An Evaluation Of Morocco As An Investment Opportunity For Triumph Motorcycles Group Ltd.

An Evaluation Of Morocco As An Investment Opportunity For Triumph Motorcycles Group Ltd.

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IsmaĂŻl Bentaleb

TABLE OF CONTENTS Introduction …………………………………………………………3 I.

Triumph Motorcycles Group Ltd.’s current situation ……..4 a. Sales and results ………………………………………...4 b. International outreach ………………………………….4 i. Retail ………………………………………………4 ii. Manufacturing ……………………………………4 c. SWOT analysis ………………………………………….5

II.

The Moroccan business context ……………………………...6 a. Economy ………………………………………………...6 b. Politics and institutions ………………………………...6 c. Infrastructure …………………………………………...7 d. Social …………………………………………………….7 e. PESTEL Analysis ……………………………………….8 f. The best regions for implantation ……………………..9

III.

The motorcycle market ………………………………………9 Competition analysis in Morocco ……………………….10

IV.

Recommendations …………………………………………...10 a. Entry mode …………………………………………….11 b. Challenges ……………………………………………...12

Conclusion ………………………………………………………....13 Annexes …………………………………………………………….14 References ………………………………………………………….19

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Introduction: Triumph Motorcycles Group Ltd., is growing as a business, and is looking at emerging economies to develop its network and gain market shares. Triumph’s management is considering an investment in Morocco, for production, retail or both. The political and economic stability attractive, especially considering its proximity to Europe and its potential to be a stepping stone for further investments in Africa and the Middle East. This report will give insight into whether the investment should be pursued, under which form and which methodology.

The report bases the conclusions on international business reports, journal and news articles, as well as an interview of competitor, BMW in Morocco.

We will start by analysing Triumph’s economical position in the motorcycle market. The report will then investigate the business context in Morocco, as well as the motorcycle market both globally and domestically. This will lead to recommendations, answering the board’s interrogations, highlighting advices and challenges.

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Triumph Motorcycles Group Ltd.’s current situation.

Sales and Results Despite the challenging economic conditions, including Brexit, Triumph has performed well in the past years. In 2017, Triumph has outperformed the global motorcycle market, which has been decreasing from 2013 to 2017 by -0.4% in market consumption volume (MarketLine Industry Profile, 2018, p.7). A record number of 9 400 units were sold in Britain (Lea, 2017).

Triumph’s global sales have grown by 12.7% to 63 404 units (Triumph Motorcycles Group Limited, 2017), far behind the biggest sellers of the sector: Honda and Yamaha with 26.1 and 11.8% market share (MarketLine Industry Profile, 2018, p.13). Triumph has achieved a turnover of £ 498.5 million, a 22.3% increase over 2016 (Triumph Motorcycles Group Limited, 2017).

International outreach Retail: 86.1% of Triumph’s sales are completed overseas (Triumph Motorcycles Group Limited, 2017).

Triumph is present in 57 countries. Triumph is the 7th most represented manufacturer throughout the world. However, its presence is highly lacking in Africa (only in South Africa), and in China (Annex 2).

Manufacturing: The historic plant in Hinckley (Leicestershire) produces 30% of Triumph’s output and focuses on bigger capacity bikes (Lea, 2017). The rest of the production is conducted in Thailand since 2002, and plants in Brazil and India perform assembly from kits. In 2019, a new manufacturing plant will open in Ho Chi Minh City, Vietnam.

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SWOT Analysis

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The Moroccan Business context

Economy Morocco has a GDP of $109,14 Billion. The macro-economic context of Morocco is also highly rated by the Competitiveness Index (World Economic Forum,2017), with an excellent inflation rate as well a Gross national savings. This report ranks Morocco as 71st/137 overall, and it has been stable at this rank since 2012. In relation to foreign investment, Morocco is looking very hospitable ranking 18th worldwide in concern of the business impact of rules on FDI and the low complexity of registering a business This Doing Business Report (World Bank, 2017) also highlights some drawbacks and areas where Morocco is lacking. The most important one is the risk associated with credits. Although the scope and accessibility of credit information are great (7/8), the strength of legal rights index shows an important weakness (2/12). This element will have to be considered carefully, with insight from local legal consultancy before, and potentially during the investment.

