Hero enters Argentina, eyes Mexico and other markets
Hero MotoCorp has officially announced that it is entering Argentina, making it the 35th international market its products go to. Argentina is one of the larger South American markets with 500,000 units sold last year. Hero MotoCorp will enter through its partner Marwen SA, a group that has other automotive interests as well. Hero will open its innings with three motorcycles and a scooter with more to come. Hero also revealed its brand-new Glamour 125 motorcycle which will be sold in Argentina (as the Ignitor), India as well as 18 other international markets.
Argentina, like many global economies, has been in trouble and the government has been working hard to turn things around. Hero officials revealed that while the overall two-wheeler market fell from 700,000 annual units to 500,000 units last year, the reforms and the recovery of the economy promise bigger numbers as time passes and stability arrives.
A high inflation rate and poor finance availability are among the reasons why the Argentinian market is relatively undeveloped as well as unpenetrated.
In terms of sales, approximately 30 per cent of sales go to the step throughs, and the rest of it spans the commuting 100, 125 and 150cc class motorcycles. There is, as is common in South America, an off-road class of motorcycles too. On the streets you do see many Bajajs - they are represented here and share showroom space with their partner's other motorcycles.
The business model prevalent is that an organisation imports Chinese-made motorcycles and sells them under an own brand. The prices are cheap - helpful when inflation is high - but quality and aftersales are not any brand's strong suit.
Hero will enter with 40 dealers in the Buenos Aires area and work towards 55 dealers over a larger area by the end of 2017. Buenos Aires and its surroundings account for nearly 30 per cent of the Argentinian population, hence the dense-sounding spread of dealers on the ground here.
Hero says it will start selling the new Ignitor (nee Glamour), the Dash scooter (that is our Hero Maestro Edge), and the Hunk and Hunk Sportz (re-branded Xtreme and Xtreme Sportz) respectively.
Hero's partner Marwen already has a 5,000 unit a year assembly operation that it will use to assemble two-wheelers being imported form India. Marwen currently also has a Chinese motorcycle operation, but Hero says two things are of note. First, as the Hero operation expands in size and scale, Marwen will wind down the Chinese operation. And two, while most organisations like Marwen do own-brand showrooms which contain and sell other brands, Marwen's Hero network will be Hero branded which is not common in this market.
Hero says the market does have homologation requirements, but the emissions laws are weak and being discussed in the government right now. Fuel economy isn't a big concern here yet either. Hero says it will use the quality of its machines, aftersales care and economy as the pegs on which the brand will be built. It is also clear that it will not compete with the Chinese-sourced motorcycles on price as it tries to expand its reach and gain volume.
The ambition, clearly, is to be a top-two player in five to ten years. Argentina's market leader, Motomel, has about 18 per cent market share, but the difference to the next few players in share terms isn't dramatic.
Hero says it expects a market of the size of Argentina to yield substantial volumes in time, one of many Central and South American markets with that potential. Hero is also being shrewd in going after, as it says, "low-hanging fruit". The logic is that if it can leverage current or near-future products across many markets, then it makes sense to attack them first rather then get tied down trying to break into complex markets like the US or European markets, or markets with clearly dominant players.
Argentina will also allow Hero to access the Paraguay and Uruguay markets, but it says that it is to come later and it needs to stabilise the Argentina operation and only then consider leveraging its business in Argentina for other countries. Similarly, its plant in Colombia could service other markets but Brazil, a market three times the size, will require local manufacturing.
The other big market in the region is Mexico, and Hero revealed that it is looking closely at how to enter the country. As a reference, the entry to Argentina took Hero about two years to finalise, and the hunt for a local partner they can work with is on in earnest.