Opportunities and threats of the Colombian motorcycle industry

Introduction and Background

Colombia in the recent decennary has had continued growing after the recession in the late 90 's. Strong growing is seen between 2005 -2007 when the growing rate increased from 5.7 % - 7.5 % while the rising prices rate stayed below 6 % ( BARRIENTOS 2010 ) .

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This shows that the Colombian economic system is retrieving easy without overheating. Its GNI has significantly increased from $ 1700 to $ 8600 in the past 5 old ages even with the impact of fiscal crisis in twelvemonth 2009 ( Bank 2010 ) These three factors show the steady economic growing which improves the stableness and assurance for investings.

In add-on, other concerns have increased assurance puting in Colombia. There has been an addition in investing from 15 % to 26 % of the GDP in 2002 boulder clay 2009 ( Anonymous2009a ) . The Colombian FDI in twelvemonth 2010 reached $ 6.4B in the first 8 months and rose to 19.7 % , compared to figures last twelvemonth. Business Week besides published an article on the Colombian economic system and titled it `` Colombia: the most utmost emerging market on Earth '' ( Farzad 2007, Alsema 2010 ) . All of these positive indexs show that the Colombian economic system will turn out to be a favourable environment to get down concern in. In other words, a stable GDP with low rising prices, plus a rapid addition of GNI, will let a higher demand of luxury bikes. This is a critical component because many neighbouring states such as Brazil have non shown economic potency and its recovery norms 2 % less GDP growing as compared to Colombia ( Anonymous 2009b ) .

Income

In relation to the bike to income earning, a bike is considered as a luxury good with an estimated monetary value of $ 2150 ( Davidson 2010 ) , therefore aiming high income earners.

Colombia has an unequal distribution of income with a GINI index of 58.5 ( Bank 2010 ) . 62.7 % of the income belongs to 20 % of the population ( Development 2008 ) . However, in sing the fact that the population with disposable income higher than $ 25,000 increased from 6.2 % to 11.2 % , in unit footings, there are 608,000 Colombians who now have the ability to pass $ 18,750 on norm ( Euromonitor 2010 ) .This signifies a speedy growing in disposable income as a consequence of an addition in the demand of luxury goods. The tendency can besides be observed by the addition in the changeless PPP since early 90 's. In 2010, the value of PPP is $ 1273.18, 6times of that in 1990 ( Nations 2010 ) . Colombians are observed to be hiking their life criterion leting them to afford luxury goods such as Eagle Motorcycles. A luxury merchandise requires a uninterrupted growing for its demand to increase. Colombia 's growing in disposable income therefore provides a favourable environment.

Transportation system

Colombia has a great air power transit system, with direct flights to 984 different airdromes. Additionally, Colombia has 40 regional airdromes with the major international Airport in Bogota 's El Dorado managing lading weight 350 million metric dozenss yearly, 1st for cago capacity and one of the busiest in Latin America ( Division 2007 ) . This will let for the transferring of goods to be dependable and therefore assisting on the catching up on tight agendas of usage made bikes. This is an chance because in order to do cargos on the bike, a convenient transit to present around the state is required.

Increased demand

In the recent old ages, there has been a demand roar of bikes in the Latin American states ( Corredor 2002 ) . Latin America has the 2nd highest addition in demand of bike, ranking merely below the Asia Pacific ( Freedonia 2007 ) . The addition in exports from major rivals proves the addition of demand of bikes ( Francis 2010, Farlex 2007 ) . Two major rivals, Honda and Mitsubishi, had increased their exports to 100,000units to run into the demand of bikes ( ANONYMOUS. 2010c, Anonymous 2010d ) . Although it may change with the existent merchandise, it is an indicant of the high demand of bikes. Due to the addition in demand, Eagles might be able to derive market portion during the roar of demand particularly since the mark market is merely 11.2 % of the population.

Hazard

Rivals

As mentioned above, there are several major rivals. Eagles has an mean monetary value of $ 2150, while Honda is establishing bikes for merely $ 600 ( Davidson 2010, Hagiwara. 2010 ) Even though these two merchandises may non be resemblance replacements, and Honda is the market leader who has 27 % market portion ( Gale 2007 ) , this will be a major hazard. If the Honda run selling lower-priced bikes is successful, the market portion of Eagles may be damaged. This low monetary value run may be caused by the production of Honda in Brazil, as it has a lower labour cost as compared to US ( Worldsalaries 2008, Bureau 2010 ) . Eagles should see take downing the monetary value and cost to increase their fight.

Trade

There is a deficiency of involvement in Colombian peso. It is suggested that they should appreciate the currency ( STRAITS 2010 ) . Trade with neighboring states should be taken into history, peculiarly since Venezuela had implemented a trade prohibition on Colombia ( Anonymous 2010e ) . Other neighbours such as Ecuador have no ability to digest extra supplies. Weak demand from neighboring states can non supply a buffer for the happening of any incidents. Using the FTA with US as an illustration, ( Defaer 2010, Smith 2008 ) , one time the relationship breaks down, there will be a less exports to Colombia and hence needed to distribute it to environing countries. With a weak demand from the surrounding, an surplus in the sum of stocks would happen.

Unemployment

Other than the reappraisal of Colombian peso, other economic substructure proves to be worrying. Colombia 's unemployment rate has non decreased since twelvemonth 2006 and reached 12.5 % last twelvemonth with 49 % of poorness ( Benford 2010, John 2009 ) These conditions creates an income spread stoping the growing of possible clients. Eagles will necessitate a changeless addition in the population come ining the upper in-between category as new clients. However, if a big unemployed population exists, deriving possible clients will be hard.

Decision

Based on the rating shown above, Colombia has more favourable footings which should further look into the suitableness to set up Eagles in Colombia.