Indian cycle manufacturers undaunted by Chinese invasion

It is all sound and fury signifying nothing, says Mr. L. Ramkumar, president, TI Cycles, part of the Chennai-based Rs.1,090 crore Tube Investments of India Ltd. He is referring to the much-hyped up threat posed by imported Chinese bicycles to the domestic players.

"This view is shared by all the members of All India Cycle Manufacturers' Association and not only by TI Cycles," he adds.

Much has been written about the threat of Chinese cycles priced around Rs. 500- 700 flooding the Indian market that would ultimately pedal out the Indian players. "It is all media hype to unrealistic levels as Chinese cycles didn't materialise here as predicted. However the reports had one effect, that is postponing purchase decision by the people," complains Mr. Ramkumar. So what gives Mr. Ramkumar and his ilk in the industry
this confidence that is not seen in other industries? Remember China like India is a major exporter of bicycles and is much bigger than Indian industry.

Firstly it should be noted that bicycles were removed from the bonded category more than a year back. Contrary to the expectations there was no major influx of bikes from China producing around 22 million cycles per annum (p.a.). This despite the fact that bicycles comes next only to wristwatches in market penetration in India.

The reasons for this phenomenon is varied like investing in crucial activities like setting up assembly line, brand building, putting in place proper sales and service network and finally the market scenario. Of all the above the last one is what favours Indian industry.

The 12-million units p.a. Indian bicycle industry could be classified into two categories viz – standard roadster and specials. The latter includes mountain terrain bikes (MTB) and children's cycles. However demand is skewed more in favour of standard roadster segment to the extent of 65-70 per cent with most of the sales coming from semi-urban and rural areas.

Coming back to the import threat, a Chinese roadster costs $25 (CIF) or around Rs. 1,150 and if one adds 40 per cent import duty the price goes up to Rs. 1,610. "On this charges like freight, overheads etc have to be added and it will make the Chinese bicycles
dearer than ours," explains Mr. Ramkumar.

On the other hand the threat is real in the specials/children's segment where Chinese bicycles are available in select Indian markets for a price as low as Rs. 600-700 when Indian brands retails at a princely sum of Rs. 1,200. "Their quality is questionable as they are made of plastic components and thinner steel tubes," remarks Mr. Ramkumar.

An import of specials is what worries the Indian companies, as the margins are higher here compared to standard roadster. In fact TI Cycles last year grew by 10 per cent mainly due to growth registered in this segment.

In this segment import of few overseas container loads is enough to disturb the entire market. Indian companies while losing their market share in places where cheaper varieties are available will have to suffer inventory building as buyers in other markets will be postponing their purchase decision and wait for cheaper cycles.

Let us look at the other scenario. What if there comes up an assembly plant importing kits from Chinese? Again the question of brand equity comes into effect, says Mr. Ramkumar. There is no global cycle brand and a new entrant has to invest heavily in brand building to compete with Hero, TI, Atlas etc. And setting up a nationwide sales and service network is not an easy job in the case of cycles, he adds.

Nevertheless if an assembly plant comes up in the country it will surely impact the margins of domestic players. The way out will be to cut costs. Here the Chinese can lend a helping hand with their cost-effective components. "Why not, if found economically viable we will import the components from China," remarks Mr. Ramkumar and adds that, TI Cycles imports Shimoga gears from Japan.

Ultimately cost cutting has to be the mantra for Indian industry to stay afloat. An Indian team sometime back visited China to find out how the Chinese bicycle manufacturers attain cost competitiveness. However the team was not successful in unravelling the mystery.

But using plastic components would make the Indian players much more competitive. While the domestic industry will raise the issue of durability, it should be borne in mind that there are strong plastic compounds that are available now. One shouldn't forget that car bumpers are now made of plastics. All that a cycle buyer looks for is a functional bicycle of good quality and not a heavily steeled one.

Meanwhile TI Cycles is expanding its market reach by setting up a brand new 8 lakh p.a. plant in Nasik at an outlay of Rs.10 crore. Currently to cater to the western market TI Cycles sources bicycles from Hamilton, Mumbai. It is learnt that once the company's Nasik plant stabilises it would stop sourcing from Hamilton.