EXECUTIVE SUMMARY

The motorcycle industry is a multibillion Dollar industry and there are many significant
players worldwide. Bajaj Auto is the fourth largest manufacturer of two-wheelers worldwide
and the company is now focusing on expanding to different bike variants and different
markets. This report proposal brings out the present situations prevailing in Italy and how it
is aligned with the strengths of Bajaj Auto.
The economic recession of 2008 has significantly affected the premium motorcycle brands
worldwide. Many reputed motorcycle brands have changed ownerships and many
partnerships have emerged because of this situation. The political situation in Italy is
unstable with economic recession taking its toll on the Italian economy. As a means to
liberate the economy and improve the employment scenario in Italy, the current
government is promoting foreign investments and drafting favorable employment and
labour policies. The social and cultural aspects of an Italian way of doing business is
mentioned in this report. The big development achieved by Italy in the field of technology
and innovation is analyzed and thus highlighting the superior Italian technology involved
with Italian motorcycles. The report also explores the changes in the attitude of the
customers regarding environment and the effect of automobiles on the environment. This
points out the change in the buying habits of the consumers. The report then analyses the
other social factors that have led to the changes in the motorcycle industry. The motorcycle
industry of Italy and the other markets worldwide are then analyzed so as to point out the
opportunities that are available for both Bajaj Auto and Ducati. The current unfavorable
market conditions are then analyzed through this report and the strategies to tide over this
situation is studied through expansion into other market sectors and better market
penetration.
The report then focus on the strategies and recommendation put forward. The advantages
of Bajaj Auto acquiring Ducati and the various proposals for the new plants associated with
this acquisition are mentioned. The two new production plants that are proposed to come
up in India and Italy respectively to streamline production of market specific and customer
centric means are put forward in this section. The flexible, employee oriented, open to
innovation, liberal management policies are then mentioned through the report. The
organisational structure and design of the new entities created through the expansion
proposal is then highlighted to conclude the report.

1
Table of Contents
INTRODUCTION..................................................................................................................3
BAJAJ AUTO.......................................................................................................................3
ITALIAN MARKET................................................................................................................3
Political Factors............................................................................................................................3
Environmental Factors:.................................................................................................................4
Social and Cultural Factors:..........................................................................................................4
Technological Factors:..................................................................................................................4
Economic Factors:.........................................................................................................................4
Legal Factors:................................................................................................................................5
Industry Factors:...........................................................................................................................6
Market conditions:.......................................................................................................................6
Management Practices:................................................................................................................6
STRATEGIES AND RECOMMENDATIONS..............................................................................7
Nature of expansion:....................................................................................................................7
Resource Allocation and Utilization:.............................................................................................8
Organisational Design, Management Policies and Management Practices:..................................8
Time Line:.....................................................................................................................................9
CONCLUSION......................................................................................................................9
REFERENCE.........................................................................................................................9

2
INTRODUCTION
This report explores the possibilities for Baja Auto from India to expand its production and
market share worldwide through the acquisition of motorcycle company Ducati based in
Italy. The report initially points out the various elements that are influential factors for a
business to expansion to Italy. The report then points out these opportunities and the
potential for Bajaj Auto to utilize them. The report then suggest the various strategies and
recommendations associated with a smooth expansion and merger of Ducati and Bajaj Auto.
BAJAJ AUTO
Bajaj automobiles is the fourth largest two-wheeler manufacturers in the world("Top Five
Global Motorcycle Companies: Performance, Strategies and Competitive Analysis" 2014)
and has presence in Latin America, Africa, middle east, south and south-east Asia. Founded
in 1926, the company has a rich history and a strong participation in the development of
India after independence in 1947(Bajaj 2011). The company became a public listed company
in 1960. In the year 1995 Bajaj Auto manufactured and sold 1 Million vehicles in a financial
year targeting the entry level buyers of two wheelers. Bajaj auto has partnerships with KTM
and Kawasaki. Bajaj Auto is based in Pune, India and has three manufacturing plants in India.
35% of the sales are from exports and 47% of exports are made to Africa. The Parent
company Bajaj Ltd also has partnerships with Daimler- Benz. Bajaj Auto employees 8036
employees and has spent 6.5 billion INR on employee benefits for the year 2011-2012. The
company is headed by Rahul Bajaj and he has been the chairman of the company from 1965.
The major shareholders of the company are the Bajaj family and has the controlling stake
even though it is a public listed company(Bajaj 2011). Bajaj auto has a vision to attain world
class excellency by demonstrating value added products to customers.

