Harley-Davidson Takes Aim at Chinese Motorcycle Market

America's big motorcycle makers wants into the Chinese market and is seeking a relationship with the PRC's leading motorcycle maker, the Zongshen Motorcycle Group, to do it.

The World's biggest cruiser maker is looking to the world's biggest motorcycle market as an avenue of future growth. Harley-Davidson Motor Company has approached Zongshen Motorcycle Group about a relationship that would allow Harley to make inroads into the very difficult Chinese market.

Though the most populous country in the world is not liklely to be a major market for premium motorcycles such as Harley's products in the immediate future, the firm obviously believes that the developing economy of the People's Republic will soon make it viable as an outlet for luxuries like Harleys. Chinese buyers purchase more motorcycles than any other country in the world, but the vast majority of those are small under-250cc utilitarian machines used as a primary form of transportation.

Many of those motorcycles are sold by the company that Harley hopes will partner with it and help it gain entry to the nortoriously xenophobic Chinese economy. Zongshen makes a million 50cc to 250cc motorcycles a year and twice that many motorcycle engines. It is reportedly working on a 1000cc four, and has been sponsoring entries (on Hondas and Suzukis) in world endurance and superbike racing for publicity and research. Zongshen also supplies marine outboard, minicar, and over a million other small engines (in 50 varieties and 700 types) annually. It employs about 20,000 people, has over 50 subsidiaries, and distributes its products throught Asia as well as to Europe and the U.S. It recently spent $30 million on an engineering center and has a 300-person R&D; facility as well. In 2002 and 2003, Forbes listed Zongshen Chairman, Zuo Zongshen, 51, among China's 100 richest people.

Both companies could gain from the relationship. Harley wants a profitable entry into the massive Chinese market, which seems poised to grow in Harley's direction. The big American motorcycle maker hopes an alliance with Zongshen would guide it past the considerable obstacles it foresees as it tries to do business in China. Zongshen could benefit from an association with the American icon, and Harley's statement below says the Chinese firm would be offered information on some of Harley's technology and strategies. However, those are just the starting positions; further discussions will decide what, if anything, any deal involves.

The release from Harley-Davidson follows.

_**Harley-Davidson Moves to Bolster China Presence; Motorcycle Maker Announces Relationship with Chinese Company **

MILWAUKEE (June 8, 2004) - Harley-Davidson, Inc. today announced the signing of a memo of understanding with the Zongshen Motorcycle Group which could facilitate Harley-Davidson's entry into the Chinese motorcycle market and enhance Zongshen's capabilities in its home market. The announcement came during a visit by Harley-Davidson Chairman and Chief Executive Officer Jeffrey Bleustein and other company officials to Zongshen's headquarters in Chongqing, China.

Both companies emphasized that the memo of understanding provides a framework for a potential relationship, but that many details are yet to be discussed before the two companies commit to a formal agreement.

"Harley-Davidson's primary objective is to export our American-made motorcycles to China and to develop political and motorcycle industry alliances in anticipation of the market becoming more accessible," said Bleustein. "We do not believe it will be necessary for Harley-Davidson to manufacture its motorcycles in China in order to be able to sell them there," he said.

Under the contemplated relationship, Harley-Davidson would work with Zongshen to gain a better understanding of the business practices, markets and distribution channels it will encounter in China. Zongshen is a recognized leader in the Chinese motorcycle industry. "We believe there is a lot we can learn from working with a company that has intimate market and industry knowledge in China," said Bleustein.

Harley-Davidson would share certain technology of a non-competing nature, as well as marketing philosophies and practices with Zongshen, under the contemplated agreement.

"In China, there are hundreds of motorcycle companies. However, Harley-Davidson is known around the world and throughout China for its outstanding reputation," said Zongshen Motorcycle Group Chairman Zuo Zongshen. "Harley-Davidson's status as an American-made motorcycle has a strong appeal here, and we believe an association with Harley-Davidson holds solid value for us in China," he said.

While in China, Bleustein is also pressing Harley-Davidson's case for market entry with government officials. The day before his visit to Zongshen, Bleustein met in Beijing with China's Vice Minister of Commerce, Wei Jianguo, to urge the easing of official and unofficial trade barriers that limit Harley-Davidson's ability to sell its premium American-made motorcycles in China.

Those barriers include a 50 percent import duty on motorcycles. The duty is scheduled to drop to 30 percent by January 2005, a level which is still onerous according to Harley-Davidson. In addition, local governments in China often limit the number of motorcycle licenses they will grant, and motorcycles are singled out for outright bans from operating in many of China's largest cities._

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Zongshen's bikes, like this 200, already show an America cruiser influence.
A 150 from Zongshen.
This is Zongshen's current flagship, a 250.