WALL STREET JOURNAL
Tuesday, August 10, 2004

Indian Scooters Zip To the Global Market; Bajaj Auto's Retro-Style Vehicles Are Subcontinent's Latest Products To Find Growth Abroad

By ERIC BELLMAN

SEATTLE -- Squeezed between the Jaguars, Mercedes and Porsches at Harry Khurana's used-car lot here is the latest hot import from India: scooters.

The chunky machines attract curious customers who like their retro look but haven't a clue about their manufacturer, India's Bajaj Auto Ltd. "They think it's like Baja, California," says Mr. Khurana, the owner of Maharaja Motors. "I have to tell them, 'No, it rhymes with garage.' "

Bajaj is the world's biggest two-wheeled-vehicle maker and one of India's biggest companies, producing more than 1.5 million scooters, motorcycles and three-wheeled auto-rickshaws a year. Still, few people outside India have heard of it.

Now that is changing. In the past year or so, exports have become an important revenue generator for Bajaj as the company's push to peddle scooters everywhere from Manila to Miami begins to pay off. Exports are expected to contribute about 15% of Bajaj's sales in the financial year ending March 31 -- up from less than 5% in 2002. With a 66% surge in exports last year, Bajaj's sales climbed 17% to 53 billion rupees ($1.15 billion), helping lift profits 36% to seven billion rupees.

"For the last 30-odd years, our focus has been primarily domestic," says Sanjiv Bajaj, executive director at Bajaj's Pune headquarters, in western India. "Then, we realized that the low-cost model which is used by the information-technology industry to promote exports is also applicable to our business."

Helped by the newfound success abroad, Bajaj's stock price has more than quadrupled in the past three years to about 830 rupees a share on the Bombay stock exchange.

Bajaj is only the latest old-school Indian company to discover that the subcontinent has more to offer the world than the services of its inexpensive engineers and telemarketers. Tata Motors Ltd. is exporting its Indian-designed and made cars all over the world. International auto makers, such as DaimlerChrysler AG and Toyota Motor Corp., have been buying crankshafts, steering wheels and other parts from Indian manufacturers such as Bharat Forge and Motor Industries Co.

And Swedish white-goods maker Electrolux AB said it would buy $300 million of components from Indian companies in the next three years; the supplies would cover products ranging from gardening tools to chainsaws. "India has the right capabilities, and businesses here are world-class," said Hans Straberg, Electrolux's chief executive.

"[Indian companies] understand that depending on domestic growth alone is not good, so they have to be global," says Jigar Shah, head of research at K.R. Choksey Shares & Securities in Bombay. "Their cost of production is very competitive and this has helped them."

A Bajaj scooter, for example, sells for about $2,700 in the U.S., while a refurbished Vespa with a similar old-style look and steel construction costs close to $4,000 at Mr. Khurana's shop in Seattle. A new Honda scooter, which packs a more powerful engine, costs close to $5,000.

While Indian families have been piling husband, wife and several kids on Bajaj scooters since the company started making them in 1960s, exports were never a big business. Domestic demand was more than Bajaj could meet while more than four decades of socialist-oriented governments strictly regulated India's economy. With limits on the amount of steel and rubber it could use, as well as the price it could charge, Bajaj sometimes had two-year waiting lists for new scooters.

Once deregulation began to permit Indian companies more freedom in the early 1990s, Bajaj was able to boost production to meet domestic demand. But it initially didn't have a product that consumers in other countries would buy. Its scooters were based on a 1960s design of the classic Vespa from Italy's Piaggio Group and were too noisy, polluting and unfashionable for more-developed markets. "The products we made in the past were not suitable for the other markets," acknowledges Sanjiv Bajaj. "We had a '60s design that remained basically unchanged."

Deregulation also meant more imports and tougher competition from rivals such as TVS Motor Co. and Hero Honda Motors Ltd., which is 26% owned by Japan's Honda Motor Co. Bajaj was forced to modernize: Through a link with Japan's Kawasaki Heavy Industries Ltd., the Indian company obtained the latest engine and chassis technology and spent millions retooling its factories, redesigning its scooters and adding motorcycles to its product line.

Then Bajaj began targeting foreign markets. It opened its first sales division abroad last year in Dubai to promote sales in the Middle East. This year, Bajaj started selling its vehicles through Kawasaki's dealership networks in Asia and plans to open a factory in Indonesia. Next year, Bajaj intends to add another factory in Brazil.

The new strategy has lifted exports more than 50% a year for the past two years. This year, Bajaj aims to export about 200,000 vehicles, and in the next three years, it hopes to increase exports to more than 500,000. "For the company to become strong, more growth must come from exports," Mr. Bajaj says.

Bajaj's arrival in the U.S. follows marketing successes in Asia, the Middle East and Latin America. But the U.S. market has been tougher to crack, says Al Kolvites, president of Bajaj U.S.A., the California-based distributor for Bajaj. It took him two years and more than $1 million to build a network of dealers and make sure Bajaj vehicles met all the U.S. safety and pollution requirements.

Bajaj sales have been increasing steadily, but still account for less than 5% of the 50,000-unit annual U.S. scooter market, which is dominated by Honda and inexpensive 50cc machines from China. In June, Mr. Kolvites started selling $6,500 three-wheeled Bajaj vehicles that are used as taxis in many cities in India. They have been popular with small-business owners who are looking for unique delivery vehicles, he says.

Still, Bajaj has something to learn about tailoring products for other markets. Mr. Kolvites says he could sell four times as many scooters in the U.S. if they had automatic transmissions. "Customers love the retro styling, but once they find out that they have to shift, they say, 'I can't do it,' " he says.