size too matters. 89 per cent of the companies where the senior managers concerned themselves with retention had turnovers of less than Rs 500 crore. And 69 per cent of them had less than 500 employees. Obviously, it is easier for senior managers to concern themselves directly with retention management when they do not have to deal with too many employees. Expectedly, teams and trade unions have a significant role to play in large companies (more than 500 employees and turnovers exceeding Rs 500 crore).
What can be done?
Though, it is impossible to scrap problems totally, there are certain ways by which BPO managements can tackle attrition. Since the BPO environment is unique, these companies need to develop innovative ways to tackle them. Human Resources department of a BPO must address these issues, and along with the management need to evolve strategies to retain employees at all levels.
At the time of Recruitment
Select the right people through competency screening.
Use psychometric tests to get people who can work at night and handle the monotony.
Offer an attractive, competitive, benefits package.
Make clear of performance enhanced incentives and other benefits. Keep these promises, later.
BPOs can set up offices in smaller towns, or recruit from there, where opportunities are few.
At the office
An employees work must be communicated to him clearly and thoroughly. The details of the job, its importance, the way it should be done, maximum time that can be allotted to complete it etc., must be made clear. If there are changes to any of these, let the employee know at the earliest
Give the employees necessary tools, time and training. The employee must have the tools, time and training necessary to do their job well - or they will move to an employer who provides them.
Have a person to talk to each employee at regular intervals. Listen and solve employee complaints and problems, as much as possible. Fairness and impartial treatment by seniors is important. Help employees manage stress, both at work and if possible, off work too. Give them special concessions, when in need. Treat the employees well & provide dignity of job.
The quality of the supervision an employee receives is critical to employee retention. Frequent employee complaints arise on this issue.
Provide the employees a stress free work environment. People want to enjoy their work. Make work and work place cheerful and fun-filled as possible.
Make sure that employees know that their work is important for the organisation. Feeling valued by their employer is key to high employee motivation and morale. Recognize their strengths and help them to improve those they lack.
Employees must feel rewarded, recognised and appreciated. Giving periodical raise in salary or position helps to retain staff.
Offer excellent career growth prospects. Encourage & groom employees to take up higher positions/openings. If they dont get opportunity for growth within the organisation, they will look elsewhere for it.
Work-life balance initiatives are important. Innovative and practical employee policies pertaining to flexible working hours and schemes, granting compassionate and urgency leave, providing healthcare for self, family and dependants, etc. are important for most people. Work-life balance policies would have a positive impact on retaining skilled employees, as well as on attracting high-calibre recruits.
Implement competency models, which are well integrated, with HR processes like selection & recruitments, training, performance appraisal and potential appraisal.
Main retention strategiesThis is not an exhaustive list, one can add or delete any of the below mentioned strategies. Secondly, the need of the hour is to have "right basics". Every individual is different, his needs are different, and his emotions, his problems are different. So, dear HR-Professionals…sit down and concentrate on your basics.
Communications - Getting Your People to Care Communication is the first step toward creating the kind of environment that people care about, and if they care, they just may stay. I'm not talking about a lot of New Age stroking designed to bring out the inner person or false praise that creates a misplaced sense of security. Instead, keep your people in the loop about what's happening with the company. At any time, all of your employees should have a pretty good idea of how business has been, and they should be aware of what issues the company is attempting to address.That means that you regularly keep your people up to date with important events affecting the company. If November was good, let them know, and while you're at it, tell them what you expect to happen in December. Share good news, as well as points of concern. If you've got "issues," talk about them before they start making you crazy. And if they don't get resolved, figure out whether the problem stems from a couple of individuals or from your system.Set Clear Expectations
How often do you appraise your employees/team-members?
What are your expectations from your employees/team-members? What are the parameters to measure their performance? Have you communicated to them?
What will be the consequences, if they fail?
What will be the rewards, if they exceed the expected level?
Proper RewardingA research reports says that in today's scenario,
70% of your employees are less motivated today than they used to be.
80% of your employees could perform significantly better if they wanted to.
50% of your employees only put enough effort into their work to keep their job.
As you might be aware of Employee Reward covers how people are rewarded in accordance with their value to an organization. It is about both financial and non-financial rewards and embraces the strategies, policies, structures and processes used to develop and maintain reward systems. The ways in which people are valued can make a considerable impact on the effectiveness of the organization, and is at the heart of the employment relationship.The aim of employee reward policies and practices, if any in your organization is to help attract, retain and motivate high-quality people. Getting it wrong can have a significant negative effect on the motivation, commitment and morale of employees. Personnel and development professionals will be involved frequently in reward issues, whether they are generalists or specialize in people resourcing, learning and development or employee relations. Keep following parameters in mind, while designing a reward policy:Build a high degree of recognition value into every reward you offer. Reduce entitlements and link as many rewards as possible to performance.Troubleshoot your reward system to make sure that what it is rewarding is what you really want to happen.Reward promptly.
Give employees a choice of rewards..Increase the longevity of your rewards
Be continually vigilant of demotivators that may undermine your organization's best efforts to provide power rewards, and reduce them promptly.
Nature of Supervision: The quality of the supervision an employee receives is critical to employee retention. People leave managers and supervisors more often than they leave companies or jobs. It is not enough that the supervisor is well liked or a nice person, starting with clear expectations of the employee, the supervisor has a critical role to play in retention. Anything the supervisor does to make an employee feel unvalued will contribute to turnover. Frequent employee complaints center on these areas.
Lack of clarity about expectations,
Lack of clarity about earning potential,
Lack of feedback about performance,
Failure to hold scheduled meetings, and
Failure to provide a framework within which the employee perceives he can succeed.
THE Retention Measures
Companies now adopt more than one technique to create an internal environment that will retain their employees. As per the survey, the most popular retention-oriented initiatives include:
INCREASING THE ORGANISATION'S LEVEL OF PROFESSIONALISM.
MOVING FROM FAMILY TO PROFESSIONAL MANAGEMENT.
MAKING PERFORMANCE APPRAISALS OBJECTIVE.
INVOLVING EMPLOYEES IN THE DECISION-MAKING PROCESS.
ENSURING A MATCH BETWEEN AUTHORITY AND ACCOUNTABILITY.
MEASURING EMPLOYEE SATISFACTION.
ACHIEVING A MATCH BETWEEN INDIVIDUAL AND ORGANISATIONAL GOALS.
DESIGNING A COMPETITIVE COMPENSATION PACKAGE.
INCREASING ORGANISATIONAL TRANSPARENCY.
PROMOTING EMPLOYEES FROM WITHIN.
HELPING EMPLOYEES ACQUIRE NEW SKILLS.
OFFERING STOCK OPTIONS.
FOCUSING ON WELFARE MEASURES..
BEST PRACTICES. The best organisations recognise the fact that the retention techniques that will work best for them depend on the dynamics of the industry of which they are a part, and the level of management at which they wish to focus their efforts. These organisations tier their retention strategies to suit their employees at various levels of the organisation. Often, recognising the individuality of employees is the best retention strategy.
A focus on retention management can serve as a good starting-point for improving the quality of systems and processes in an organisation. Retaining their best employees requires companies to launch initiatives along several dimensions: introducing good house-keeping practices in offices and shop-floors; making performance-appraisal systems transparent, objective, and participative; professionalising the senior management team; and ensuring that employees take pride in their work.
Fast-growth companies, which are among the top-performers in their industry, will find it easier to retain employees than others provided they practise the essentials of retention management: objective appraisal, and good pay-packages. Everyone loves to work for a winner. But the only way a company can improve its performance is by hiring and retaining the best human capital, and motivating it to deliver its best. If that isn't a vicious circle, nothing is. And best-in-class retention management is right at its centre
Conclusion
As they say, happiness can be contagious. So make sure the work place is a happy one, which every employee would love to spend time. Human resources department along with senior management must take steps to make sure of this.
Effective human resource management must be practiced at both strategic and day-to-day levels. HR management practices must reflect company policy as to how it will manage and relate to its employees. The HR strategy should evolve from a transactional support role to partnering in the organisations business strategy. HR must take steps to be aware of employee problems and try to solve them, creatively
References
1. “Effective employee retention stratigeies, key to reduce attrition in BPO firms – Offshoring Times
2. “Retention strategies in ITES-BPO Industry “ – Sanjeev Sharma – BPOInida.org
3. “Retention Management” – R Sukumar – Business Today.
Don't shrug it away; it's real. Three out of every 4 software companies surveyed, and almost 1 in every 2 manufacturing and services companies confess that their retention-related woes are acute. Indeed, more than 90 per cent of the companies surveyed admit that they all have some sort of people problem although these percentages indicate the perceptions within, and not the retention-levels of, these organisations. SAMEs (Small And Medium Enterprises)-with a turnover of less than Rs 100 crore and fewer than 100 employees-feel the threat of attrition stronger than the others. On the one hand, the fewer number of employees on their rolls makes every departure significant; on the other, SAMEs are happy hunting-grounds for larger firms that can offer the best employees in such units more in terms of monetary as well as non-monetary compensation.
While the actual turnover-rates are much lower than the perceived threat of attrition, across industries and management-levels, they showed a rising trend that should worry every CEO. Undoubtedly, the junior management level is most vulnerable to poaching: turnover-rates range from 7 per cent in manufacturing companies to 13 per cent in hi-tech organisations. That's because junior managers, typically, experience more problems related to fit and culture than their senior colleagues. Of course, they are also more susceptible to monetary inducements at this stage of their careers.
Analysed on the basis of size, their track-records indicate that retention-levels have declined the most in mid-sized companies (with turnovers of between Rs 200 crore and Rs 500 crore). And they have either remained the same (83 per cent) or increased (17 per cent) in organisations with turnovers of more than Rs 1,000 crore. The logic in hindsight: a small organisation is an exciting workplace, with their fewer number making every employee feel wanted. And large organisations have elaborate people-management practices in place, which define the role that each individual is expected to play, and the route his or her career is likely to take within the organisation. But mid-sized companies are trapped in limbo: they are placid places to work in and, more often than not, do not have the kind of systems that their larger cousins do.
Marketing and services companies, though, would do well to look beyond the simplistic assumption that retention is a critical issue only in hi-tech industries. That may be the case in absolute terms but, while the retention-levels in 16 per cent of the infotech and telecom companies sampled have declined, they have fallen in 26 per cent of the marketing and services companies. Across industries, though, the function which witnesses the maximum attrition varies. In manufacturing and marketing companies, it is the production function. In services companies, it is the finance function. And in infotech companies, it is the line function of information technology. Evidently, the problem of retention is quite wide-spread in corporate India.
Reasons for employee movement:
Following are the reasons for professionals to change his/her job.
No growth opportunity/lack of promotion
For higher Salary
For Higher education
Misguidance by the company
Policies and procedures are not conducive
No personal life
Physical strains
Uneasy relationship with peers or managers
Retention a challenge:
Fundamental changes are taking place in the work force and the workplace that promise to radically alter the way companies relate to their employees. Hiring and retaining good employees have become the chief concerns of nearly every company in every industry. Companies that understand what their employees want and need in the workplace and make a strategic decision to proactively fulfill those needs will become the dominant players in their respective markets.The fierce competition for qualified workers results from a number of workplace trends, including:
A robust economy
Shift in how people view their careers
Changes in the unspoken "contract" between employer and employee
Corporate cocooning
A new generation of workers
Changes in social mores
Life balance
Concurrent with these trends, the emerging work force is developing very different attitudes about their role the workplace. Today's employees place a high priority on the following:
Family orientation
Quality of life issues
Autonomy
To hold onto your people, you have to work counter to prevailing trends causing the job churning. Smart employers make it a strategic initiative to understand what their people want and need -- then give it to them.
THE Retention Responsibility
Carry the Pareto Principle to an extreme: as 20 per cent of your employees account for 80 per cent of your success, focus 80 per cent of your retention efforts on 20 per cent of your people. Across industry-types, manufacturing, marketing, and services companies believe that it makes little sense to retain all their employees all the time. The real objective: retain only those people who contribute to the company's performance in terms of improving the quality of goods and services, or increasing the level of customer satisfaction.
However, hi-tech companies insist that their strategies must focus on retaining all employees. Their logic is that organisations get the kind of employee-performances they deserve. Given the high costs involved in mid-career hires, especially in software and telecom companies, it does make sense to create an environment where all their employees can continuously upgrade their skills-sets rather than let go of them.
Expectedly, the hr department and the senior management are the organisational centres vested with the responsibility of retention management. However, the process is shared: in most organisations, the hr department, the individual functions, the top management, teams, and the trade unions manage the retention function, individually and together. The choice of the unit varies across industries: 50 per cent of the companies where the union has a role to play belong to the manufacturing sector; teams are popular with manufacturing (37 per cent) and services (35 per cent) companies; and 32 per cent of the companies where the senior management involves itself in retention are infotech and telecom companies. Obviously, the high attrition-rates and the almost-perennial demand for skilled manpower in these industries is why.
Size too matters. 89 per cent of the companies where the senior managers concerned themselves with retention had turnovers of less than Rs 500 crore. And 69 per cent of them had less than 500 employees. Obviously, it is easier for senior managers to concern themselves directly with retention management when they do not have to deal with too many employees. Expectedly, teams and trade unions have a significant role to play in large companies (more than 500 employees and turnovers exceeding Rs 500 crore).
What can be done?
Though, it is impossible to scrap problems totally, there are certain ways by which BPO managements can tackle attrition. Since the BPO environment is unique, these companies need to develop innovative ways to tackle them. Human Resources department of a BPO must address these issues, and along with the management need to evolve strategies to retain employees at all levels.
At the time of Recruitment
Select the right people through competency screening.
Use psychometric tests to get people who can work at night and handle the monotony.
Offer an attractive, competitive, benefits package.
Make clear of performance enhanced incentives and other benefits. Keep these promises, later.
BPOs can set up offices in smaller towns, or recruit from there, where opportunities are few.
At the office
An employees work must be communicated to him clearly and thoroughly. The details of the job, its importance, the way it should be done, maximum time that can be allotted to complete it etc., must be made clear. If there are changes to any of these, let the employee know at the earliest
Give the employees necessary tools, time and training. The employee must have the tools, time and training necessary to do their job well - or they will move to an employer who provides them.
Have a person to talk to each employee at regular intervals. Listen and solve employee complaints and problems, as much as possible. Fairness and impartial treatment by seniors is important. Help employees manage stress, both at work and if possible, off work too. Give them special concessions, when in need. Treat the employees well & provide dignity of job.
The quality of the supervision an employee receives is critical to employee retention. Frequent employee complaints arise on this issue.
Provide the employees a stress free work environment. People want to enjoy their work. Make work and work place cheerful and fun-filled as possible.
Make sure that employees know that their work is important for the organisation. Feeling valued by their employer is key to high employee motivation and morale. Recognize their strengths and help them to improve those they lack.
Employees must feel rewarded, recognised and appreciated. Giving periodical raise in salary or position helps to retain staff.
Offer excellent career growth prospects. Encourage & groom employees to take up higher positions/openings. If they dont get opportunity for growth within the organisation, they will look elsewhere for it.
Work-life balance initiatives are important. Innovative and practical employee policies pertaining to flexible working hours and schemes, granting compassionate and urgency leave, providing healthcare for self, family and dependants, etc. are important for most people. Work-life balance policies would have a positive impact on retaining skilled employees, as well as on attracting high-calibre recruits.
Implement competency models, which are well integrated, with HR processes like selection & recruitments, training, performance appraisal and potential appraisal.
Main retention strategiesThis is not an exhaustive list, one can add or delete any of the below mentioned strategies. Secondly, the need of the hour is to have "right basics". Every individual is different, his needs are different, and his emotions, his problems are different. So, dear HR-Professionals…sit down and concentrate on your basics.
Communications - Getting Your People to Care Communication is the first step toward creating the kind of environment that people care about, and if they care, they just may stay. I'm not talking about a lot of New Age stroking designed to bring out the inner person or false praise that creates a misplaced sense of security. Instead, keep your people in the loop about what's happening with the company. At any time, all of your employees should have a pretty good idea of how business has been, and they should be aware of what issues the company is attempting to address.That means that you regularly keep your people up to date with important events affecting the company. If November was good, let them know, and while you're at it, tell them what you expect to happen in December. Share good news, as well as points of concern. If you've got "issues," talk about them before they start making you crazy. And if they don't get resolved, figure out whether the problem stems from a couple of individuals or from your system.Set Clear Expectations
How often do you appraise your employees/team-members?
What are your expectations from your employees/team-members? What are the parameters to measure their performance? Have you communicated to them?
What will be the consequences, if they fail?
What will be the rewards, if they exceed the expected level?
Proper RewardingA research reports says that in today's scenario,
70% of your employees are less motivated today than they used to be.
80% of your employees could perform significantly better if they wanted to.
50% of your employees only put enough effort into their work to keep their job.
