TSP4 — The upward and upward journey of Bajaj Auto

The 1970s were the most difficult time to do business in India. The effects of the 2 wars still taking their toll, the license raj rampant, foreign exchange dwindling, and frequent new government policies to keep businesses in check.

Dhirubhai Ambani always said that the government is the most important stakeholder in a business. In 70s the most important stakeholder turned its back on businesses.

Bajaj Auto faced diverse challenges.

To begin with, Kamalnayan Bajaj, Rahul Bajaj’s father decided to align with Congress (O) rather than the ruling Congress (I).

The government had decided to devalue the Indian Rupee against the US dollar from at-par value to just above Rs. 4.

The license raj did not allow them to expand capacity — Yes, in those days you needed the government’s permission to expand capacity. The applications were denied since “the country had limited resources and little demand for your scooters.”

Have you heard of Jawa, Rajdoot, Lambreta? Doesn’t matter. They were the competitors in those days. Some of them were favored by the government.

To make matters worse, the spare parts Bajaj Auto needed were to be imported from Piaggio, Italy. And foreign exchange deals were not approved by the government beyond a point.

Bajaj Auto kept matters simple:

1) Strategy was — to get volumes, at the lowest price, with the best quality. In Rahul Bajaj’s words, “You don’t need to go to Harvard to learn that.”

2) The foreign exchange problem was initially solved by loans from the World Bank, then by scouting for dealerships outside India. In a few years, Bajaj Auto was selling in Indonesia, Bangladesh, Ethiopia, Nigeria, and a few more countries.

3) In an audacious move, Bajaj Auto defied the license raj by producing more scooters than the license raj allowed. They could do that since they had identified a loophole in the policy. And Rahul Bajaj defended that in the government hearing.

4) Lastly, keeping some excess capacity helped. When finally the government needed extra foreign capital, they allowed scooters to be sold to different countries. In year 1, they fetched 9 cr for the country (a huge sum then), in year 2, they fetched 12 cr.

5) Establish an R&D center very early in the Akurdi plant.

And in all this, not once did they worry about the competition. The only thing they focussed on was where the customer was headed.

“Humara Bajaj” was a result of courage, & strategy, not luck or nepotism.

The Strategy Project

References:

Rahul Bajaj, an extraordinary life by Gita Parimal