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Bajaj Auto Ltd. 593-097

Strategic Options for Growth

Bajaj wondered how focused his company should remain in the future. Since the late 1960s many Indian companies with the financial resources to do so had diversified into other industries. A few BAL executives believed that, given the strength of competitors in the two-wheeler market, BAL would do better to invest in other Indian consumer goods markets and focus on the future economic and industrial development of India. Other BAL executives thought that the company should diversify geographically by developing its export markets further for both two- and three-wheeler products. A third group of executives cautioned that BAL would need to focus all its resources on protecting the company's current share of the Indian two- and three-wheeler market.

BAL executives were considering three options for international markets. First, BAL could remain focused on the domestic market and export only on an opportunistic basis. Second, BAL could pursue exports in developing countries that would require minimal adaptation of the current product line. Third, BAL could try to promote exports to developed countries, initially focusing on the lower end of the moped market in Europe.

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593-097 8ajaj Auto Ltd.

Exhibit 1 BAL Income Statements: 1986-1996

Year End 31 March 1986 1988 1990 1992 1994E 1996E

Sales (Rs. million) 4,202 4,997 10,095 12,108 17,391 23,362

Two-wheelers 3,308 3,780 7,849 9,396 14,022 18,990 Three-wheelers 742 1,023 1,929 2,181 2,800 3,734 Spare parts 152 194 317 531 569 638

Sales (OOOs units) 467 510 805 809 1,054 1,182

Two-wheelers 429 460 731 739 975 1,094 Scooters 387 405 641 587 678 748 Motorcycles 42 55 90 117 181 207 Mopeds 0 0 0 34 116 139 Three-wheelers 38 50 74 70 79 88

Average Sales Price (Rs.)

Two-wheelers 7,709 8,212 10,745 12,721 14,388 17,367 Three-wheelers 19,405 20,645 26,036 31,200 35,232 42,630

Operating expenditures 3,415 4,562 8,766 10,788 15,878 21,176

Operating profit 787 435 1,329 1,320 1,513 2,186

Net profit after depreciation, interest and taxes 297 293 650 447 831 1,520

Source: Company records.

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Baja Auto Ltd.

Exhibit 2 Examples of BAL Two-Wheeler Vehicles

SUPER

SU N NY

KB100RTZ

593-097

CHETAK

M - 8 0 MOTORCYCLE

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593-097 8ajaj Auto Ltd.

Exhibit 3 Examples of BAL Three-Wheeler Vehicles

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Bajaj Auto Ltd. 593-097

Exhibit 4 Competitor Market Shares by Product Type in India: 1985-1992

1985 1986 1987 1988 1989 1990 1991 1992

SCOOTERS Total8ajaj 78 83 69 73 73 73 77 74

Cub 8 11 13 9 7 6 5 2.5 Super 34 32 21 26 27 23 22 28 Super FE NA NA NA NA NA NA 1 Chetak 21 25 21 27 28 36 36 41.5 Stride NA NA NA NA NA NA 0 2 MSL Priya 15 15 14 11 11 8 13 DIS

Total Others 22 17 31 27 27 27 23 25 Kinetic Honda 2 4 5 6 7 8 11 14 LML Vespa 17 10 21 17 17 17 11 11 Others 3 3 5 4 3 2 1 0

MOTORCYCLES Total8ajaj 14.5 15 20 20.5 21 26 27.5 28

M-80 14 8 12.5 12 12 16 19 19 Kawasaki RTZ 0.5 7 7.5 8.5 9 10 6 2 Kawasaki 4S NA NA NA NA NA NA 2.5 7

Total Others 85.5 85 79 79.5 79 74 72.5 72 Escorts RX 1 00 6.5 12 12 12 14 14.5 15 13 Escorts Radjoot 25 24 22 23 24 18.5 12.5 13 TVS Suzuki 20 15 14 13 9 8 8 8 Hero Honda 20 20 23 23 23 26 31 33 Enfield 8 9 6 6 6 6 6 4.5 Jawa-Yezdi 6 5 2 2.5 3 1 0 0.5

MOPEDS 8ajaj

Sunny NA NA NA NA NA NA 8 14 Total Others 100 100 100 100 100 100 92 86 Kinetic 46 41 51 55 50 45 35 32 TVS 33 38 44 41 31 28 33 31 Avanti 3 5 5 4 4 8 4 2 Hero 14 12 0 0 14 17 18 19 Enfield 4 4 0 0 1 2 2 2

BAJAJ TOTAL Two-wheeler 40 40 36 41 42 43 46 46.5 Three-wheeler 80 81 83 87 89 89 91 90

Source: Company records.

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593-097 8ajaj Auto Ltd.

