China's Grip on Harley-Davidson

According to Bloomberg Businessweek, Harley-Davidson has been struggling to establish any presence in the Chinese market for two wheel vehicles due to regulations on motorcycles. These regulations include the banning of motorcycles from elevated highways and major roads to help limit the amount of external noise and drive-by thefts in major cities, such as Shanghai and Beijing. Even though Harley-Davidson has attempted to ease these laws by lobbying the Chinese government, all of Harley's attempts have come up empty handed. Harley-Davidson projects that if the Chinese government will allow motorcycles into certain areas, sales could jump by as much as 40% annually despite the fact that Harley motorcycles are subject to import taxes that can add up to 30% percent to the sticker price of the motorcycle. The 30% increase in price does not even figure in China's consumption and value-added taxes either. Should Harley-Davidson look at there investment into the Chinese government as sunk cost if they are not able to get legislation passed in their favor? Or is the chance at such a high profit margin increase truly worth the risk? Something interesting to keep in mind is that Honda sold 1.29 million scooters in China last year compared to only 268 Harley-Davidson's that were sold in China last year. If Harley could switch some of those 1.29 million buyers to motorcycles, will profits rise or will the amount spent on lobbying the government play into their profit equation as well?


Mitchell Stone said...

I think the potential benefits outweigh the costs incurred in this case, but only to a certain point. While Harley-Davidson is spending their time lobbying the government, Honda is busy penetrating the market and gaining customer loyalty. Harley-Davidson should continue to lobby, but if it does not produce results after a certain amount of attempts, they should look elsewhere. The possibility of adapting their product to the Chinese culture is probably not a feasible option since Harley-Davidson's image is that of a tough, loud, vehicle, and not a small, toy-like scooter.

Dr. Tufte said...

-2 on Brandon for two different grammatical mistakes.

Well ... it's a sunk cost if they can't get it back, right? So, certainly the question for Harley ought to be whether their future marginal investments in lobbying China will pay off.

As to Mitchell, I wonder how much lobbying Honda did to get in that position?

Brandon said...

I am not sure if Honda would have had to do much lobbying for their scooter-like products due to the fact that they carry such a different image in people's minds. The overall image of motorcyles may have doomed Harley-Davidson from the start. Not only are Harley-Davidson motorcylces viewed as tough and loud machines, they are also tied with things that are presented through the popoular media such as unruly bikers, biker gangs and the violence that is caused by these gangs. (An example of this would be the TV show: Son's of Anarchy on FX.) This representation of motorcycles might have been enough to convince China to ban them in the first place in order to cut down on thefts and loud traffic noise. Since scooters don't carry the same kind of overall image, it may have been a lot easier for Honda to penetrate the Chinese market.