FEATURE-Honda strikes back at China motorbike copycats
Thursday September 12, 10:03 PM EDT
By Edwina Gibbs
TOKYO/HANOI, Sept 13 (Reuters) - Like most other Vietnamese, Hanoi-based English teacher Tran Bich Duyen relies on a Chinese-made motorcycle as her main means of transport.
And like many of her compatriots, Duyen, who rides a bike carrying the logo of Honda's latest model Wave Alpha, would prefer a real Honda -- if she could afford one.
"I'd change my bike to an original Honda if the right opportunity came along. Riding a Chinese-made motorcycle is not safe but it's cheap," she says.
In Vietnam and much of China, knockoffs of Japanese motorbikes rule the roads and from the mid-1990s until recently, copycat makers nearly overwhelmed Honda Motor Co (7267), the world's largest motorcycle producer, in two key growth markets.
In 1998, Honda commanded one-quarter of the Vietnamese market -- where its dominance a decade earlier saw the word Honda become a synonym for motorbike.
But in just two years, the flood of cheap copycat bikes was so great that the market expanded six-fold and Honda's share fell to less than 10 percent. The situation was just as bad in China.
"In a country with demand of 11 million motorbikes we had only four percent market share, even though we had three assembly companies," Yasuo Ikenoya, chief operating officer of Honda's motorcycle division, says of the late 1990s.
IF YOU CAN'T BEAT THEM
Aside from obvious trademark infringements such as use of the word "Hongda", defining a copy can be difficult. But Honda estimates 90 percent of motorbikes in China are similar to Japanese models. Of those, 80 percent look like Honda motorbikes.
While Honda and other Japanese bike makers have pursued lawsuits with some success, it is a long and tiring process, with the few victories making only a limited impact against an estimated 400 bike copycat manufacturers.
Honda's declining sales in China were also exacerbated by bans and limits on motorbikes in large metropolitan areas from 1997.
Now, however, Honda has set its sights on aggressive growth in Asia, diving back into the markets copycat manufacturers had so thoughtfully pioneered.
Its strategy: If you can't beat them, join them.
In late 2000, it linked hands with China's Hainan Sundiro Holding Co Ltd, a former maker of Honda knockoffs, and began churning out its own low-cost models.
Now it is targeting annual worldwide motorcycle sales of 11 million units in the business year to March 2005, a jump of five million from current levels, with most of that growth in Asia.
It's a goal that is not only crucial for its motorcycle division, which accounts for around 12 percent of overall revenues, but for Japan's second-largest automaker as a whole.
Honda began as a motorcycle maker and within the company the division is seen as its "advance guard" -- the one that breaks into developing markets first, building brand loyalty ahead of increased motorisation.
LESSONS LEARNT
Ikenoya says reclaiming Honda's place in the market has been a matter of learning lessons from copycat makers, reaping opportunities brought by China's entry into the World Trade Organisation and finally getting to know its customers.
An approach by Hainan Sundiro was key. A purely private company, it provided a refreshing change from Honda's other three assembly companies that were bureaucratic and partly state-owned, making it difficult for Honda to run the plants as it liked.
It also introduced Honda to some 585 of its suppliers, many of which were having a crisis of confidence as China moved to join the WTO and were eager to learn from the Japanese automaker.
By picking suppliers carefully and working with them to improve quality control resulting in fewer defective parts, Honda was able to halve its costs.
Learning what Chinese customers wanted also helped. Ikenoya admits that when copycat bikes first appeared, Honda officials made fun of the vehicles, believing superior quality would win the day.
But they soon found that at a third of the price, Chinese customers loved copycat bikes. That the machines often broke down did not matter. Customers, mainly living in rural areas, said they had the time to fix them.
Other research also yielded results. "We found out that the roads in China are so bad that riders can't go that fast," says Ikenoya. "They don't go any faster than 60 kilometres per hour."
Technical sophistication such as vibration control for faster speeds was abandoned for simpler designs.
Lessons learned in China were applied in Vietnam and in both countries, Honda's prices came down drastically.
The 100cc, four-stroke Wave Alpha, which also uses some Chinese parts, sells from $732 in Vietnam although it can go as high as $850 by the time the middleman takes his cut.
That's not cheap in a country where the average annual income is $400. But it's not too far above the average $600 a Chinese-made bike costs and is much more affordable than the Honda machine's predecessor, which sold for $1,333.
Sales have boomed. At a bike store in Hanoi, customers must wait several months for a Wave Alpha and Honda now expects its Vietnamese sales to more than double to around 400,000 units this year despite relatively flat overall demand.
Admittedly, roadbumps in the path to growth still exist with the Vietnamese government recently slapping import quotas on motorcycle parts, saying the vast numbers of bikes on the road threatened to overwhelm the transport system.
Still, Honda management holds out hopes of claiming half the market in five years' time.
Likewise in China demand outstrips supply and Honda, with seven percent market share in the last business year, is hoping to grab around a third of the market over the next five years. (Additional reporting by Hanoi bureau)
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