Exhibit 5 Advertising Objectives and Television Commercial Copy Strategies for BAL Product Line: 1992

SCOOTERS

Objectives Increase awareness of dominant leadership position. Create demand in and expand rural! semi-urban markets.

Copy Strategies

1. Depict slice-of-life scenes throughout India, including all age groups, with the slogan: "This is my earth. The destiny of Bajaj and India are interwoven. Bajaj is India and India is Bajaj. Past and present."

2. A child asks his father, who comes to pick him up from school, why they don't have a scooter when all his friends' fathers do. The next day the father picks up his son from school on a Bajaj scooter.

3. The Bajaj Cub is positioned as a value-for-money product. A trader, renowned for being very careful with his money, explains his purchase of a Bajaj Cub: "I know what money means. I'm tight-fisted and Bajaj is value for money."

4. A wife scolds her husband for buying a Bajaj scooter without her advice. When the husband explains the benefits of the product, she tells him: "You've done the right thing, hand me the scooter keys."

MOTORCYCLES

Objectives Create strong product positions: M-80 as a rugged, low-cost vehicle for semi-urban/rural markets; Kawasaki 4S as highly fuel efficient with good driveability.

Copy Strategies M-80 commercials carry the slogan: "The tough one for the road." They use two characters from a popular television detective series in a variety of dangerous/criminal-chasing situations.

MOPEDS

Objectives Create a strong position for Sunny with teenagers as a stylish first-vehicle purchase.

Copy Strategies Commercials are based on youth love scenes and depict brief romantic stories.

Source: Company records.

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Bajaj Auto Ltd. 593-097

Exhibit 6 BAL Print Advertisements

WHY YOU JUST CAN'T BEAT A

BAJAJ

TERRIFIC PICK- UP Getting 80 km per litre no longer means compromising on pick-up. .. Presenting the lour-stroke

Kawasaki 4 S. " With a verticolly mounted,

Why ride anything less ?

Freedom 01 lost SpeCIQlliCenCes for sixteen year aidS

The Sunny tokes you whe rever you wont, whenever you want,

NO GEARS

SPARE WHEH

EASY KICK START

lOCKAl lE STORAGE SPACE

paWUfU l HEADLIGHTS

HIGH MIlEAGE

ATTRACTIVE PRICE

AKUR OI. PUNE411035

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593-097 8ajaj Auto Ltd.

Exhibit 7 Retail Prices and Dealer Profit Margins by Product: 1992 (rupees)

SCOOTERS

8ajaj Chetak Super FE Stride Cub

Kinetic-Honda

LML NV Special T5 Special

MOTORCYCLES

8ajaj Kawasaki RTZ Kawasaki 4S 8ajaj M-80

Escorts Yamaha RX 100 Radjoot

Hero Honda Candy SS Candy DLX Sleek

TVS-Suzuki AX. 100 Supra Samurai

MOPEDS

8ajaj Sunny

Kinetic Luna Super Luna Magnum

Hero Puch

TVS XL Champ

Source: Company records.

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Retail Price (Rs.) Dealer Profit Margin

20,720 650 20,050 650 21,480 650 18,900 650

25,818 1,000

22,349 775 24,027 850

32,150 1,000 33,950 1,100 16,200 550

35,058 1,055 25,157 835

34,354 1,130 33,331 1,130 34,821 1,130

32,800 1,400 24,061 1,400 33,976 1,400

11,700 350

10,232 650 11,335 650 15,212 450

10,151 325 11,221 450

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Bajaj Auto Ltd.

Exhibit 8 Principal Terms of BAL Foreign Distributorship Agreements: 1992

• The distributor may not carry competing products.

• BAL vehicles can be sold only within the distributor's specified territory / country.

• All products must be sold under the Bajaj brand name.

• Marketing and advertising expenses are to be borne by the distributor.

• The distributor should establish showrooms and service stations conforming to BAL standards in the main towns within its territory.

• The distributor may appoint sub dealers and authorized workshops for product repairs.

• Renewal of the appointment of the distributor is not automatic.

Source: Company records.

593-097

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593-097 Bajaj Auto Ltd.