As you might be aware of Employee Reward covers how people are rewarded in accordance with their value to an organization. It is about both financial and non-financial rewards and embraces the strategies, policies, structures and processes used to develop and maintain reward systems. The ways in which people are valued can make a considerable impact on the effectiveness of the organization, and is at the heart of the employment relationship.The aim of employee reward policies and practices, if any in your organization is to help attract, retain and motivate high-quality people. Getting it wrong can have a significant negative effect on the motivation, commitment and morale of employees. Personnel and development professionals will be involved frequently in reward issues, whether they are generalists or specialize in people resourcing, learning and development or employee relations. Keep following parameters in mind, while designing a reward policy:Build a high degree of recognition value into every reward you offer. Reduce entitlements and link as many rewards as possible to performance.Troubleshoot your reward system to make sure that what it is rewarding is what you really want to happen.Reward promptly.
Give employees a choice of rewards..Increase the longevity of your rewards
Be continually vigilant of demotivators that may undermine your organization's best efforts to provide power rewards, and reduce them promptly.
Nature of Supervision: The quality of the supervision an employee receives is critical to employee retention. People leave managers and supervisors more often than they leave companies or jobs. It is not enough that the supervisor is well liked or a nice person, starting with clear expectations of the employee, the supervisor has a critical role to play in retention. Anything the supervisor does to make an employee feel unvalued will contribute to turnover. Frequent employee complaints center on these areas.
Lack of clarity about expectations,
Lack of clarity about earning potential,
Lack of feedback about performance,
Failure to hold scheduled meetings, and
Failure to provide a framework within which the employee perceives he can succeed.
THE Retention Measures
Companies now adopt more than one technique to create an internal environment that will retain their employees. As per the survey, the most popular retention-oriented initiatives include:
INCREASING THE ORGANISATION'S LEVEL OF PROFESSIONALISM.
MOVING FROM FAMILY TO PROFESSIONAL MANAGEMENT.
MAKING PERFORMANCE APPRAISALS OBJECTIVE.
INVOLVING EMPLOYEES IN THE DECISION-MAKING PROCESS.
ENSURING A MATCH BETWEEN AUTHORITY AND ACCOUNTABILITY.
MEASURING EMPLOYEE SATISFACTION.
ACHIEVING A MATCH BETWEEN INDIVIDUAL AND ORGANISATIONAL GOALS.
DESIGNING A COMPETITIVE COMPENSATION PACKAGE.
INCREASING ORGANISATIONAL TRANSPARENCY.
PROMOTING EMPLOYEES FROM WITHIN.
HELPING EMPLOYEES ACQUIRE NEW SKILLS.
OFFERING STOCK OPTIONS.
FOCUSING ON WELFARE MEASURES..
BEST PRACTICES. The best organisations recognise the fact that the retention techniques that will work best for them depend on the dynamics of the industry of which they are a part, and the level of management at which they wish to focus their efforts. These organisations tier their retention strategies to suit their employees at various levels of the organisation. Often, recognising the individuality of employees is the best retention strategy.
A focus on retention management can serve as a good starting-point for improving the quality of systems and processes in an organisation. Retaining their best employees requires companies to launch initiatives along several dimensions: introducing good house-keeping practices in offices and shop-floors; making performance-appraisal systems transparent, objective, and participative; professionalising the senior management team; and ensuring that employees take pride in their work.
Fast-growth companies, which are among the top-performers in their industry, will find it easier to retain employees than others provided they practise the essentials of retention management: objective appraisal, and good pay-packages. Everyone loves to work for a winner. But the only way a company can improve its performance is by hiring and retaining the best human capital, and motivating it to deliver its best. If that isn't a vicious circle, nothing is. And best-in-class retention management is right at its centre
Conclusion
As they say, happiness can be contagious. So make sure the work place is a happy one, which every employee would love to spend time. Human resources department along with senior management must take steps to make sure of this.
Effective human resource management must be practiced at both strategic and day-to-day levels. HR management practices must reflect company policy as to how it will manage and relate to its employees. The HR strategy should evolve from a transactional support role to partnering in the organisations business strategy. HR must take steps to be aware of employee problems and try to solve them, creatively
References
1. “Effective employee retention stratigeies, key to reduce attrition in BPO firms – Offshoring Times
2. “Retention strategies in ITES-BPO Industry “ – Sanjeev Sharma – BPOInida.org
3. “Retention Management” – R Sukumar – Business Today.
Definition of Industry
As per Section 2(j) of Industrial Disputes Act,1947 “Industry” means any systematic activity carried on by co-operation between an employer and his workmen(whether such workmen are employed by such employer directly or by or through any agency, including a contractor) for the production ,supply or distribution of goods or services with a view to satisfy human wants or wishes (not being wants or wishes which are merely spiritual or religious in nature), whether or not,-
(i) any capital has been invested for the purpose of carrying on such activity; or
(ii) such activity is carried on with a motive to make any gain or profit, and includes-
(a) any activity of the Dock Labour Board established under section 5-A of the Dock Workers ( Regulation of Employment)Act,1948( 9 of 1948);
(b) any activity relating to the promotion of sales or business or both carried on by an establishment,
Two Wheelers in India
The feeling of freedom and being one with the Nature comes only from riding a two-wheeler. Indians prefer the two wheelers because of their small manageable size, low maintenance, and pricing and easy loan repayments. Indian streets are full of people of all age groups riding a two-wheeler. Motorized two wheelers are seen as a symbol of status by the populace. Thus, in India, we would see swanky four wheels jostling with our ever reliable and sturdy steed: the two-wheeler.
Two-Wheeler Industry in India: An IntroductionThe Indian two-wheeler industry has been in the limelight recently because of its impressive performance. Hero Honda has been the largest manufacturer of motorcycles in the world for quite some time. Its motorcycle model Splendor has also been the largest selling model in the world. The last few years have also seen a large quantity of two-wheelers being exported. In neighbouring countries like Bangladesh and Sri Lanka, the Indian two-wheeler manufacturers have captured the market. Even in Africa and South America Indian motorcycles have been well received. Some of the Indian manufacturers like TVS Motors and Bajaj Auto are in the process of setting up assembly and manufacturing plants. The number of models being introduced by Indian two-wheeler manufacturers every year is also high. At this crucial juncture when the Indian two-wheeler industry is making its mark in the global market, this book ?Two-Wheeler Industry in India ? An Introduction? will make interesting reading. The book has been divided into three sections. The first section traces the evolution of the industry, its growth and the reasons for the industry being competitive. The second section delves into the issues facing the industry and future of the industry. It also throws light on the exports of two-wheelers, Government policies affecting the growth of the industry and electric scooters and motorcycles. The third section discusses the major players, Hero Honda, TVS Motors, Bajaj Auto and Electro herm India.
Indian automobile industry witnessed a growth of 23.37% in 2-wheeler segment. India is the second-largest 2-wheeler manufacturers in the world and also the largest motorcycle manufacturer in the World. Indian 2-wheeler segment includes a range of vehicles such as scooters- geared and ungeared, motorcycles and mopeds. In India there are 7 scooter manufacturers, 9 motorcycle manufacturers, 3 moped manufacturers. Bajaj Auto, Hero Honda, TVS, etc are the leading manufacturers. They have also dominated the global arena after Piaggio. Production in Indian automobile industry During cfinancial year 2005-06, Indian 2-wheeler production showed a growth of 16.40% over the
preceding year. 2-wheeler segment have been showing an upward production trend. At present, there are more than 7.6 million 2-wheeler, manufactured in Indian automobile sector.
History
The Britannica Encyclopedia describes a motorcycle as a bicycle or tricycle propelled by an internal-combustion engine (or, less often, by an electric engine).The motors on minibikes, scooters, and mopeds, or motorized velocipedes, are usually air-cooled and range from 25 to 250 cubic cm (1.5 to 15 cubic inches) in displacement; the multiple-cylinder motorcycles have displacements of more than 1,300 cubic cm. The automobile was the reply to the 19th-century dream of self-propelling the horse-drawn carriage. Similarly, the invention of the motorcycle created the self-propelled bicycle. The first commercial design was a three-wheeler built by Edward Butler in Great Britain in 1884. This employed a horizontal single-cylinder gasoline engine mounted between two steer able front wheels and connected by a drive chain to the rear wheel.The 1900s saw the conversion of many bicycles, or pedal cycles by adding small, centrally mounted spark ignition engines. There was then felt the need for reliable constructions. This led to road trial tests and competition between manufacturers. Tourist Trophy (TT) races were held on the Isle of Man in 1907 as reliability or endurance races. Such were the proving ground for many new ideas from early two-stroke-cycle designs to supercharged, multivalent engines mounted on aerodynamic, carbon-fibre reinforced bodywork.
Invention of Two Wheelers
The invention of the first two-wheeler is a much-debated issue. "Who invented the first motorcycle?" may seem like a simple question, but the answer is quite complicated. Two-wheelers owe their descent to the "safety" bicycle, i.e., bicycles with front and rear wheels of the same size, with a pedal crank mechanism to drive the rear wheel. Those bicycles, in turn descended from high-wheel bicycles. The high-wheelers descended from an early type of pushbike, without pedals, propelled by the rider's feet pushing against the ground. These appeared around 1800, used iron-banded wagon wheels, and were called "bone-crushers," both for their jarring ride, and their tendency to toss their riders. Gottlieb Daimler (who later teamed up with Karl Benz to form the Daimler-Benz Corporation) is credited with building the first motorcycle in 1885, one wheel in the front and one in the back, although it had a smaller spring-loaded outrigger wheel on each side. It was constructed mostly of wood, the wheels were of the iron-banded wooden-spoked wagon-type, it definitely had a "bone-crusher" chassis! This two-wheeler was powered by a single-cylinder Otto-cycle engine, and may have had a spray-type carburetor. (Wilhelm Maybach
, Daimler's assistant, was working on the invention of the spray carburetor at the time). If two wheels with steam propulsion can be called a motorcycle, then the first one may have been American. One such machine was demonstrated at fairs and circuses in the eastern US in 1867. This was built by one Sylvester Howard Roper of Roxbury, Massachusetts. There is an existing example of a Roper machine, dated 1869. A charcoal-fired two-cylinder engine, whose connecting rods directly drive a crank on the rear wheel, powers it. This machine predates the invention of the safety bicycle by many years, so its chassis is also based on the "bone-crusher" bike.
Origin of Motor-Scooters
Edward Butler, an Englishman, built the first motor tricycle in 1884. The first gasoline-engine motorcycle to appear publicly was built by Gottlieb Daimler, of Bad Cannstatt, Germany, in 1885. The French and Belgians, followed by British, German, Italian, and American makers, designed the first practical engines and motorcycles.The popularity of the vehicle grew, especially after 1910. During World War I all branches of the armed forces in Europe, principally for dispatching, used the motorcycle. After the war it enjoyed a sport vogue until the Great Depression began in 1929. After World War II a revival of interest in motorcycles lasted into the late 20th century, with the vehicle being used for high-speed touring and sport competitions.The practice of attaching auxiliary engines to bicycles in western Europe and parts of the United States led to the development during the 1950s of a new type of light motorcycle, the moped. Originating in Germany as a 50-cubic-centimetre machine with simple controls and low initial cost, it was largely free of licensing and insurance regulations except in Great Britain.The more sophisticated motor scooter originated in Italy soon after World War II, led by manufacture of a 125-cubic-centimetre model. Despite strong competition from West Germany, France, Austria, and Britain, the Italian scooters maintained the lead in the diminishing market. The scooter has small wheels from 20 to 36 cm (8 to 14 inches) in diameter, and the rider sits inside the frame. Power units are placed low and close to the rear wheel, which is driven by bevel gearing or chain. Capacities vary from 50 to 225 cubic cm, and four-speed gearing is common.
Initial Hits
Most of the development during this earliest of eras concentrated on three and four-wheeled designs, since it was complex enough to get the machines running without having to worry about them falling over. The next really notable two-wheeler was the Millet of 1892. It used a 5-cylinder engine built as the hub of its rear wheel. The cylinders rotated with the wheel, and its crankshaft constituted the rear axle.The first really successful production two-wheeler though, was the Hildebrand & Wolfmueller, patented in Munich in 1894. It had a step-through frame, with its fuel tank mounted on the downtube. The engine was a parallel twin, mounted low on the frame, with its cylinders going fore-and-aft. The connecting rods connected directly to a crank on the rear axle, and instead of using heavy flywheels for energy storage between cylinder-firing, it used a pair of stout elastic bands, one on each side outboard of the cylinders, to help out on the compression strokes. It was water-cooled, and had a water tank/radiator built into the top of the rear fender.In 1895, the French firm of DeDion-Buton built an engine that was to make the mass production and common use of motorcycles possible. It was a small, light, high revving four-stroke single, and used battery-and-coil ignition, doing away with the troublesome hot-tube. Bore and stroke figures of 50mm by 70mm gave a displacement of 138cc. A total loss lubrication system was employed to drip oil into the crankcase through a metering valve, which then sloshed around to lubricate and cool components before dumping it on the ground via a breather.DeDion-Buton used this 1/2 horsepower power plant in road going tikes, but the engine was copied and used by everybody, including Indian and Harley-Davidson in the U.S. Although a gentleman named Pennington built some machines around 1895 (it's uncertain whether any of them actually ran), the first US production motorcycle was the Orient-Aster, built by the Metz Company in Waltham, Massachusetts in 1898. It used an Aster engine that was a French-built copy of the DeDion-Buton, and predated Indian (1901) by three years, and Harley-Davidson (1902) by four.
Indian T Indian Two Wheeler Industry
Indian Two wheeler industry, Key players and Types of two-wheelers
India is the second largest producer and manufacturer of two-wheelers in the world. Indian two-wheeler industry has got spectacular growth in the last few years. Indian two-wheeler industry had a small beginning in the early 50's. The Automobile Products of India (API) started manufacturing scooters in the country.Bikes are a major segment of Indian two wheeler industry, the other two being scooters and mopeds. Indian companies are among the largest two-wheeler manufacturers in the world. Hero Honda and Bajaj Auto are two of the Indian companies that top the list of world companies manufacturing two-wheelers.The two-wheeler market was opened to foreign companies in the mid 1980s. The openness of Indian market to foreign companies lead to the arrival of new models of two-wheelers into India. Easy availability of loans from the banks, relatively low rate of interest and the discount of prices offered by the dealers and manufacturers lead to the increasing demand for two-wheeler vehicles in India. This lead to the strong growth of Indian automobile industry.Kinetic Honda was introduced in the Indian market during the mid 80s. The main feature of Kinetic Honda is its ease of use. This helped the youngsters and the women to buy scooters.
Key players in the Two-wheeler Industry :After facing its worst recession during the early 1990s, the two-wheeler industry bounced back with a 25% increase in volume sales in February 1995. The scooters are considered as family vehicles. There are many two-wheeler manufacturers in India. Major players in the 2-wheeler industry are Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) and TVS Motor Company Ltd (TVS). The other key players in the two-wheeler industry are Kinetic Motor Company Ltd (KMCL), Kinetic Engineering Ltd (KEL), LML Ltd (LML), Yamaha Motors India Ltd (Yamaha), Majestic Auto Ltd (Majestic Auto), Royal Enfield Ltd (REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI).Types of Two-wheelers in India: There are mainly three types of two-wheelers available in India. They are Motorcycles, Scooters and Scooterettes/Mopeds.Motorcycles in India: Bikes comprise a major segment of Indian two wheeler industries.
Company : Bajaj Auto Ltd
Company : HERO HONDA
* Bajaj Avenger* Bajaj CT 100* Bajaj Platina* Bajaj Discover DTSi* Bajaj Pulsar DTSi* Bajaj Wave* Bajaj Wind 125* Sonic DTSi
* Hero Honda Achiever* Hero Honda CD Dawn* Hero Honda CD Deluxe* Hero Honda Glamour* Hero Honda Glamour-Fi* Hero Honda Karizma* Hero Honda Passion Plus* Hero Honda Pleasure* Hero Honda Super Splendor* Hero Honda Splendor NXG* Hero Honda CBZ X-Treme
Company : Kinetic Motor Company
Company : TVS MOTOR
Company : Yamaha Motor India
* Kinetic Aquila* Kinetic Boss* Kinetic Challenger* Kinetic Comet* Kinetic GF* Kinetic Stryker* Kinetic Velocity
* TVS Apache* TVS Centra* TVS Fiero* TVS Star* TVS Victor
* Yamaha CruxS* Yamaha G5* Yamaha Gladiator
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Scooters in India: The scooter and the scooterette share in the Indian two-wheeler market is 13.4%. The main models available in India are Bajaj Chetak, Honda Eterno, Kinetic Blaze, LML NV SPL and LML Select II.Scooterettes/Mopeds: TVS Motors launched India's first 50cc, 2-seater moped: TVS Moped 50. TVS also launched India's first indigenous scooterette: Scooty in 1994. This segment has about one-fourth share in the Indian two-wheeler industry. The major models available in India are Bajaj Wave, Bajaj Kristal DTSi, Bajaj Blade DTSi, Hero Honda Pleasure, Kinetic Kine, Kinetic 4S, Kinetic Nova, Kinetic Zoom, Kinetic V2 Range, Kinetic King 100, Kinetic Luna Super, Kinetic Luna TFR, Yo Smart, Honda Dio, Honda Activa, TVS Scooty and TVS XL.
