Modularization in the Chinese Motorcycles Industry

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Case Details:

Case Code : BSTR165
Case Length : 19 Pages
Period : 1995-2005
Organization : -
Pub Date : 2005
Teaching Note :Not Available
Countries : China
Industry : Motorcycles

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World's Largest Motorcycle Manufacturer Contd...

The dramatic increase in the sales of Chinese motorcycles posed a threat to global leaders like Honda³ and Yamaha⁴ whose market share in China and nearby countries was declining rapidly⁵.

For instance, in Vietnam, Honda's market share had declined from nearly 90 per cent to only 30 per cent in the five years since Chinese manufacturers began selling motorcycles in that country. The average export price of a Chinese motorcycle had dropped from $700 in the late 1990s -when it was already several hundred dollars less than the equivalent Japanese model -to below $200 by 2003-04.

Chongqing, a southwest China municipality, one of the major production bases⁶ for several large motorcycle manufacturing companies in China, emerged as the key location for Chinese motorcycle exports.

However, the thriving Chinese motorcycle industry came under severe criticism from many parts of the world, especially Japan. The Japanese Ministry of Economy, Trade and Industry statistics indicated that China produced about 11 million motorcycles in 2002, nine million of which were imitations of existing Japanese products.

Critics observed that what the local manufacturers claimed to be modularization of engines and accessories was in reality, cheap imitation, adaptation and re-modelling of foreign products by circumventing, sometimes out rightly violating the Intellectual Property Rights (IPRs)⁷ of original manufacturers.

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3] Japan-based Honda Motor Company manufactures a variety of motor products, ranging from small general-purpose engines to specialty sports cars. Honda produces a wide range of motorcycles, ranging between 50-cc and 1,800-cc.

4] Japan-based Yamaha Motor Company Limited was founded in 1955 by separating from Yamaha Corporation, a leading musical instruments manufacturer. The company manufactures motorcycles (world's second largest manufacturer in 2004), marine engines, boats, all-terrain vehicles, snowmobiles, golf cars, car engines, industrial robots, gas engine heat-pump air conditioners, unmanned helicopters and electro-hybrid bicycles. As on February 28, 2005, the company recorded sales of $9657.8 mn and profits of $379.8 mn.

5] Honda's motorcycle sales in China dropped by 27 per cent, while Yamaha's sales plunged by 49 per cent in 2001.

6] Other provinces are Jiangsu-Zhejiang and Guangdong. Chongqing has a good industrial foundation for motorcycles parts and accessories. The Jiangsu-Zhejiang region is the frontrunner for private sector motorcycle manufacturing, relying on flexibility, cost and massive injections of private capital. Guangdong became a motorcycle manufacturing hub after the economic reforms introduced by the Communist Government unshackled the motorcycle industry from government regulations.

7] Intellectual property rights are the rights accorded to persons for the exclusive use of creations of their minds. They are customarily divided into two areas: copyrights and rights related to copyright and industrial property. The TRIPs Agreement defines the following IPRs: (i) Copyrights and related rights; (ii) Trademarks; (iii) Geographical indications; (iv) Industrial designs; (v) Patents; (vi) Layout designs (topographies) of integrated circuits; and (vii) Protection of undisclosed information.