Bajaj Auto Limited – Small is Better
Bajaj Auto Limited was established in 1945 as a trading company and obtained its production license in 1959 It is India’s largest two wheeler manufacturers and was dominant player until the early 1990s. The two-wheeler industry thrives in developing countries, especially in densely populated countries like India. But with the income level rising, people are opting for entry-level motorcycles rather than scooters.
The two wheeler industry grew by 11.6 percent-from 5.05 million units in 2002-03 to 5.64 million units in 2003-04. However, due to global competition, Baja’s market share declined from 49.3 percent in 1994 to 38.9 percent in 1999. In order to overcome this problem, Bajaj auto has decide that smaller is better and reduced significantly its head count, first in 1998 and then in 2001 by more than 3000 persons. In 2000-01, the company cut down its staff strength from 17,213 to 13,819. Bajaj has offered four VRS schemes till date for its staff and two such for its workers, and the attempt compacted its employee strength by 9.384(from 21.373 in 1997 to 11.531 in 2004), resulting in a reduction of Rs. 70.6 crore per annum in its wage bill. By doing this the company was able to improve its output/employee/year from 67.7 in 1997 to 101 in 2002 and then to 132 in 2004, an increase of almost 50 percent in 7 years. “The obvious goal to increase the productivity was made possible”, says Mr. Madhur Bajaj, the Vice Chairman. The productivity has gone up significantly in the last few years, from the level of 67.7 vehicles per employee/year to the level of 132 per employee/year in the year ended 2004. Consequently, the company’s R&D was focused on upgrading current products, developing new scooters, and cost reduction mainly in the entry level segments. The company is setting up a new facility at the Akurdi Complex near Pune for design, analysis, prototyping and testing.
In terms of growth, the company witnessed a sharp increase of 55.4 percent in its sales in the year 2002 as compared to market growth of 40 percent during the previous year. Bajaj auto was also able to offset its high raw material cost due to increased productivity of its employees, which also led to reduction in labor cost as percentage of net sales from 5.7 percent to 5 percent. In 2002, B ajaj Auto had a workforce of 13000 employees with a network of 422 dealers and over 1200 authorized service centers.