INTRODUCTIONThe Indian automotive industry consists of five segments: commercial vehicles; multi-utility vehicles & passenger cars; two-wheelers; three-wheelers; and tractors. With 5,822,963 units sold in the domestic market and 453,591 units exported during the first nine months of FY2005 (9MFY2005), the industry (excluding tractors) marked a growth of 17% over the corresponding previous. The two-wheeler sales have witnessed a spectacular growth trend since the mid nineties.Two-wheelers: Market Size & GrowthIn terms of volume, 4,613,436 units of two-wheelers were sold in the country in 9MFY2005 with 256,765 units exported. The total two-wheeler sales of the Indian industry accounted for around 77.5% of the total vehicles sold in the period mentioned.
Figure 1Segmental Growth of the Indian Two Wheeler Industry (FY1995-2004)
After facing its worst recession during the early 1990s, the industry bounced back with a 25% increase in volume sales in FY1995. However, the momentum could not be sustained and sales growth dipped to 20% in FY1996 and further down to 12% in FY1997. The economic slowdown in FY1998 took a heavy toll of two-wheeler sales, with the year-on-year sales (volume) growth rate declining to 3% that year. However, sales picked up thereafter mainly on the strength of an increase in the disposable income of middle-income salaried people (following the implementation of the Fifth Pay Commission's recommendations), higher access to relatively inexpensive financing, and increasing availability of fuel efficient two-wheeler models. Nevertheless, this phenomenon proved short-lived and the two-wheeler sales declined marginally in FY2001. This was followed by a revival in sales growth for the industry in FY2002. Although, the overall two-wheeler sales increased in FY2002, the scooter and moped segments faced de-growth. FY2003 also witnessed a healthy growth in overall two-wheeler sales led by higher growth in motorcycles even as the sales of scooters and mopeds continued to decline. Healthy growth in two-wheeler sales during FY2004 was led by growth in motorcycles even as the scooters segment posted healthy growth while the mopeds continued to decline. Figure 1 presents the variations across various product sub-segments of the two-wheeler industry between FY1995 and FY2004.Demand DriversThe demand for two-wheelers has been influenced by a number of factors over the past five years. The key demand drivers for the growth of the two-wheeler industry are as follows:
▪
Inadequate public transportation system, especially in the semi-urban and rural areas;
▪
Increased availability of cheap consumer financing in the past 3-4 years;
▪
Increasing availability of fuel-efficient and low-maintenance models;
▪
Increasing urbanisation, which creates a need for personal transportation;
▪
Changes in the demographic profile;
▪
Difference between two-wheeler and passenger car prices, which makes two-wheelers the entrylevel vehicle;
▪
Steady increase in per capita income over the past five years; and
▪
Increasing number of models with different features to satisfy diverse consumer needs.
While the demand drivers listed here operate at the broad level, segmental demand is influenced by segment-specific factors.MARKET CHARACTERISTICSDemandSegmental Classification and CharacteristicsThe three main product segments in the two-wheeler category are scooters, motorcycles and mopeds. However, in response to evolving demographics and various other factors, other subsegments emerged, viz. scooterettes, gearless scooters, and 4-stroke scooters. While the first two emerged as a response to demographic changes, the introduction of 4-stroke scooters has followed the imposition of stringent pollution control norms in the early 2000. Besides, these prominent sub-segments, product groups within these sub-segments have gained importance in the recent years. Examples include 125cc motorcycles, 100-125 cc gearless scooters, etc. The characteristics of each of the three broad segments are discussed in Table 1.
Table 1
Two-Wheelers: Comparative Characteristics
Scooter
Motorcycle
Moped
Price*(Rs. as in January 2005)
> 22,000
> 30,000
> 12,000
Stroke
2-stroke, 4-stroke
Mainly 4-stroke
2-stroke
Engine Capacity (cc)
90-150
100, 125, > 125
50, 60
Ignition
Kick/Electronic
Kick/Electronic
Kick/Electronic
Engine Power (bhp)
6.5-9
7-8 and above
2-3
Weight (kg)
90-100
> 100
60-70
Fuel Efficiency (kms per litre)
50-75
50-80+
70-80
Load Carrying
High
Highest
Low
*Ex-showroom MumbaiCompiled by INGRES
Segmental Market ShareThe Indian two-wheeler industry has undergone a significant change over the past 10 years with the preference changing from scooters and mopeds to motorcycles. The scooters segment was the largest till FY1998, accounting for around 42% of the two-wheeler sales (motorcycles and mopeds accounted for 37% and 21 % of the market respectively, that year). However, the motorcycles segment that had witnessed high growth (since FY1994) became larger than the scooter segment in terms of market share for the first time in FY1999. Between FY1996 and 9MFY2005, the motorcycles segment more than doubled its share of the two-wheeler industry to 79% even as the market shares of scooters and mopeds stood lower at 16% and 5%, respectively.
Figure 2 Trends in Segmental Share in Industry Sales (FY1996-9MFY2005)
While scooter sales declined sharply by 28% in FY2001, motorcycle sales reported a healthy growth of 20%, indicating a clear shift in consumer preference. This shift, which continues, has been prompted by two major factors: change in the country's demographic profile, and technological advancements.Over the past 10-15 years the demographic profile of the typical two-wheeler customer has changed. The customer is likely to be salaried and in the first job. With a younger audience, the attributes that are sought of a two-wheeler have also changed. Following the opening up of the economy and the increasing exposure levels of this new target audience, power and styling are now as important as comfort and utility.The marketing pitch of scooters has typically emphasised reliability, price, comfort and utility across various applications. Motorcycles, on the other hand, have been traditionally positioned as vehicles of power and style, which are rugged and more durable. These features have now been complemented by the availability of new designs and technological innovations. Moreover, higher mileage offered by the executive and entry-level models has also attracted interest of two-wheeler customer. Given this market positioning of scooters and motorcycles, it is not surprising that the new set of customers has preferred motorcycles to scooters. With better ground clearance, larger wheels and better suspension offered by motorcycles, they are well positioned to capture the rising demand in rural areas where these characteristics matter most.Scooters are perceived to be family vehicles, which offer more functional value such as broader seat, bigger storage space and easier ride. However, with the second-hand car market developing, a preference for used cars to new two-wheelers among vehicle buyers cannot be ruled out. Nevertheless, the past few years have witnessed a shift in preference towards gearless scooters (that are popular among women) within the scooters segment. Motorcycles, offer higher fuel efficiency, greater acceleration and more environment-friendliness. Given the declining difference in prices of scooters and motorcycles in the past few years, the preference has shifted towards motorcycles. Besides a change in demographic profile, technology and reduction in the price difference between motorcycles and scooters, another factor that has weighed in favour of motorcycles is the high re-sale value they offer. Thus, the customer is willing to pay an up-front premium while purchasing a motorcycle in exchange for lower maintenance and a relatively higher resale value.SupplyManufacturersAs the following graph indicates, the Indian two-wheeler industry is highly concentrated, with three players-Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) and TVS Motor Company Ltd (TVS) - accounting for over 80% of the industry sales as in 9MFY2005. The other key players in the two-wheeler industry are Kinetic Motor Company Ltd (KMCL), Kinetic Engineering Ltd (KEL), LML Ltd (LML), Yamaha Motors India Ltd (Yamaha), Majestic Auto Ltd (Majestic Auto), Royal Enfield Ltd (REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI).
Figure 3 Shares of Two-Wheeler Manufacturers in Industry Sales (FY2000-9MFY2005)
Although the three players have dominated the market for a relative long period of time, their individual market shares have undergone a major change. Bajaj Auto was the undisputed market leader till FY2000, accounting for 32% of the two-wheeler industry volumes in the country that year. Bajaj Auto dominance arose from its complete hold over the scooter market. However, as the demand started shifting towards motorcycles, the company witnessed a gradual erosion of its market share. HHML, which had concentrated on the motorcycle segment, was the main beneficiary, and almost doubled its market share from 20% in FY2000 to 40% in 9MFY2005 to emerge as the market leader. TVS, on the other hand, witnessed an overall decline in market share from 22% in FY2000 to 18% in 9MFY2005. The share of TVS in industry sales fluctuated on a year on year basis till FY2003 as it changed its product mix but has declined since then.TechnologyHitherto, technology transfer to the Indian two-wheeler industry took place mainly through: licensing and technical collaboration (as in the case of Bajaj Auto and LML); and joint ventures (HHML).A third form - that is, the 100% owned subsidiary route - found favour in the early 2000s. A case in point is HMSI, a 100% subsidiary of Honda, Japan. Table 2 details the alliances of some major two-wheeler manufacturers in India.Besides the below mentioned technology alliances, Suzuki Motor Corporation has also followed the strategy of joint ventures (SMC reportedly acquired equity stake in Integra Overseas Limited for manufacturing and marketing Suzuki motorcycles in India).
Table 2
Technological tie-ups of Select Players
Nature of Alliance
Company
Product
Bajaj Auto
Technological tie-up
Kawasaki Heavy Industries Ltd, Japan
Motorcycles
Technological tie-up
Tokya R&D Co Ltd, Japan
Two-wheelers
Technological tie-up
Kubota Corp, Japan
Diesel Engines
HHML
Joint Venture
Honda Motor Co, Japan
Motorcycles
KEL
Technological tie-up
Hyosung Motors & Machinery Inc
Motorcycles
KEL
Tie up for manufacturingand distribution
Italjet, Italy
Scooters
LML
Technological tie-up
Daelim Motor Co Ltd
Motorcycles
Hero Motors
Technological tie-up
Aprilia of Italy
Scooters
Compiled by INGRES
With the two-wheeler market, especially the motorcycle market, becoming extremely competitive and the life cycle of products getting shorter, the ability to offer new models to meet fast changing customer preferences has become imperative. In this context, the ability to deliver newer products calls for sound technological backing and this has become one of the critical differentiating factor among companies in the domestic market. Thus, the players have increased their focus on research and development with some having indigenously developed new models as well as improved technologies to cater to the domestic market. Further, with exports being one of the thrust areas for some Indian two-wheeler companies, the Indian original equipment manufacturers (OEMs) have realised the need to upgrade their technical capabilities. These relate to three main areas: fuel economy, environmental compliance, and performance. In India, because of the cost-sensitive nature of the market, fuel efficiency had been an interest area for manufacturers.It is not only that the OEMs are increasing their focus on in-house R&D, they also provide support to the vendors to upgrade the technology and also assist them striking technological alliances.TRENDS IN THE TWO-WHEELER INDUSTRYCompanies raising capacity to meet the growing demandAll the major two-wheeler manufacturers, viz. Bajaj Auto, HHML, TYS, HMSI and others, have increased their manufacturing capacities in the recent past. The total capacity of these players stood at 7.8 million units per annum (FY2003) as against total market sales of 3.8 million units in FY2002. Most of the players have either expanded capacity, or converted their existing capacities for scooters and mopeds into those for manufacturing motorcycles. The move has been prompted by the rapid growth reported by the motorcycles segment since FY1995.HHML increased the capacity of its plants from 1.8 million units in FY2003 to 2.25 million in FY2004 and has been able to achieve 92% capacity utilisation. In light of the increase in demand for motorcycles, the company plans to set up a new plant. Since its entry in the Indian market during FY2002, HMSI has aggressively expanded its capacity.Niche markets also witnessing intense competitionA significant trend witnessed over the past five years is the inclination of consumers towards products with superior features and styling. Better awareness about international models has raised expectations of consumers on some key attributes, especially quality, styling, and performance. High competitive intensity has prompted players to launch vehicles with improved attributes at a price less than the competitive models.In an effort to satisfy the distinct needs of consumers, producers are identifying emerging consumer preferences and developing new models. For instance, in the motorcycles segment, motorcycles with engine capacity over 150cc, is a segment that has witnessed significant new product launches and hence, become more competitive. The indigenously launched Pulsar 150 had met with success on its launch and thereafter, a host of models have been launched in this segment by various players. While Bajaj Auto launched the Pulsars (150 and 180 cc) with digital twin spark technology (DTSi) that offers a powerful engine and fuel efficiency of 125 cc models, model launches by other players include LML's Graptor/Beamer, HMSI's Unicorn besides the HHML's CBZ (improved version launched in 2003-04) and TVS' Fiero F2. Moreover, in the recent past, the motorcycle segment has witnessed launch of vehicles with higher engine capacity (higher than 150cc) and power (higher than 15bhp). These include models such as Bajaj Auto Eliminator and Royal Enfield's Thunderbird followed by HHML's Karisma. Besides these, KEL has launched premium segment motorcycles GF 170 and GF Laser besides launching products from the portfolio of its technology partner (Hyosung's Aquila and Comet 250). The products in this segment cater for style conscious consumers. Quite a few players are developing models combining features such as higher engine capacity" optimum mix of power and performance, and superior styling. However, the extent of shift to these products would depend on the positioning of such products in terms of price.In the scooters segment, the market for plastic-bodied variomatic scooters continues to witness growth in the scenario of overall decline in scooter volumes. Higher volumes and growth are especially true for certain scooter models, such as Honda Activa, that brought in new technology (besides variomatic transmission) to further differentiate themselves. Thus, the need to differentiate and create a niche has led to companies strengthening their research and development (R&D) capabilities and reducing the development time for new models.Increasing focus on exportsFor the first nine months of FY2005, two-wheeler exports increased by 37% over the corresponding previous, led mainly by motorcycles even as exports of other two-wheelers were healthy. While motorcycle exports increased by 40%, scooter and moped exports increased by 29% and 27% respectively.Motorcycle exports by Bajaj Auto, HHML and TVS have reported a tobust growth in FY2005 and are expected to increase further in the medium term.
Table 3
Two-Wheeler Exports from India (in numbers)
FY2000
FY2001
FY2002
FY2003
FY2004
CAGR (FY2000-04)
9MFY2005
Scooters
20,188
25,625
28332
30116
53148
27.4
44832
Motorcycles
35,295
41,339
56,880
126122
187287
51.4
188807
Mopeds
27,754
44,174
18,971
23330
24234
-3.3
22739
Total
83,237
111,138
104183
179568
264669
33.5
256378
Source: SIAM
Although the Indian two-wheeler manufacturers have forayed on their own in their target export markets, there have been instances of tie-ups with the technology partners. Bajaj Auto's tie-up with Kawasaki to jointly market Bajaj products in Philippines is a case in point. Under the tie-up, M/s Kawasaki Motors Philippines Corporation has been appointed as exclusive distributors to market select Bajaj two-wheelers that include Byk, Caliber 115 and Wind 125. These vehicles are being sent to Philippines in the completely built unit (CBU) form. Other strategy of expanding international presence considered by few players is that of setting up assembly lines in select South East Asian countries either on their own or in partnership with local players. Besides, plans of select overseas technology partners to source from their Indian partners and plans of global majors to develop their Indian manufacturing unit as a sourcing hub may also lead to increase in two-wheeler exports from India.Companywise two-wheeler exports since FY2000 are presented in the following Table 4.
Table 4
Company-wise two-wheeler exports (FY2000-9MFY2005)
FY2000
FY2001
FY2002
FY2003
FY2004
CAGR (FY2000-04)
9MFY2005
Bajaj Auto
14924
16112
28527
53366
90210
56.8
87225
HHML
10061
10324
13023
21165
39254
40.5
43441
HMSI
0
0
1293
10916
31414
n.a
27734
TVS
7265
6621
7765
9636
28093
40.2
36666
Yamaha
15197
20446
20321
45546
32906
21.3
27539
Others
35790
57635
32752
39053
42792
4.6
33773
Total
83237
111138
103681
179682
264669
33.5
256378
Source: SIAM
Vehicle Emission NormsEmission norms for all categories of petrol and diesel vehicles at the manufacturing stage were introduced for the first time in India in 1990 and were made stricter in 1996. When the 1996 norms were introduced, it resulted in certain models being withdrawn from the market. With Stage I India 2000 emission norms coming into place, the cost of developing suitable technology has remained high.The emission norms that are currently in force for two-wheelers and three-wheelers are more stringent than the Euro II norms. The roadmap suggested for emission norms for two/three-wheelers by the Expert Committee on Auto Fuel Policy is as follows:
For two-/three-wheelers the emission norms are recommended to be the same in the entire country:For new vehicles:Bharat Stage II norms throughout the country from April 1, 2005Bharat Stage III norms to be applicable preferably from April 1, 2008 but not later than April 1, 2010.For reducing pollution from in-use vehicles
▪
New pollution under control (PUC) checking system for all categories of vehicles to be put in place by April 1, 2005
▪
Inspection & maintenance (I&M) system for all categories of vehicles to be put place by April 1, 2010
▪
Performance checking system of catalytic converters and conversion kits installed in vehicles to be put in place by April 1, 2007.
Table 5 presents the emission norms for two-wheelers that were in place in the past, the India 2000 emission norms, and the norms that have been implemented for April 2005 (Stage II) and proposed for 2008 (Stage III).
