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Wheeling ahead of competition

Tripat Kaur

With the World Trade Organisation (WTO) agreement in place, the 50-year-old Indian cycle industry with an estimated annual turnover of Rs 10,000 crore is facing global competition.

About 90 per cent of the cycles sold in India come from Ludhiana, the industrial Capital of Punjab. According to the United Cycle and Parts Manufacturers' Association (UCPMA), cycle and parts' exports declined drastically from Rs 724 crore in 1995-96 to Rs 470 crore in 1998-99, but picked up again in 1999-2000 to touch Rs 600 crore.

Alongside big names in the industry such as Hero, Avon and Atlas, there are about 1,500 registered small and medium-scale units and about 10,000 unregistered units which are also key players. About 50 per cent of the production in the small and medium-si zed units is utilised by the large-scale cycle manufacturers while the rest is sold as spare parts within the country.

Till recently, Indian manufacturers were worried over the possible entry of a Chinese brand of children's cycle priced at Rs 600-700. ``Indian cycles in the same range start from Rs 1,500... so this would have wiped out the Indian manufacturers. However, the imposition of anti-dumping duty ensured, at least for the time being, we could heave a sigh of relief,'' says Roop Lal Narang, Secretary, UCPMA, Ludhiana.

The Indian manufacturers' main grouse is the high cost of raw materials. ``The reason for the high cost of cycles in India is the high cost of raw materials. For instance, nickel was available for Rs 200 per tonne till last year, but it is Rs 500 per ton ne this year. Thus, our products cannot be competitively priced in the international market,'' says Rishi Pahwa of Avon Cycles. The annual turnover of Avon cycles is Rs 165 crore which is expected to increase to Rs 182 crore in the current financial year .

Avon cycles is credited with hitting the Indian markets with a model similar to the Chinese brand. ``The main reason why they (Chinese) are able to sell the cycle at such a low price is due to the light-weight plastic parts which also reduces the weight of the bicycle. Incidentally, the weight of the Chinese kid bicycle which was going to hit the Indian market was only 5 kg. We saw opportunity in this and copied the bicycle. It is called `Bunny' and is priced at Rs 699,'' says Rishi. China and Taiwan ar e the main competitors in the international market. China is the leader in low-cost cycle production while Taiwan leads the quality-cycle market.

Most of the companies agree that imports are viable only in the children's segment; the market is markedly different for adult bicycles, they say. However, some other companies remain sceptical. ``There is no such thing happening. No company can sell a c ycle for Rs 600. According to my calculations, a company would be spending about $ 34 per cycle. Therefore, it is impossible for a company to sell a cycle for Rs 700,'' says S.K. Rai of Hero Cycles, which is a dominant player in the Indian cycle market. Hero manufacturers about 18,000 cycles a day and exports them to all parts of the world. The projected turnover of the Hero group this year is Rs 3,500 crore compared to Rs 2,900 crore last year. Exports constitute nearly 10-12 per cent of the company's turnover.

The small manufacturers, on the other hand, are filled with anxiety over the possible entry of Chinese cycles. ``The market share is going to be divided and if they (Chinese) are able to sell at a lower price than ours then why would anyone buy from us. It won't affect the big companies but will be very bad for us,'' says M.S. Bhogal of Bhogal Industries.

Harmohinder Singh Pahwa, General Manager, Sales and Marketing, Avon Cycles, points out that it would be impossible to import cycles other than those in the children's range owing to the high freight charges, import duties and distribution charges. ``Chil dren's bicycle have a low cost of production,'' he says.

``The domestic cycle market is recording a growth of 10 per cent every year and we feel that it is a healthy growth. So there is no cause for anxiety and the cycle industry is doing well. Cycles would always be required... I think the market will grow i n the future,'' Harmohinder adds.

Many of the companies, however, feel that there would be increased competition which would, in turn, be good for customers. ``The large chunk of our business comes from domestic markets and there is not going to be any major shift in our strategy right n ow. We see the Indian market growing in a fairly healthy manner and as more and more of the market economy takes hold, we expect this to be a very good market. Of course, it is going to be very competitive but we like to thrive and enjoy working in a com petitive environment. Our exports will change as we have started selling to more and more countries... but I don't see any dramatic change in the ratio of domestic to export,'' says Sunil Kant Munjal, Chairman, Hero Cycles.

``We are ready to face the competition provided the Government supports our efforts. The Government should ensure internationally competitive interest rates, about seven per cent, and lower import duty on raw materials, especially nickel. The import duty on nickel is 40 per cent,'' says Roop Lal Narang of UCPMA.

So, while big companies such as Hero and Avon might not suffer much, the small cycle and cycle-parts manufacturers fear the worst. With their margins already low, the entry of foreign brands at lower prices would sound the death-knell for them.

Pic.: Cycles, an all-terrian favourite.

Picture by Parth Sanyal