Introduction KTM is a company that designs and manufactures motocross, rally, and cross-country racing motorcycles and is based out of Mattighofen, Austria. They are a highly reputable company with exceedingly high growth rates. As a venture capitalist firm, they require high growth from their investors and generally demand more say in management decisions if growth expectations are not met. For this reason, KTM are pressured to maintain or increase their growth and continue this level of performance in the future. As the motorcycle industry was expected to grow to 5.
% in the next four years, KTM has realized its time to start investigating growth opportunities. KTM has several options; they can expand in the already existing European and North American market or they can expand their product line. Within these two options there are many alternatives KTM has to evaluate, these alternatives will be presented in the preceding sections of this report. Key Issues The key issues KTM are facing in regards to their decision making process are growth, barriers to entry/expansion into the North American market, and their current structure.
Growth: To meet growth expectations, KTM will need to measure several alternatives as to what the company’s next move will be in order to achieve the extraordinary growth the company needs. Barriers to Entry/Expansion: Extensive research and development: Which could cost upwards to €10 Million. Suppliers: KTM would have to search for local suppliers for new parts. Currency issues: Where KTM is a European company, currency issues would arise when expanding the North America. Brand awareness: Intensive marketing efforts to raise awareness in North America where the KTM brand is not as recognized as it is in Europe.
Cost: The cost of expansion and product development would extensive, and a financial analysis would need to be weighed. KTM’s Structure: Developing an outstanding reputation for sporty, adventurous bikes that are highly reliable and have the utmost superior quality surrounds KTM’s current structure. KTM’s current slogan is “ready to race”, with perfectly reflects their company image. KTM has two possible opportunities for growth: to expand within the European market, or expand into North America. Europe
KTM could expand production within Europe. With the expansion of the EU and a common set of regulatory standards, distribution of KTM products would be easier, faster and more cost effective. However, the European market is facing decline, as there has been a recent drop in sales. North America Expanding in North America creates many opportunities for KTM, as their market is expanding. KTM has two options when expanding to the US. They can either export their products from Europe, or manufacture within North America. ATVs: Sport vs. Utility
Producing sport ATVs would complement the image of producing high performance racing bikes. In North America, a small but growing market for sport ATVs exists. KTM is technologically inclined and has the know-how to produce and service high-end sport ATVs. There are disadvantages to consider as well, such as the potential market and existing competition. Utility ATVs are best suited for activities such as agricultural, hunting, fishing and trail riding. KTM’s company logo is “ready to race” and their target audience is young adults that enjoy extreme experiences.
As utility ATVs are inclined towards the leisure, trail riding individual, this type of machine does not suit the existing image of KTM. On-Road Motorcycles In order to maintain growth and keep up with the constantly changing industry, KTM could introduce on-road motorcycles to its product line. Since the on-road segment of the motorcycle industry is growing at an increasing rate, it may be a wise choice to enter the market with these motorcycles. There are three types of on-road bikes: touring, performance, and cruisers.
A touring motorcycle is a type of motorcycle designed for long-distance touring and heavy commuting. In order for KTM to produce touring motorcycle, they would have to create a bike designed for longer rides. This means they would have to address the particular needs of these riders, such as designing larger windshields, larger capacity fuel tanks, engines offering lots of low-end horsepower, a more relaxed and upright seating position, etc. Sport bikes are used for racing and are driven by style trends and performance.
They use the best technology; emphasize speed, acceleration, deceleration, and maneuverability. Because of this, there are certain design elements that KTM would have to consider. Sport bikes have comparatively high performance engines resting inside a lightweight frame, braking systems that use high performance brake pads and the front and rear tires are larger and wider than tires found on other types of motorcycles to accommodate higher cornering speeds and greater lean angles. These are all requirements KTM would have to address in order to produce a high quality performance motorcycle.
Also, performance bikes are used for racing. This means KTM’s ultimate goal would be to create a bike with the utmost quality and top-of-the-line technology to win a race. The performance bike industry is lead by the saying “win on Sunday, sell on Monday”. To win a race means an increased demand for the racing bike, ultimately increasing sales. To win a championship results in massive sales. The Moto Grand Prix is a prestigious European race dominated by Europeans racing Japanese bikes. They use cutting edge technology, and to compete in this race, KTM would need new V4 engines.