Politics and institutions A strength of Morocco is its institutions, ranking 49th in the Competitiveness Index. Indeed, it enjoys a low crime rate, strong property rights and a well-established public fund system.

An important factor is the strength of Morocco regarding imports. The average time to import (documentary and border compliance) is 91 hours compared to the 180.9 regional average. Moreover, the cost to import is $ 344, less than half that of the regional average (World Bank, 2018a,p.41).

Investing is made easy, with only 4 procedures necessary 2018 (World Economic Forum, 2017), and an approximated 9 days necessary to set-up a business in Morocco (World Bank, 2018a,p.8).

The high total tax rate is a flaw, at 49.3% of profits. However, they are made easy to pay, as Morocco is one of 17 economies to have introduced or enhanced systems for filling and paying taxes online.

The relevant outcome of the Global Entrepreneurship Monitor (2018) is that finding funding in Morocco is considered hard. However, the automotive sector is highly privileged in Morocco (The Economist, 2016), rendering this information false in the case of Triumph. Indeed, a financing structure called La Foncière Emergence has been created by the three main Moroccan banks to accompany investors in finding advantageous credit. An example is the ingathering of CDG, Attijariwafa-bank, Banque Populaire and BMCE Bank of Africa, to finance the Renault Tangier project with a ₏105million check (Hallaouy R., 2017). The automotive industry has become the first export of Morocco, accounting for 23% of export value in 2015 (Alliance Experts, 2016).

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Infrastructure Morocco ranks 87th in The Logistics Performance Index(World Bank, 2018 b). Even though the 2004 reform of Moroccan customs was largely considered a great success at the time; as described by Belghazi (2004) in the Policy Initiatives and Reforms in the MENA region published by the World Bank; the LPI scores Moroccan customs efficiency rather poorly, ranking it 115th. Changes are however in motion, as the Moroccan General Director of Customs and Excise is pushing for efficiency in the exercise of customs, with 1 million processed declarations in 2017 and 95 billion MAD in revenues (Benabdelkhalek, 2018). The report also highlights decent infrastructure and international shipment, putting it in the middle of the pack on these subjects.

Social Morocco has a population of 35 million, ranking it as the 11th largest consumer market in Africa. Of this population, 15% are considered as high earning households, with salaries of over $ 3500 a month (Agueniou, 2014).

The workforce culture and education is a big shortcoming, ranking 120th in labour market efficiency (World Economic Forum, 2017). Technician studies are available in Morocco (ESIAC Casablanca, IMBT Rabat ‌) but a complementary training will definitely be necessary for any new technical employee. Ensuring good service quality might also bring need for regular support from Triumph.

As a potential investment market, Morocco is attractive: The Doing Business Reports 2018 and 2019 ranks Morocco 69th in 2018 and 60th in 2019, with a score of 71.02/100 on ease of doing business.

Morocco ranks second after the UAE (11th) in the Middle East (World Bank, 2018a,p.5). It also ranks third in Africa in The Global Competitiveness Index (World Economic Forum.2017). As a comparison, Morocco ranks better than Brazil, Argentina, Honduras, Croatia or Greece, all countries where Triumph Motorcycles is successfully doing business.

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PESTEL Analysis

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The best regions for implantation Casablanca-Settat is the most populated region (6.8 million) and includes the economic capital Casablanca.

Rabat-Sale, which includes the two cities of the same name has a population of 4.58 million, and Rabat is the Capital of Morocco.

Marakech-Safi (4.52 million) is the touristic hub, and attracts a lot of rich foreign residents (around 10 000) (ElMouden, 2017).

These same regions also hold the highest revenues per capita according to the Natioinal Institute of the Economic Environment Analysis (2018) (Annex 3) These regions are where competitors such as BMW, Harley-Davidson, Ducati, Honda, Yamaha and Kawasaki have set-up their stores.

The motorcycle market Following a significant decline in 2014, the global motorcycle market has since recovered. The AsiaPacific and European markets are still dominating the global market, accounting for a joint 78% of market value. Forecasts estimate a continuing acceleration of growth, with an anticipated compound annual growth rate of 3.7% from 2017 to 2022 (MarketLine Industry Profile, 2018, p. 8).