ITALIAN MARKET
The realization of the vision of Bajaj Auto can be aided through an expansion move to the
Italian market and thus the European market by entering the Emilia Romagna region in
central Italy. The capital of the region is bologna. The region is well known for its
development in technological and infrastructural facility. The city of Bologna is regarded to
be the destination to be for two-wheeler technology(Wright 2012). The manufacturing plant
and the head office of Ducati is situated in Bologna(Ducati 2015). Bajaj Auto can engage in a
partnership with Ducati to create a win-win situation for both the companies and engage in
a successful business partnership. This proposal can be further justified through the analysis
of different factors that have considerable importance and they are as mentioned:

Political Factors: Italy is a democratic country and the political situation in Italy is fragile with
the economic liabilities and the current government is stressing on economic
development(Matsaganis and Leventi 2014). The recession has made Italy unstable
politically. The government has focused largely on labour and employment reforms. The
acceptance of 170,000 migrants as refugees in 2016 has also impacted the Italian political
fabric. The Italian Budget for 2017 is focused on improving investments, reduction of
corporate taxes(Italy). There have been many different governments in power at the Italian
government. The conflict with other members of the European union regarding the recent
issues of immigration and trade has an influence in the disturbances in the political stability
of Italy(MARTIN 2016). The current political situation in Italy and the attitude of the Italian
government to welcome foreign investments is a favorable situation for Bajaj Auto to expand
into Italy.

3
Environmental Factors: The buying trend of the consumers in Europe has been altered
significantly in the last decade. The effects of pollution on the environment and the rising
prices of fuel has impacted the consumers in such a way that many of the buyers choose less
polluting and cleaners options(Cristina De Stefano, Montes-Sancho and Busch 2016). The
bigger population in the cities has brought in a higher amount of sales of two wheelers in
these regions where parking and garaging is difficult. The large varieties of high efficiency
small motorbikes under production in Bajaj Auto can be sold effectively the large number of
young consumers who are the entry level customers to the motorcycle industry. The lower
prices and the better efficiency that comes along with Bajaj Auto technology can be
exploited effectively in Italy.

Social and Cultural Factors: The social analysis help in indicating the nature of the buying
trends and attitude of the customers. The motorcycle industry is affected by the mobility
habits of the consumers(Majeed 2015). The large number of immigrants coming into Italy
because of the situation in middle east has resulted in a high number of people within the
country that do not have a high purchasing power. The local brand of motorcycles in Italy are
expensive and outside the purchasing capacity of the lower income group. The importance
of style and design is vital in the Italian motorcycle market as the customers are choosy
about these aspects(Capasso and Morrison 2013). The efficiency in the production of Bajaj
Auto in its plants in India and the favorable importing and exporting regulations in the two
countries can be effectively utilized. An effective partnership with an Italian company so as
to develop a low-cost bike line can be explored in depth with the social factors currently
influencing Italy.
The other cultural aspect that has to be taken into consideration is the importance of family
business and the informal manners in business.

Technological Factors: Italy is the leader in motorcycle technology with many reputed
brands located in the country(Patrucco 2011). The Italian two-wheeler brands like Ducati
and Vespa are famous worldwide and the technology behind the production of these
vehicles are the best in the world(Shao, Taisch and Ortega Mier 2016). The standards
accepted in Europe regarding the emission levels and safety of automobiles are the best in
the world. The knowledge on technology satisfying these standards is a valuable asset for
any company. Technical efficiency is a major factor for productivity growth. Italy is leading
the way in utilizing technical efficiency to gain better productivity(Manello, Calabrese and
Frigero 2016). The setting up research facilities and the studies being put into better the
existing technology and finding new technology is considered important and the industries
take pride in its technology. Through a partnership with Ducati that enables knowledge
sharing with Bajaj Auto will be a remarkable asset to the company. The infrastructural
facilities available in bologna is commendable and aid the manufacturing and value-added
industries.

Economic Factors: Italy was heavily impacted by the global financial crisis. The recovery Italy
has made after the end of the recession was slow compared to European standards and
Italian expectations. The productivity and manufacturing capabilities of the Italian economy
is still to recover(Monteforte and Zevi 2016).

4
The GDP of Italy and the major indicators of economic stability of Italy is seen to be below
par of the European standards and clearly show the poor economic condition prevailing in
Italy. The Italian government and the major Italian banks are in debt to other European
members. The high rate of unemployment is another factor that show the necessity to bring
more investments and more employment opportunities(Giannetti, Madia and Moretti 2014).

