There has been a lot written recently about Harley Davidson failing to sell more bikes in 2010 in all of its dealerships in all of China (268 bikes sold from 7 dealerships) than in just one of its Milwaukee dealerships (more than 500 for the year). Despite this extremely underwhelming sales performance, Harley Davidson will be seeking to quadruple the amount of dealerships on the Mainland to 28 by 2016. This is a massive gamble given not only the company’s sales track record in China up to this point but also the history of other Western companies unable to find success despite huge investments in this vastly different environment (see Best Buy). So the question now is whether or not Harley’s bet in the Middle Kingdom will pay off or is China’s market just not made for the motorcycle company’s distinctly American style (and cost). Below are highlighted three reasons why Harley may be right to take the risk of expanding into the Chinese market and could potentially be able to reap the rewards that are held in this rapidly developing market.
A Sophisticated and Intricate Highway System.
Many people unfamiliar with China are not aware of just how well developed China’s highway and expressway system has become in the last 10 years. This is not just a story of a 3rd world country experiencing rapid growth. China can now boast one of the world’s largest expressway systems, second only to the U.S. As of January 2011, there are 46,000 miles (74,000km) of expressway, from 0 miles in 1988 when construction first began and from only 7,421 miles in the year 2000. That’s over 600% growth in just 10 years! To put this in perspective, Australia’s Highway 1, which connects all of the country’s state capitals, circumnavigating the continent, and is the longest national highway in the world, is just 9,000 miles long.
This type of highway network offers a huge amount of opportunity for the type of long distance motorcycle travel that appeals to a Harley owner. We’re talking about the tradition in which you can earn a patch for completing the “Iron Butt” challenge, which is given to those who are able to ride 1,000+ miles in one day. Not only is there an abundance of roads to ride, but there is an amazing diversity of things to see in China, 56 ethnic minorities and Eco-systems that range from the deserts and frigid colds in the north, to the tropical climates in the south and the Himalayan mountains in the South West. This just means that the immense network of highways that traverse the country will be only just the beginning of the adventure, as the many smaller 国道, or national roads, offer even more opportunity to explore the country once you’ve gotten to where you want to be.
A Large Market of People Hungry for Luxury Goods
One of the criticisms one can find railed against Harley’s efforts in China are that it’s just too darn expensive. That may be true (and the massive tariffs of up to 30% in addition to consumption and VAT taxes raised on the motorcycle imports don’t help that price tag much), however price tags haven’t held back H-D in the American market and luxury brands in general have been enjoying huge success in China’s expanding market as the middle and upper class numbers continue to swell. Though there are still hundreds of millions still living below the poverty line around the country, the Chinese overall are eating up high priced brands like it’s, well, their first opportunity to do so in half a century!
McKinsey recently did a report on the growing luxury market in China and noted that China will account for 20% of the world’s luxury market by 2015, a segment worth $27 billion. This growth is not just reserved for Gucci bags and Versace shoes though, as luxury cars have similarly seen huge growth, with Audi reporting sales of 140,000 cars in Hong Kong and the Mainland in the first half of 2011, 28% growth over the previous year. Mercedes-Benz and BMW similarly enjoyed sales growth of 52% and 61% respectively over the same period in 2010. Thus, with this market offering such huge potential and consistent growth, it’s hard to imagine that the Chinese would have a hard time adopting a foreign brand simply because it costs too much. If anything, there would be reason to believe that this could in fact help Harley’s sales.
The Chinese People Like Things American
This one is a little less scientific and more of a subjective opinion built from experience living in China, but one certainly gets the impression that, in general, the Chinese are very welcoming and open to ideas and cultures of American origin. For example, McDonalds and KFCs have seemingly become ingrained into the local cultures as the China Daily reported in 2004 that there were more than 2,000 KFCs around the country and growing at a rate of 200 per year. It doesn’t just stop at fast food since, as of October 2011, Apple’s iPhone is now the best selling smart phone in China (which taps into the willingness with which the Chinese embrace luxury brands addressed above). As a final example, despite having almost no contextual religious significance in the country with a tiny and nascent Christian population, Christmas has regardless begun to become wildly popular here.