Table 5
Exhaust Emission Norms
Vehicle
Pollutants
Old Norms
1996
2000
2005*
2008/10**
Tow-wheelers(gm/Km)
CO
12-30
4.5
2.0
1.5
1
HC+Nox
8-12
3.6
2.0
1.5
1
Three-wheelers(petrol)
CO
12-30
6.8
4.0
2.25
1.25
HC+Nox
8-12
5.4
1.5
2
1.25
Three-wheelers(Diesel)
CO
1
1.1
HC+Nox
0.85
1
PM
0.10
0.05
CO: Carbon Monoxide; HC: Hydrocarbon; Nox: Nitrogen Oxide, PM: Particulate Matter, * Maximum Sulphur parts per million (ppm) permissible of 150 and ** Maximum Sulphur ppm permissible of 50 Compiled by INGRES
To be able to meet the exhaust norms, the Auto Fuel Policy has suggested following technologies:
Table 6
Technologies for meeting the emission norms for Spark Ignited Vehicles
2/3 - wheelers
Level of Emission Norms
2-Stroke Technology
4-Stroke Technology
Euro I/India 2000
Intake, exhaust, combustionoptimisation Catalytic converter
4-Stroke enginetechnology
Euro II/Bharat Stage II
Secondary air injection CaatalyticConverter
Hot tube Secondaryair injection
Euro III/Bharat Stage III
Fuel injection Catalytic converter
Fuel injectionCarburetor + catalytic converter
Euro IV/Bharat Stage IV
To be developed
Learn burn Fuel injection+ catalytic converter
Source: National Auto Fuel Policy
The adoption of new technologies for compliance with stricter emission norms may affect the prices of vehicles. Some two-wheeler manufacturers are testing electronic fuel injection systems for motorcycles. To begin with, electronic systems are likely to be introduced in premium segment motorcycles.Fiscal PolicyThe Union Budget for 2001-02 had lowered the excise duty on two-wheelers (with engine capacity in excess of 75 cc) from 24% to 16%. The manufacturers responded to this by passing on a relatively large part of the excise cut to customers. The Union Budget thereafter have left the excise duty on two-wheelers unchanged. But the Union Budget 2004-05 provides for a weighted deduction of 150% for investments in R&D. This may facilitate increasing R&D allocations and allow for improvement in the technical as well as product development skills of the Indian companies.Indian Auto Policy 2002The Government of India approved a comprehensive automotive policy in March 2002, the main proposals of which are as under:Foreign direct investment : Automatic approval is proposed to be granted to foreign equity investment up to 100% for manufacture of automobiles and components.Import tariff : Import tariffs are proposed to be fixed at a level such that they facilitate the development of manufacturing capabilities as opposed to mere assembly.Incentives for R&D : The weighted average tax deduction under the Income Tax Act, 1961 for automotive companies is proposed to be increased from current level of 125% (The weighted average deduction for R&D was increased to 150% in the Union Budget 2004-05). Further, the policy proposes to include vehicle manufacturers for a rebate on the applicable excise duty for every 1% of the gross turnover of the company expended during the year on R&D. Environmental aspects : Adequate fiscal incentives are proposed to promote the use of low-emission auto fuel technology (in line with the Auto Fuel Policy). The auto policy states the Government's intent to align domestic policy with the international practice of imposing higher road tax on old vehicles so as to discourage their use.
Hero Honda: A SWOT analysis
Today if one talks about Indian two-wheeler industry, reference to Hero Honda Motors Limited is by default. It is not only the market leader in the two wheeler segment in India but also is the number one two wheeler company in the world by volumes. The company’s name is synonymous with fuel-efficient bikes and longevity. The company has a presence in all bike segments viz. economy (CD 100SS, CD Dawn) executive (Super Splendor, Splendor+) and premium (Karizma, CBZ). Splendor is the most successful product of the company and accounts for almost 50% of the company’s turnover.
Background
Hero Honda is a two-decade-old story. It came into existence as a joint venture agreement between the Munjal family’s Hero Group and Honda Motor Company (HMC) of Japan, each having 26% stake in the company. A ten year agreement was first entered in the year 1984, whereby HMC brought in technical expertise and Hero Honda brought in local talent to manage all other functions including marketing, finance, and human resources. The agreement was once again renewed in 2004 and has been extended till 2014.
Performance vis-à-vis Industry
The Indian two wheeler industry has seen a paradigm shift from being a regime of regulation and tight control in the 1980s to a more liberalised and a competitive present day era. After missing out on the initial boom in two wheeler segment during the period of 1993-1996, Hero Honda has emerged as a world leader. The gap between motorcycles sold by Hero Honda and its closest rival is approximately 1 m units (23% of industry size). One of the reasons for the tremendous performance of Hero Honda is the significant increase of share of motorcycles in the two-wheeler segment, from 42% in FY99 to 77% in FY04. No doubt, that the shift in preference of Indian populace from scooters and mopeds towards motorcycles has facilitated the growth of Hero Honda. However its performance vis-à-vis industry indicates that the performance of Hero Honda was better than the industry peers, barring two years. In the seven-year period ending FY04, it has achieved a CAGR of 30% in two-wheeler volumes against 11% of the industry.
Past 5 year performance…
As can be seen from the table below, the company the sales as well as the profits have increased enormously. The company net sales has shown a CAGR of 27% and net profits have shown a CAGR of 39% led by its motorcycle led dominance. The operating margin of the company has improved by 290 basis point to 16.8%.
(Rs m)
FY00
FY01
FY02
FY03
FY04
Motor Cycles sold (m)
0.76
1.03
1.43
1.68
2.07
Net sales
22,464
31,687
44,654
51,017
58,324
Other income
204
221
767
956
1,681
Total revenues
22,668
31,907
45,422
51,973
60,005
Operating profit
3,070
4,285
6,807
8,636
9,801
Depreciation
347
443
510
580
733
PBIT
2,724
3,843
6,297
8,056
9,068
Interest
47
25
15
17
17
PBT
2,880
4,038
7,049
8,995
10,732
Extraordinary Items
-34
-268
-105
(149)
(7)
Tax
925
1,301
2,315
3,038
3,441
Net Profit
1,921
2,469
4,629
5,808
7,283
Operating profit margin
13.7%
13.5%
15.2%
16.9%
16.8%
Net profit margin
8.6%
7.8%
10.4%
11.4%
12.5%
Number of shares (m)
39.9
199.7
199.7
199.7
199.7
Face Value (Rs)
10.0
2.0
2.0
2.0
2.0
DPS (Rs)
10.0
3.0
17.0
18.0
20.0
EPS (Rs)
48.1
12.4
23.2
29.1
36.5
Fully Diluted EPS (Rs)
9.6
12.4
23.2
29.1
36.5
Strong Fundamentals
As evident from the table company has a strong balance sheet. Further the company has a consistent record of paying dividend.
Ratios
FY00
FY01
FY02
FY03
FY04
RONW
20.0%
100.0%
100.0%
100.0%
100.0%
ROCE
37.8%
36.5%
58.5%
59.0%
55.5%
Debt Equity (x)
0.1
0.1
0.2
0.2
0.2
Interest coverage (x)
57.8
151.9
417.0
465.7
527.2
Dividend payout
0.9%
0.6%
0.4%
0.4%
0.3%
BVPS
111.1
30.5
33.8
42.5
57.0
The company has clarified about its intention of setting a third plant in addition to its existing two plants. The company has embarked upon a green field expansion plan and has earmarked Rs 2 bn for the same. It should be noted that the company has a strong cash flow position, it generated Rs 9 bn from operation in FY04 and is virtually a debt free company.
Indian automobile industry witnessed a growth of 23.37% in 2-wheeler segment. India is the second-largest 2-wheeler manufacturers in the world and also the largest motorcycle manufacturer in the World. Indian 2-wheeler segment includes a range of vehicles such as scooters- geared and ungeared, motorcycles and mopeds. In India there are 7 scooter manufacturers, 9 motorcycle manufacturers, 3 moped manufacturers. Bajaj Auto, Hero Honda, TVS, etc are the leading manufacturers. They have also dominated the global arena after Piaggio. Production in Indian automobile industry During cfinancial year 2005-06, Indian 2-wheeler production showed a growth of 16.40% over the
preceding year. 2-wheeler segment have been showing an upward production trend. At present, there are more than 7.6 million 2-wheeler, manufactured in Indian automobile sector.
Production trend of 2-wheelers in Indian automobile industry
Sales in Indian automobile industry- Domestic and ExportsDuring financial year 2005-06, 2-wheeler sales in Indian market showed a growth of 13.63%, with an increase in exports by more than 40%. In the same period, cumulative sales of 2-wheelers in Indian market amounted to 7.05 millions, with 0.5 million units exported by Indian manufacturers.Sales trend of 2-wheelers in Indian market
Export trend of 2-wheelers
Sales
Two- wheeler sales in the country have sky rocketed in the recent years, and the annual sales of motorcycles in India expected to cross the 10 million mark by 2010. The low penetration of two-wheelers in the country 31 two-wheelers per 1000 citizens (2004) leaves immense scope for the growth of the market. Overall the industry sales of two-wheelers have grown by 15% from 6.57 million in 2004/2005 to 7.57 million in 2005/2006. The buoyant Indian economy with a growth rate of around 8% per annum is further expected to fuel the growth of two wheelers in the country.
The share of motorcycles have increased over the years, while that of other two-wheelers like geared scooters, scooterettes and mopeds have shown a negative growth or remained stagnant. The two-wheelers have penetrated 7% of rural house hold and 24% of urban markets, thus it leaves an immense scope for the market to grow.Bajaj Auto one of the leading producers of automobiles in the country has been able to sell close to 2.3 million vehicles in 2005/2006, the sales of the company grew by almost 31%. The company registered a 32% growth in the sales of motorcycles much above the industry average of 19%. Bajaj Auto has emerged as a market leader in the entry level or price segment motorcycle with the Bajaj CT 100 accounting for nearly 40% of the market share. It also commands a 62% market share in the premium segment of motorcycles with products like the Bajaj Pulsar DTSI. TVS Motors which has lots of firsts to its credit in the two-wheeler sector in the country was able to sell 1.34 million units during the same period thus registering an overall growth of 15% from the previous year. In the motorcycle segment the company's growth in sales was in sync with the industry average. The introductions of motorcycles like the TVS Star range of motorcycles have helped the company in gaining a healthy market share in this segment. Where the company has emerged as a clear winner by holding onto its leadership position is in the moped segment.The company has posted a 10% growth in sales accounting for a market share of about 77%. The company also expects to arrest the decline of its one time best seller TVS Victor through its new variant Victor GLS. If this figures have daunted you the best is yet to come, the country leader in two-wheelers hero honda have crossed the three million mark during the year 2005/2006 which is a good few lakhs more than its nearest competitor Bajaj Auto. The company accounted for nearly 40% of then two-wheeler market. In the motorcycle segment the company has been able to attain a market share of about 50%. The segment in which hero honda has emerged as a clear winner is the Deluxe segment, which is the largest segment in the motorcycles category, with its flagship family of motorcycles splendor selling over 1.2 million units which is just a shade less than all the two wheelers sold by TVS during the same year. The motorcycle category is expected to see a further growth and according to industry experts it will drive all other category of two-wheelers to the periphery. The table below shows the over all trend of Industry Sales over a 5 year period. The figures are provided by the Society of automobile Manufactures Association (SIAM). Two-wheeler domestic sales trend Motorcycles
2001-02
2002-03
2003-04
2004-05
2005-06
2887194
3647493
4170445
4964753
5815417
Scooters
2001-02
2002-03
2003-04
2004-05
2005-06
908268
825648
886295
922428
908159
Mopeds
2001-02
2002-03
2003-04
2004-05
2005-06
408263
338985
307509
322584
332741
HERO HONDA
The joint venture between India's Hero Group and Honda Motor Company, Japan has not only created the world's single largest two wheeler company but also one of the most successful joint ventures worldwide.
During the 80s, Hero Honda became the first company in India to prove that it was possible to drive a vehicle without polluting the roads. The company introduced new generation motorcycles that set industry benchmarks for fuel thrift and low emission. A legendary 'Fill it - Shut it - Forget it' campaign captured the imagination of commuters across India, and Hero Honda sold millions of bikes purely on the commitment of increased mileage.
Over 20 million Hero Honda two wheelers tread Indian roads today. These are almost as many as the number of people in Finland, Ireland and Sweden put together!
Hero Honda has consistently grown at double digits since inception; and today, every second motorcycle sold in the country is a Hero Honda. Every 30 seconds, someone in India buys Hero Honda's top -selling motorcycle – Splendor. This festive season, the company sold half a million two wheelers in a single month—a feat unparalleled in global automotive history.
Hero Honda bikes currently roll out from its three globally benchmarked manufacturing facilities. Two of these are based at Dharuhera and Gurgaon in Haryana and the third state of the art manufacturing facility was inaugurated at Haridwar, Uttrakhand in April this year. These plants together are capable of producing out 4.4 million units per year.
Hero Honda's extensive sales and service network now spans over 3000 customer touch points. These comprise a mix of dealerships, service and spare points, spare parts stockiest and authorized representatives of dealers located across different geographies.
Hero Honda values its relationship with customers. Its unique CRM initiative - Hero Honda Passport Program, one of the largest programs of this kind in the world, has over 3 million members on its roster. The program has not only helped Hero Honda understand its customers and deliver value at different price points, but has also created a loyal community of brand ambassadors.
Having reached an unassailable pole position in the Indian two wheeler market, Hero Honda is constantly working towards consolidating its position in the market place. The company believes that changing demographic profile of India, increasing urbanization and the empowerment of rural India will add millions of new families to the economic mainstream. This would provide the growth ballast that would sustain Hero Honda in the years to come. As Brijmohan Lall Munjal, the Chairman, Hero Honda Motors succinctly points out, "We pioneered India's motorcycle industry, and it's our responsibility now to take the industry to the next level. We'll do all it takes to reach there.''
HERO HONDA'S MISSION
Hero Honda’s mission is to strive for synergy between technology, systems and human resources, to produce products and services that meet the quality, performance and price aspirations of its customers. At the same time maintain the highest standards of ethics and social responsibilities. This mission is what drives Hero Honda to new heights in excellence and helps the organization forge a unique and mutually beneficial relationship with all its stake holders.
HERO HONDA'S MANDATE
Hero Honda is a world leader because of its excellent manpower, proven management, extensive dealer network, efficient supply chain and world-class products with cutting edge technology from Honda Motor Company, Japan. The teamwork and commitment are manifested in the highest level of customer satisfaction, and this goes a long way towards reinforcing its leadership status.
As per Section 2(j) of Industrial Disputes Act,1947 “Industry” means any systematic activity carried on by co-operation between an employer and his workmen(whether such workmen are employed by such employer directly or by or through any agency, including a contractor) for the production ,supply or distribution of goods or services with a view to satisfy human wants or wishes (not being wants or wishes which are merely spiritual or religious in nature), whether or not,-
(i) any capital has been invested for the purpose of carrying on such activity; or
(ii) such activity is carried on with a motive to make any gain or profit, and includes-
(a) any activity of the Dock Labour Board established under section 5-A of the Dock Workers ( Regulation of Employment)Act,1948( 9 of 1948);
(b) any activity relating to the promotion of sales or business or both carried on by an establishment,
Two Wheelers in India
The feeling of freedom and being one with the Nature comes only from riding a two-wheeler. Indians prefer the two wheelers because of their small manageable size, low maintenance, and pricing and easy loan repayments. Indian streets are full of people of all age groups riding a two-wheeler. Motorized two wheelers are seen as a symbol of status by the populace. Thus, in India, we would see swanky four wheels jostling with our ever reliable and sturdy steed: the two-wheeler.
Two-Wheeler Industry in India: An IntroductionThe Indian two-wheeler industry has been in the limelight recently because of its impressive performance. Hero Honda has been the largest manufacturer of motorcycles in the world for quite some time. Its motorcycle model Splendor has also been the largest selling model in the world. The last few years have also seen a large quantity of two-wheelers being exported. In neighbouring countries like Bangladesh and Sri Lanka, the Indian two-wheeler manufacturers have captured the market. Even in Africa and South America Indian motorcycles have been well received. Some of the Indian manufacturers like TVS Motors and Bajaj Auto are in the process of setting up assembly and manufacturing plants. The number of models being introduced by Indian two-wheeler manufacturers every year is also high. At this crucial juncture when the Indian two-wheeler industry is making its mark in the global market, this book ?Two-Wheeler Industry in India ? An Introduction? will make interesting reading. The book has been divided into three sections. The first section traces the evolution of the industry, its growth and the reasons for the industry being competitive. The second section delves into the issues facing the industry and future of the industry. It also throws light on the exports of two-wheelers, Government policies affecting the growth of the industry and electric scooters and motorcycles. The third section discusses the major players, Hero Honda, TVS Motors, Bajaj Auto and Electro herm India.
Indian automobile industry witnessed a growth of 23.37% in 2-wheeler segment. India is the second-largest 2-wheeler manufacturers in the world and also the largest motorcycle manufacturer in the World. Indian 2-wheeler segment includes a range of vehicles such as scooters- geared and ungeared, motorcycles and mopeds. In India there are 7 scooter manufacturers, 9 motorcycle manufacturers, 3 moped manufacturers. Bajaj Auto, Hero Honda, TVS, etc are the leading manufacturers. They have also dominated the global arena after Piaggio. Production in Indian automobile industry During cfinancial year 2005-06, Indian 2-wheeler production showed a growth of 16.40% over the
preceding year. 2-wheeler segment have been showing an upward production trend. At present, there are more than 7.6 million 2-wheeler, manufactured in Indian automobile sector.