Exhibit 9 BAL Unit Exports by Country and Product Line: 1992

Total Revenues Scooters Three-Wheelers Total Units (Rs. ODDs)

EUROPE Cyprus 2 0 0 2 17 France 0 0 0 0 0 Greece 30 29 36 95 1,775 Italy 18 0 0 18 261 Malta 18 8 0 26 342 Netherlands 3 0 1 4 55 Poland 20 3 34 57 1,667 Sweden 4 0 0 4 43 Turkey 1,100 0 0 1,100 14,072 United Kingdom 0 2 0 2 24 West Germany 666 0 0 666 6,540

Total 1,861 42 71 1,974 24,796

ASIA Bangladesh 136 200 1,858 2,194 37,608 Japan 6 0 1 7 94 Malaysia 0 0 1 1 37 Philippines 0 0 160 160 3,381 Sri Lanka 131 779 2,643 3,553 71,842 Singapore 6 44 0 50 1,074 Thailand 610 0 0 610 7,248 Vietnam 1 0 0 1 11

Total 890 1,023 4,663 6,576 121,295

MIDDLE EAST Bahrain 22 10 4 36 592 Dubai 5 70 0 75 1,166 Egypt 500 0 0 500 6,000 Iran 2 1 1 4 45 Saudi Arabia 0 0 1 1 32 Kuwait 48 14 69 131 3,251 Lebanon 18 6 0 24 330 Oman 26 15 8 49 855

Total 621 116 83 820 12,271

LATIN AMERICA Argentina 1,128 1,021 6 2,155 35,520 Belize 4 2 4 10 176 Chile 0 0 0 0 0 Colombia 6 4 0 10 134 Mexico 1,122 1,299 252 2,673 41,000 Paraguay 23 101 0 124 1,907 Peru 94 0 612 706 23,807 Venezuela 147 0 0 147 1,954

Total 2,524 2,427 874 5,825 104,498

AFRICA AND OTHER Angola 0 0 191 191 5,064 Benin 0 2 0 2 24 P.N. Guinea 8 0 3 11 212 Kenya 0 0 3 3 115 Mauritius 24 64 0 88 1,447 New Zealand 0 0 0 0 0 Nigeria 69 0 5 74 1,111 Rwanda 2 4 4 10 251 Sierra Leone 6 6 10 22 521 Sudan 108 0 0 108 1,448 Tanzania 0 0 1 1 33 Uganda 42 7 0 49 700 Zambia 0 46 42 88 1,924

Total 259 129 259 647 12,850

TOTAL (All Regions} 6,155 3,737 5,950 15,842 275,710 Source: Company records.

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Bajaj Auto Ltd. 593-097

Exhibit 10 Two-Wheeler Unit Production and Sales by Country: 1981-1990

1981 1985 1990 Units (OOOs) Production Sales Production Sales Production % Sales %

Japan 7,413 3,062 4,536 2,096 2,807 27% 1,619 15% India 499 476 1,126 1,107 1,891 18 1,868 18 Taiwan 669 692 656 685 1,062 10 997 10 China 14 N/A 1,035 N/A 965 9 N/A N/A Italy 1,240 857 808 569 910 9 576 6 Thailand 305 284 229 202 434 4 522 5 Indonesia 503 678 227 230 409 4 415 4 Spain 188 186 168 110 385 4 430 4 Korea 124 126 171 71 283 3 254 2 Malaysia 174 170 182 159 220 2 294 3 U.S.A. 125 828 130 722 120 1 294 3 West Germany _1 ---.1l1 ---.2

WORLD TOTAL a 14,368 14,368 12,761 12,761 10,467 100% 10,467 100%

Source: Company records. aWorld total includes production and sales in countries in addition to those listed.

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593-097 Bajaj Auto Ltd.

Exhibit 11 The Bajaj Sunny and Piaggio Sfera

PIAGGIO SFERA

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Bajaj Auto Ltd. 593-097

Exhibit 12 Retail Prices of BAL and Competitor Vehicles in Mexico: 1992 (US$)

Manufacturer Product Retail Price

SCOOTERS

8ajaj Cub $1,037 Super 1,028 Chetak 1,083

Honda SA 50 1,282 SA 50 2M 1,340 AE R 100 1,544 Elite 80 1,923

Suzuki AX 100 1,784 AG 100 2,131 TS 185 2,268

Piaggio STD 150 1,807 LML 150 2,448

Yamaha Axis 90 2,070 Cygnus 2,800

MOTORCYCLES

8ajaj M-80 955 Kawasaki RTZ 1,449 Kawasaki 4S 1,632

Carabellaa Deluxe 1,555 STD 175 1,747

Yamaha RXZ 100 1,897 RXZ 135 2,436 DT 175 2,436

Kawasaki KE 100 1,916 KH 125 2,339 KV 175 2,804 GPZ 305 3,955

Honda CG 125 2,272 CT 125 2,535 C8250 3,088 SR 250 3,321

MOPEDS

8ajaj Sunny 744 Carabella Chispa-60 830

City 60 830 Runner 60 945

Yamaha PW50CC 1,150 MIN SH 50 1,174

Honda SA 50 1,282 SA 50 2 M 1,340 C 90 1,515

Suzuki AE 50 CC 1,418

Source: Company records. aA local manufacturer of two-wheelers.

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