Main 2013 2014 2015 2016 2017 (e)

Indicators

GDP (billions 2,131.00 2,141.94 1,815.76 1,852.50e 1,895.32

USD)

GDP (Constant -1.7 -0.3 0.8 0.8e 0.9

Prices, Annual %
Change)

GDP per 35,704 35,239 29,867 30,294e 30,892

Capita (USD)

General -0.6 -1.1 0.8 -1.2e -1.1

Government
Balance (in % of
GDP)

General 129.0 132.5 132.7 133.2e 133.4

Government
Gross Debt (in
% of GDP)

Inflation 1.2 0.2 0.1 -0.1e 0.5

Rate (%)

Unemployment 12.1 12.6 11.9 11.5 11.2

Rate (% of the
Labour Force)

Current 20.19 41.05 39.91 40.23e 35.53

Account (billions
USD)

Current 0.9 1.9 2.2 2.2e 1.9

Account (in % of
GDP)

Source: IMF World Economic Outlook Database, 2016

The Italian economy is heavily reliant on its production industries and value-added industry.
The current economic situation in Italy is taken into serious consideration and dynamic
changes to labor and employment are put forward by the government. This situation should

5
be utilized by Bajaj Auto to invest in Italy and in doing so develop the current technology
available at Bajaj auto.

Legal Factors: The major legal aspects taken into consideration regarding the proposed
expansion to the Italian market are discussed in this section. The labor unions are very
strong in Italy(Coppa and Sriramesh 2012). This is an important aspect as any plans on
expanding by setting up a production facility in Italy would require careful negotiations and
discussions with the unions. The European union demands strict emission and safety
regulations for vehicles used within its region(Thiel et al. 2014). These legal aspects have to
honored. The legalities regarding the business expansion to Italy is welcoming as the
government is supporting foreign investments. The other legal aspects pertaining imports
and exports are in line with the European standards and regulations.

Industry Factors: The two-wheeler industry in Italy is very advanced and successful. The
importance of cutting edge technology and style is very important in the motorcycle industry
in Italy. The Italian motorcycle industry has recognised the importance of partnerships and
association for the better development and expansion of the industry. Most of the reputable
firms in Italy are participants of joint projects which either involve an entirely new vehicle or
an engine(Muffatto and Panizzolo 1996). The Italian Motorcycle industry is affected by a
recent legislation in Italy that imposed special purchase tax. This has hugely affected the
sales of motorcycles in Italy. The other notable aspect of the Italian motorcycle industry is
the presence of two Japanese motorcycle companies present in Italy. This show the
importance of the Italian market in the motorcycle industry(Muffatto and Panizzolo 1996).

Market conditions: The market conditions of the Motorcycle industry in Italy looks bleak
after the recession of 2008. The industry has the technology and the products but not the
market. The rising inflation and the instabilities related to employment has reduced the
market for motorcycles in Italy(Wezel and Lomi 2009). The majority of motorcycles produced
in Italy are usually exported and sold elsewhere. This affinity towards Italian technology and
style by the global markets has sustained the industry through the recession. The current
market conditions are mobilizing the Italian motorcycle companies to extend to different
regions of the world for cheaper production.

Management Practices: Understanding the strengths and weaknesses of the manufacturing

companies is vital as they employ 20% of the Italian labour force and this justifies the
importance of management practices in Italy(Forni, Gerali and Pisani 2010). The labour
productivity in Italy as compared to other European member states are given in the graph

6
below,

The low productivity of the labour force in Italy is alarming and this fact stress the
importance of management practices in Italy. The other distinct feature of the management
practices seen in Italy is the high percentage of family owned companies. This leads to a very
high number of employees from one family being employed in the family company and also
influence the management practices seen the company. The Family business seldom reveal
their management practices and tactics(Segreto 2011).The flexibility of the labour unions
and labour force is another aspect that has to be considered while analyzing the
management practices in Italy. The Italian labour unions are strong and the law protects the
employee and not the employer.

STRATEGIES AND RECOMMENDATIONS

The different strategies to execute the expansion plan of Bajaj Auto into Italy is discussed in
the following section by specifying the different sectors taken into consideration.

