H ARLEY -D AVIDSON IN C HINA : B ARRIERS OF E NTRY FOR T WO -W HEELERS Six years
ID: 435089 • Letter: H
Question
HARLEY-DAVIDSON IN CHINA: BARRIERS OF ENTRY FOR TWO-WHEELERS
Six years after entering China, Harley-Davidson, the 108-year old motorcycle company, has so far failed to gain traction in this enormous market. In 2010, the company merely sold 268 bikes in the whole of China, even less than the more than 500 bikes sold in the same year by The House of Harley-Davidson dealership in Milwaukee (population = 595,000).
One major problem for Harley is a maze of government regulations. About 100 cities in China have restrictions on motorcycles to curb noise and theft. Moreover, these rules can vary a great deal from place to place. Shanghai bans motor- cycles from the historic Bund area, the financial district, and elevated highways; Beijing has not allowed new motorbike registrations since 1985; Guangzhou banned motorbikes in 2007 after a string of drive-by purse snatchings. Laws treat motorcycles the same as scooters and motorized bicycles, even though some Harley models have bigger engines than cars. To cut down on pollution, China’s law also requires motorcycles to be scrapped after 11 years.
Hefty duties on imported motorcycles can easily add 30 per- cent to the sticker price before consumption and value-added taxes. As a result, the retail price of some Harley models can be much higher than that of some luxury car models (see Exhibit 4-1).
CASE EXHIBIT 4-1
TWO WHEELS CAN COST MORE THAN FOUR
Price
Harley-Davidson Touring Ultra Classic Electra Glide
340,000 yuan
BMW 320i 273,600 yuan
Audi A4L 247,800 yuan
US$ = 6.36 yuan
Source: “Why Harley can’t rev up in China,” BloombergBusinessweek, October 24, 2011.
Harley also faces a mindset hurdle. For many Chinese, the concept of leisure driving on a motorbike is still foreign. Motorcycles are mainly seen as utilitarian vehicles to drive from point A to B. According to Keith Wandell, the CEO of Harley-Davidson: “The Chinese consumer is unfamiliar with leisure riding. They’ve always looked at two-wheelers as a form of transportation and getting to work.”
Despite these roadblocks, the company still has high hopes for its China business. At the end of 2010, Harley had only seven (independent) dealerships for the whole of China. The company plans to quadruple its network to 28 dealers by 2016. It will also air in-language commercials celebrating motorcycle culture around the world. Harley aims to increase sales by as much as 40 percent a year through 2016. There has been some improvement. One dealer in Shanghai had sold more units year-to-date in April 2011 than for the first 5 years combined.
Sources: “Why Harley can’t rev up in China,” BloombergBusi- nessweek, October 24, 2011; “Harley-Davidson gets its motor run- ning in China,” www.brandchannel.com, accessed October 25, 2011; “Harley-Davidson has a China conundrum,” biztimes.com, accessed October 25, 2011.
DISCUSSION QUESTIONS
1. What are the key challenges that Harley-Davidson is facing in China? Are these surmountable? Why or why not?
2. Should Harley-Davidson localize its strategy by selling a bike tailored for China or even manufacturing motorcycles in China? Why or why not?
3. What other marketing actions could Harley-Davidson undertake to boost its business?
Explanation / Answer
Ans 1:
Key challenges that Harley-Davidson is facing in China:
The challenges are almost non-surmountable as they are government regulations put in place seeing environmental safety. Also, there is a need to introduce behavioural change in the way the people look at motorcycling more than just transportation. This wouldn't happen immediately and would talk a very long period of time.
Ans 2:
Yes, Harley-Davidson should localize its strategy by selling a bike tailored for China or even manufacturing motorcycles in China if it wants to compete and survive in the market. The company should start manufacturing bikes according to the regulations prevalent in the country which would help the company to sell without restrictions. Also, introducing cheaper models may also boost the sales of its motorcycles keeping in mind the psyche of motorcycle consumers in China.
Ans 3:
Marketing actions Harley-Davidson can undertake to boost its business:
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