Indian motorcycle manufacturer Hero Motorcycle has entered the Guatemala, El Salvador, and Honduras markets. BMI believes that these markets will remain small for some time and will not be substantial drivers of growth for the company, but we expect Hero to command a reasonable market share as it benefits from being an early mover into these countries. Further, BMI has previously highlighted the trend of emerging market auto companies entering other emerging markets as they target global growth. We expect this trend to continue.
Currently, Hero sells motorcycles in Colombia, where it has experienced steady growth. The company aims to enter other markets in Latin and Central America, as well as across Africa and South East Asia, in a bid to increase overseas sales to 10% of total sales over the next four to five years.
Further, Hero has stated that it is exploring the possibility of setting up assembly units in some of these markets once volumes pick up. This is commensurate with BMI 's long held view that auto manufacturers will seek to produce in, or close to, high-sales volume markets as they target growth. Indeed, we believe that this strategy will allow the company to gain a stronger market share and reduce transportation costs.
Small But Growing Markets
BMI maintains a bullish outlook on consumer sentiment in Guatemala on the back of an expansion in consumer credit and loan growth ( see our online service, December 19 2012, 'Domestic Demand To Bolster Growth In 2013' ). This should serve to boost motorcycle sales over the year, and allow Hero to benefit from its presence in the market.
In El Salvador, we expect private consumption to remain fairly sluggish as real wages contract and unemployment continues to rise ( see 'Weak Growth Here To Stay', April 24 ). BMI believes that the motorcycle market in the country will remain fairly small and is unlikely to experience strong growth over the near term, but Hero may benefit from strong market share as an early mover into the segment.
We expect the private consumption outlook in Honduras to remain fairly weak as the (largely informal) labour market struggles to grow amid the global financial crisis ( see 'Coffee Rust To Hit Labour Market Hard', May 2 ). Similar to El Salvador, BMI believes that the motorcycle market in Honduras will remain fairly small and is unlikely to experience strong growth over the near term, but Hero may benefit from strong market share as an early mover into the segment.
In December 2010, the company ended its long-standing partnership with Japan's Honda Motor , which had put restrictions on Hero's export capabilities. BMI believes the company is in a much better position to develop a global strategy since ending this partnership, and is seeking to enter high-growth markets ( see 'Hero Looks Overseas As Home Sales Slide', January 8 ). Indeed, in 2012, Hero CEO Pawan Munjal said that Latin America and Africa would be the focus of its new international strategy, with investment being allocated to domestic production.