BAJAJ AUTO LIMITED Smaller is Better, Hamara Bajaj a live case.

. Theory applicable to discuss the case: i) ii) iii) iv) Production theory and estimation Consumer behavior The production function with one variable input Return to scale ( for long run)

Bajaj Auto Limited was established in 1945 as a trading company and obtained its production license in 1959. It is one of Indias largest 2-wheeler manufacturers and was a dominant player until the early 1990s. The 2-wheeler industry thrives in developing countries, especially in densely populated countries like India. But with the income levels rising people are opting for entry-level motorcycles rather than scooters. The 2-wheeler industry grew by 11.6 percent from 5.05 million units in 2002-03 to 5.64 million units in 2003-2004. However, due to global competition, Bajajs market share declined from 49.3 % in 1994 to 38.9 % in 1999. In order to overcome this problem, Bajaj Auto has decided that smaller is better and reduced significantly its head count, first in 1998 and then in 2001 by more than 3,000 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 2 such for its workers, and the attempt compacted its employee strength 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 101in 2002 and then to 132 in 2004, an increase of almost 50 % in 7 years. ( This is a live case and the data available form the source: Company Annual Report 2004-05 ; for the year 1997, 2002 & 2004 the production was 1,439,174 ; 1,212,748 & 1,516,876 and no. of employees were 21,273; 13,482 & 11,531 respectively). The obvious goal to increase the productivity was made possible, says Mr. Madhur Bajaj, vice-chairman. Productivity has gone up significantly in the last few year, from the level of 67.7 vehicles per employee/year to the level of 132 vehicles per employee/year in the year ended 2004. Consequently, the companys R& D was focused on upgrading current products, developing new scooter, and cost reduction mainly in the entry-level segments. The company has set 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% in its sales in the year 2002 as compared to market growth of 40% 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 labour cost as percentage of net sales from 5.7 % to 5% . in wow, Bajaj had a workforce of 13,000 employees with a network of 422 dealers and over 1,200 authorized service centers.

Increasing return to scale arises because as the scale of operation increases, a greater division of labor and specialization can take place and more specialized and productive machinery can be used. Decreasing returns to scale, on the other hand arise primarily because as the scale of operation increases, it becomes ever more difficult to manage the firm effectively and coordinate the various operations and divisions of the firm. In the real world, the forces for increasing and decreasing returns to scale often operate side by side, with the former usually overwhelming the latter at small levels of output and the reverse occurring at very large levels of output.

In the present scenario Bajaj Auto, which revolutionised the two-wheeler market in the country through its Hamara Bajaj' campaigns in the 1980s and 90s, today sells just one scooter model the 100-cc gear-less Kristal. Hamara Bajaj-famed two wheeler giant Bajaj Auto, group chairman Rahul Bajaj differed with his son and MD Rajiv Bajaj's decision to exit production of scooters saying he was not only not convinced but was "hurt" by it. "I feel bad, I feel hurt," Rahul Bajaj said, but son Rajiv opined that solutions should come more from logic than emotions. "Brands that are more sharply positioned are brands that are more profitable...It (scooter) is not a really profitable market," managing director Rajiv Bajaj said on the issue. He, however, hinted the company might one day come back into the scooter segment. "We have some good ideas on how to bring back the magic of a new kind of scooter. If we come back on the strength of a new category, I think we will not only have a scooter business but also a very profitable scooter business," Rajiv Bajaj added, Source: The Times of India, Dec 16, 2009).

Points for discussion: 1. How income level of common people effects the market ? 2. What type of effect is it ? Discuss. 3. Was the decision taken by Mr. Mathur Bajaj correct ? 4. What is the significant of Smaller is Better ? 5. Why the no. of employees are reduced ? 6. Discuss return to scale on the basis of various data given in this case. 7. Do you think Bajaj 2- wheeler market is going to boom again? Discuss your view.