History
The Britannica Encyclopedia describes a motorcycle as a bicycle or tricycle propelled by an internal-combustion engine (or, less often, by an electric engine).The motors on minibikes, scooters, and mopeds, or motorized velocipedes, are usually air-cooled and range from 25 to 250 cubic cm (1.5 to 15 cubic inches) in displacement; the multiple-cylinder motorcycles have displacements of more than 1,300 cubic cm. The automobile was the reply to the 19th-century dream of self-propelling the horse-drawn carriage. Similarly, the invention of the motorcycle created the self-propelled bicycle. The first commercial design was a three-wheeler built by Edward Butler in Great Britain in 1884. This employed a horizontal single-cylinder gasoline engine mounted between two steer able front wheels and connected by a drive chain to the rear wheel.The 1900s saw the conversion of many bicycles, or pedal cycles by adding small, centrally mounted spark ignition engines. There was then felt the need for reliable constructions. This led to road trial tests and competition between manufacturers. Tourist Trophy (TT) races were held on the Isle of Man in 1907 as reliability or endurance races. Such were the proving ground for many new ideas from early two-stroke-cycle designs to supercharged, multivalent engines mounted on aerodynamic, carbon-fibre reinforced bodywork.
Invention of Two Wheelers
The invention of the first two-wheeler is a much-debated issue. "Who invented the first motorcycle?" may seem like a simple question, but the answer is quite complicated. Two-wheelers owe their descent to the "safety" bicycle, i.e., bicycles with front and rear wheels of the same size, with a pedal crank mechanism to drive the rear wheel. Those bicycles, in turn descended from high-wheel bicycles. The high-wheelers descended from an early type of pushbike, without pedals, propelled by the rider's feet pushing against the ground. These appeared around 1800, used iron-banded wagon wheels, and were called "bone-crushers," both for their jarring ride, and their tendency to toss their riders. Gottlieb Daimler (who later teamed up with Karl Benz to form the Daimler-Benz Corporation) is credited with building the first motorcycle in 1885, one wheel in the front and one in the back, although it had a smaller spring-loaded outrigger wheel on each side. It was constructed mostly of wood, the wheels were of the iron-banded wooden-spoked wagon-type, it definitely had a "bone-crusher" chassis! This two-wheeler was powered by a single-cylinder Otto-cycle engine, and may have had a spray-type carburetor. (Wilhelm Maybach
, Daimler's assistant, was working on the invention of the spray carburetor at the time). If two wheels with steam propulsion can be called a motorcycle, then the first one may have been American. One such machine was demonstrated at fairs and circuses in the eastern US in 1867. This was built by one Sylvester Howard Roper of Roxbury, Massachusetts. There is an existing example of a Roper machine, dated 1869. A charcoal-fired two-cylinder engine, whose connecting rods directly drive a crank on the rear wheel, powers it. This machine predates the invention of the safety bicycle by many years, so its chassis is also based on the "bone-crusher" bike.
Origin of Motor-Scooters
Edward Butler, an Englishman, built the first motor tricycle in 1884. The first gasoline-engine motorcycle to appear publicly was built by Gottlieb Daimler, of Bad Cannstatt, Germany, in 1885. The French and Belgians, followed by British, German, Italian, and American makers, designed the first practical engines and motorcycles.The popularity of the vehicle grew, especially after 1910. During World War I all branches of the armed forces in Europe, principally for dispatching, used the motorcycle. After the war it enjoyed a sport vogue until the Great Depression began in 1929. After World War II a revival of interest in motorcycles lasted into the late 20th century, with the vehicle being used for high-speed touring and sport competitions.The practice of attaching auxiliary engines to bicycles in western Europe and parts of the United States led to the development during the 1950s of a new type of light motorcycle, the moped. Originating in Germany as a 50-cubic-centimetre machine with simple controls and low initial cost, it was largely free of licensing and insurance regulations except in Great Britain.The more sophisticated motor scooter originated in Italy soon after World War II, led by manufacture of a 125-cubic-centimetre model. Despite strong competition from West Germany, France, Austria, and Britain, the Italian scooters maintained the lead in the diminishing market. The scooter has small wheels from 20 to 36 cm (8 to 14 inches) in diameter, and the rider sits inside the frame. Power units are placed low and close to the rear wheel, which is driven by bevel gearing or chain. Capacities vary from 50 to 225 cubic cm, and four-speed gearing is common.
Initial Hits
Most of the development during this earliest of eras concentrated on three and four-wheeled designs, since it was complex enough to get the machines running without having to worry about them falling over. The next really notable two-wheeler was the Millet of 1892. It used a 5-cylinder engine built as the hub of its rear wheel. The cylinders rotated with the wheel, and its crankshaft constituted the rear axle.The first really successful production two-wheeler though, was the Hildebrand & Wolfmueller, patented in Munich in 1894. It had a step-through frame, with its fuel tank mounted on the downtube. The engine was a parallel twin, mounted low on the frame, with its cylinders going fore-and-aft. The connecting rods connected directly to a crank on the rear axle, and instead of using heavy flywheels for energy storage between cylinder-firing, it used a pair of stout elastic bands, one on each side outboard of the cylinders, to help out on the compression strokes. It was water-cooled, and had a water tank/radiator built into the top of the rear fender.In 1895, the French firm of DeDion-Buton built an engine that was to make the mass production and common use of motorcycles possible. It was a small, light, high revving four-stroke single, and used battery-and-coil ignition, doing away with the troublesome hot-tube. Bore and stroke figures of 50mm by 70mm gave a displacement of 138cc. A total loss lubrication system was employed to drip oil into the crankcase through a metering valve, which then sloshed around to lubricate and cool components before dumping it on the ground via a breather.DeDion-Buton used this 1/2 horsepower power plant in road going tikes, but the engine was copied and used by everybody, including Indian and Harley-Davidson in the U.S. Although a gentleman named Pennington built some machines around 1895 (it's uncertain whether any of them actually ran), the first US production motorcycle was the Orient-Aster, built by the Metz Company in Waltham, Massachusetts in 1898. It used an Aster engine that was a French-built copy of the DeDion-Buton, and predated Indian (1901) by three years, and Harley-Davidson (1902) by four.
Indian T Indian Two Wheeler Industry
Indian Two wheeler industry, Key players and Types of two-wheelers
India is the second largest producer and manufacturer of two-wheelers in the world. Indian two-wheeler industry has got spectacular growth in the last few years. Indian two-wheeler industry had a small beginning in the early 50's. The Automobile Products of India (API) started manufacturing scooters in the country.Bikes are a major segment of Indian two wheeler industry, the other two being scooters and mopeds. Indian companies are among the largest two-wheeler manufacturers in the world. Hero Honda and Bajaj Auto are two of the Indian companies that top the list of world companies manufacturing two-wheelers.The two-wheeler market was opened to foreign companies in the mid 1980s. The openness of Indian market to foreign companies lead to the arrival of new models of two-wheelers into India. Easy availability of loans from the banks, relatively low rate of interest and the discount of prices offered by the dealers and manufacturers lead to the increasing demand for two-wheeler vehicles in India. This lead to the strong growth of Indian automobile industry.Kinetic Honda was introduced in the Indian market during the mid 80s. The main feature of Kinetic Honda is its ease of use. This helped the youngsters and the women to buy scooters.
Key players in the Two-wheeler Industry :After facing its worst recession during the early 1990s, the two-wheeler industry bounced back with a 25% increase in volume sales in February 1995. The scooters are considered as family vehicles. There are many two-wheeler manufacturers in India. Major players in the 2-wheeler industry are Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) and TVS Motor Company Ltd (TVS). The other key players in the two-wheeler industry are Kinetic Motor Company Ltd (KMCL), Kinetic Engineering Ltd (KEL), LML Ltd (LML), Yamaha Motors India Ltd (Yamaha), Majestic Auto Ltd (Majestic Auto), Royal Enfield Ltd (REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI).Types of Two-wheelers in India: There are mainly three types of two-wheelers available in India. They are Motorcycles, Scooters and Scooterettes/Mopeds.Motorcycles in India: Bikes comprise a major segment of Indian two wheeler industries.
Company : Bajaj Auto Ltd
Company : HERO HONDA
* Bajaj Avenger* Bajaj CT 100* Bajaj Platina* Bajaj Discover DTSi* Bajaj Pulsar DTSi* Bajaj Wave* Bajaj Wind 125* Sonic DTSi
* Hero Honda Achiever* Hero Honda CD Dawn* Hero Honda CD Deluxe* Hero Honda Glamour* Hero Honda Glamour-Fi* Hero Honda Karizma* Hero Honda Passion Plus* Hero Honda Pleasure* Hero Honda Super Splendor* Hero Honda Splendor NXG* Hero Honda CBZ X-Treme
Company : Kinetic Motor Company
Company : TVS MOTOR
Company : Yamaha Motor India
* Kinetic Aquila* Kinetic Boss* Kinetic Challenger* Kinetic Comet* Kinetic GF* Kinetic Stryker* Kinetic Velocity
* TVS Apache* TVS Centra* TVS Fiero* TVS Star* TVS Victor
* Yamaha CruxS* Yamaha G5* Yamaha Gladiator
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Scooters in India: The scooter and the scooterette share in the Indian two-wheeler market is 13.4%. The main models available in India are Bajaj Chetak, Honda Eterno, Kinetic Blaze, LML NV SPL and LML Select II.Scooterettes/Mopeds: TVS Motors launched India's first 50cc, 2-seater moped: TVS Moped 50. TVS also launched India's first indigenous scooterette: Scooty in 1994. This segment has about one-fourth share in the Indian two-wheeler industry. The major models available in India are Bajaj Wave, Bajaj Kristal DTSi, Bajaj Blade DTSi, Hero Honda Pleasure, Kinetic Kine, Kinetic 4S, Kinetic Nova, Kinetic Zoom, Kinetic V2 Range, Kinetic King 100, Kinetic Luna Super, Kinetic Luna TFR, Yo Smart, Honda Dio, Honda Activa, TVS Scooty and TVS XL.
INTRODUCTIONThe Indian automotive industry consists of five segments: commercial vehicles; multi-utility vehicles & passenger cars; two-wheelers; three-wheelers; and tractors. With 5,822,963 units sold in the domestic market and 453,591 units exported during the first nine months of FY2005 (9MFY2005), the industry (excluding tractors) marked a growth of 17% over the corresponding previous. The two-wheeler sales have witnessed a spectacular growth trend since the mid nineties.Two-wheelers: Market Size & GrowthIn terms of volume, 4,613,436 units of two-wheelers were sold in the country in 9MFY2005 with 256,765 units exported. The total two-wheeler sales of the Indian industry accounted for around 77.5% of the total vehicles sold in the period mentioned.
Figure 1Segmental Growth of the Indian Two Wheeler Industry (FY1995-2004)
After facing its worst recession during the early 1990s, the industry bounced back with a 25% increase in volume sales in FY1995. However, the momentum could not be sustained and sales growth dipped to 20% in FY1996 and further down to 12% in FY1997. The economic slowdown in FY1998 took a heavy toll of two-wheeler sales, with the year-on-year sales (volume) growth rate declining to 3% that year. However, sales picked up thereafter mainly on the strength of an increase in the disposable income of middle-income salaried people (following the implementation of the Fifth Pay Commission's recommendations), higher access to relatively inexpensive financing, and increasing availability of fuel efficient two-wheeler models. Nevertheless, this phenomenon proved short-lived and the two-wheeler sales declined marginally in FY2001. This was followed by a revival in sales growth for the industry in FY2002. Although, the overall two-wheeler sales increased in FY2002, the scooter and moped segments faced de-growth. FY2003 also witnessed a healthy growth in overall two-wheeler sales led by higher growth in motorcycles even as the sales of scooters and mopeds continued to decline. Healthy growth in two-wheeler sales during FY2004 was led by growth in motorcycles even as the scooters segment posted healthy growth while the mopeds continued to decline. Figure 1 presents the variations across various product sub-segments of the two-wheeler industry between FY1995 and FY2004.Demand DriversThe demand for two-wheelers has been influenced by a number of factors over the past five years. The key demand drivers for the growth of the two-wheeler industry are as follows:
▪
Inadequate public transportation system, especially in the semi-urban and rural areas;
▪
Increased availability of cheap consumer financing in the past 3-4 years;
▪
Increasing availability of fuel-efficient and low-maintenance models;
▪
Increasing urbanisation, which creates a need for personal transportation;
▪
Changes in the demographic profile;
▪
Difference between two-wheeler and passenger car prices, which makes two-wheelers the entrylevel vehicle;
▪
Steady increase in per capita income over the past five years; and
▪
Increasing number of models with different features to satisfy diverse consumer needs.
While the demand drivers listed here operate at the broad level, segmental demand is influenced by segment-specific factors.MARKET CHARACTERISTICSDemandSegmental Classification and CharacteristicsThe three main product segments in the two-wheeler category are scooters, motorcycles and mopeds. However, in response to evolving demographics and various other factors, other subsegments emerged, viz. scooterettes, gearless scooters, and 4-stroke scooters. While the first two emerged as a response to demographic changes, the introduction of 4-stroke scooters has followed the imposition of stringent pollution control norms in the early 2000. Besides, these prominent sub-segments, product groups within these sub-segments have gained importance in the recent years. Examples include 125cc motorcycles, 100-125 cc gearless scooters, etc. The characteristics of each of the three broad segments are discussed in Table 1.
Table 1
Two-Wheelers: Comparative Characteristics
Scooter
Motorcycle
Moped
Price*(Rs. as in January 2005)
> 22,000
> 30,000
> 12,000
Stroke
2-stroke, 4-stroke
Mainly 4-stroke
2-stroke
Engine Capacity (cc)
90-150
100, 125, > 125
50, 60
Ignition
Kick/Electronic
Kick/Electronic
Kick/Electronic
Engine Power (bhp)
6.5-9
7-8 and above
2-3
Weight (kg)
90-100
> 100
60-70
Fuel Efficiency (kms per litre)
50-75
50-80+
70-80
Load Carrying
High
Highest
Low
*Ex-showroom MumbaiCompiled by INGRES
Segmental Market ShareThe Indian two-wheeler industry has undergone a significant change over the past 10 years with the preference changing from scooters and mopeds to motorcycles. The scooters segment was the largest till FY1998, accounting for around 42% of the two-wheeler sales (motorcycles and mopeds accounted for 37% and 21 % of the market respectively, that year). However, the motorcycles segment that had witnessed high growth (since FY1994) became larger than the scooter segment in terms of market share for the first time in FY1999. Between FY1996 and 9MFY2005, the motorcycles segment more than doubled its share of the two-wheeler industry to 79% even as the market shares of scooters and mopeds stood lower at 16% and 5%, respectively.
Figure 2 Trends in Segmental Share in Industry Sales (FY1996-9MFY2005)
While scooter sales declined sharply by 28% in FY2001, motorcycle sales reported a healthy growth of 20%, indicating a clear shift in consumer preference. This shift, which continues, has been prompted by two major factors: change in the country's demographic profile, and technological advancements.Over the past 10-15 years the demographic profile of the typical two-wheeler customer has changed. The customer is likely to be salaried and in the first job. With a younger audience, the attributes that are sought of a two-wheeler have also changed. Following the opening up of the economy and the increasing exposure levels of this new target audience, power and styling are now as important as comfort and utility.The marketing pitch of scooters has typically emphasised reliability, price, comfort and utility across various applications. Motorcycles, on the other hand, have been traditionally positioned as vehicles of power and style, which are rugged and more durable. These features have now been complemented by the availability of new designs and technological innovations. Moreover, higher mileage offered by the executive and entry-level models has also attracted interest of two-wheeler customer. Given this market positioning of scooters and motorcycles, it is not surprising that the new set of customers has preferred motorcycles to scooters. With better ground clearance, larger wheels and better suspension offered by motorcycles, they are well positioned to capture the rising demand in rural areas where these characteristics matter most.Scooters are perceived to be family vehicles, which offer more functional value such as broader seat, bigger storage space and easier ride. However, with the second-hand car market developing, a preference for used cars to new two-wheelers among vehicle buyers cannot be ruled out. Nevertheless, the past few years have witnessed a shift in preference towards gearless scooters (that are popular among women) within the scooters segment. Motorcycles, offer higher fuel efficiency, greater acceleration and more environment-friendliness. Given the declining difference in prices of scooters and motorcycles in the past few years, the preference has shifted towards motorcycles. Besides a change in demographic profile, technology and reduction in the price difference between motorcycles and scooters, another factor that has weighed in favour of motorcycles is the high re-sale value they offer. Thus, the customer is willing to pay an up-front premium while purchasing a motorcycle in exchange for lower maintenance and a relatively higher resale value.SupplyManufacturersAs the following graph indicates, the Indian two-wheeler industry is highly concentrated, with three players-Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) and TVS Motor Company Ltd (TVS) - accounting for over 80% of the industry sales as in 9MFY2005. The other key players in the two-wheeler industry are Kinetic Motor Company Ltd (KMCL), Kinetic Engineering Ltd (KEL), LML Ltd (LML), Yamaha Motors India Ltd (Yamaha), Majestic Auto Ltd (Majestic Auto), Royal Enfield Ltd (REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI).
