Reference no: EM131288284

Lifan: a Chinese sub-supplier and brand manufacturer of motorcycles is aiming at the global market

In 1992 Yin Mingshan established the Lifan Group (www.lifan.com.cn) in Chongqing together with nine employees. Yin Mingshan was then 54 years old and came from a job as an editor in the Chongqing Publishing Agency. Lifan started out as a supplier of motorcycle parts to original equipment manufacturers (OEMs) of complete motorcycles and later became a supplier of complete motorcycle engines. Today it is a producer of its own branded Lifan motorcycle. In ten years Lifan has developed into a state-level, large private enterprise - Chongqing Lifan Industrial (Group) Co. Ltd.

There are more than 3,800 employees in the Group, which includes eight companies, three marketing companies and one city-level technical centre. Lifan was the first private company to establish a Party Committee within the company to help in its development. In September 2001 Lifan motorcycles were first sold to Japan, thus overwriting the established pattern of no motorcycles being exported to Japan from China. In Vietnam Lifan motorcycles have absolute predominance. The commercial counsellor of the Vietnamese Embassy in China said: ‘In Vietnam, the Lifan brand is more famous than Honda.'

In order to make the best use of its brand, Lifan is manufacturing as an outsourcer household electrical goods, wine, anti-theft doors, mineral water, garniture, sports shoes, etc. and building a ‘Lifan Pyramid' with motorcycles, engines, automobile electrics, agricultural machines and media. In 2002 the Lifan Group achieved the following sales: 714,000 branded motorcycles, placing it fourth in the Chinese motorcycle industry; 1,840,000 motorcycle engines, which made it number one in the Chinese motorcycle industry.

More than 1 million motorcycle engines were exported to foreign markets. In 2002 Lifan had total sales of $478 million, of which $117 million came from export. Its motorcycles were exported to over 70 countries. World market for motorcycles The Japanese company Yamaha has published a market survey result, which shows the demand for motorcycles in the world will reach 27.5 million units, 60 per cent higher than in 2001. The survey indicated that due to the continuous expansion of the Vietnamese and Indian motorcycle markets, the demand in 2002 in the Asian market (excluding China) is expected to reach 10.2 million units, 10 per cent higher than in 2001.

The demand in China will reach 11.7 million units, 5 per cent higher than in 2001. The demand in Japan is expected to be 810,000 units in 2002, 3.8 per cent higher than in 2001 and in North America demand will be around 800,000 units, about 3 per cent higher than in 2001. Since 1995 Chinese motorcycle production has ranked first in the world. In 2001 28.8 million units were exported from China which made China the number one motorcycle export country. However, there is still a gap between the motorcycle great powers such as Japan in areas such as sales income, brand, R&D and quality.

The management philosophy of Yin Mingshan, CEO of Lifan
Here are some statements, taken directly from the Lifan website:
Fellows, our burden is heavy, but we have confidence. Honda and Yamaha are all over, what shall we Lifan people do? I believe, with our plan of ‘Big Lifan', ‘New Lifan', with enterprise culture integration, the Lifan people will work together. When the civil industry is in the most dangerous situation, Lifan people are forced to shout out: ‘innovation, innovation, innovation'. Then the ideal of ‘Long live Lifan' will come true

Finally, I wish all staff a Happy New Year and a Happy Family
Yin Mingshan at the Spring Festival (Chinese New Year), March 2003
The penetration of Lifan motorcycles in the world market has caused concern in the Japanese motorcycle manufacturing industry. This is the main reason the Japanese press showed an interest in the Lifan Group, but Japanese journalists also think 90 per cent of Chinese motorcycles are copying Japanese models.

Lifan invests in automobiles
Lifan has long held the ambition to enter the automobile industry. In January 2005 it made its debut into the car market with the introduction of the Lifan 520 sedan, assembled in the company's new plant in China. The US$9,700 price tag on the car includes leather seats, dual airbags, a huge boot and a DVD system with a video screen facing the front passenger - a combination that could cost twice as much in a comparably equipped mid-size sedan in the United States. Wages of less than $100 a month have helped control the cost. The assembly plant is better organized than many Chinese factories, although it still maintains large inventories of parts and materials awaiting assembly, incurring interest charges to finance these supplies. President of the Lifan Group, Yin Mingshan, has no doubts that China can also compete with the United States. ‘Americans work five days a week, we in China work "seven days",' he says. ‘Americans work 8 hours a day, and we work 16 hours' (www.lifan.cn/en/shownews).

Lifan has started exports of its Lifan 520 sedan to developing countries in Asia, the Middle East and the Caribbean, but several more years of work are needed before the company is ready to compete in industrialized countries. As Yin Mingshan concludes: ‘Chairman Mao taught us: if you can win then fight the war, if you cannot win, then run away. I want to train my army in these smaller markets, and when we are ready, we will move on to bigger markets.

Chongqing motorcycle manufacturers turn to automobiles
As Lifan aggressively enters automobile manufacturing two more motorcycle manufacturers in Chongqing, Loncin and Zongshen, are also targetting the automobile industry. Loncin and Chendu Shanlu Automobile Co. Ltd established the Loncin Chendu Automobile Co. Ltd and plan to reach an annual output of 30 million automobiles in three years. Data shows that the domestic motorcycle market capacity has reached 12 million units, and will reach 15 million units within five years. This is its saturated capacity.

Meanwhile, owing to tough market competition, the profit of each motorcycle manufacturer is reducing rapidly. Honda has pushed forward a cheap style to the South East Asia market, only US$700+ against the price advantage of Chongqing motorcycles. This is a great threat to Chongqing motorcycle manufacturers and their overseas markets. Though they have been exploring new bases and seeking new markets in the Middle East, South Asia, South America and Africa, they know the motorcycle industry is at the top of the growth curve. Compared to the sad state of affairs in the motorcycle industry, the automobile manufacturing industry has a wonderful future. In recent years the bus market has been increasing at better than 20 per cent.

Under the push of expanding financial policies, highways are being laid out all over the country, which has brought senior-grade buses a broad market space. Existing urban buses are old, but with the development of cities they will be updated. A survey by Lifan shows that in the next ten years, market capacity for buses will be still over 20 per cent. The huge market demands ensures profit. The profit on automobiles is about 10 per cent, with a net profit of 8 per cent, twice that of motorcycles. In the coming five years this figure won't be changing much (Lifan News, 6 March 2003).

QUESTIONS
1. Based on the information in the case, how is the international marketing management philosophy in Lifan different from a typical company in western Europe?

2. How can the difference in marketing management philosophy be explained by the differences in culture between western Europe and China?

3. How should Lifan overcome the cultural differences if they decide to enter the western European market?