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Book Excerpt: Riding Through Turbulence And Success In India’s 1991 Liberalisation

For Hero Group, baby steps towards liberalisation had begun in 1983, when joint ventures in the two-wheeler sector were allowed.

A security guard walks past gas tanks sitting on racks at the Hero MotorCorp Ltd. manufacturing facility in Gurugram, India. (Photographer: Prashanth Vishwanathan/Bloomberg)
A security guard walks past gas tanks sitting on racks at the Hero MotorCorp Ltd. manufacturing facility in Gurugram, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Excerpted from The Making Of Hero - Four Brothers, Two Wheels And A Revolution That Shaped India, By Sunil Kant Munjal, with permission from Harper Collins India.

For us, baby steps towards liberalization had begun in 1983, when joint ventures in the two-wheeler sector were allowed. Post-reforms, the group entered a period of consolidation and growth. In 1991, we set up Hero Honda Finlease to finance two-wheeler purchases; in 1993 came Hero Exports, which would go on to become India’s largest exporter of bicycles, and Hero Financial Services.

The growth of consumerism in the 1990s matched the increase in purchasing power and along with the popularization of easy monthly instalments (EMIs), fuelled the motorcycle market. The fact that the public transport system was quite abysmal and bikes purchased in the 1980s now needed replacing, also buoyed sales. We had stolen a march on the competition with our four-stroke technology and introduced the Sleek in 1989 and the souped-up CD 100 SS, aimed at the rural and mofussil market in 1991.

In fact, Hero Honda opened up the rural market. Motorcycles offered greater comfort than small-wheeled scooters on rural terrain. Post-sales service infrastructure was gradually built up. From a 4:1 ratio between the urban and rural markets in 1990, it would be practically even by the end of the decade.

By the early 1990s, Majestic Auto became the largest exporter of mopeds in India. However, production constraints were bogging down the motorcycle business. My father was acutely conscious of the need for newer, technologically superior models. He couldn’t go back to the market with the same old thing, year after year. Once the fourstroke engine monopoly came to an end, the customer would have to be offered something else. The Hero Honda Splendor was launched in 1994 against the backdrop of this thinking and proved to be a gamechanger by the turn of the decade. Fortunately, by this time, the worst of the economic crisis was over.

By the early 1990s, Majestic Auto became the largest exporter of mopeds in India. However, production constraints were bogging down the motorcycle business. My father was acutely conscious of the need for newer, technologically superior models. He couldn’t go back to the market with the same old thing, year after year. Once the fourstroke engine monopoly came to an end, the customer would have to be offered something else. The Hero Honda Splendor was launched in 1994 against the backdrop of this thinking and proved to be a gamechanger by the turn of the decade. Fortunately, by this time, the worst of the economic crisis was over.

By the early 1990s, the rupee-yen exchange rate had somewhat stabilized and 90 per cent indigenization had been achieved. It would improve to 95 per cent by 1996, a record for a Honda plant overseas and probably for any automotive plant in the world. The beneficial effects of indigenization kicked in gradually. Integration of vendors into supply chain took time and this led to production constraints. However, the share price moved up as imports came down. In terms of CKD value, whereas a bike had ¥65,000 worth of imported parts in 1985, the figure had dropped to ¥7,800 in 1994.

In 1994 – the year that my father was honoured with the prestigious Businessman of the Year award by business magazine Business India – Honda reaffirmed its partnership with Hero for the next ten years. Much of the credit for the durability of this partnership goes to my father.

(Image courtesy: BloombergQuint) 
(Image courtesy: BloombergQuint) 

He and Pawan would hold an informal meeting with the two Honda senior executives stationed at the company headquarters every month, decisions would be taken and implemented before the next meeting. As he said, when asked about phases of difference and synergy: ‘Even in the toughest stages of decision-making in our joint venture, there were no strains and crucial strategic issues were resolved in a very congenial approach.’ (Pawan would later reveal that he had had a hard time negotiating with one particular representative of Honda.)

The uncertainty surrounding the renewal of the agreement with Honda, production constraints, inadequate number of models and the entry of other players with four-stroke variants, nevertheless, had taken a toll. For a brief period, Bajaj Auto overtook Hero Honda in terms of market share in 1995 and launched its KB 4S (four stroke) with the tongue-in-cheek tagline ‘Kyon Hero?’.

After the technical collaboration extension agreement, came a decisive turnaround, as Hero Honda initiated plans for expansion of its range of products and production capacity. Stricter emission norms from 1997 onwards ensured that our competitors had to withdraw their two-stroke motorcycles. This is where my father’s insistence during the launch to go in for the environment friendly four-stroke technology, instead of the relatively inexpensive two-stroke technology, turned out to be a masterstroke. The Yamaha RX-l00 to RX-132, Bajaj KB 100 to KB125, and TVS-Shogun were off the roads, leaving the field relatively clear for Hero Honda.

Annual production at Dharuhera had increased from 150,000 to 450,000 from 1994 to 1997. For this, my father’s mantra – get the best out of men, material, and machines and minimize waste – was singularly responsible. The cost of raw materials had gone up sharply in 1995, which was addressed by recycling scrap. Production processes were streamlined to minimize interruptions and inventory management upgraded.

The dealer network increased in tandem with sales. Starting with 120 dealerships in 1985, it expanded to 375 by 1998, about half of whom were former Hero Group dealers. A year earlier, we had opened a second Hero Honda plant in Gurgaon to further scale up production. It was inaugurated by Nobuhiko Kawamoto, the President of Honda Motors.

At around the same time, Hero Honda launched a whole new motorcycle, the Street, with great fanfare. On Honda’s insistence, it was launched on Bajaj Auto’s home turf, Pune! (My father always said it wasn’t a contest; the share of the two-wheeler pie didn’t matter, as long as companies grew the market and made profits.) Based on the Honda Dream, a worldwide hit, it signalled that all was well between Hero and Honda. The launch focused on rider comfort and was supported by a sharply increased ad-spend.

By 1997–98, Hero Honda Motors was back on top. Production figures climbed inexorably and passed the one-million mark in 2000– 01. The Passion was launched in 2001 and the best-selling CD Dawn in 2003, cementing Hero Honda’s leadership in two-wheelers.

Sunil Kant Munjal is the youngest son of Brijmohan Lall Munjal, founder of the Hero Group, and the chairman of Hero Enterprise.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.