Nature of expansion: Taking into consideration the current position of the Italian economy
and the willingness of reputed motorcycle companies up for sale, Bajaj Auto should explore
the possibilities of acquiring Ducati. Ducati is under financial crisis and is at the moment
under a non-Italian management(Ducati 2015). The economic proficiency of Bajaj and the
need to expand from an entry level bike company to an advanced motorcycle brand should
be taken into consideration. The successful expansion of Tata Motors through the acquisition
of JLR brand(Kurylko 2011) can be the point of reference for the expansion of Bajaj by
acquiring Ducati.
The new company is advised to keep the existing production plant in Italy with an added
production plant constructed in India enabling cheaper production and easier logistics to the
Asian and south pacific markets. The new technology acquired from Ducati can be
implemented in the sports bike models of Bajaj and sold in in the markets dominated by

7
Bajaj Auto enabling this successful alliance to sustain the research and development to carry
forward in the Italian manufacturing plant.
The manufacturing plants in India are cheaper and the parts can be exported to Italy and
assembled in the factory in bologna and this further reduces the production costs of Ducati
and thus enabling the company to increase profits. This strategy can be effectively used to
increase the bike variances in Ducati and create a cheaper line of bikes focusing the lower
income group in Italy.
This expansion enables Bajaj to own and operate motorcycles ranging from entry level lower
bikes to superbikes and electronic bikes. This strategy to broaden the market share of Bajaj
Auto is aligned with the vision of the company to continuously develop.(Skld and Karlsson
2012) highlights the importance of technology sharing in the development and expansion of
manufacturing firms.

Resource Allocation and Utilization: By acquiring Ducati, Bajaj auto is committed to capital
investments required for the proposed expansion plan. The financial requirements are met
through the financial assistance put forward by various financial institutions in India. The
finances required for the development of the assembly units in bologna and the new low-
cost bike line is to be invested by Bajaj Auto.
The Non-tangible asset of owning a reputed sports bike company will increase the share
prices of Bajaj Auto enabling further financial gains.
The raw materials required for the production can be sourced cheaper in India and the
favorable import regulations on the import of raw materials can be utilized to procure the
necessary raw materials. The labour force of the manufacturing plants will be predominantly
of laborers from the country of location. The technical experts are required to be sharing
their expertise in all the manufacturing plants.
The technology owned by both the companies are open for both parties to create the best
possible scenario for development and progress. The expertise in sports bikes owned by
Ducati is to made use in the high-end model bikes of Bajaj to better acquire market
monopoly in the emerging markets. The technology and resources available at Bajaj likewise
should be made use in Ducati to reduce production costs and bring out a new line low cost
Ducati bikes to be sold in Europe.
The Market experience held by Ducati in the European and American market can be made
use in the new company by retaining the marketing team and collaborating it with the Indian
counter parts to further explore the possibilities in the existing markets and research means
to penetrate new markets. Similarly, the experience Bajaj Auto has in the Asian, African,
middle eastern and south American markets should be made use to promote the new
variants and the existing variants of Ducati bikes thus creating greater market penetration.

Organisational Design, Management Policies and Management Practices: The

organisational design on all the proposed manufacturing plants are different according to
the type of the product made and the volume of the products. Each new plant will be
headed by chief program manager who reports to the board of directors. The organisational
structure of Ducati in Italy remains the same for the next two years before any decision is
made. The CEO of Ducati is retained and works with other members of the board. The
decisions on improving efficiency through Human resources management of Ducati will be
considered after setting the new plant in Italy. The production Facility in India will comprise
of engineers and experts from Italy with an Indian management predominantly present.

8
The primary focus of the organisational design is to align the two companies in a manner of
mutual growth and development. The management policies pertaining to the individual
units set up through the proposal are designed to suit the local management practices in the
initial stage with a time line set for gradual changes to an optimum efficient one. The flexible
management practice is what Bajaj Auto is required to exhibit in the current expansion
proposal.
Importance to development of people and technology within the company is another basic
management policy that has to be taken into account. The investments into training facilities
and research facilities in both India and Italy is an important management policy that has to
be taken into consideration.

Time Line:
December 2017 Initiate acquisition negotiations.
December 2018 Finalize proposals, start construction of Indian manufacturing unit,
start market research on new markets, initiate training for Indian employees.
March 2019 construction of Italian assembly plant, design of low cost bike, start
production in the Indian Plant, Design of Bajaj sports bikes.
December 2019 organisational and management evaluation, changes in
organisational structure.
March 2020 optimum production.

CONCLUSION
After careful analysis of the economic and other relevant conditions relevant in the Italian
motorcycle industry, it is recommended that Bajaj Auto should acquire Ducati and expand
the company by taking under its wings better technology and a varied model of motorcycle
under its ownership and production. The proposal to Bajaj Auto as mentioned through this
report to acquire Ducati is further justified by the mutual benefits available for the two
companies.

