The Escorts - Yamaha Motors Break-Up

<< Previous

EXCERPTS

In 1985, Yamaha Motors entered into a technical support agreement with Escorts, and started local production of Yamaha motorcycles. In 1995, Yamaha and Escorts signed another contract, establishing EYML to manufacture and market motorcycles in India. Each company invested 50% of the capital for the original venture (Refer Table IV). EYML produced a wide range of motorcycles for the urban and rural markets at its Faridabad (Haryana) and Surajpur (Uttar Pradesh) plants. The joint venture manufactured Rajdoot motorcycles at Faridabad and the RX and four-stroke YBX series at Surajpur...

In 1996, Escorts transferred its motorcycle manufacturing facility at Faridabad to the joint venture. Anil Nanda, chairman, EYML, said the Surajpur and Faridabad facilities would be modernized and upgraded with a Rs 3.75 billion budget. EYML would turn out upgraded versions of the current high performance bike, RX 100, and RXG 135 to meet stringent emission norms. In 1997, a further upgraded RXZ 135, a sleeker version would be launched and the 4 stroke YBX 125 would be launched in February 1998 to meet the growing demand for fuel-efficient bikes. YBX 125 would deliver the best of both worlds-performance along with fuel efficiency. EYML also planned to launch 2-3 product variants every year...

In April 2000, Escorts announced that it was likely to sell around 20% stake in EYML to Yamaha Motors. Escorts would thus become a minority shareholder in EYML. However, an official said that Escorts' holding in the joint venture would not be less than 26% and it would not exit from the joint venture. Said Nanda, "I have no intentions of selling off the entire stake to Yamaha. Escorts will retain the 26 per cent stake we now hold in the venture." In late April 2000, the board of Escorts approved the proposal to divest 24% equity. With the change in the equity pattern, Yamaha Motors would control the management of the joint venture. Commented Nanda, "We have always believed that business relationships are driven by the value added by each partner...

Escorts' exit from the joint venture seemed to be a well-planned move. The group had already moved out of businesses where it believed it did not have a sustainable advantage. On August 22, 2000 at the group's Annual General Meeting, Nanda announced that Escorts would now focus on the new economy. He said, "To continuously create value, we have strategically moved our investments from low-growth areas to high growth avenues, or in other words, shifted our focus to businesses, which have a potential for higher growth and profitability..."

---

Custom Search

---

Economics for Managers Textbook Textbooks Collection	Economics for Managers Workbook ICMR books Collection	Case Studies in Business Strategy Volume VI Case Study Volumes Collection