Figure 3 Shares of Two-Wheeler Manufacturers in Industry Sales (FY2000-9MFY2005)
Although the three players have dominated the market for a relative long period of time, their individual market shares have undergone a major change. Bajaj Auto was the undisputed market leader till FY2000, accounting for 32% of the two-wheeler industry volumes in the country that year. Bajaj Auto dominance arose from its complete hold over the scooter market. However, as the demand started shifting towards motorcycles, the company witnessed a gradual erosion of its market share. HHML, which had concentrated on the motorcycle segment, was the main beneficiary, and almost doubled its market share from 20% in FY2000 to 40% in 9MFY2005 to emerge as the market leader. TVS, on the other hand, witnessed an overall decline in market share from 22% in FY2000 to 18% in 9MFY2005. The share of TVS in industry sales fluctuated on a year on year basis till FY2003 as it changed its product mix but has declined since then.TechnologyHitherto, technology transfer to the Indian two-wheeler industry took place mainly through: licensing and technical collaboration (as in the case of Bajaj Auto and LML); and joint ventures (HHML).A third form - that is, the 100% owned subsidiary route - found favour in the early 2000s. A case in point is HMSI, a 100% subsidiary of Honda, Japan. Table 2 details the alliances of some major two-wheeler manufacturers in India.Besides the below mentioned technology alliances, Suzuki Motor Corporation has also followed the strategy of joint ventures (SMC reportedly acquired equity stake in Integra Overseas Limited for manufacturing and marketing Suzuki motorcycles in India).
Table 2
Technological tie-ups of Select Players
Nature of Alliance
Company
Product
Bajaj Auto
Technological tie-up
Kawasaki Heavy Industries Ltd, Japan
Motorcycles
Technological tie-up
Tokya R&D Co Ltd, Japan
Two-wheelers
Technological tie-up
Kubota Corp, Japan
Diesel Engines
HHML
Joint Venture
Honda Motor Co, Japan
Motorcycles
KEL
Technological tie-up
Hyosung Motors & Machinery Inc
Motorcycles
KEL
Tie up for manufacturingand distribution
Italjet, Italy
Scooters
LML
Technological tie-up
Daelim Motor Co Ltd
Motorcycles
Hero Motors
Technological tie-up
Aprilia of Italy
Scooters
Compiled by INGRES
With the two-wheeler market, especially the motorcycle market, becoming extremely competitive and the life cycle of products getting shorter, the ability to offer new models to meet fast changing customer preferences has become imperative. In this context, the ability to deliver newer products calls for sound technological backing and this has become one of the critical differentiating factor among companies in the domestic market. Thus, the players have increased their focus on research and development with some having indigenously developed new models as well as improved technologies to cater to the domestic market. Further, with exports being one of the thrust areas for some Indian two-wheeler companies, the Indian original equipment manufacturers (OEMs) have realised the need to upgrade their technical capabilities. These relate to three main areas: fuel economy, environmental compliance, and performance. In India, because of the cost-sensitive nature of the market, fuel efficiency had been an interest area for manufacturers.It is not only that the OEMs are increasing their focus on in-house R&D, they also provide support to the vendors to upgrade the technology and also assist them striking technological alliances.TRENDS IN THE TWO-WHEELER INDUSTRYCompanies raising capacity to meet the growing demandAll the major two-wheeler manufacturers, viz. Bajaj Auto, HHML, TYS, HMSI and others, have increased their manufacturing capacities in the recent past. The total capacity of these players stood at 7.8 million units per annum (FY2003) as against total market sales of 3.8 million units in FY2002. Most of the players have either expanded capacity, or converted their existing capacities for scooters and mopeds into those for manufacturing motorcycles. The move has been prompted by the rapid growth reported by the motorcycles segment since FY1995.HHML increased the capacity of its plants from 1.8 million units in FY2003 to 2.25 million in FY2004 and has been able to achieve 92% capacity utilisation. In light of the increase in demand for motorcycles, the company plans to set up a new plant. Since its entry in the Indian market during FY2002, HMSI has aggressively expanded its capacity.Niche markets also witnessing intense competitionA significant trend witnessed over the past five years is the inclination of consumers towards products with superior features and styling. Better awareness about international models has raised expectations of consumers on some key attributes, especially quality, styling, and performance. High competitive intensity has prompted players to launch vehicles with improved attributes at a price less than the competitive models.In an effort to satisfy the distinct needs of consumers, producers are identifying emerging consumer preferences and developing new models. For instance, in the motorcycles segment, motorcycles with engine capacity over 150cc, is a segment that has witnessed significant new product launches and hence, become more competitive. The indigenously launched Pulsar 150 had met with success on its launch and thereafter, a host of models have been launched in this segment by various players. While Bajaj Auto launched the Pulsars (150 and 180 cc) with digital twin spark technology (DTSi) that offers a powerful engine and fuel efficiency of 125 cc models, model launches by other players include LML's Graptor/Beamer, HMSI's Unicorn besides the HHML's CBZ (improved version launched in 2003-04) and TVS' Fiero F2. Moreover, in the recent past, the motorcycle segment has witnessed launch of vehicles with higher engine capacity (higher than 150cc) and power (higher than 15bhp). These include models such as Bajaj Auto Eliminator and Royal Enfield's Thunderbird followed by HHML's Karisma. Besides these, KEL has launched premium segment motorcycles GF 170 and GF Laser besides launching products from the portfolio of its technology partner (Hyosung's Aquila and Comet 250). The products in this segment cater for style conscious consumers. Quite a few players are developing models combining features such as higher engine capacity" optimum mix of power and performance, and superior styling. However, the extent of shift to these products would depend on the positioning of such products in terms of price.In the scooters segment, the market for plastic-bodied variomatic scooters continues to witness growth in the scenario of overall decline in scooter volumes. Higher volumes and growth are especially true for certain scooter models, such as Honda Activa, that brought in new technology (besides variomatic transmission) to further differentiate themselves. Thus, the need to differentiate and create a niche has led to companies strengthening their research and development (R&D) capabilities and reducing the development time for new models.Increasing focus on exportsFor the first nine months of FY2005, two-wheeler exports increased by 37% over the corresponding previous, led mainly by motorcycles even as exports of other two-wheelers were healthy. While motorcycle exports increased by 40%, scooter and moped exports increased by 29% and 27% respectively.Motorcycle exports by Bajaj Auto, HHML and TVS have reported a tobust growth in FY2005 and are expected to increase further in the medium term.
Table 3
Two-Wheeler Exports from India (in numbers)
FY2000
FY2001
FY2002
FY2003
FY2004
CAGR (FY2000-04)
9MFY2005
Scooters
20,188
25,625
28332
30116
53148
27.4
44832
Motorcycles
35,295
41,339
56,880
126122
187287
51.4
188807
Mopeds
27,754
44,174
18,971
23330
24234
-3.3
22739
Total
83,237
111,138
104183
179568
264669
33.5
256378
Source: SIAM
Although the Indian two-wheeler manufacturers have forayed on their own in their target export markets, there have been instances of tie-ups with the technology partners. Bajaj Auto's tie-up with Kawasaki to jointly market Bajaj products in Philippines is a case in point. Under the tie-up, M/s Kawasaki Motors Philippines Corporation has been appointed as exclusive distributors to market select Bajaj two-wheelers that include Byk, Caliber 115 and Wind 125. These vehicles are being sent to Philippines in the completely built unit (CBU) form. Other strategy of expanding international presence considered by few players is that of setting up assembly lines in select South East Asian countries either on their own or in partnership with local players. Besides, plans of select overseas technology partners to source from their Indian partners and plans of global majors to develop their Indian manufacturing unit as a sourcing hub may also lead to increase in two-wheeler exports from India.Companywise two-wheeler exports since FY2000 are presented in the following Table 4.
Table 4
Company-wise two-wheeler exports (FY2000-9MFY2005)
FY2000
FY2001
FY2002
FY2003
FY2004
CAGR (FY2000-04)
9MFY2005
Bajaj Auto
14924
16112
28527
53366
90210
56.8
87225
HHML
10061
10324
13023
21165
39254
40.5
43441
HMSI
0
0
1293
10916
31414
n.a
27734
TVS
7265
6621
7765
9636
28093
40.2
36666
Yamaha
15197
20446
20321
45546
32906
21.3
27539
Others
35790
57635
32752
39053
42792
4.6
33773
Total
83237
111138
103681
179682
264669
33.5
256378
Source: SIAM
Vehicle Emission NormsEmission norms for all categories of petrol and diesel vehicles at the manufacturing stage were introduced for the first time in India in 1990 and were made stricter in 1996. When the 1996 norms were introduced, it resulted in certain models being withdrawn from the market. With Stage I India 2000 emission norms coming into place, the cost of developing suitable technology has remained high.The emission norms that are currently in force for two-wheelers and three-wheelers are more stringent than the Euro II norms. The roadmap suggested for emission norms for two/three-wheelers by the Expert Committee on Auto Fuel Policy is as follows:
For two-/three-wheelers the emission norms are recommended to be the same in the entire country:For new vehicles:Bharat Stage II norms throughout the country from April 1, 2005Bharat Stage III norms to be applicable preferably from April 1, 2008 but not later than April 1, 2010.For reducing pollution from in-use vehicles
▪
New pollution under control (PUC) checking system for all categories of vehicles to be put in place by April 1, 2005
▪
Inspection & maintenance (I&M) system for all categories of vehicles to be put place by April 1, 2010
▪
Performance checking system of catalytic converters and conversion kits installed in vehicles to be put in place by April 1, 2007.
Table 5 presents the emission norms for two-wheelers that were in place in the past, the India 2000 emission norms, and the norms that have been implemented for April 2005 (Stage II) and proposed for 2008 (Stage III).
Table 5
Exhaust Emission Norms
Vehicle
Pollutants
Old Norms
1996
2000
2005*
2008/10**
Tow-wheelers(gm/Km)
CO
12-30
4.5
2.0
1.5
1
HC+Nox
8-12
3.6
2.0
1.5
1
Three-wheelers(petrol)
CO
12-30
6.8
4.0
2.25
1.25
HC+Nox
8-12
5.4
1.5
2
1.25
Three-wheelers(Diesel)
CO
1
1.1
HC+Nox
0.85
1
PM
0.10
0.05
CO: Carbon Monoxide; HC: Hydrocarbon; Nox: Nitrogen Oxide, PM: Particulate Matter, * Maximum Sulphur parts per million (ppm) permissible of 150 and ** Maximum Sulphur ppm permissible of 50 Compiled by INGRES
To be able to meet the exhaust norms, the Auto Fuel Policy has suggested following technologies:
Table 6
Technologies for meeting the emission norms for Spark Ignited Vehicles
2/3 - wheelers
Level of Emission Norms
2-Stroke Technology
4-Stroke Technology
Euro I/India 2000
Intake, exhaust, combustionoptimisation Catalytic converter
4-Stroke enginetechnology
Euro II/Bharat Stage II
Secondary air injection CaatalyticConverter
Hot tube Secondaryair injection
Euro III/Bharat Stage III
Fuel injection Catalytic converter
Fuel injectionCarburetor + catalytic converter
Euro IV/Bharat Stage IV
To be developed
Learn burn Fuel injection+ catalytic converter
Source: National Auto Fuel Policy
The adoption of new technologies for compliance with stricter emission norms may affect the prices of vehicles. Some two-wheeler manufacturers are testing electronic fuel injection systems for motorcycles. To begin with, electronic systems are likely to be introduced in premium segment motorcycles.Fiscal PolicyThe Union Budget for 2001-02 had lowered the excise duty on two-wheelers (with engine capacity in excess of 75 cc) from 24% to 16%. The manufacturers responded to this by passing on a relatively large part of the excise cut to customers. The Union Budget thereafter have left the excise duty on two-wheelers unchanged. But the Union Budget 2004-05 provides for a weighted deduction of 150% for investments in R&D. This may facilitate increasing R&D allocations and allow for improvement in the technical as well as product development skills of the Indian companies.Indian Auto Policy 2002The Government of India approved a comprehensive automotive policy in March 2002, the main proposals of which are as under:Foreign direct investment : Automatic approval is proposed to be granted to foreign equity investment up to 100% for manufacture of automobiles and components.Import tariff : Import tariffs are proposed to be fixed at a level such that they facilitate the development of manufacturing capabilities as opposed to mere assembly.Incentives for R&D : The weighted average tax deduction under the Income Tax Act, 1961 for automotive companies is proposed to be increased from current level of 125% (The weighted average deduction for R&D was increased to 150% in the Union Budget 2004-05). Further, the policy proposes to include vehicle manufacturers for a rebate on the applicable excise duty for every 1% of the gross turnover of the company expended during the year on R&D. Environmental aspects : Adequate fiscal incentives are proposed to promote the use of low-emission auto fuel technology (in line with the Auto Fuel Policy). The auto policy states the Government's intent to align domestic policy with the international practice of imposing higher road tax on old vehicles so as to discourage their use.
Hero Honda: A SWOT analysis
Today if one talks about Indian two-wheeler industry, reference to Hero Honda Motors Limited is by default. It is not only the market leader in the two wheeler segment in India but also is the number one two wheeler company in the world by volumes. The company’s name is synonymous with fuel-efficient bikes and longevity. The company has a presence in all bike segments viz. economy (CD 100SS, CD Dawn) executive (Super Splendor, Splendor+) and premium (Karizma, CBZ). Splendor is the most successful product of the company and accounts for almost 50% of the company’s turnover.
Background
Hero Honda is a two-decade-old story. It came into existence as a joint venture agreement between the Munjal family’s Hero Group and Honda Motor Company (HMC) of Japan, each having 26% stake in the company. A ten year agreement was first entered in the year 1984, whereby HMC brought in technical expertise and Hero Honda brought in local talent to manage all other functions including marketing, finance, and human resources. The agreement was once again renewed in 2004 and has been extended till 2014.
Performance vis-à-vis Industry
The Indian two wheeler industry has seen a paradigm shift from being a regime of regulation and tight control in the 1980s to a more liberalised and a competitive present day era. After missing out on the initial boom in two wheeler segment during the period of 1993-1996, Hero Honda has emerged as a world leader. The gap between motorcycles sold by Hero Honda and its closest rival is approximately 1 m units (23% of industry size). One of the reasons for the tremendous performance of Hero Honda is the significant increase of share of motorcycles in the two-wheeler segment, from 42% in FY99 to 77% in FY04. No doubt, that the shift in preference of Indian populace from scooters and mopeds towards motorcycles has facilitated the growth of Hero Honda. However its performance vis-à-vis industry indicates that the performance of Hero Honda was better than the industry peers, barring two years. In the seven-year period ending FY04, it has achieved a CAGR of 30% in two-wheeler volumes against 11% of the industry.
Past 5 year performance…
As can be seen from the table below, the company the sales as well as the profits have increased enormously. The company net sales has shown a CAGR of 27% and net profits have shown a CAGR of 39% led by its motorcycle led dominance. The operating margin of the company has improved by 290 basis point to 16.8%.
(Rs m)
FY00
FY01
FY02
FY03
FY04
Motor Cycles sold (m)
0.76
1.03
1.43
1.68
2.07
Net sales
22,464
31,687
44,654
51,017
58,324
Other income
204
221
767
956
1,681
Total revenues
22,668
31,907
45,422
51,973
60,005
Operating profit
3,070
4,285
6,807
8,636
9,801
Depreciation
347
443
510
580
733
PBIT
2,724
3,843
6,297
8,056
9,068
Interest
47
25
15
17
17
PBT
2,880
4,038
7,049
8,995
10,732
Extraordinary Items
-34
-268
-105
(149)
(7)
Tax
925
1,301
2,315
3,038
3,441
Net Profit
1,921
2,469
4,629
5,808
7,283
Operating profit margin
13.7%
13.5%
15.2%
16.9%
16.8%
Net profit margin
8.6%
7.8%
10.4%
11.4%
12.5%
Number of shares (m)
39.9
199.7
199.7
199.7
199.7
Face Value (Rs)
10.0
2.0
2.0
2.0
2.0
DPS (Rs)
10.0
3.0
17.0
18.0
20.0
EPS (Rs)
48.1
12.4
23.2
29.1
36.5
Fully Diluted EPS (Rs)
9.6
12.4
23.2
29.1
36.5
Strong Fundamentals
As evident from the table company has a strong balance sheet. Further the company has a consistent record of paying dividend.
Ratios
FY00
FY01
FY02
FY03
FY04
RONW
20.0%
100.0%
100.0%
100.0%
100.0%
ROCE
37.8%
36.5%
58.5%
59.0%
55.5%
Debt Equity (x)
0.1
0.1
0.2
0.2
0.2
Interest coverage (x)
57.8
151.9
417.0
465.7
527.2
Dividend payout
0.9%
0.6%
0.4%
0.4%
0.3%
BVPS
111.1
30.5
33.8
42.5
57.0
The company has clarified about its intention of setting a third plant in addition to its existing two plants. The company has embarked upon a green field expansion plan and has earmarked Rs 2 bn for the same. It should be noted that the company has a strong cash flow position, it generated Rs 9 bn from operation in FY04 and is virtually a debt free company.
