Harley Davidson Goes to China August 17, 2009 MBA6001 – Business Analysis Executive Summary The recreational vehicle industry can be challenging and fragile in difficult economic times, but Harley-Davidson has proven to be resilient under these circumstances. The decision to enter the market in a foreign country provides even bigger challenges for the company. Even though Chinese consumers purchase more motorcycles than any other country in the world, the biggest challenge for Harley is that China already has hundreds of motorcycle companies and the consumers of motorcycles in China make their purchases for utilitarian purposes.
Therefore the majority of purchases are for small cycles, less than 250cc. Organizational Purpose Harley-Davidson has the competitive advantage of its powerful brand image. According to the website, www. motorcyclecruiser. com, many motorcycle enthusiasts describe the pride of owning a Harley-Davidson motorcycle as owing an American Icon. The strategy to widen the brand image globally will expand the market share of the company. American businesses in China have contributed to the country’s huge economic development over the last thirty years.
The Chinese economy has grown at an average annual rate of about 9%, compared to 2% to 3% for the leading developed economies like the United States (www. knowledgeatwharton. com). With China’s population of over one billion people, targeting the Chinese market is a way of increasing Harley-Davidson’s share of the recreational vehicle industry. Organizational Goals Performance Measures Harley-Davidson is known around the world for its outstanding reputation and has a strong appeal to enthusiasts.
However in China, where there are many motorcycle companies and the cycles are for utility purposes and not sport, Harley-Davidson would have to provide reasons for the consumer to choose its more expensive motorcycle over the utilitarian ones. Since Harley-Davidson’s motorcycles are 750cc and over, the company has to educate the consumer regarding the performance of its vehicle compared to that of the competitors, such as Honda and Yamaha. Consumer Behavior
China is a country that has used the motorcycle for many years and is just getting used to the automobile. It would therefore be difficult to encourage the Chinese consumer to return to the motorcycle and buy an American motorcycle that cost more than a Chinese motorcycle. The solution would be to provide the perception of a certain lifestyle. Since Harley-Davidson is perceived to be more than just a motor cycle, but as a performance cruiser, the idea would be to cater to the consumers who are seeking such lifestyle.
Global Markets The Chinese government has mandated that foreign companies incorporate as a joint venture with a Chinese company. Harley-Davidson should seek to maintain a strong management team and strive to retain majority share in the venture. There need to be people on the ground in China who has the ability to interact with the Chinese government, become aware of local laws and compliances, and have the capability to move quickly. There should also be a corporate headquarters in China to address the needs of the company there.
For example, many of the large cities have motorcycle license restrictions and some have bans on riding. This could be considered a de facto trade barrier, and must be addressed. Risk and Return Analysis Legal risks are also a reality, and cost the company a lot of money for claims related to manufacturing defects and environmental issues. Risks of natural causes such as earthquake and hurricanes, can impact the company financially. International Risks International risks include trade barriers, such as China’s 50% import duty on motorcycle.
In addition, the Chinese government has a limit on the number of motorcycle licenses they will grant. There is also the currency risk because companies that sell its products internationally in the local currency of the foreign country are affected by the fluctuations in the value of the United States dollar relative to the foreign currency. Therefore, gaining entry into a overseas market will take more than just financial ability and a recognizable brand name. Conclusion
There are certainly advantages and disadvantages to entering the Chinese market. The advantages include global recognition, new target market, lower labor costs, diversification, company expansion, product life cycle expansion, and gaining new knowledge and experience. The disadvantages of entering the Chinese market include the financial risks involved, product modification to suit local markets, difficulties in analyzing new market information, export licenses, documentation, and foreign bureaucracies. References ttp://investor. harley-davidson. com/ReleaseDetail. cfm? ReleaseID=191009&bmLocale=en_US http://www. chinacartimes. com/2007/11/05/harley-davidson-opens-second-store-in-china/ http://www. motorcyclecruiser. com/newsandupdates/harley_davidson_chinese_market/index. html http://www. knowledgeatwharton. com. cn/index. cfm? fa=viewfeature&articleid=2034&languageid=1 http://www. globalautoindustry. com/article. php? id=4171&jaar=2009&maand=7&target=Asia http://www3. jsonline. com/bym/news/may04/228039. asp