Hero MotoCorp to Set-up Manufacturing Units in Bangladesh and Colombia

Hero MotoCorp, India's largest two-wheeler manufacturer, is currently facing a tough competition from erstwhile partner Honda and loosing market share to it. At the same time, the Indian marquee is expanding its horizons and widening its approach to some international markets like Africa, Latin America and ASEAN countries. According to Bussiness-Standard, Hero is serious about its international operations, and it is considering fully-fledged manufacturing operations in Bangladesh and Colombia (Latin America) by the end of this financial year. It will be Hero MotoCorp's first manufacturing operations abroad. Hero MotoCorp is already selling its bikes in Bangladesh and Colombia through completely knocked-down units (CKD) route.

Business-Standard reported that a person close to the development revealed, "Hero MotoCorp already has distribution partners in these two countries. The company is looking at expanding operations and setting up fully fledged manufacturing units in Colombia and Bangladesh by the end of the current financial year. There are plans to explore opportunities for assembly facilities in African countries such as Kenya and Nigeria later."

The market size and demand have always been the most significant factors to set up a local manufacturing plant, and Hero MotoCorp is confident for these two markets and wishes to expand its geographical reach by setting up manufacturing units there. A total of 6 lakh two-wheelers are sold in Colombia, while the number is around 2 lakh in Bangladesh. "Indian two-wheeler companies would, sooner or later, look at setting up manufacturing units in Latin American, African and Southeast Asian countries. There is a lot of potential in these markets. For exports, freight costs are added to product prices and without local bases, it would eventually become difficult for companies to remain competitive, in terms of product pricing," said Abdul Majeed, partner and leader (automotive practice), PricewaterhouseCoopers.

A Hero MotoCorp spokesperson said, "We do have plans to set up assembly units in our international markets, wherever it makes sound commercial logic. We already have CKD assembly operations in Bangladesh and Colombia, through distributors. We may also look at other markets to set up similar assembly operations." While, other Indian two-wheeler companies like Bajaj Auto, TVS Motors, Royal Enfield are exporting their vehicles for a long time now, Hero's partnership with Honda Motor Company resisted it to export product in International markets except Sri Lanka, Nepal, Bangladesh and Nepal, along with Colombia in Latin America.

Hero had also invested in its first off-shore investment subsidiary in the Netherlands. "The foreign arm would take care of our international operations, be it in expanding exports or in making investments in joint venture partnerships and strategic alliances. In certain countries, the duty structure is such that we need to maintain specified levels of local content in our products. In such cases, the off-shore subsidiary would help us make investments in setting up assembly units or manufacturing facilities," said Ravi Sud, chief financial officer, Hero MotoCorp.

Hero MotoCorp is also planning to start operations in US, Europe, Latin America and Southeast Asia. "If we need to import components from China, we may consider having a subsidiary in Hong Kong. We may also look at setting up a foreign company to expand our business in the US," Sud said. Hero MotoCorp is targeting its international business to 10 per cent of its total volumes by 2016-17, which currently stand at only 3 per cent with 1,61,043 units in 2012-13. Hero had already announced to scale up its operations to 30 countries through solo investments, joint venture alliances and strategic partnerships in two to three years.

Recently, Hero MotoCorp commenced exports to new markets in central and Latin America and Africa and the first consignment of two-wheelers has already been shipped to Peru, Latin America, El Salvador, Guatemala and Honduras in central America and Burkina Faso and Ivory Coast in Africa. Hero will sell its products in these markets through local distributors and channel partners, which have been appointed already and retail sales are likely to commence this quarter.

Source: Business-Standard