The market in those countries is dominated by entry level, low-quality vehicles (Gwilliam, 2003), but the premium segment is also dynamic and run by the four Japanese manufacturers: Honda, Yamaha, Suzuki and Kawasaki.

Morocco applies outdated European norm Euro3, meaning that no additional homologation cost is to be expected (Annex7).

In Morocco, the motorcycle market is showing impressive growth of 77% in volume, going from 31 353 in 2017 to 55 517 units in 2016 (Faquihi, 2018). These numbers only include motorcycles over 125cc. Khalid Cherkaoui, Secretary General of the Ministry of Transport, explains this growth by the “increased purchasing power and ease of movement offered by the motorcycle” (Faquihi, 2018).

(Annex 5) According to La nouvelle Tribune (2018), analysing data from Avito (online selling platform), Casablanca and Marakech have the largest motorcycle fleets, followed by Rabat. The President of the Mifa Group, exclusive distributor of Yamaha in Morocco, also states that Marrakech is by far the largest motorcycle market in Morocco, because of “geographical and historical” reasons (Faquihi, 2018). This confirms the statements made previously.

The motorcycle culture in Morocco is taking off. In the past few years, a swarm of motorcycle clubs have been created, often organised by the brands themselves. Another indicator of this is the Motocazz show, a conference dedicated to motorcycles, where enthusiasts can expose their customized machines, buy specialized accessories and used vehicles.

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Competition Analysis in Morocco Most big manufacturers are already present in Morocco. The Annex 6 highlight their main characteristics in the Moroccan market.

Yamaha and Honda are clearly leaders on the Moroccan market but, they mainly sell sub-500cc motorcycles. This is not the segment on which Triumph is competing today. In Morocco, Triumph would be competing against the likes of BMW, Harley-Davidson, Ducati and Moto-Guzzi.

BMW is enjoying an excellent brand image, and uses its extensive car dealership network to promote its motorcycles without needing specialized dealerships. Its store is located in Casablanca. It only sells Adventure bikes (700 and 800cc), and the new Indian-made 300cc model is having great success.

Harley-Davidson is considered a status symbol. The two stores are located in Casablanca and Marrakech. Harley-Davidson specializes in cruiser motorcycles which have been losing market-shares to Triumph’s Bobber line around the world.

Ducati is limited in Morocco by the extreme character of its motorcycles. The absence of race-tracks, and racing culture in Morocco means that most of Ducati’s sales come from the Scrambler line, competing against Triumph’s Bonneville.

Moto-Guzzi is sold in Piaggio stores across Morocco, giving it access to a larger retail network (Casablanca, Marrakech and Rabat). It only sells three models, at a lower price and quality than Triumph products.

RECOMMENDATIONS Considering the current production structure of Triumph, the new factory in Ho Chi Minh, and the ongoing project of collaboration with Bajaj (Gupta, 2018), we see no reason for the company to expand production into Morocco. Even though the context is favourable, investment in production heavily encouraged, and the proximity to Europe interesting, there simply is no need for higher production numbers as of now.

We hence recommend investing in retail and maintenance. Morocco looks like a promising market, showing consistent growth in the past years, and making it easy to export. The competition, though already in place, has not gridlocked the customer base. The increasing number of new motorcycles every year also means that new customers are coming into the market, with no prior adhesion to any other brand.

Research on luxury branding has shown that customers get attracted to the intrinsic values of unique experience, the pleasure of purchasing, emotions and status symbol (Daswani and Jain, 2011). Attri and Bairagi (2017) have ranked the factors contributing to customer satisfaction for premium motorcycle brands in India as follows: • Sales Team (18%) • Sales and Marketing Activities (16%) • Support from the Manufacturer (14%) • Product (13%) 10 | P a g e

• Vehicle Ordering and Delivery (11%) • Training (8%) • Warranty Claims (7%) • After-Sales Team (7%) • Parts (5%) The retail endeavour should follow the same lines as Triumph’s strategy in India or South Africa: go for “single, larger dealerships in cities rather than […] using a number of smaller dealers” (IOL, 2018).

