As Japan’s surviving manufacturers are well aware, China is the world’s largest motorcycle market, followed by India in second place and Indonesia in third place. Japanese firms have been making inroads into Asia for many years, in terms of both sales and local manufacturing. From the Suzuki Motor Company’s first overseas motorcycle assembly plant in Thailand in 1967, the manufacturing web of the Big Four (Honda, Suzuki, Yamaha & Kawasaki) makers has spread to developing countries throughout Asia.
The Honda Motor Company entered the lucrative Indian market in 1984 through a joint venture with a local producer, thus forming Hero Honda Motors, Ltd. To date, the New Delhi-based firm has created 2,400 customer “touch points” comprising a host of dealers, service centres, and parts shops throughout urban and rural India. Driven by this well-informed effort to stay connected to its customer base, Hero Honda has been the world’s leading motorcycle manufacturer since 2001. In that year alone it produced 1 million motorcycles – a figure that boosted its total sales history to 5 million units.
The firm’s sales soon doubled to 10 million units by 2004, and in July 2006, pleased with its 48 percent share of the Indian motorcycle market, Honda announced that it would invest an additional US$650 million in a new subsidiary company to expand its production of both motorcycles and automobiles. In a press release, Honda announced that it expected its share in the Indian motorcycle market to reach 7 million to 7.5 million out of a total 12 million units annually.
Faced by such a manufacturing juggernaut, India’s second-largest motorcycle producer, Bajaj, has opted to pursue the world’s third-largest market, Indonesia. Although sales in Indonesia jumped from roughly 1 million units in 2000 to over 5.1 million in 2006, the country now has just one motorcycle for every seven people – compared to one in four people in neighbouring countries. Bajaj therefore sees serious potential in Indonesia and, despite a recent market slump due to inflation and rising interest rates, the company announced in 2006 that it expected to sell 100,000 motorcycles there in its first two years. The Honda, Yamaha, and Suzuki motor companies all have production facilities in Indonesia, however, so Japan’s top producers continue, for the moment, to maintain a greater reach than their Asian rivals.
In the long term, the country with perhaps the greatest manufacturing potential is China. Already by the year 2000, Chinese motorcycle manufacturers had an annual production capacity of over 20 million units, even though the country’s domestic sales then totalled approximately 11 million units per year. Domestic sales are limited by China’s municipal governments, and motorcycle usage and sales are banned in major cities in order to curb traffic congestion, noise pollution, and exhaust emissions. Consequently, China’s many motorcycle producers have been forced to pursue aggressive export strategies – particularly to large developing countries like Indonesia, Vietnam, Argentina, and Brazil. Chinese makers have been less successful in India, Thailand, Malaysia, and the Philippines, however, because those countries’ governments fear that inexpensive (and often illegally copied) Chinese imports will damage their domestic motorcycle industries.
In China itself, Honda Cub - type motorcycles are not as popular as scooter and sport models, but due to the popularity of the Cub type in Southeast Asia, particularly in Indonesia and Vietnam, most exports from China are illegal copies of Japanese Cub-type models. In 2001, Indonesia granted import licences to eighty-seven new motorcycle brands, fifty-seven of which came from China. The quality of these Chinese exports, however, was often very poor.
In a 2001 report, the president of the Association of Motorcycle Industries of Indonesia, Ridwan Gunawan, highlights an important parallel between the development of China’s motorcycle manufacturers and Japan’s postwar motorcycle industry. Gunawan points out that many Chinese motorcycle manufacturers were once government-owned defence companies that produced arms and materiel for China’s military. Over time, many became redundant and therefore converted their operations into vehicle and particularly motorcycle production facilities. Their initial investment cost was low due to their ready supplies of production material, machinery, and trained technicians, and they shortened development time by obtaining licences and forming joint ventures with Japanese manufacturers. But many of these Chinese firms’ local partners later copied those Japanese models without entering into any licensing arrangement with the Japanese patent and design owners.
