Two-wheel dealing in two continents

Chinese motorcycle maker revs up for European market, while African engine turns over nicely

Lifan Group's president Yin Mingshan is known to be a big fan of Japanese brand Honda, which 50 years ago grew from a humble motorcycle producer into a major car manufacturer.

Similar to his role model, Yin established a small motorcycle factory with 200,000 yuan ($32,000; 25,000 euros) in Chongqing in 1992, and expanded it into a successful private enterprise, also producing cars and engines.

And in 2001, Lifan began exporting to Japan, the first time a Chinese motorcycle company had "returned serve" to the country whose motorcycles had flooded the Chinese and every other market.

But Lifan, which means "powerful sails", is catching up, now shipping motorcycles to more than 100 countries, and spreading to new territories.

Zhu Xiaoman, vice-president of Lifan's international business segment, says the African market has grown greatly in recent years.

"Africa is like the Chinese market 20 years ago - with great potential," Zhu says. "We cannot underestimate the market's momentum."

In 2012, revenue from the company's motorcycle exports fell 15 percent year-on-year to $230 million, yet its deliveries in Africa rose by 14 percent to 80,000 units.

Among the African countries, Nigeria is the most strategic one for Lifan, the company says.

"It is a typical African market: the bestsellers are medium to low-end models, and the competition (mostly from Chinese manufacturers) is fierce in this segment."

By studying the traits of this market, Lifan can apply the knowledge to other markets on the continent, its statement adds.

Lifan has not established any assembly plant in Africa, it just exports parts for assembly by local dealers. In this way it avoids the high tariff imposed on final products.

Many companies adopt the same strategy.

"Only when the market is able to sell 5,000 units or more every year should a company consider building a subsidiary there," says Zhu Xiangyang from CFMoto, a medium-sized manufacturer specializing in large-engine models. "Overseas offices should never be opened hastily, as it is hard to survive in this new environment. It's the same reason why only few Chinese brands have built plants in mature markets such as Europe or the US."

Lifan motorcycles are priced at around $500 in the African market, equivalent to the cost of a second-hand European or Japanese make.

However, despite its success, Lifan is suffering with others from the most prolonged economic downturn in history.

Since the financial crisis spread across the world in 2008, the once-steady overseas markets have fluctuated. Figures from the China Association of Automobile Manufacturers' motorcycle section show export volume declined by 17 percent year-on-year to 8.94 million units in 2012, and the industry's total revenue slumped by 5 percent to 109.4 billion yuan (January to November).

January used to be the busiest month for motorcycle manufacturers and many stocked up to greet the expected demand, but the market reaction proved disappointing.

Sales were also hit by the cancellation of a Chinese government subsidy plan that had been operated over the past four years. Previously, rural residents in China could get a subsidy of 650 yuan to buy a motorbike. The regular price of a motorcycle ranges from 3,000 to 8,000 yuan.

As a result, Lifan has changed strategy by investing more on research and development. The company now claims that 90 percent of its products are originally developed, rather than copies of foreign brands. It also has a team dedicated to developing large-engine vehicles, a feature of high-end models.

"These products are mostly sold to South America, the Middle East, eastern Europe and some Chinese cities, where the purchasing power is higher," says Lifan's Zhu Xiaoman.

Materials used in all its motorbikes are tested to stand temperatures from -40 C to 50 C to cope with extreme climate variations in countries such as Egypt and Russia.

But the sales volume of high-end products remains small. While total production volume reaches a million, vehicles with engine size above 250 cc only account for about 1 percent.

Most models then are inexpensive, targeting the developing markets and with low margins. The Chinese government grants a 15 percent tax rebate for motorcycle exporters and many companies rely heavily on this money.

Lifan doesn't expect to change from a volume producer to a high-end manufacturer overnight, but is gradually expanding that way.

"The traditional medium to low-end products are produced in a large volume, so it is not realistic to get rid of them overnight," Zhu says. "In the future, we will keep eyes on both the low-end and high-end, but we will put more resources into the high-end."

In doing so, it has formed partnerships with various European manufacturers to improve the function and design of its models.

"These attempts have already paid off," Zhu says. "And our products are getting more sporty, more urban, and of course, much cooler."

Zhu admits Chinese motor brands will not be able to properly compete with foreign brands for some time yet, but they are making good progress. The 250cc machine used to be a void for Chinese manufacturers, but now several companies are producing decent models.

Lifan has no timetable or sales target yet for producing high-end sports products. As the domestic and overseas markets remain sluggish and show no signs of a quick recovery, Zhu predicts a new round of changes is on the horizon.

"Mergers and acquisitions will happen frequently within the industry, but we're confident we've already got a considerable market share," he says.

wangchao@chinadaily.com.cn

(China Daily 04/19/2013 page11)