We recommend the same approach in Morocco, concentrating efforts on one flagship dealerships in Casablanca, then expanding in Rabat and Marrakech. This will help the company control the image, limit the risks, offer a better customer experience and concentrate on the most promising markets.

Care needs to be taken when selecting store location, this will reflect on the brand image and attract target customers.

The motorcycles that will come from the Bajaj collaboration (Gupta, 2018) will give Triumph access to a different customer profile in the future: younger and less fortunate. Its only competitor will be the BMW 300cc model since KTM has not shown interest in commercialising street bikes in Morocco.

KTM’s success with low capacity premium vehicles (239000 in 2017)(KTM, 2018) in developing countries is a testament on how promising this market is.

There might be an opportunity to compete against BMW for governmental contracts (Annex7), but this will not be easy as for the long lasting relation-ship between BMW and the Moroccan authorities.

The customer base in Morocco is inexperienced with Motorcycles. They will need to be educated on the dos and don’ts, as well as on what makes a good motorcycle. This will lead to long-term engagement. Collaborating with automotive magazines and TV-shows is an option to explore Offer complementary services, to enhance customer experience. In South Africa, Triumph offers a barber service. In India, the brand sponsors the Distinguished Gentleman’s ride, to raise funds and awareness about prostate cancer. In Mexico, Triumph organises a rally in the Sonora desert. All of this contributes in creating an identity, and a lifestyle around the brand.

Create a customer’s club. This has been implemented by Harley-Davidson in almost every country, to great success. This is why the American brand is the most well known in the world, and has great brand fidelity. In Morocco, BMW has done the same and organises week-ends or longer trips for adventure-bike customers. Such a project would also participate in raising brand awareness, as such groups and events attract attention from the public and the media.

Entry mode Three entry modes were considered: Franchising, Licensing and joint-venture.

In order to manage the risks of entering in a new market, we have discarded the joint-venture option in favour of the two non-equity modes. The high tax rate is another deciding factor. Also, a few characteristics make the prospect of an equity mode of entry unattractive according to Johnson and Turner (2010) such as:  Limited economic growth  Small market size, limiting the exploitation of economy of scale 11 | P a g e



Average stage of economic development

Following is a comparison of licensing and franchising options.

LICENCE

FRANCHISE

OPERATIONAL CONTROL

Triumph will have little to no operational control on how the licensee markets and distributes product

Triumph will have tighter operational controls and dictate how the franchisee operates their franchised business

TRAINING AND SUPPORT

No training by Triumph. Leads to a risk to the service quality (maintenance and repairs) and brand image.

Triumph will offer technical and managerial training. Ongoing support is also offered and usually takes the form of a monthly visit to the franchisee.

FEES

Ongoing license fee usually payable.

Initial and ongoing franchise fees payable: Upfront franchise fee Monthly management service fees National marketing fund contribution on monthly basis

We recommend going with an exclusive franchising entry-mode. This will give Triumph a greater control and a small set-up cost. This is in line with what Triumph has been doing in new markets in the past (India, South Africa, Brazil, Honduras, Croatia etc.). There will be challenges, which are detailed in the next section.

Challenges: Finding the right partners will be crucial, whether for the franchise or the transport. Key criteria to keep in mind are: local knowledge, experience and long-term vision.

Although government incentives exist, a strong case will have to be made. A concern brought up by the Competitiveness Index (World Economic Forum,2017) is corruption and government bureaucracy.

The training of employees will be a crucial element. Technicians can be hired from technical schools in Morocco, but the specific knowledge about Triumph products and work ethic will have to be 12 | P a g e

inculcated in them (Annex7). For example, Toyota has had success with incorporating TPS and Lean in Morocco (Ouahabi & Elrhazi, 2013).

Shop-floor workforce will also have to be trained (Annex7), on how to sell products, but also on how to convey the image, status and experience customers expect from a premium brand. In developing countries such as Morocco, premium high capacity motorcycles are not considered as a means of transport. Unlike in Europe or North America; where enthusiasts will look for the most competent motorcycle for what they can afford; people in Morocco see big motorcycles as a luxury and status symbol. Price will not be a criterion for the targeted customers. Sales techniques might have to be adapted to this fact.

