Query Rgdg. Competitive Advantage & Entry Barriers
You can provide me your mailid I will be more than happy to send you the pdf of entire 14 page Research Note.
Now, rgdg. your queries asto entry barriers and competitive advantage –
(1) LGB was the first company to develop Automotive Chains in India way back in 1966 in association with John Winklehofer of Germany. Since then till now, it has had a strong focus on R&D coupled with close association with global technology innovators like IWIS & Rexnord of Germany, Diado & Nichidoi of Japan and Gelb of USA.
(2) Company’s manufacturing operations are vertically integrated right from procurement of raw materials to the finished products ; coupled with largest Indian fine blanking facilities under its belt which helps in delivery of quality products at right time.
(3) All of LGB’s facilities enjoy ISO9001 certification by Underwriters Lab, USA which gives great credibility as far as OEM and exports markets are concerned.
(4) Over last many years, the company has built a strong ground network of more than 2000 dealers & 120 + salesman covering the entire country to cater tto the replacement market. Company’s network is the largest amongst its peers which ensures timely and customised delivery of company’s products to the replacement market.
(5) Company adopts a policy of following OEM clients’ expansion plans wherein as per the OEM manufacturing plant, it establishes its own manufacturing plant – because of this company has more than 15 Chain Manufacturing facilities across India as on date which is the largest in India.
(6) Over last many years, company has achieved a great automation as far as production processes goes by adopting the latest global technologies which has enabled the company to reduce its cost of production per unit to a considerable extent thereby ability to supply products to OEM at best competitive price which is hard to match by any new peer.
Now, having mentioned above points, let me address your queries â to continue enjoying 65 % + marketshare in OEM segment and 50 % + marketshare in Replacement segment even after 40 years of existence itself speaks highly of the inability of any peer to penetrate the market of LGB. And that too who is the peer â the strong US$ 3.8 bn. Murugappa group co. Tube Investments of India — which is striving it hard to grab higher marketshare since last decade and still has grown by only 26 % vis-a-vis 39.5 % growth aheived by LGB in 9’Months’FY12.
To speak in simple terms, its hard for any new peer to enter the market with huge manufacturing facilities that LGB and TIDC already have and still grab marketshare out of them… For that to happen, strong long-term relationships with OEM have to be in place as otherwise OEMs will not risk outsourcing the requirement to that company as it will risk its production and thereby marketshare in Two Wheeler Industry. Why OEM will go to any of the peer when already existent players LGB and TIDC are able to supply the required quantity at most competitive price… Talking specifically of LGB, as said before, its following OEMs and therefore enjoys supply-relationship with each and every Two Wheeler OEM operating in India be it Hero, Bajaj, Honda, TVS, Yamaha or Harley Davidson. Even Hero Motocorp, which has its group company Rockman supplying chains to it, still procures some of its requirement from LGB.
Now talking about Replacement market, as said before, LGB enjoys the largest dealer network in India which is spread over entire country. Its peers which are two in numbers viz., TIDC and Rockman are even not somewhere near to LGB as far as network goes. Rockman supplies most of its produce to Hero and therefore the only formidable peer left is TIDC and imported and unorganised sector. As far as imported chains are concerned, they are commanding much higher price than LGB’s Rolon brand of chains while offering almost similar or slightly superior quality as compared to Rolon. As far as chinese threat goes, they flooded the market between FY07-FY09 but eventually failed because of their low quality which called for early replacement and other vehicle issues. As far as unorganised segment goes, there is minimal threat because of the low scale of operations of unorganised segment.
Also, its worth mentioning here a very recent example of Replacement market and LGB’s response to its requirement and will and dedication of LGB’s R&D team. I am talking about the chain for premium bike Ninja which was in short supply as Ninja Bikes’ Chain EOL has just recently approached… There was a requirement from a customer for Ninja chain and placed an order with LGB (Rolon) for the same… Within a short time LGB’s R&D team came developed Ninja’s chain and delivered to the respective location. However, what was interesting to note was the R&D team’s strict instruction to the local company officers to be present during chain installation and take minute detailed notes of its installation, problems faced during installation and its performance post that. Based on this instruction, Rolon Asst Manager and Regional Manager came down with new chain and spent close to 3.5 hours observing whether the chain fitting was proper or not. They took copious notes filling at least 3-4 full scape pages to submit as a feedback to their R & D department. To customer’s surprise, although the chains being just developed as trial for Ninja by Rolon, the chain was a straight fit. This chain was X ring chain whose Rolon MRP was Rs.1880/-. For comparison, stock chain costs Rs.6800/-.
This above example was mentioned to enable you to gauge the reason why LGB enjoys a strong reputation and 50 % + marketshare in Replacement market even after short supply of its products for few years because of capacity constraints â such reputaion itself acts as a sufficient entry barrier which is hard to beat by any new peer.
Feel free to get back to me in case of any query.