REFERENCE
Bajaj. 2011. Accessed 30/5/2017, http://www.bajajauto.com/bajaj_corporate.asp.
Capasso, M., and A. Morrison. 2013. "Innovation in Industrial Districts: Evidence from Italy."
Manag. Decis. 51 (6): 1225-1249. doi: 10.1108/MD-12-2011-0487.
Coppa, Marcello, and Krishnamurthy Sriramesh. 2012. "Corporate Social Responsibility
among Smes in Italy." Public Relations Review. doi: 10.1016/j.pubrev.2012.09.009.
Cristina De Stefano, M., Mara J. Montes-Sancho, and Timo Busch. 2016. "A Natural
Resource-Based View of Climate Change: Innovation Challenges in the Automobile
Industry." Journal of Cleaner Production 139: 1436-1448. doi:
10.1016/j.jclepro.2016.08.023.
Ducati. 2015. Accessed 31/5/17, http://www.ducati.com/company/profile/index.do.
Forni, L., A. Gerali, and M. Pisani. 2010. "Macroeconomic Effects of Greater Competition in
the Service Sector: The Case of Italy." Macroecon. Dynam. 14 (5): 677-708. doi:
10.1017/S1365100509990800.
Giannetti, Caterina, Marianna Madia, and Luigi Moretti. 2014. "Job Insecurity and Financial
Distress." Applied Financial Economics 24 (4): 219-233. doi:
10.1080/09603107.2013.872759.

9
Italy. Accessed 31/5/2017, http://www.suddefrance-developpement.com/en/country-
profiles/italy/political-outline.html.
Kurylko, Diana. 2011. "Range Rover Redesigns Are in the Works." Automotive News 86
(6485): 20.
Majeed, Abdul. 2015. "Future Priorities of Global Automotive Industry." New Delhi.
Manello, Alessandro, Giuseppe Calabrese, and Piercarlo Frigero. 2016. "Technical Efficiency
and Productivity Growth Along the Automotive Value Chain: Evidence from Italy."
Industrial and Corporate Change 25 (2): 245. doi: 10.1093/icc/dtv021.
MARTIN, WILL. 2016. Money and Market. Business Insider. Accessed 31/5/2017,
https://www.businessinsider.com.au/italys-political-and-economic-crisis-threatens-
europes-stability-2016-7?r=UK&IR=T.
Matsaganis, Manos, and Chrysa Leventi. 2014. "The Distributional Impact of Austerity and
the Recession in Southern Europe." South European Society and Politics: 1-20. doi:
10.1080/13608746.2014.947700.
Monteforte, Libero, and Giordano Zevi. 2016. "An Inquiry into Manufacturing Capacity in
Italy after the Double-Dip Recession." BANKPEDIA REVIEW 5 (1-2): 21-43. doi:
10.14612/MONTEFORTE_ZEVI_1-2_2015.
Muffatto, Moreno, and Roberto Panizzolo. 1996. "Innovation and Product Development
Strategies in the Italian Motorcycle Industry." Journal of Product Innovation
Management 13 (4): 348-361. doi: 10.1111/1540-5885.1340348.
Patrucco, Pier. 2011. "Changing Network Structure in the Organization of Knowledge: The
Innovation Platform in the Evidence of the Automobile System in Turin." Economics
of Innovation and New Technology 20 (5): 477. doi: 10.1080/10438599.2011.562356.
Segreto, Luciano. 2011. "Business History and Family Capitalism in Italy: New Challenges for
Researchers." Entreprises et Histoire (63): 66-74,4,112-113.
Shao, Jing, Marco Taisch, and Miguel Ortega Mier. 2016. "A Study on a Configuration Model
for Facilitating Sustainable Consumption: A Case Involving the Automobile Industry in
Italy." Journal of Cleaner Production 137: 507-515. doi:
10.1016/j.jclepro.2016.07.130.
Skld, Martin, and Christer Karlsson. 2012. "Technology Sharing in Manufacturing Business
Groups." Journal of Product Innovation Management 29 (1): 113-124. doi:
10.1111/j.1540-5885.2011.00882.x.
Thiel, Christian, Johannes Schmidt, Arnold Van Zyl, and Erwin Schmid. 2014. "Cost and Well-
to-Wheel Implications of the Vehicle Fleet Co2emission Regulation in the European
Union." Transportation Research Part A 63: 25-42. doi: 10.1016/j.tra.2014.02.018.
"Top Five Global Motorcycle Companies: Performance, Strategies and Competitive Analysis."
2014. New York.
Wezel, Filippo Carlo, and Alessandro Lomi. 2009. "Built to Last or New and Improved?
Trajectories of Industrial Evolution in the European Motorcycle Industry, 18851993."
European Management Review 6 (2): 107-119. doi: 10.1057/emr.2009.10.
Wright, Clinton. 2012. "Bologna to Focus on Sustainable Mobility, Innovation, and
Technology." Automotive Industries AI 192 (4).

10