Case of sour mangoes? The unremarkable foray of Harley-Davidson in India

Despite starting with much fanfare, Harley-Davidson’s brief presence in India only seemed to benefit its competition. Beyond being a bargaining chip in Indo-US trade relations, its stint is a ready reckoner on how brands should not execute their India strategy. 

• Harley-Davidson entered the Indian market in 2007, with US securing its entry in exchange for lifting an 18-year old ban on export of mangoes from India.
• Initial projections were quite bullish and the brand relied heavily on its strong lineage and potential of the Indian market. It set up a manufacturing base in Bawal, Haryana, which was only its second outside the US. 
• Sales have been lackadaisical, however, and decreasing over the years to reach 2,470 units in 2019-20. Harley-Davidson has been clearly unable to convert its equity into sales. Even its loyal fan base seems to have opted for cheaper and more practical alternatives when it came to the actual buying decision. 
• While the company blames high duties for making its products uncompetitive, the inability to get into local tie ups and bring in customised products has cost it dear in India. Competitors, on the other hand, have been quicker to launch a range of attractive products and provide customers with attractive and more affordable options. 

Over the past 2-3 years, US president Donald Trump raised a hue and cry over the high customs tariffs imposed by India on Harley Davidson motorcycles. This came out as one of the major issues in the Indo-US bilateral trade relationship, as the latter lifted GSP benefits under the pretext that it was not getting fair access for its companies into the Indian market.

Call it a twist of fate or a remarkable coincidence – as India and US are said to be on the brink of a rather elusive trade deal, Harley-Davidson has decided to exit the country by discontinuing its sales and manufacturing operations. This is part of a global restructuring to leave markets where the luxury two-wheeler company has been unable to earn expected revenues and profits.

Harley-Davidson entered India in 2007 as the result of a ‘mango’ deal – in return for granting it market access (with relaxation of emission and testing norms), when the US lifted an 18-year old ban on mango exports from India. There was a spring in its stride at that time; and Harley-Davidson even committed more to India than it would otherwise, considering that the Bawal plant was only its second outside the US (the other one in Brazil).

But the company has been unable to step on the gas ever since. Sales figures at 2,470 units in 2019-20, are a far cry from the annual target of 10,000 units. Royal Enfield, recognised as the Indian ‘Harley-Davidson’ in biker parlance, sold 6.6 lakh units in comparison. For a better context, Harley-Davidson’s total sales in its India stint are around half of Royal Enfield sales in a month!

To set the record straight, the company isn’t exactly making great strides in the US either. Its market share is shrinking, the company did not post sales growth for 14 quarters in a row and it employs just around 5,000 Americans. But on the other hand, it apparently has fans among Trump’s voter base. Furthermore, with its American lineage, Harley is automatically critical to his ‘America First’ policy approach.

After repeated demands by the US, India reduced the import duties on completely built units (CBUs) to 50% from 100%, but it increased the duty on completely knocked down units (CKUs) from 10% to 15%. The latter accounted for 13 out of the 17 models that Harley Davidson sold in India, so the decision actually went against its interests. But it was expected that the reduction in duties for CBUs could prompt it to bring more such bikes into India. In February this year, Indian officials had reportedly committed to lower tariffs for bikes with displacement over 1,600 cc.

The company has often blamed high import duties for its lackadaisical performance in India. Even though they did play a role, a closer analysis of Harley Davidson’s stint debunks this theory. Major causes of its failure are provided below:

1. Largely an assembler

Harley Davidson had a manufacturing plant at Bawal in Gurugram that started in 2014. However, it was largely an assembly plant where bikes were assembled from the imported parts. If parts are imported, they have to bear not only domestic GST (28%) but also customs duty (25%) and a 3% cess, taking the total tax burden to 56%. With a value conscious Indian customer, the tax burden added to the already high premium being charged by the brand, building a recipe for disaster.

Faced by competition from other players with a strong supply base and lower taxes (28% GST and 3% cess), Harley dived into losses. Had it focused on expansion of manufacturing and building a domestic supplier base, chances of success would have grown manifold.

2. Missing the virtue of patience?

Hero MotoCorp, Honda, TVS Motor, Bajaj Auto, and Suzuki dominate the 2-wheeler segment in terms of sales. This is visible from the domestic sales in 2019-20 April-March data as shown below:

Domestic sales of 2-wheeler manufacturers in India (2019-20)
Brand Name	Sales in units
Bajaj Auto	2,078,348
H-D Motor Company	2,470
Hero MotoCorp	6,231,458
Honda Motorcycle & Scooter	4,706,589
Kawasaki Motors	2,628
Yamaha Motor	579,227
Mahindra Two Wheelers	1,038
Piaggio Vehicles	62,638
Royal Enfield	656,651
Suzuki Motorcycle	685,223
Triumph Motorcycles	591
TVS Motor Company	2,410,755

Source: SIAM Report, figures in units

But this success has not come overnight. Players like Honda started working on building the Indian market right from the 1980s. Hero Honda was a highly successful joint venture before the two companies split in 2010. Even post the split, Honda has been able to independently script its success story and emerge the market leader. Its Activa model is well known for fuel efficiency, and Honda has continued to develop new models in tune with the Indian market’s demands.