Indian automobile industry witnessed a growth of 23.37% in 2-wheeler segment. India is the second-largest 2-wheeler manufacturers in the world and also the largest motorcycle manufacturer in the World. Indian 2-wheeler segment includes a range of vehicles such as scooters- geared and ungeared, motorcycles and mopeds. In India there are 7 scooter manufacturers, 9 motorcycle manufacturers, 3 moped manufacturers. Bajaj Auto, Hero Honda, TVS, etc are the leading manufacturers. They have also dominated the global arena after Piaggio. Production in Indian automobile industry During cfinancial year 2005-06, Indian 2-wheeler production showed a growth of 16.40% over the
preceding year. 2-wheeler segment have been showing an upward production trend. At present, there are more than 7.6 million 2-wheeler, manufactured in Indian automobile sector.
Production trend of 2-wheelers in Indian automobile industry
Sales in Indian automobile industry- Domestic and ExportsDuring financial year 2005-06, 2-wheeler sales in Indian market showed a growth of 13.63%, with an increase in exports by more than 40%. In the same period, cumulative sales of 2-wheelers in Indian market amounted to 7.05 millions, with 0.5 million units exported by Indian manufacturers.Sales trend of 2-wheelers in Indian market
Export trend of 2-wheelers
Sales
Two- wheeler sales in the country have sky rocketed in the recent years, and the annual sales of motorcycles in India expected to cross the 10 million mark by 2010. The low penetration of two-wheelers in the country 31 two-wheelers per 1000 citizens (2004) leaves immense scope for the growth of the market. Overall the industry sales of two-wheelers have grown by 15% from 6.57 million in 2004/2005 to 7.57 million in 2005/2006. The buoyant Indian economy with a growth rate of around 8% per annum is further expected to fuel the growth of two wheelers in the country.
The share of motorcycles have increased over the years, while that of other two-wheelers like geared scooters, scooterettes and mopeds have shown a negative growth or remained stagnant. The two-wheelers have penetrated 7% of rural house hold and 24% of urban markets, thus it leaves an immense scope for the market to grow.Bajaj Auto one of the leading producers of automobiles in the country has been able to sell close to 2.3 million vehicles in 2005/2006, the sales of the company grew by almost 31%. The company registered a 32% growth in the sales of motorcycles much above the industry average of 19%. Bajaj Auto has emerged as a market leader in the entry level or price segment motorcycle with the Bajaj CT 100 accounting for nearly 40% of the market share. It also commands a 62% market share in the premium segment of motorcycles with products like the Bajaj Pulsar DTSI. TVS Motors which has lots of firsts to its credit in the two-wheeler sector in the country was able to sell 1.34 million units during the same period thus registering an overall growth of 15% from the previous year. In the motorcycle segment the company's growth in sales was in sync with the industry average. The introductions of motorcycles like the TVS Star range of motorcycles have helped the company in gaining a healthy market share in this segment. Where the company has emerged as a clear winner by holding onto its leadership position is in the moped segment.The company has posted a 10% growth in sales accounting for a market share of about 77%. The company also expects to arrest the decline of its one time best seller TVS Victor through its new variant Victor GLS. If this figures have daunted you the best is yet to come, the country leader in two-wheelers hero honda have crossed the three million mark during the year 2005/2006 which is a good few lakhs more than its nearest competitor Bajaj Auto. The company accounted for nearly 40% of then two-wheeler market. In the motorcycle segment the company has been able to attain a market share of about 50%. The segment in which hero honda has emerged as a clear winner is the Deluxe segment, which is the largest segment in the motorcycles category, with its flagship family of motorcycles splendor selling over 1.2 million units which is just a shade less than all the two wheelers sold by TVS during the same year. The motorcycle category is expected to see a further growth and according to industry experts it will drive all other category of two-wheelers to the periphery. The table below shows the over all trend of Industry Sales over a 5 year period. The figures are provided by the Society of automobile Manufactures Association (SIAM). Two-wheeler domestic sales trend Motorcycles
2001-02
2002-03
2003-04
2004-05
2005-06
2887194
3647493
4170445
4964753
5815417
Scooters
2001-02
2002-03
2003-04
2004-05
2005-06
908268
825648
886295
922428
908159
Mopeds
2001-02
2002-03
2003-04
2004-05
2005-06
408263
338985
307509
322584
332741
HERO HONDA
The joint venture between India's Hero Group and Honda Motor Company, Japan has not only created the world's single largest two wheeler company but also one of the most successful joint ventures worldwide.
During the 80s, Hero Honda became the first company in India to prove that it was possible to drive a vehicle without polluting the roads. The company introduced new generation motorcycles that set industry benchmarks for fuel thrift and low emission. A legendary 'Fill it - Shut it - Forget it' campaign captured the imagination of commuters across India, and Hero Honda sold millions of bikes purely on the commitment of increased mileage.
Over 20 million Hero Honda two wheelers tread Indian roads today. These are almost as many as the number of people in Finland, Ireland and Sweden put together!
Hero Honda has consistently grown at double digits since inception; and today, every second motorcycle sold in the country is a Hero Honda. Every 30 seconds, someone in India buys Hero Honda's top -selling motorcycle – Splendor. This festive season, the company sold half a million two wheelers in a single month—a feat unparalleled in global automotive history.
Hero Honda bikes currently roll out from its three globally benchmarked manufacturing facilities. Two of these are based at Dharuhera and Gurgaon in Haryana and the third state of the art manufacturing facility was inaugurated at Haridwar, Uttrakhand in April this year. These plants together are capable of producing out 4.4 million units per year.
Hero Honda's extensive sales and service network now spans over 3000 customer touch points. These comprise a mix of dealerships, service and spare points, spare parts stockiest and authorized representatives of dealers located across different geographies.
Hero Honda values its relationship with customers. Its unique CRM initiative - Hero Honda Passport Program, one of the largest programs of this kind in the world, has over 3 million members on its roster. The program has not only helped Hero Honda understand its customers and deliver value at different price points, but has also created a loyal community of brand ambassadors.
Having reached an unassailable pole position in the Indian two wheeler market, Hero Honda is constantly working towards consolidating its position in the market place. The company believes that changing demographic profile of India, increasing urbanization and the empowerment of rural India will add millions of new families to the economic mainstream. This would provide the growth ballast that would sustain Hero Honda in the years to come. As Brijmohan Lall Munjal, the Chairman, Hero Honda Motors succinctly points out, "We pioneered India's motorcycle industry, and it's our responsibility now to take the industry to the next level. We'll do all it takes to reach there.''
HERO HONDA'S MISSION
Hero Honda’s mission is to strive for synergy between technology, systems and human resources, to produce products and services that meet the quality, performance and price aspirations of its customers. At the same time maintain the highest standards of ethics and social responsibilities. This mission is what drives Hero Honda to new heights in excellence and helps the organization forge a unique and mutually beneficial relationship with all its stake holders.
HERO HONDA'S MANDATE
Hero Honda is a world leader because of its excellent manpower, proven management, extensive dealer network, efficient supply chain and world-class products with cutting edge technology from Honda Motor Company, Japan. The teamwork and commitment are manifested in the highest level of customer satisfaction, and this goes a long way towards reinforcing its leadership status.
Sunday, November 2, 2008
Webster's Collegiate Dictionary defines "ethics" as the "discipline dealing with what is good and bad and with moral duty and obligation," "a set of moral principles or value" or "a theory or system of moral values." Ethics assists individuals in deciding when an act is moral or immoral, right or wrong. Ethics can be grounded in natural law, religious tenets, parental and family influence, educational experiences, life experiences, and cultural and societal expectations.Ethics in business, or business ethics as it is often called, is the application of the discipline, principles, and theories of ethics to the organizational context. Business ethics have been defined as "principles and standards that guide behavior in the world of business." Business ethics is also a descriptive term for the field of academic study in which many scholars conduct research and in which undergraduate and graduate students are exposed to ethics theory and practice, usually through the case method of analysis.Ethical behavior in business is critical. When business firms are charged with infractions, and when employees of those firms come under legal investigation, there is a concern raised about moral behavior in business. Hence, the level of mutual trust, which is the foundation of our free-market economy, is threatened.Although ethics in business has been an issue for academics, practitioners, and governmental regulators for decades, some believe that unethical, immoral, and/or illegal behavior is widespread in the business world. Numerous scandals in the late 1990s and early 2000s seemed to add credence to the criticism of business ethics. Corporate executives of WorldCom, a giant in the telecommunications field, admitted fraud and misrepresentation in financial statements. WorldCom's former CEO went on trial for alleged crimes related to this accounting ethics scandal.A similar scandal engulfed Enron in the late 1990s and its former CEO, Ken Lay, also faced trial. Other notable ethical lapses were publicized involving ImClone, a biotechnological firm; Arthur Andersen, one of the largest and oldest public accounting firms; and Healthsouth, a large healthcare firm located in the southeast United States. These companies eventually suffered public humiliation, huge financial losses, and in some cases, bankruptcy or dissolution. The ethical and legal problems resulted in some corporate officials going to prison, many employees losing their jobs, and thousands of stockholders losing some or all of their savings invested in the firms' stock.Although the examples mentioned involved top management, huge sums of money, and thousands of stakeholders, business ethics is also concerned with the day-to-day ethical dilemmas faced by millions of workers at all levels of business enterprise. It is the awareness of and judgments made in ethical dilemmas by all that determines the overall level of ethics in business. Thus, the field of business ethics is concerned not only with financial and accounting irregularities involving billions of dollars, but all kinds of moral and ethical questions, large and small, faced by those who work in business organizations.
The discussion that follows is organized into three parts: (1) the major theories or "moral philosophies" that are applied to business ethics; (2) a well-established model of ethical decision-making in business; and (3) the factors that affect individual ethical decision-making in the business context.APPROACHES TO ETHICAL DECISION-MAKINGPhilosophers have studied and written about ethics for thousands of years. The moral philosophies or ethical "theories" that have been developed form the foundation for ethics in business. Table 1 shows some of the major ethical philosophies that are applied to business ethics. Each of the ethical philosophies is briefly considered in this section.TELEOLOGY.Teleological theories of ethics focus on the consequences caused by an action and are often referred to as "consequentalist" theories. By far the most common teleological theories are egoism and utilitarianism.EGOISM.Egoism defines right and wrong in terms of the consequences to one's self. Egoism is defined by self-interest. An egoist would weigh an ethical dilemma or issue in terms of how different courses of action would affect his or her physical, mental, or emotional well being. Thus, an egoist, when faced with a business decision, would tend to choose the course of action that he or she believes would best serve self-interest.Although it seems likely that egoism would potentially lead to unethical and/or illegal behavior, this philosophy of ethics is, to some degree, at the heart of a free-market economy. Since the time of political economist Adam Smith, advocates of a free market unencumbered by governmental regulation have argued that individuals, each pursuing their own self-interest, would actually benefit society at large.This point of view is notably espoused by the famous economist Milton Friedman, who suggested that the only moral obligation of business is to make a profit and obey the law. However, it should be noted that Smith, Friedman, and most others who advocate unregulated commerce, acknowledge that some restraints on individuals' selfish impulses are required.
Table 1Approaches to Ethics in BusinessAdapted from: Ferrell, Fraedrich, and Ferrell, 2002, p. 57.Teleological Actions are judged as ethical or unethical based on their results.Egoism Actions are judged as ethical or unethical based on the consequences to one's self. Actions that maximize self-interest are preferred.Utilitarianism Actions are judged as ethical or unethical based on the consequences to "others." Actions that maximize the "good" (create the greatest good for the greatest number) are preferred.Deontological Actions are judged as ethical or unethical based on the inherent rights of individual and the intentions of the actor. Individuals are to be treated as means and not ends. It is the action itself that must be judged and not its consequences.Justice Actions are judged as ethical or unethical based on the fairness shown to those affected. Fairness may be determined by distributive, procedural, and/or interactional means.Relativism Actions are judged as ethical or unethical based on subjective factors that may vary from individual to individual, group to group, and culture to culture.UTILITARIANISM.In the utilitarian approach to ethical reasoning, one emphasizes the utility, or the overall amount of good, that might be produced by an action or a decision. For example, companies decide to move their production facilities from one country to another. How much good is expected from the move? How much harm? If the good appears to outweigh the harm, the decision to move may be deemed an ethical one, by the utilitarian yardstick.This approach also encompasses what has been referred to as cost-benefit analysis. In this, the costs and benefits of a decision, a policy, or an action are compared. Sometimes these can be measured in economic, social, human, or even emotional terms. When all the costs are added and compared with the results, if the benefits outweigh the costs, then the action may be considered ethical.One fair criticism of this approach is that it is difficult to accurately measure costs and benefits. Another criticism is that the rights of those in the minority may be overlooked.Utilitarianism is like egoism in that it advocates judging actions by their consequences, but unlike egoism utilitarianism focuses on determining the course of action that will produce the greatest good for the greatest number of people. Thus, it is the ends that determine the morality of an action and not the action itself (or the intent of the actor).Utilitarianism is probably the dominant moral philosophy in business ethics. Utilitarianism is attractive to many business people, since the philosophy acknowledges that many actions result in good consequences for some, but bad consequences for others. This is certainly true of many decisions in business.
DEONTOLOGY.Deontological theories of ethics focus on (1) the rights of all individuals and (2) the intentions of the person(s) performing an action. Deontological theories differ substantially from utilitarian views on ethics and would not allow, for example, the harming of some individuals in order to help others. To the deontologist, each person must be treated with the same level of respect and no one should be treated as a means to an end.Deontology proposes that the principles of ethics are permanent and unchanging—and that adherence to these principles is at the heart of ethical behavior. Many deontologists believe that the rights of individuals are grounded in "natural law." Deontology is most closely associated with the German philosopher Immanuel Kant.JUSTICE.Justice-based theories of ethics concern the perceived fairness of actions. A just (ethical) action is one that treats all fairly and consistently in accord with ethical or legal standards. Justice theories of ethics are closely associated with the philosopher John Rawls.To determine the fairness of an action, one often appeals to distributive, procedural, and/or interactional rules. Distributive fairness is based on the outcomes received by individuals and their perceptions of these outcomes. Procedural fairness is based on the processes (policies, procedures, rules) employed to reach decisions. Individuals evaluate the fairness of these processes in addition to (or instead of) the outcomes received.Finally, interactional fairness relates to the personal treatment one receives in the administration of a decision-making process. Interpersonal fairness has to do with the respect and consideration shown in the administration of decisions. Informational fairness has to do with the explanations and accounts provided for the decisions made.The study of organizational justice has become a major field within organizational behavior. To date, however, there has not been a complete integration between justice perceptions and ethical theory.RELATIVISM.Teleological, utilitarian, and justice theories of ethics are all "universal" theories, in that they purport to advance principles of morality that are permanent and relatively enduring. Relativism states that there are no universal principles of ethics and that right and wrong must be determined by each individual or group.The relativist believes that standards of right and wrong change over time and are different across cultures—and does not accept that some ethical standards or values are superior to others. The concept of relativism can probably be summarized as "What's right for one may not be right for another," or "When in Rome, do as the Romans do."INDIVIDUAL ETHICAL DECISION-MAKINGThere are many approaches to the individual ethical decision-making process in business. However, one of the more common was developed by James Rest and has been called the four-step or four-stage model of individual ethical decision-making. Numerous scholars have applied this theory in the business context. The four steps include: ethical issue recognition, ethical (moral) judgment, ethical (moral) intent, and ethical (moral) behavior.ETHICAL ISSUE RECOGNITION.Before a person can apply any standards of ethical philosophy to an issue, he or she must first comprehend that the issue has an ethical component. This means that the ethical decision-making process must be "triggered" or set in motion by the awareness of an ethical dilemma. Some individuals are likely to be more sensitive to potential ethical problems than others. Numerous factors can affect whether someone recognizes an ethical issue; some of these factors are discussed in the next section.ETHICAL (MORAL) JUDGMENT.If an individual is confronted with a situation or issue that he or she recognizes as having an ethical component or posing an ethical dilemma, the individual will probably form some overall impression or judgment about the rightness or wrongness of the issue. The individual may reach this judgment in a variety of ways, as noted in the earlier section on ethical philosophy.ETHICAL (MORAL) INTENT.Once an individual reaches an ethical judgment about a situation or issue, the next stage in the decision-making process is to form a behavioral intent. That is, the individual decides what he or she will do (or not do) in regard to the perceived ethical dilemma.According to research, ethical judgments are a strong predictor of behavioral intent. However, individuals do not always form intentions to behave that are in accord with their judgments, as various situational factors may act to influence the individual otherwise.
ETHICAL (MORAL) BEHAVIOR.The final stage in the four-step model of ethical decision-making is to engage in some behavior in regard to the ethical dilemma. Research shows that behavioral intentions are the strongest predictor of actual behavior in general, and ethical behavior in particular. However, individuals do now always behave consistent with either their judgments or intentions in regard to ethical issues. This is particularly a problem in the business context, as peer group members, supervisors, and organizational culture may influence individuals to act in ways that are inconsistent with their own moral judgments and behavioral intentions.Some specific factors that influence the individual ethical decision-making process, as outlined above, are presented in the final section of this essay.
