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Why the hell would Chinese people buy US product? And HOW would they buy it?

The Indians were worried about Chinese motorcycles undercutting them but the Chinese bikes never managed to sell. WHy? Low quality. Chinese people buy American because American means quality. The Asian mentality is to pay more money but to buy for life, the opposite of our buy and throw culture. So we can sell higher cost, higher quality goods:

Zen And The Art Of Engaging The Dragon The transformation from getting spooked about Chinese motorcycles flooding the Indian market to becoming blase about handling engine imports has taken three years. Then, the domestic two-wheeler industry was most fearful when the first consignment of low-cost 140 motorcycle kits from China landed on Indian shores and it clamoured for protection. Today, a leading domestic manufacturer is thinking of setting up an assembly facility in China by 2010! After securing some breathing space with tariff protection, domestic two-wheeler manufacturers started studying the rival’s practices and wondered whether low-cost components could be sourced from China. Now, of course, the domestic manufacturers are revved up to meet the dragon’s challenge — either in the form of fully built motorcycles or engine imports. India Inc’s sense of confidence in this regard is almost palpable. What accounts for this swift transformation? To some extent, India Inc’s fears were misplaced as the much-vaunted Chinese invasion didn’t materialise because of the domestic competition and the inability to set up a retail network. Reports indicate that the 12-odd Chinese manufacturers who appointed dealerships and announced plans to hit Indian roads, dropped from the radar altogether. Can anyone recollect any Chinese two-wheelers on Indian roads? More important was the detailed study by India Inc of the Chinese two-wheeler industry. Venu Srinivasan, TVS Motor chairman and managing director, pointed out that there were two sorts of manufacturers — one with collaborations with Japanese majors like Honda, Suzuki, Yamaha and Kawasaki, while a good many of the other sort came up during the last five years. Out of 460 manufacturers, 40 perhaps belong to the latter. According to a CII document, 10 large manufacturers out of the 460 control 70 per cent of the Chinese market, while 40 companies capture the remaining 30 per cent of the market, with the remaining 410 companies being component manufacturers. The market, indeed, is a huge one as the size of the fast growing market is eight million and exports are two million. The competition to India is from the 10 manufacturers with joint ventures plus the 40 companies who have hurt the market with their aggressive pricing. The 10 large companies, especially those with Japanese collaborations, are cost-based and not very different from their Indian counterparts. “These belong to the same cluster,” emphasised Mr Srinivasan. As for the latter sort, they mostly turn out low-cost, poor quality motorcycles with obsolete technology. Their selling price is not very different from material costs, thanks to opaque pricing mechanisms and handsome subsidies given by the Chinese government or local bodies. Clearly, India Inc was more worried about the latter sort who could flood the market with low-cost bikes. But, this threat didn’t come to pass as higher tariffs partly neutralised the Chinese cost advantage. However, the major factor of change was that the local manufacturers got their act together, acquired scale economies and developed models at extremely affordable prices to snuff out any possible Chinese threat. The three-year period was thus a watershed when domestic two-wheeler majors came of age. With prices as low as Rs 27,000 to Rs 31,000 for entry-level models turned out by Bajaj Auto Ltd and Hero Honda, the Chinese motorcycles weren’t price-competitive enough to impact the competition. With most domestic manufacturers implementing Japanese total quality management practices, lean manufacturing and so on, they were able to aggressively lower costs and selling prices of their models by 20 per cent over the last two years. It is not adequately appreciated that India’s market in motorcycles is one of the biggest in the world. Indian volumes are significant, with a few players even acquiring global scales. 80 per cent of the world’s two-wheeler sales is in Asia and India accounts for 25 per cent of the Asian market and is fast growing. The costs of entering such a market, where the domestic majors had already got their act together was, therefore, bound to be somewhat high for the Chinese manufacturers. The Chinese invasion therefore didn’t materialise, while India Inc’s confidence increased by leaps and bounds. Most of them have plans to set up assembly facilities in South-east Asia, including China by 2010. Clearly, scale economies underlie their global compulsions. “Without overseas experience, you cannot amortise your product development and R&D over larger volumes”, argued Mr Srinivasan in a recent article. An important fact about motorcycles is that its technology has got standardised and is available off-the-shelf. Indian motorcycle manufacturers have thus acquired savviness to source know-how even outside a particular collaboration or just pay for only what is required and adapt it to local requirements. Clearly, they have gone up the learning curve after having collaborated with the Japanese, with one of them being confident enough to even design a model indigenously. Not surprisingly, the Chinese read the writing on the wall. Motorcycle exports are not on, but they are now thinking of selling engines here. But is India Inc waiting with bated breath for such an offering? Hardly. Such engines do not provide a cost advantage for a host of reasons. While the Chinese are keen to sell 50 cc engines for $110, domestic manufacturers feel that there is a huge cost involved in assembling the entire motorcycle. A major misgiving is also that these engines don’t meet the existing pollution norms in India. If they are imported, catalytic converters and other parts have to be fitted, all of which add substantially to costs in an intensely competitive two-wheeler industry. There is also a sense that much of what is on offer is obsolete technology, while Indian two-wheeler manufacturers are gearing up to meet far more stringent emission norms. The upshot is that India Inc now has a renewed sense of confidence in engaging the Chinese dragon on the two-wheeler front — which is a far cry from the situation of being fearful about an invasion a few years ago. This sense of confidence has, of course, been based on competing in one of the world’s biggest two-wheeler markets and playing the volumes game even while paying attention to highest quality standards.