For KTM to win one of these races would mean enormous success. Because Harley dominates the cruiser industry and the product itself does not coincide with KTM’s overall strategy, brand, and customer base, this alternative will not be weighed. If KTM made the decision to expand the product line using on-road motorcycles, they would have two choices: joining with another firm or developing the capabilities in-house. Joining with Another Firm A decision to join with another firm would have many advantages for the organization.
It would greatly aid their product line expansion, which in turn could help the entire organization’s growth rate. If KTM were to join with a North American firm this would not only increase their global presence, but would also significantly increase their ability to reach a larger market. There are also however many disadvantages that would come with the joining of another firm. Partnering with a firm that is located on the other side of the world would result in great difficulty keeping operations in sync between the two firms.
Also, the firms being in two separate countries allows the possibility of political uncertainties, currency problems, differences in labor relations, management issues in regards to additional resources to be put into management and potential conflicting values. In-House Production The main advantage of producing in-house, and possibly the ultimate decision point on weather to develop in-house our outsource the main motorcycle parts, is that KTM would maintain its current reputation of producing their high-quality, highly technical, and reliable core parts.
Action Plan It is important for KTM to relate its value proposition to its future activities; what are the overall company goals? What is the market focus, and who are the current and potential customers? In order to decide on which products to expand, KTM must base their decision on these factors. KTM markets to the sporty, adventurous type, as they are the current customers. They are known for their high-quality motorcycles with a reliable reputation in off-road racing.
With this in mind, the choice of producing cruiser bikes may be a bad one, as they would have to gain an entire customer base of cruiser-riders and complete an overhaul on their current strategy and structure. Performance on-road bikes, on the other hand, are right up their alley. Since KTM has such a remarkable reputation in performance, quality, reliability, and a brand stating they are “ready to race”, producing these bikes may prove to be highly successful for the company. Touring bikes may also be a wise choice for KTM to consider.
As stated before, touring bikes are sought to have great technical ability and consistency suited for longer rides. Even though KTM’s main customer base are young, edgy extreme sports fan, it may prove to be beneficial to try for a more leisurely ride, marketing and appealing to those who “appreciated the technical characteristics of the bike but didn’t necessarily like to race”. In this case, touring bikes are perfect. It is evident that for KTM to experience growth, the expansion of their product line into on-road motorcycles and ATVs would be profitable.
The sectors of on-road motorcycles, touring and performance bikes best meet KTM’s current strategy and customer base. In producing the touring bikes, KTM would be addressing the leisure riders, while the performance bike would be focused more toward the sporty, on-road racers looking for quality machines with high technical abilities. Within the sector of performance bikes, the main goal of KTM should be to win a race, and eventually a championship in the Moto Grand Prix. Winning this prestigious race would result is a mass increase of sales, causing the company to experience significant growth rates.
Of course, this will require top-of-the line technology, including the V4 engine used in Japanese on-road racers. It is recommended that KTM sell both these on-road motorcycles in both Europe and North America, since a market exists in both areas. KTM should produce sport ATVs and sell them in North America. Since utility ATVs are focused more towards agricultural activities, fishing, and hunting, which is outside the area of KTM’s market and expertise, developing a sport ATV would prove to be most beneficial to the company.
Because there is almost no market in Europe for ATVs, KTM should focus on the North American market. To cut down on risk and cost in the beginning of production, KTM should manufacture in Europe, exporting to North America. This is because the size of the sport ATV industry within North America is small, manufacturing in North America may not prove to be profitable first hand, but with future success, KTM could consider moving operations to North America.
For both machines, we believe KTM should produce the capabilities in house. They will maintain their outstanding reputation for producing top-quality and reliable core parts by developing the capabilities themselves. They should, however, outsource smaller, cosmetic parts, such as handlebars, seating, grips, etc. Conclusion KTM’s main concern is growth. It is understood that with the decisions addressed throughout this report, there are many costs and risks associated with the expansion.
It is believed that KTM would benefit greatly and achieve remarkable success with increasing growth rates once the product line is introduced to the market. With the production of touring bikes, performance bikes, and sport ATVs, it is believed that KTM can expand its market share, increase growth, and gain new customers. It is evident that this can be achieved while maintaining its reliable, high quality reputation and current sporty and adventurous customers who are “ready to race”.
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