Harley-Davidson's market entry strategy in China

HD Executive Summary

The forbidden image of the motorcycle rider in the Forbidden City

Harley Davidson Executive Summary: Entry into the Chinese Market

Organizational Purpose

Beginning as a representative of the renegade motorcycle counterculture, Harley Davidson is now beloved international brand name representing rebellion and freedom. It seeks to bring this ethos to China. "For years, iconic motorcycle maker Harley-Davidson Inc. has pushed hard to find ways to sell its motorcycles in China," and the company has an opportunity to open its first retail outlet in China since World War II (Nakashima, 2006, p.1) Liu Xintong, secretary-general of China Motorcycle Industry Association applauds the prospect, saying: "Motorcycle riding fans are still eager to get top machines like Harley-Davidsons" (Nakashima, 2006, p.2).

Performance measures

China's middle class is expanding, although the company may take time to show a profit, as "the company will have to sell its products, which can exceed $20,000 retail, in a country where most Chinese make around $1,000 a year," thus although the potential is "enormous" to develop a leisure-oriented market of motorcycle riders, the financial risk is also great (Nakashima, 2006, p.2).

Consumer behavior

Motorcycle use at present, is currently limited by national laws. 170 Chinese cities limit or ban motorcycle use or ownership, allegedly because of air and noise pollution, traffic concerns, and safety concerns. This means that although Harley Davidson is allowed to sell its motorcycles in China, the majority of Chinese citizens cannot use the vehicles in the streets. The spokeswoman for the Shanghai Public Security Policy Consultation Office said: "We are not encouraging motorcycle use" (Nakashima, 2006, p.1).

Global markets

After China joined the World Trade Organization in 2001, import restrictions, quotas, and tariffs dropped substantially against foreign motorcycle manufacturers, but municipal traffic ordinances have remained (Nakashima, 2006, p.1). These prohibitions function as "de facto trade barriers" (Schmid 2004).

Risk and return analysis

The size of the population and the interest in Americana means China offers a relatively untapped market. Because the relaxation of market barriers to entry into the Chinese market have only recently come down, the potential for return for a first-mover like Harley Davidson is enormous, particularly as it already has strong brand name recognition. Yet there is also great risk if local governments continue to place restrictions on motorcycle use and construction, such as engine size (Nakashima, 2006, p.1).

Furthermore, "a population with a restricted but expanding disposable income will be a challenge" ("Harley-Davidson roars into China" BBC News, 2006). The Chinese business culture remains "fast-changing, enigmatic and anything but transparent, China is a nation where local corruption and shifting rules abound" (Schmid 2004). At present unlicensed, unauthorized Harley Davidson dealers are now operating in China, catering to local enthusiasts, but if the company does not act now it could lose the brand integrity and recognition it has worked so long to build around the world, as these dealers capitalize upon the name without giving money to Harley Davidson, and sell an inferior product, diluting the Harley brand name's reputation for quality as well as speed (Schmid 2004).

International risks

If the company does not make a move now, it also runs the risk of losing out to international competition such as BMW, which is striving to build its motorcycle market in China (Nakashima, 2006, p.1). Honda has also begun a joint venture in the nation (Schmid, 2004). Volvo has decided to move car production to China as have other foreign auto manufactures, making the country the world's largest auto market ("Harley-Davidson roars into China" BBC News, 2006; Schmid 2004). Chinese consumers clearly are seeking vehicles with more power.

China is a global economic powerhouse that Harley and other American enterprises can no longer afford to ignore. U.S. imports from China averaged $163 billion in 2003 and only $28 billion worth of American goods were sold in China (Schmid 2004). To redress this balance, American companies like Harley Davidson must act now, and seek lobby to change unfair national laws that limit motorcycle use.