Both UK’s Triumph and Austria’s KTM are premium bike manufacturers with bikes ranging above Rs 5 lakh. But their tie-ups with Bajaj Auto have helped them thrive in the Indian market. BMW also collaborated with the Indian brand TVS.

Tie-ups generate mutual synergies; enabling foreign companies to benefit from the market experience of local partners. However, Harley-Davidson appeared to be counting on its American brand lineage alone. This could not impress hard-to-please Indian customers and it was visible in the declining sales of 2017 onwards (3,700 bikes in 2017, 3,400 in 2018, and 2,600 in 2019).

3. Misinterpreting the Indian market

India is a low margin and high large volume market of affordable as well as small and fuel-efficient motor vehicles. Around 90% of the market demand comes from rural areas, and that too, of less than 150cc bikes, mopeds, or scooters. These small displacement, affordable vehicles easily fit in Indian pockets and roads. High-end superbikes (500-800 cc+, Harley’s target segment) have an annual sale of just around 25,000.

The American brand could have created more niche products for Indian customers. It was slated to compete with Royal Enfield, but its entry seems to have only helped the latter. The iconic Indian brand has matched Harley product to product, and even gone ahead to develop new models like the Cafe Racer. It benefitted the most from being an affordable as well as credible alternative for Harley – its Interceptor and Continental GT were sold at a price range of Rs 2.5 lakh. So Harley was unable to benefit from the cruise biking trend it promised to bring into India.

Moreover, the brand’s fan base has largely crossed 40. Even in markets other than India, there is more of a tendency to revere Brand Harley Davidson and cherish its lineage, but opt for more practical alternatives to cruisers – adventure bikes, scramblers, tourers, cafe racers, modern classics, performance bikes, etc. With paucity of time and cramped city spaces, the joy of riding a Harley is certainly not the same as it was before. 

4. Harley’s model unworkable in India

Harley’s basic model started from Rs 4.69 lakh and climbed to over Rs 18 lakh. Despite the lineage, it cannot expect huge sales with a lack of market-focussed innovation, especially in a market like India, where 90% demand comes from the rural sector and bikes that are petite and maneuverable rule the roost.

The cruiser bike is heavy and customers would loathe the prospect of spending as much as Rs 10 lakh for a luxury vehicle and still having a stressful user experience. What’s more, frequent damages on the Indian roads required expensive parts to be replaced with service charges and frequent malfunctions adding to the misery. Irate customers were soon found complaining that the suspension and chassis for Harley Davidson bikes are ill suited for Indian road conditions. Hence, the company could sell hardly 3,000 vehicles per year on an average.

5. COVID-19, the last straw?

The iconic American bike maker was already facing setbacks across global markets. It shipped 213,939 motorcycles to its dealerships in 2019, with a net income of US$ 423 million, both its lowest in nine years. It also posted its first quarterly loss over 37 quarters in the quarter ending June 2020.

Superbikes in general have seen a decline in fortunes in the Indian market in the past few years. Harley-Davidson, Triumph Motorcycles and India Kawasaki Motors saw a combined sales decline by 21.7% to 5,689 units in FY20 as compared to a peak of 7,266 units in FY16. Companies have found volumes too low to commit investments into local manufacturing.

Amidst these reversals, the COVID-19 disruption is projected to have pushed back two-wheeler demand by 2-3 years. SIAM data pegs two-wheeler sales at slightly over 4.13 million units during April-August, 2020 as compared to 8.03 million units in the same period of the previous year. High end bikes (over 800cc) have fallen by 53% YoY to 445 units. With economic uncertainty and expected pessimism on discretionary purchases, it is expected that customer demand in the Indian market will remain subdued for some time, particularly for the premium bike segment.

For the moment, Harley-Davidson would most probably continue to import bikes and sell through a distributor, for customers that are still willing to pay a premium. And as and when good times return, it may even find the Indian market too irresistible to plan a second foray. But as facts on the ground indicate, the case study of Harley Davidson goes far beyond being a bargaining chip in Indo-US trade relations. It is instead a ready reckoner on how brands should not strategise their market strategy in India. Hopefully it will manage a better second round, if and when it ever comes.