The Chinese seem to have cultivated quite a bit of admiration for Americans and American culture as well. Even the idea that was once known as the “American Dream”, of setting out and making it on your own, has been uprooted from its origins and eagerly adopted in China, becoming a familiar story line as it is put into a Chinese context, with success stories of rags to riches becoming more and more commonplace. This type of mentality lends itself well to the Harley-Davidson doctrines of freedom and independence- the idea of being on your own and in charge of where you go. Thus, it would seem to this casual observer of both Chinese and motorcycle culture that it wouldn’t take too much of a stretch of the imagination to see a market willing to embrace the freedom and even the rebel image (even if faux, this is China after all) that comes almost pre-packaged with a Harley Davidson motorcycle.
So What’s Holding Harley Back?
There’s a saying that ex-pats, foreigners living and working abroad, have in China, which is that “In China, everything is possible, but nothing is easy.” Though there may be a lot of potential for Harley-Davidson in the Chinese market, the hurdles that exist could still be even greater. Like with most difficulties one may encounter when doing business in the country, government regulation is at the root of these. Overcoming the 30% import tariff acting as a major price barrier, making some models of H-D bikes more expensive even than many luxury brand cars, is a major problem the Milwaukee based company must solve as it moves forward. The other difficulty that leisure motorcyclists face in China is the often strict regulation placed onto motorcycle travel in some major cities and on all of the massive inter-city expressway system mentioned above (watch the video at the end of this article to see an apparent exception made for a huge group of Harley bikers). Even international cities like Beijing and Shanghai have major restrictions on where motorcycles can and can’t go, with restrictions placed on plates or even outright bans in certain areas. Finally, though these restrictions are typically only loosely enforced, you are still left at the whim of the current regulation “of fashion” as they are more accurately inconsistently enforced, fostering an atmosphere of uncertainty that doesn’t sit well with those weighing the decision of making a significant investment in a motorcycle.
Nonetheless, it seems Harley Davidson is aware of these obstacles and prepared to take them on in an effort to tap into the world’s largest consumer market (by volume of people). As a recent Business Week article, “Why Harley Can’t Rev Up in China“, discusses, as the company plans to increase it’s dealership numbers in the country, it will simultaneously be petitioning the government to loosen restrictions on motorcycle travel. The article also points to Harley’s efforts to foster more of the motorcycle and leisure-riding culture among the Chinese through various initiatives, including helping to build up local H.O.G. (Harley Owners Group) riding chapters, in an effort to build up awareness for the brand.
China is a tempting market for any company to want to penetrate. The trick though is how to generate excitement in a country that already has its own deeply rooted culture so different from those in the West with fully integrated traditions that trace back farther than any other society in the world. There are many reasons for Harley to believe that there is potential for them in China, reasons the company must clearly believe exist as they continue to increase their efforts despite their uninspiring sales performance in 2010. With 28 dealerships planned in the coming years and surely many future promotional events, rides, and clubs intended to generate buzz, it will be interesting to see how they fare as the culture of motorcycles in China continues to develop.
In the meantime, there are still the 268 new Harley riders as of last 2010 that will be trying to get the most out of their new rides! You can see a group of them that some friends of mine were able to catch on video on an expressway outside of Beijing (how they were allowed on to the highway though, we are only left to guess at).
UPDATE: I just came across this article in Businessweek debunking 3 Myths About Chinese Consumers. The topic about Harley ownership comes up in Myth #3 which is about whether or not the Chinese consumer appreciates experiences:
The outdoors is a big focus of activities, as evidenced by the popularity of such brands as North Face, Columbia, and Jeep. Clubs that revolve around certain activities are taking off. The Harley-Davidson Bikers Club, otherwise known as H.O.G. (Harley Owners Group), currently has six chapters across China. As H.O.G.’s website very rightly states, “Harley-Davidson sells a lifestyle instead of motorcycles.” Here again, the point is not quite about flaunting status but about the beauty of the ride and the feeling of freedom it offers. And with large-engine motorcycles banned within most city limits in China, most Harley owners don’t ever really get to show off their chopper to people around town. What they do get to do is ride free in the country and enjoy the camaraderie of other owners.