Thomas White Global Investing
Emerging Leaders

Emerging Leaders

February 2012

Rajiv Bajaj, managing director, Bajaj Auto


Rajiv Bajaj

When Bajaj Auto introduced a new low-cost four wheeler recently, it marked another episode in a series of attempts by Indian auto manufacturers to expand the market by launching highly affordable products. Developed from scratch by the company’s research team after several years of work, the vehicle is not much of a looker. Still, behind its straight design lines, the Bajaj RE 60 hides several charms that will be very attractive to potential buyers. Estimated to cost around $2,000, it will be one of the most fuel efficient four wheelers available anywhere in the world, delivering more than 90 miles to a gallon of gasoline. The vehicle not only highlights the adaptability of Bajaj Auto as a manufacturer, but also the tenacity of Rajiv Bajaj, its young CEO, and his uncanny ability to discover new profitable niches for the company.

When Rajiv Bajaj first showcased the prototype four years earlier, the vehicle was a traditional car. It was quite small by conventional standards, but a car nevertheless, and attractive. The prototype was Bajaj’s response to the Tata Nano, the much feted world’s cheapest car, produced by bigger industry rival Tata Motors. Industry heavyweights such as Nissan-Renault CEO Carlos Ghosn predicted that these cheap cars would flood the market, not just in India but in other emerging countries as well. And Bajaj had a big ace up its sleeve. Ghosn was impressed enough with Bajaj’s low-cost engineering and manufacturing prowess that Nissan agreed to source the car from Bajaj and sell it in India and other markets, under its own brand.

Then the low-cost car bubble burst. Despite the media accolades, the Tata Nano failed to sell in large numbers. The world’s cheapest car faced an identity crisis as potential consumers didn’t want to be seen in a cheap car, even when they couldn’t afford anything bigger. After seeing this tepid market response, Nissan developed cold feet about its venture with Bajaj Auto. It was considered the end of the road for the four wheeler aspirations of Bajaj Auto, one of the largest global manufacturers of motorcycles as well as three wheeled carriers for people and goods.

But it wasn’t the end of the line for Rajiv Bajaj. Undaunted by Nissan’s loss of interest, though neither company has publicly called off their deal yet, Rajiv moved quickly to realign the vehicle’s target audience from car buyers to cab drivers. Visitors to Asia, particularly India, cannot miss the ubiquitous three wheeled taxis that sputter along in most cities. They are not very comfortable or safe, but are light years ahead of cars when it comes to affordability and cost of running. With the RE 60, Bajaj in now offering a four wheeler that is as economical to run as a three wheeler, but more comfortable and safe. The fact that the new vehicle may usurp Bajaj’s own three wheeled taxi business has not deterred Rajiv, making his swift business plan turnaround even more daring.

In a family business, business is more important than family. Leadership is not a matter of aristocracy but one of meritocracy even in a family business.

— Rajiv Bajaj

But Rajiv appears to be a master at the turnaround game, having earlier made his name by fearlessly reinventing Bajaj Auto. A mechanical engineer with a graduate degree in manufacturing systems engineering from the U.K.’s University of Warwick, Rajiv joined Bajaj Auto’s manufacturing division in 1990 when the company dominated the market for motor scooters and three wheelers. Bajaj’s motor scooters topped the list of aspirations for most middle class men in India, similar to what the Ford Model-T was to a previous generation of Americans. The Bajaj Chetak, as it was branded, was almost always out-of-stock and most consumers willingly waited several months, if not years. Rajiv’s father Rahul Bajaj, one of the elder statesmen of Indian industry, was chairman and managing director of the company, founded by Jamnalal Bajaj, a close associate of Gandhi during India’s independence movement.

India’s economic liberalization in the nineties brought a wave of well-known Japanese manufacturers, including Honda, Suzuki, and Yamaha, that introduced more stylish motorcycles. Bajaj was initially unaffected, but saw the market for motor scooters disappear from beneath its feet as most consumers started preferring motorcycles instead. When Bajaj launched its own motorcycles, in alliance with Japanese company Kawasaki, it ranked a distant fourth in market share. Though the company still had a dominant share of the three wheeler market, Bajaj was facing oblivion in the motorcycle segment.

As Rajiv took control of the business in 2001, he came to realize that the company could not remain a profitable manufacturer of motor scooters and three wheelers and made a decision that was almost unthinkable for most company veterans. Even in the face of his father’s stiff opposition, Rajiv decided to stop making the company’s legendary scooters to focus on motorcycles. His handpicked team of young engineers had come up with a product that was more stylish than the Japanese designs available in India, and just as competitive. It didn’t take much time for Bajaj to gain market leadership in premium motorcycles and a respectable second place overall.

Having established itself as one of the market leaders in India for motorcycles, Bajaj is now taking the business up to the next global notch. The company exported more than 1.2 million vehicles, netting revenues of nearly $1 billion from overseas sales during 2011. Bajaj has an assembly plant in Indonesia and its products are now available in several markets across Asia, Africa, and Latin America. To help its expansion into new markets and to build on its technology and design capabilities, Bajaj has also acquired a large shareholding in European sports motorcycle manufacturer KTM.

Unlike some of the scions of other well-known Indian business families, Rajiv Bajaj has never been a fixture on the country’s social circuit. The unassuming young business leader has hardly ever been spotted in a business suit, as he prefers his trademark polo t-shirt with the Bajaj logo on it. Yet, he is known to speak his mind in the rare interviews and public statements. His unusual management style and personal interests, such as his current attempts to apply the holistic principles of homeopathy medicine to modern management, also attract attention. In his own words, ‘we have not gone down the MBA route in how we approached our business, we’ve gone down the homeopathic route and so far it works for us.’

Impressive as his achievements at Bajaj Auto are, business historians who trace the evolution of Indian manufacturers that can design and produce world class products will also identify Rajiv Bajaj as one of the pioneers of this trend. That will be the just reward for a workaholic whose management mantra is ‘God is in the details, profit in niches’. Bajaj’s new four wheeler will now drive the quest to open up more market segments for the company, until Rajiv discovers yet another profitable slot in the racer-paced automobile space.

 

 

 

 

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