FACTORS AFFECTING ETHICAL DECISION-MAKINGIn general, there are three types of influences on ethical decision-making in business: (1) individual difference factors, (2) situational (organizational) factors, and (3) issue-related factors.INDIVIDUAL DIFFERENCE FACTORS.Individual difference factors are personal factors about an individual that may influence their sensitivity to ethical issues, their judgment about such issues, and their related behavior. Research has identified many personal characteristics that impact ethical decision-making. The individual difference factor that has received the most research support is "cognitive moral development."This framework, developed by Lawrence Kohlberg in the 1960s and extended by Kohlberg and other researchers in the subsequent years, helps to explain why different people make different evaluations when confronted with the same ethical issue. It posits that an individual's level of "moral development" affects their ethical issue recognition, judgment, behavioral intentions, and behavior.According to the theory, individuals' level of moral development passes through stages as they mature. Theoretically, there are three major levels of development. The lowest level of moral development is termed the "pre-conventional" level. At the two stages of this level, the individual typically will evaluate ethical issues in light of a desire to avoid punishment and/or seek personal reward. The pre-conventional level of moral development is usually associated with small children or adolescents.The middle level of development is called the "conventional" level. At the stages of the conventional level, the individual assesses ethical issues on the basis of the fairness to others and a desire to conform to societal rules and expectations. Thus, the individual looks outside him or herself to determine right and wrong. According to Kohlberg, most adults operate at the conventional level of moral reasoning.The highest stage of moral development is the "principled" level. The principled level, the individual is likely to apply principles (which may be utilitarian, deontological, or justice) to ethical issues in an attempt to resolve them. According to Kohlberg, a principled person looks inside him or herself and is less likely to be influenced by situational (organizational) expectations.The cognitive moral development framework is relevant to business ethics because it offers a powerful explanation of individual differences in ethical reasoning. Individuals at different levels of moral development are likely to think differently about ethical issues and resolve them differently.SITUATIONAL (ORGANIZATIONAL) FACTORS.Individuals' ethical issue recognition, judgment, and behavior are affected by contextual factors. In the business ethics context, the organizational factors that affect ethical decision-making include the work group, the supervisor, organizational policies and procedures, organizational codes of conduct, and the overall organizational culture. Each of these factors, individually and collectively, can cause individuals to reach different conclusions about ethical issues than they would have on their own. This section looks at one of these organizational factors, codes of conduct, in more detail.Codes of conduct are formal policies, procedures, and enforcement mechanisms that spell out the moral and ethical expectations of the organization. A key part of organizational codes of conduct are written ethics codes. Ethics codes are statements of the norms and beliefs of an organization. These norms and beliefs are generally proposed, discussed, and defined by the senior executives in the firm. Whatever process is used for their determination, the norms and beliefs are then disseminated throughout the firm.An example of a code item would be, "Employees of this company will not accept personal gifts with a monetary value over $25 in total from any business friend or associate, and they are expected to pay their full share of the costs for meals or other entertainment (concerts, the theater, sporting events, etc.) that have a value above $25 per person." Hosmer points out that the norms in an ethical code are generally expressed as a series of negative statements, for it is easier to list the things a person should not do than to be precise about the things a person should.Almost all large companies and many small companies have ethics codes. However, in and of themselves ethics codes are unlikely to influence individuals to be more ethical in the conduct of business. To be effective, ethics codes must be part of a value system that permeates the culture of the organization. Executives must display genuine commitment to the ideals expressed in the written code—if their behavior is inconsistent with the formal code, the code's effectiveness will be reduced considerably.At a minimum, the code of conduct must be specific to the ethical issues confronted in the particular industry or company. It should be the subject of ethics training that focuses on actual dilemmas likely to be faced by employees in the organization. The conduct code must contain communication mechanisms for the dissemination of the organizational ethical standards and for the reporting of perceived wrongdoing within the organization by employees.Organizations must also ensure that perceived ethical violations are adequately investigated and that wrongdoing is punished. Research suggests that unless ethical behavior is rewarded and unethical behavior punished, that written codes of conduct are unlikely to be effective.ISSUE-RELATED FACTORS.Conceptual research by Thomas Jones in the 1990s and subsequent empirical studies suggest that ethical issues in business must have a certain level of "moral intensity" before they will trigger ethical decision-making processes. Thus, individual and situational factors are unlikely to influence decision-making for issues considered by the individual to be minor.Certain characteristics of issues determine their moral intensity. In general, the research suggests that issues with more serious consequences are more likely to reach the threshold level of intensity. Likewise, issues that are deemed by a societal consensus to be ethical or unethical are more likely to trigger ethical decision-making processes.In summary, business ethics is an exceedingly complicated area, one that has contemporary significance for all business practitioners. There are, however, guidelines in place for effective ethical decision making. These all have their positive and negative sides, but taken together, they may assist the businessperson to steer toward the most ethical decision possible under a particular set of circumstances.
The discussion that follows is organized into three parts: (1) the major theories or "moral philosophies" that are applied to business ethics; (2) a well-established model of ethical decision-making in business; and (3) the factors that affect individual ethical decision-making in the business context.APPROACHES TO ETHICAL DECISION-MAKINGPhilosophers have studied and written about ethics for thousands of years. The moral philosophies or ethical "theories" that have been developed form the foundation for ethics in business. Table 1 shows some of the major ethical philosophies that are applied to business ethics. Each of the ethical philosophies is briefly considered in this section.TELEOLOGY.Teleological theories of ethics focus on the consequences caused by an action and are often referred to as "consequentalist" theories. By far the most common teleological theories are egoism and utilitarianism.EGOISM.Egoism defines right and wrong in terms of the consequences to one's self. Egoism is defined by self-interest. An egoist would weigh an ethical dilemma or issue in terms of how different courses of action would affect his or her physical, mental, or emotional well being. Thus, an egoist, when faced with a business decision, would tend to choose the course of action that he or she believes would best serve self-interest.Although it seems likely that egoism would potentially lead to unethical and/or illegal behavior, this philosophy of ethics is, to some degree, at the heart of a free-market economy. Since the time of political economist Adam Smith, advocates of a free market unencumbered by governmental regulation have argued that individuals, each pursuing their own self-interest, would actually benefit society at large.This point of view is notably espoused by the famous economist Milton Friedman, who suggested that the only moral obligation of business is to make a profit and obey the law. However, it should be noted that Smith, Friedman, and most others who advocate unregulated commerce, acknowledge that some restraints on individuals' selfish impulses are required.
Table 1Approaches to Ethics in BusinessAdapted from: Ferrell, Fraedrich, and Ferrell, 2002, p. 57.Teleological Actions are judged as ethical or unethical based on their results.Egoism Actions are judged as ethical or unethical based on the consequences to one's self. Actions that maximize self-interest are preferred.Utilitarianism Actions are judged as ethical or unethical based on the consequences to "others." Actions that maximize the "good" (create the greatest good for the greatest number) are preferred.Deontological Actions are judged as ethical or unethical based on the inherent rights of individual and the intentions of the actor. Individuals are to be treated as means and not ends. It is the action itself that must be judged and not its consequences.Justice Actions are judged as ethical or unethical based on the fairness shown to those affected. Fairness may be determined by distributive, procedural, and/or interactional means.Relativism Actions are judged as ethical or unethical based on subjective factors that may vary from individual to individual, group to group, and culture to culture.UTILITARIANISM.In the utilitarian approach to ethical reasoning, one emphasizes the utility, or the overall amount of good, that might be produced by an action or a decision. For example, companies decide to move their production facilities from one country to another. How much good is expected from the move? How much harm? If the good appears to outweigh the harm, the decision to move may be deemed an ethical one, by the utilitarian yardstick.This approach also encompasses what has been referred to as cost-benefit analysis. In this, the costs and benefits of a decision, a policy, or an action are compared. Sometimes these can be measured in economic, social, human, or even emotional terms. When all the costs are added and compared with the results, if the benefits outweigh the costs, then the action may be considered ethical.One fair criticism of this approach is that it is difficult to accurately measure costs and benefits. Another criticism is that the rights of those in the minority may be overlooked.Utilitarianism is like egoism in that it advocates judging actions by their consequences, but unlike egoism utilitarianism focuses on determining the course of action that will produce the greatest good for the greatest number of people. Thus, it is the ends that determine the morality of an action and not the action itself (or the intent of the actor).Utilitarianism is probably the dominant moral philosophy in business ethics. Utilitarianism is attractive to many business people, since the philosophy acknowledges that many actions result in good consequences for some, but bad consequences for others. This is certainly true of many decisions in business.
DEONTOLOGY.Deontological theories of ethics focus on (1) the rights of all individuals and (2) the intentions of the person(s) performing an action. Deontological theories differ substantially from utilitarian views on ethics and would not allow, for example, the harming of some individuals in order to help others. To the deontologist, each person must be treated with the same level of respect and no one should be treated as a means to an end.Deontology proposes that the principles of ethics are permanent and unchanging—and that adherence to these principles is at the heart of ethical behavior. Many deontologists believe that the rights of individuals are grounded in "natural law." Deontology is most closely associated with the German philosopher Immanuel Kant.JUSTICE.Justice-based theories of ethics concern the perceived fairness of actions. A just (ethical) action is one that treats all fairly and consistently in accord with ethical or legal standards. Justice theories of ethics are closely associated with the philosopher John Rawls.To determine the fairness of an action, one often appeals to distributive, procedural, and/or interactional rules. Distributive fairness is based on the outcomes received by individuals and their perceptions of these outcomes. Procedural fairness is based on the processes (policies, procedures, rules) employed to reach decisions. Individuals evaluate the fairness of these processes in addition to (or instead of) the outcomes received.Finally, interactional fairness relates to the personal treatment one receives in the administration of a decision-making process. Interpersonal fairness has to do with the respect and consideration shown in the administration of decisions. Informational fairness has to do with the explanations and accounts provided for the decisions made.The study of organizational justice has become a major field within organizational behavior. To date, however, there has not been a complete integration between justice perceptions and ethical theory.RELATIVISM.Teleological, utilitarian, and justice theories of ethics are all "universal" theories, in that they purport to advance principles of morality that are permanent and relatively enduring. Relativism states that there are no universal principles of ethics and that right and wrong must be determined by each individual or group.The relativist believes that standards of right and wrong change over time and are different across cultures—and does not accept that some ethical standards or values are superior to others. The concept of relativism can probably be summarized as "What's right for one may not be right for another," or "When in Rome, do as the Romans do."INDIVIDUAL ETHICAL DECISION-MAKINGThere are many approaches to the individual ethical decision-making process in business. However, one of the more common was developed by James Rest and has been called the four-step or four-stage model of individual ethical decision-making. Numerous scholars have applied this theory in the business context. The four steps include: ethical issue recognition, ethical (moral) judgment, ethical (moral) intent, and ethical (moral) behavior.ETHICAL ISSUE RECOGNITION.Before a person can apply any standards of ethical philosophy to an issue, he or she must first comprehend that the issue has an ethical component. This means that the ethical decision-making process must be "triggered" or set in motion by the awareness of an ethical dilemma. Some individuals are likely to be more sensitive to potential ethical problems than others. Numerous factors can affect whether someone recognizes an ethical issue; some of these factors are discussed in the next section.ETHICAL (MORAL) JUDGMENT.If an individual is confronted with a situation or issue that he or she recognizes as having an ethical component or posing an ethical dilemma, the individual will probably form some overall impression or judgment about the rightness or wrongness of the issue. The individual may reach this judgment in a variety of ways, as noted in the earlier section on ethical philosophy.ETHICAL (MORAL) INTENT.Once an individual reaches an ethical judgment about a situation or issue, the next stage in the decision-making process is to form a behavioral intent. That is, the individual decides what he or she will do (or not do) in regard to the perceived ethical dilemma.According to research, ethical judgments are a strong predictor of behavioral intent. However, individuals do not always form intentions to behave that are in accord with their judgments, as various situational factors may act to influence the individual otherwise.
ETHICAL (MORAL) BEHAVIOR.The final stage in the four-step model of ethical decision-making is to engage in some behavior in regard to the ethical dilemma. Research shows that behavioral intentions are the strongest predictor of actual behavior in general, and ethical behavior in particular. However, individuals do now always behave consistent with either their judgments or intentions in regard to ethical issues. This is particularly a problem in the business context, as peer group members, supervisors, and organizational culture may influence individuals to act in ways that are inconsistent with their own moral judgments and behavioral intentions.Some specific factors that influence the individual ethical decision-making process, as outlined above, are presented in the final section of this essay.
FACTORS AFFECTING ETHICAL DECISION-MAKINGIn general, there are three types of influences on ethical decision-making in business: (1) individual difference factors, (2) situational (organizational) factors, and (3) issue-related factors.INDIVIDUAL DIFFERENCE FACTORS.Individual difference factors are personal factors about an individual that may influence their sensitivity to ethical issues, their judgment about such issues, and their related behavior. Research has identified many personal characteristics that impact ethical decision-making. The individual difference factor that has received the most research support is "cognitive moral development."This framework, developed by Lawrence Kohlberg in the 1960s and extended by Kohlberg and other researchers in the subsequent years, helps to explain why different people make different evaluations when confronted with the same ethical issue. It posits that an individual's level of "moral development" affects their ethical issue recognition, judgment, behavioral intentions, and behavior.According to the theory, individuals' level of moral development passes through stages as they mature. Theoretically, there are three major levels of development. The lowest level of moral development is termed the "pre-conventional" level. At the two stages of this level, the individual typically will evaluate ethical issues in light of a desire to avoid punishment and/or seek personal reward. The pre-conventional level of moral development is usually associated with small children or adolescents.The middle level of development is called the "conventional" level. At the stages of the conventional level, the individual assesses ethical issues on the basis of the fairness to others and a desire to conform to societal rules and expectations. Thus, the individual looks outside him or herself to determine right and wrong. According to Kohlberg, most adults operate at the conventional level of moral reasoning.The highest stage of moral development is the "principled" level. The principled level, the individual is likely to apply principles (which may be utilitarian, deontological, or justice) to ethical issues in an attempt to resolve them. According to Kohlberg, a principled person looks inside him or herself and is less likely to be influenced by situational (organizational) expectations.The cognitive moral development framework is relevant to business ethics because it offers a powerful explanation of individual differences in ethical reasoning. Individuals at different levels of moral development are likely to think differently about ethical issues and resolve them differently.SITUATIONAL (ORGANIZATIONAL) FACTORS.Individuals' ethical issue recognition, judgment, and behavior are affected by contextual factors. In the business ethics context, the organizational factors that affect ethical decision-making include the work group, the supervisor, organizational policies and procedures, organizational codes of conduct, and the overall organizational culture. Each of these factors, individually and collectively, can cause individuals to reach different conclusions about ethical issues than they would have on their own. This section looks at one of these organizational factors, codes of conduct, in more detail.Codes of conduct are formal policies, procedures, and enforcement mechanisms that spell out the moral and ethical expectations of the organization. A key part of organizational codes of conduct are written ethics codes. Ethics codes are statements of the norms and beliefs of an organization. These norms and beliefs are generally proposed, discussed, and defined by the senior executives in the firm. Whatever process is used for their determination, the norms and beliefs are then disseminated throughout the firm.An example of a code item would be, "Employees of this company will not accept personal gifts with a monetary value over $25 in total from any business friend or associate, and they are expected to pay their full share of the costs for meals or other entertainment (concerts, the theater, sporting events, etc.) that have a value above $25 per person." Hosmer points out that the norms in an ethical code are generally expressed as a series of negative statements, for it is easier to list the things a person should not do than to be precise about the things a person should.Almost all large companies and many small companies have ethics codes. However, in and of themselves ethics codes are unlikely to influence individuals to be more ethical in the conduct of business. To be effective, ethics codes must be part of a value system that permeates the culture of the organization. Executives must display genuine commitment to the ideals expressed in the written code—if their behavior is inconsistent with the formal code, the code's effectiveness will be reduced considerably.At a minimum, the code of conduct must be specific to the ethical issues confronted in the particular industry or company. It should be the subject of ethics training that focuses on actual dilemmas likely to be faced by employees in the organization. The conduct code must contain communication mechanisms for the dissemination of the organizational ethical standards and for the reporting of perceived wrongdoing within the organization by employees.Organizations must also ensure that perceived ethical violations are adequately investigated and that wrongdoing is punished. Research suggests that unless ethical behavior is rewarded and unethical behavior punished, that written codes of conduct are unlikely to be effective.ISSUE-RELATED FACTORS.Conceptual research by Thomas Jones in the 1990s and subsequent empirical studies suggest that ethical issues in business must have a certain level of "moral intensity" before they will trigger ethical decision-making processes. Thus, individual and situational factors are unlikely to influence decision-making for issues considered by the individual to be minor.Certain characteristics of issues determine their moral intensity. In general, the research suggests that issues with more serious consequences are more likely to reach the threshold level of intensity. Likewise, issues that are deemed by a societal consensus to be ethical or unethical are more likely to trigger ethical decision-making processes.In summary, business ethics is an exceedingly complicated area, one that has contemporary significance for all business practitioners. There are, however, guidelines in place for effective ethical decision making. These all have their positive and negative sides, but taken together, they may assist the businessperson to steer toward the most ethical decision possible under a particular set of circumstances.
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