Chinese motorcycles find local market a bumpy ride

Chinese motorcycles find local market a bumpy ride

Peter Janssen, Deutsche Presse-Agentur, Jakarta

Motor industry pundits predicted not long ago that Chinese
motorcycles would this year grab 50 percent of the Indonesian
market.

But the reality has proved to be good news for those terrified
by the threat of cheap Chinese goods flooding into Southeast Asia
as the region slowly liberalizes trade.

In the first half of 2002, a plethora of Chinese models with
odd-sounding names such as Tosso, Turbo, Beijing, Gaza, Happy and
Sumo have barely claimed 9 percent of the country's motorcycle
sales - which are expected to reach 2.5 million units this year,
according to industry sources.

Indonesia liberalized its car market in 1998, slashing import
duties on imports and lifting bans on completely built up (CBU)
vehicles, including motorcycles. The liberalization prompted a
huge influx of cheap Chinese-made bikes in 1999 that rattled the
market, traditionally monopolized by Japanese brands assembled
locally with Indonesian partners.

"In the beginning the Chinese motorcycle imports dominated
around 22 percent of the market, hence the optimism that they
would reach 50 percent in three years," recalled Ridawan Gunawan,
president of the Indonesian Motorcycles Industry Association.

In 1999, Indonesian traders flooded the market with Chinese
motorcycles at low prices ranging from US$600 to $700 a unit,
compared with $1,000 to $1,100 for similarly sized, locally-
assembled Japanese brands. Prices of the Chinese products were
initially kept down by smuggling the bikes in, or using easily
exploited loopholes in the country's customs regulations. The
regulations were finally tightened up last year.

When customs began to impose 25 to 35 percent import duties on
the imported Chinese bikes, the price differential between
imported and locally-assembled Japanese motorcycles fell to about
$100 to $200, said Gunawan.

Other factors that have taken the shine off Chinese brands has
been their lack of after-sales services and quality controls, all
of which are assured by the better established networks of the
Japanese giants - Honda, Suzuki, Yamaha and Kawasaki.

"The lesson from the Chinese motorcycle short story was that
they basically offered motorcycles at a very low prices, but with
fewer quality controls," said Urwan Herlambang, vice-president
director of P.T. Semesta Citra Motorindo. The Semesta group,
owned by Minister of Industry and Trade Rini Suwandi, launched
its own Kanzen motorcycle brand on the Indonesian market early
last year.

Initially Semesta advertised their product as locally designed
and assembled motorcycles with multi-sourced parts and components
from China, South Korea, Taiwan and Japan. Now they are going out
of their way to play down the Chinese connection.

"Unfortunately, when we started this business we were caught
up in the hustle-and-bustle of the Chinese products," said
Herlambang. "We have tried very strongly to change the image,
because we are not a Chinese product," he told Deutsche Presse-
Agentur dpa.

Kanzen is assembled in Indonesia with 60 percent of its parts
and components imported from Korea, 35 percent sourced in
Indonesia and the remaining 5 percent sourced from Taiwan,
Thailand and China.

"We have learned that the quality of components from China is
not consistent," he noted. Semesta, which plans to source 62
percent of its parts and components in Indonesia by the end of
the year, hopes to market itself as an Indonesian motorcycle
using Korean technology.

The group has established 70 distribution offices nationwide
that are matched by 70 after-sales service companies. Few, if
any, of the 67 newcomers marketing Chinese motorcycles on the
Indonesian market, have made a similar investment in building up
a real sales and service network, let alone local assembly
plants.

"Some have started the after-sales network, but covering
Indonesia's vast territory is always a very difficult job and
will take time, and requires a certain minimum economies of scale
that most of the Chinese-based motorcycles do not have," said
Gunawan. Honda, which claims about 60 percent of Indonesia's
domestic motorcycle sales, produces about 5,300 units a day at
its Indonesia assembly plant, or one unit every five seconds.

Chinese brand distributors in Jakarta proved hard to
interview. Gunawan predicted that in the long run only two or
three of the Chinese newcomers would survive.

Meanwhile, the bad reputation Chinese brands have quickly
earned in the past three years for poor quality has hurt their
future sales prospects. "It was an easy entry, but they have paid
the price," he said.