The capital’s affluent and powerful frequently hobnob at the exclusive Delhi Golf Club where Pankaj Munjal, co-chairman and managing director of Hero Cycles, is a lifetime member. “I almost feel like I was brought up here,” he says of a passion for golf that has burned strong for years. He brings the same enthusiasm to this new role. Last May, Pankaj succeeded his father, O P Munjal, youngest of the four brothers who founded the company that has grown to become the world’s largest manufacturer of cycles. In less than a year as head of a company that’s now part of a much larger group, Pankaj Munjal has given a renewed, yuppier focus to the original cycle business.
“We have set up a facility at Denver to make special cycles for the US,” says Munjal. Other processes underway in this new foray has industry observers watching the legacy brand keenly. Kevin Lamar, the former president of Schwinn Cycles (taken over by Pacific Cycles in 2001), a leading bicycle manufacturer in the US now represents Hero Cycles in that country. The company has also registered with Walmart as a supplier. “It’s a rigorous and time-consuming process,” Munjal says. “They evaluate you over existing suppliers.” Even more significantly, it’s a clear shift in vision for a company that has been focused on domestic and developing markets for some years now.
The journey of the ₹1,600-crore Hero Cycles is the stuff of legend. Today, every second bicycle in the country is a Hero cycle and the company manufactures nearly 20,000 cycles daily. Millions of bicycles have been exported to more than 80 countries in the five decades after the first Hero bicycle left the Indian shore in 1963. Another not-so-well-known fact is that every entity in the $5-billion Hero Group owes its existence to the cycle business.
No reverse gear
In 1944, Brij Mohan Munjal was working in an Army ordinance factory in Kamalia (now in Pakistan). He was barely 20 years old. When Partition appeared imminent, Brij Mohan along with his brothers moved to Amritsar and began supplying components to cycle manufacturers in and around the city. As the situation turned worse post-partition, the Munjals shifted again. Ludhiana, 142 km away, was an obvious choice — it already had some bicycle and textile units. But Ludhiana could not contain their ambitions for long. By the early 1950s, the Munjal brothers were supplying bicycle components throughout India.
Soon enough, they began manufacturing handlebars, chains and front forks. Two years later, in 1956, the Punjab government issued 12 licences for setting up a large-scale bicycle manufacturing facility in Ludhiana. It was a defining moment for the Munjals. They grabbed a licence and capital aid worth ₹6 lakh from the government, pooling their own resources to set up a plant on Ludhiana’s GT Road. The factory made 26 cycles a day. They were cheaper and sturdier, and they challenged Hind, Raleigh and Atlas, all established peers, out of their complacency. A Hero was born.
Back in 1960s, exports made little sense to most businesses. But India was not enough for the Munjals. In 1963, Hero sent its first consignment of bicycles to Indonesia. China’s overarching domination of the bicycle manufacturing sector was still a decade or two away. By 1976, Hero had overtaken Atlas, then the largest maker of bicycles. In 1979, the company reached the 1 million production mark and, in 1986, surpassed the two largest cycle makers of the era, American giants Huffy and Murray. The new world Hero arrived at a time when there were very few world-class Indian companies.
In the 1990s, Hero Exports tied up with foreign bicycle makers to reach markets like Europe and the US with high-end bicycles. By the turn of the millennium, Hero was reportedly earning 15% of its sales turnover from exports.
Enter the dragon
The Chinese stormed the global bicycle markets, both high and low-end, from 2000 onwards. Most Indian bicycle makers either took a dent in their export revenues or witnessed slow export growth. Hero re-oriented its focus to the domestic market during this period but now, with the Chinese currency getting stronger and their competitiveness being threatened by increasing input and labour costs, Hero Cycles has a good opportunity to expand in European markets given that Hero already sells in countries as diverse as Poland and Finland.
Things are looking up in other ways as well. Special tax treaties accorded to some countries that were serving as a conduit to Chinese goods have been withdrawn. This leaves Hero to step into a market where it can compete with Chinese cycles on an equal footing. While the US market is still dominated by China’s exports, other major importers have started to show an interest in India-made bicycles.
But to beat the Chinese, Hero will need more than just its manufacturing skills. It needs to turn aspirational. “Hero is seen as an affordable mass commodity. But if it wants to sell high-end bikes, it needs to create new brands,” says Ram Gudipati, MD, Brand Harvest, a brand consultancy.
Munjal already is on the job. Hero Cycles’ entirely new range of high-end bikes is priced between ₹8,000 and ₹ 50,000. On his favourite golf course, he demonstrates India’s cheapest carbon fibre bicycle by riding it. “It’s called the Urban Trail,” he says. “It costs ₹40,000 and it’s for people who aspire for a high-end bicycle.” Munjal feels that there is a huge untapped market for this category in India and good export potential as well. His plan is to push high end variant sales through through an exclusive franchisee model.
While Munjal says Hero has always served both high-and-low-end customers internationally, “It’s the association of Hero Cycles with the much larger Hero Honda [the collaboration ended in 2010] brand that confers a global identity on it,” feels Arvind Singhal, chairman, Technopak Advisors, a business consultancy. “It’s a privilege not enjoyed by competitors such as TI, Atlas or Avon.”
Currently, Hero Exports takes care of the African market (where the company has a strong presence), and Hero Cycles handles the rest of the world. Munjal says the US and West Asia hold the key to the future. “Europe is conservative,” he says wryly. “They still prefer to buy European brands.” Nevertheless, he has ambitious plans: “We want to earn 33% of our revenues from exports by 2014.”
League of its own
The marked increase in popularity of the company’s cycles is
borne in the production figures
For once, Hero’s ambitions may not be realised as quickly as they have in the past. The global market for bicycles is very fragmented and every region has its own brand. Within Europe, there is no leading maker of cycles and each country has its own specifications. “Its [Hero’s] acceptance by the evolved market will be doubtful,” feels Shombit Sengupta, chairman, Shining Consulting. “It flanked its cycle image with the motorbike. Honda’s R&D association and Hero’s established image made Hero Honda flourish in the Indian motorbike market. It’s important to note that the Indian motorbike market may be big in size, but it’s not an evolved market. So whatever image Hero Cycles may have, it’s not an evolved market image.”
On the other hand, though Hero continues to be the market leader domestically, rising input and labour costs are generic challenges for the company. Besides, “South-East Asian companies will come in a huge way to grab this market, the way LG and Samsung have taken over the consumer electronics market,” says Sengupta.
Western bicycle brands like Firefox, Bianchi, Cannondale and Ducati are also coming into India, a market that’s growing at 7%, even as the West grows at just 1%. So what should Hero be doing? “Hero Cycles requires fundamental renovation of the product similar to the way Volkswagen Golf first replaced the Beetle to make the Volkswagen brand credible and move it into the premium luxury sedan segment — Golf GTI was a phenomenal success in the 1970s,” says Sengupta. Unsurprisingly, Hero Cycles is thinking on similar lines. It is aggressively looking for a company with a good brand image in Europe, in order to promote Hero as well as to capitalise on the European product portfolio.
In any case, “They have stopped chasing the mass market,” says Singhal. “They are changing their product line, and have access to the engineering, design and promotion muscle of the Hero Group, I think they are well-poised to have a dominant international presence within the next 10 years.”