The Vespa shouts its identity: Italian classic! Since its inception in 1946, the Vespa scooter has been tightly linked to Italian looks and lifestyle. Take a glance at one and you can quickly imagine beautiful people zipping through Italy’s narrow, crooked streets.
So what happens when Asia zooms from near nothing to 35% of sales in just two short years? That’s happened to Piaggio, the 127-year-old Italian firm that makes the Vespa and a range of other two-wheelers. A company so deeply Western is becoming Asian fast. How did it happen, and how is the company managing this shift? I spoke with Costantino Sambuy, Piaggio’s head of Asian operations, to find the answers.
Winning Where Others Struggle
A long, long list of Western industrial companies has tried to crack Asia’s huge markets. A short, short list has succeeded. Piaggio had a presence years ago in many of these countries, but mostly it had withdrawn in defeat. This time around it worked hard to do things right.
The company began by building a factory in Vietnam, as much to escape 80% local duties as to reduce unit costs, which Sambuy says are actually close to those in Italy. Rather than follow the advice of so many pundits to customize products for the market, it launched into Vietnam with its iconic Vespa – a product identical to what it makes in Italy. Piaggio sought make the Vespa’s painted, pressed steel unibody its calling card in the country, an unmistakable anchor to its identity. The product was three times the price of the average scooter produced by Japanese market leaders such as Honda and Yamaha. But because the Vespa’s design is so distinctive, the premium price worked to its advantage. Very quickly, the Vespa became a status symbol on the country’s crowded streets.
Therein lies a lesson. Rather than go head-to-head against established competitors on features, much less price, Piaggio competed asymmetrically. It developed a new market of premium scooters and seized ownership of that foothold. Honda is now importing its own high-end scooters, but in that market segment it will forever be the follower.
Once Piaggio owned the foothold, it expanded. The company leveraged its newfound distribution, as well as its local production capacity, to create plastic bodied Piaggio-brand scooters selling at a slight discount to the Vespa. Unlike the Vespa, the Piaggio scooters were adapted to local circumstances, such as having longer seats to accommodate the numerous riders typically packed on a scooter in Vietnam.
The market opportunity is huge. Vietnam’s scooter market is twice as big as Europe’s and three times the size of the United States’. Indonesia – a next stop for the company’s Asian expansion – is more than twice as big as Vietnam. Vietnam is a big part of Piaggio’s revenue, but the company has merely a 2.5% market share. There is ample headroom for growth.
Note that we are not discussing India and China, which seem to be the sum total of many Western firms’ Asian ambitions. “Vietnam is usually at the end of the news,” Sambuy states, “but there is very strong demand for luxury products, a quest for something different, and investment incentives.” The company didn’t try to take on the industry’s giants in their most important markets, but rather in markets that were plenty big yet a bit easier to crack.
Piaggio also recognized the distinctions between Asia’s markets. Sambuy explains, “Everybody rich or poor in Vietnam has a scooter; there are 35 million vehicles on the road. Even people driving a Mercedes also have a scooter. So it is perceived as a way of getting around, not a class-defining product. In India that’s not the case, and definitely not in China which went right from bicycles to cars; two wheelers are a countryside market there.”
Another secret of Piaggio’s success was in how it viewed its presence. Many Western multinationals base their Asian operations in comfortable locales such as Singapore or Hong Kong. Sambuy is based in Hanoi, alongside the company’s R&D center. He fights horrendous traffic every day to get to work, and he understands his customers’ needs in ways that briefly-visiting managers do not. He says many of Piaggio’s future product innovations in Asia will stem from the intuitive grasp of the market that the company has rapidly developed.
Becoming an Asian Company
It certainly isn’t easy for an Italian icon to become so Asian. Sambuy says that expatriate managers are a huge cost. Piaggio is trying to develop local Vietnamese executives, but unlike in China and India, local engineering and design talent is thin. It takes a while for the company to grow its own ranks and the intense war for talent in the country generates high expenses to keep the stars – in some cases, local employees are more costly than expatriates, even after including housing and other typical expat benefits.
As illustrated by the company’s opening an R&D center in Hanoi, Piaggio is investing for the long-term. In addition to bringing expatriate managers to Vietnam, it is sending high-potential Vietnamese employees to Italy for rotations of a couple years. The company is also giving intense high-level attention to these operations, for instance through having the head of India reporting directly to the CEO. Across Asia, Piaggio plans to invest $219 million in the next three years, a sum that exceeds 10% of its global 2010 revenue.
Sambuy is unambiguous in his recommendation to others. “It isn’t easy, but people need to come here. I’ve worked in the U.S., in Spain, but I’ve never seen such energy to create the new. It’s a super-exciting place to do business.”
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