David McMullan, the International Editor of ChinaMotor Magazine, offers his analysis of the motorcycle market trends from China. An Englishman covering the Asian market for almost a decade, McMullan notes an emerging trend of consolidation amongst the numerous manufacturers. The result of this consolidation could have profound implications on the global motorcycle industry over the next decade. – MCUSA Ed
Are company mergers the only way forward for the Chinese motorcycle industry?
Producing millions of small-displacement motorcycles on an annual basis, Chinese manufacturers are facing stiffer competition and are trending toward consolidation.
Last Christmas I tentatively hosted a gathering of the luminaries and minions of the Chongqing motorcycle industry. The meeting, at my house, was a success as most attendees agreed that they were facing the same problems as each other when considering the future direction of the industry. Inspired by this I started the Chongqing Motorcycle Industry Council, members of which would convene on a monthly basis in an informal fashion (in a local pub) to chew the fat over future export market development and technical upgrading. The council includes export clerks and managers, technical and research and development staff and of course journalists. All are agreed on the future shape of the industry, one of merger.
Back in 2009 Chinese motorcycle heavyweight Loncin bought out fellow manufacturers Kinlon adding their weight to a company which already boasted a technical working relationship with BMW. This merger propelled Loncin to the status of biggest motorcycle exporter in China and was surely a sign of the shape of things to come. Although the motorcycle giants are safe enough in their autonomy the smaller sized companies are vacuuming each other up at a rate of knots.
Back in 2006 there was over 240 motorcycle companies operating production lines in Chongqing alone, a good proportion of them ‘one line’ export factories that provided super-cheap models for the African and domestic markets. Unlike India in which the Hero Group and Bajaj share a huge proportion of the market the Chinese market was shared by a multitude of smaller companies. The number of Chongqing factories still operating is now down below 90.
Smaller companies have joined to become middle-sized companies in an effort to compete with India on traditional markets and to expand their range to pastures greener. A typical example of this was explained to me by Troy Ma, an ex export clerk for Kington-Liyang. At the last council meeting he reported “Kington’s supply chain and buying power was not big enough for the company to expand in certain areas including the development of a ‘dual fuel’ petrol/CNG motorcycle engine and a range of dirt bikes with DOT and EPA for the US market. They were approached by a rival company called ‘Andes’ and after negotiation it was decided to merge the two companies to increase buying power of parts and increase the supply chain. This is a phenomenon happening all over China. Here in Chongqing Vision, a company that produces motors and electric-vehicles has joined with Motorhead to attack the South American market. In Zhejiang province the biggest rivals to the Chongqing companies are Keeway (the company that own Italian marque Benelli) and in Guangdong province it is Qiangjiang. They have been snapping up smaller companies for the last few years and have expanded their influence world-wide.”
It is evident that the Chinese industry has stepped up its efforts to shake the dreadful reputation of the first wave of motorcycle exports. It has also increased the distribution of spare parts to the extent that now Chinese motorcycles have evolved from third-world transport tools to very useful commuter bikes in developed countries; but this is not enough. For Chinese companies to truly compete with the Japanese giants in terms of quality and brand recognition will require intensive investment. Investment requires huge financial resources which may only be found by conglomerating existing companies in to ‘super-companies’ that can compete with the Japanese and Europeans on a level playing field. Collaborating with existing foreign motorcycle companies has been complementary for the bigger firms, but also restricting as Loncin found out after receiving help developing their 600cc. For some reason this model will not be available for export.
To finally achieve parity with the Japanese and European giants it is imperative that Chinese machines make a mark on international motorcycle events. Zoe Fu of ChinaMotor Magazine explains “the bigger companies are aware that they have to emulate the development of Honda as a bench-mark of the industry. Honda’s success in the Isle of Man TT was paramount in enforcing their brand as a world leader. As yet only Loncin have raced at the very top level in Moto 125 although Shineray produce top quality off-road models and have had success at international level. Many people feel it is only with big collaborations that this transition can occur.
There will never be only four motorcycle companies like in Japan, but when you consider that the number of working factories has halved in the last seven years and is still dropping, and the number of units exported is rising, it would be no surprise if the number of motorcycle companies operating in 2020 was under 20! If this happens as expected these super-factories will be a match for anyone in the world”
With six Chinese motorcycle companies now producing 600cc motorcycles it would seem that the first step of the industry evolution has happened. The willingness of the Chinese motorcycle industry to invite a delegation from FIM to the CIMAmotor exhibition this October has surely signalled a positive intention to involve themselves more with international motosport, Joo Jiang independent motorcycle exporter and fellow member of the Chongqing council opines “at the moment I don’t think that the motorcycle companies know the best way to involve themselves in international racing, and then on to create brand names that are world recognized, if they can get the right advice from the correct organization that will go a long way to entering Chinese bikes in to world sports. As far as the domestic situation is concerned we have a brilliant race circuit at Shanghai (which is fully compliant with FIM regulations) and another international class circuit at Zhuhai. I think we first need to concentrate on a first class domestic ‘Superbikes’ series and the rest will follow naturally.”