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Conclusion: Triumph Motorcycles has an opportunity of entering a promising emerging market, where growth in motorcycles sales are forecasted for the future. This might be a second step for Triumph in Africa, leading to other markets. Competition in Morocco is not as strong as elsewhere, the economic and political environment also looks encouraging. Triumph will have to deal with challenges, especially concerning the human capital, and secure a brand identity, but the brand has shown it can handle these issues in other economies. A localized franchise system could offer Moroccan customers a new premium experience, and future entry-level models could offer an alternative between premium and low-quality products currently offered in Morocco.

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ANNEXES ANNEX 1: Triumph Motorcycles Group Ltd.’s line-up in 2018, and main highlights.

Roadsters

models

Highlights

Street Triple

Street Triple RS 7th best seller in the UK in 2017 (565)

Speed triple Adventure

Tiger 800 Tiger 1200

Global best seller in premium high cappacity motorcycles in 2016

Tiger Sport Modern Classics

street range Bonneville 1200 Thruxton Bobber range

Bobber black is 3rd best seller in the UK in 2017 (867)

ANNEX 2: Triumph in the world. Number of dealers in key areas.

Europe

Americas

Asia Africa Oceania

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Country

Number of dealers

UK France Germany USA Canada Brazil India Japan South Africa Australia New Zealand

47 48 65 142 18 15 16 26 7 36 10

Institut National d’Analyse de la Conjoncture, 2018) City

Average revenue per capita (MAD)

Casablanca

23 747,3

Rabat

23 848,0

Marakech

19 376,6

As a mean of comparison, the average revenue per capita in the UK is approximatively 9 times higher.

ANNEX 4 Global Motorcycles market value Year $ billion

% Growth

2013

66.4

2014

65.3

-1.6

2015

66.0

1.0

2016

68.8

4.3

2017

73.1

2.4

SOURCE: MarketLine Industry Profile, 2018 Global Motorcycles market volume Year Million units

% Growth

2013

49.3

2014

48.5

-1.7

2015

46.4

-4.3

2016

46.3

-0.2

2017

48.5

4.9

SOURCE: MarketLine Industry Profile, 2018

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ANNEX 5: Motorcycles, a mode of transport of growing popularity

ANNEX 6:

Competing manufacturers in Morocco

Company

Price

Quality

Styling

Premium

Breadth of Products Limited

BMW

superior

Ducati

Premium

Average

good

below average superior

HarleyDavidson Honda

Above average

Limited

good

superior

2

Average

Extensive

average

average

9

Kawasaki

Below average

limited

average

average

1

KTM

Premium

Very limited

good

1

Moto-Guzzi

Above average

Limited

average

below average good

Yamaha

average

Extensive

average

good

3 + 21 *

* 3 official stores and 21 authorized dealers

ANNEX 7: 17 | P a g e

Number of stores 1 1

3

Interview of Aziz Rochdi, commercial director Smeia - BMW Group Morocco This interview was conducted by Ismail Bentaleb on 25th October 2018, and translated for this report.

I.B: Do you have access to data on motorcycle sales volume, specifically by brand and engine size?

A.R: Unfortunately, no sales statistics are available in Morocco for the moment. We know that the total sales of motorcycles [over 125 cc] is around 60 000 units. We don’t have data smaller capacity bikes since they do not require registration in Morocco. We however know that small Chinese motorcycles have a big market share, but BMW Motorrad is not concerned with this segment since we position ourselves as a premium brand.

I.B: What is BMW’s sales volume in Morocco?

A.R: As of this day, we have sold 210 units in 2018. This number only includes private customers.

We also sell high volumes to the authorities but I cannot disclose more about this.

I.B: What are the norms and regulations concerning motorcycle sales in Morocco?

A.R: Morocco applies Euro3 regulations. So we have no issues with homologating the motorcycles I.B: How do you recruit technical workforce?

A.R: It is hard to find motorcycle technicians in Morocco. That I because the OFPPT do not offer a specialised course for motorcycles, unlike for cars. We often hire car technicians and train them internally to the specifics of motorcycle mechanics. They need to have at least a tertiary education degree (2 years) to have access to complex diagnostic devices.

I.B: What kind of training do you provide?

A.R: A trainer from BMW is dispatched here. We also provide online training by connecting to BMW’s servers.

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