Thus while the Japanese motorcycle and scooter designs entered the Chinese manufacturing network legally, their illegal replication by unlicensed firms expanded the volume of production tremendously.
The Japan Times reported in 2002 that in addition to China’s 140 licensed motorcycle manufacturers, as many as 400 unlicensed makers were in operation. The article cited a survey by the Beijing office of the Japan External Trade Organization (JETRO), which found that roughly 90 percent of the 1,300 motorcycle models with engines measuring 125 cc or less sold in China in 2000 were copies of Japanese models. JETRO continues to press China’s government on the issue of the illegal copying of motorcycle designs and their various component patents, but Chinese manufacturers are merely speeding up the product development process. This is precisely what the Japanese firms Fuji and Mitsubishi did in 1946 when they copied American designs to produce their Rabbit and Silver Pigeon scooters, respectively.
Nevertheless, the products issued by China’s unlicensed firms are often inferior to Japanese designs because the firms lack the requisite technical skills to manufacture the components correctly; they often incorporate inferior emission- and noise-control devices; and they use locally made materials and machine tools, some of which do not meet the minimum quality standards demanded by licensing agreements. Despite their lower quality, both legal and illegal Chinese motorcycles appeal to consumers in Indonesia and other parts of Southeast Asia, where they are sold less expensively than domestically produced models. Although Gunawan notes that competition from imports is positive, giving consumers more choice and stimulating domestic industry, illegal import practices such as under-invoicing and tariff-avoidance cheat the government and undermine the competitiveness of domestic producers. China’s entry into the World Trade Organization in 2001 may well obligate its manufacturers to follow rules against intellectualproperty rights violations, but in reality only tougher import regulations and smarter consumer behaviour in other regions will affect the bottom lines of unlicensed Chinese motorcycle makers.
On this front, there is hope for licensed manufacturing. In May 2007, George Lin, the president of the Taiwanese motorcycle firm Taiwan Golden Bee, said that although China’s domestic motorcycle industry is still home to dozens of makers and sellers of low-quality, low-cost, copied products who provide no after-service, consumers in neighbouring countries are becoming savvier. Lin said,
"Several years ago, international buyers were very much attracted to China’s low-price motorcycles and parts, but now users of these ‘Made in China’ products have been scared off by their poor quality and durability."
As a result, noted Lin, most of the importers of Chinese motorcycles, especially in developing countries, have closed down. This leaves competing regional firms like Taiwan Golden Bee in a good position to follow the model set forth by Japanese manufacturers in the 1950s and 1960s. Lin explained:
" Japan offers a good example for us; motorcycle makers there stayed competitive despite increasing production costs by taking the lead in the upper-end and larger-displacement segment with unmatched design, development, and cost-control capabilities, and with the introduction of high-end, high-quality products that rivals in Europe and the United States were not producing. Our manufacturers have equally good competitiveness, and they can make the most of the small-volume, large-variety business model. Our motorcycle makers should take aim at their Japanese rivals and not get mired in segments of the industry that can easily be occupied by price-cutting rivals in emerging countries, especially China."
As Lin points out, Japanese firms were forced to stay competitive by investing continually in new designs and manufacturing systems and taking full advantage of economies of scale. Japan may well have begun its initial postwar boom in scooter and motorcycle production through copying foreign designs, but that is not what kept its industry growing and advancing. Copying alone is a technological dead end that will turn only short-term profits, and firms that rely solely upon copying will ultimately fall by the wayside just as they did in Japan during the 1950s and 1960s.
The pattern of explosive growth and rapid contraction of Japan’s motorcycle industry will ultimately play out once more in China, where the illegal copying of licensed designs by inferior firms will eventually fail to generate significant or reliable returns. Furthermore, Japan’s industrial development is not the only pattern that should be studied as a model for developing nations undergoing rapid motorization: Japan’s comprehensive efforts since 1970 to combat road accidents and fatalities could be usefully applied in developing regions throughout South, East, and Southeast Asia.