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Yamaha Motor earmarks $1.1bn to accelerate new growth strategies

Interview - January 25, 2016

Hiroyuki Yanagi, President, CEO and Representative Director of Yamaha Motor Co., Ltd, explains how the company’s world-beating technologies and dedication to innovation and ‘Kando’ will shape its future and move it up a gear in its four targeted sectors for growth, with developments much to the excitement of its customers, and delight of its shareholders.

 

PRESIDENT, CEO AND REPRESENTATIVE DIRECTOR OF YAMAHA MOTOR CO., LTD HIROYUKI YANAGI SPEAKS AT THE PRESS CONFERENCE DURING THE TOKYO MOTOR SHOW AT TOKYO BIG SIGHT ON OCTOBER 28, 2015
HIROYUKI YANAGI | PRESIDENT, CEO AND REPRESENTATIVE DIRECTOR OF YAMAHA MOTOR CO., LTD

You have been leading Yamaha Motor since 2010, and over that period we have seen more than steady performances in the share price and the company itself. Aside from just purely healthy profits and share price, what else would you like to achieve over the next five years?

In my tenure as president of Yamaha Motor, I would really like to clear 2 trillion yen in sales and 10% in operating profit. In addition, during this timeframe I want to create a new business, whether it is in four-wheelers, three-wheelers or robots. My ambition right now is to reach 2 trillion yen in sales within three years and 3 trillion yen sometime in the future while I am still at Yamaha, optimistically within 10 years.

Yamaha Motor possesses very solid technologies, which is our main source of strength. This is true in four distinct areas: engines and electric motors; body engineering in motorcycles and marine vessels; control systems; and manufacturing engineering technology. We will continue to drive innovation in these four areas as we evolve and grow our technologies. Evolution is very important to Yamaha, so we are constantly trying to create powerful new combinations based on these four areas, including power sources and technologies. Such combinations include motorcycles and engines, motorcycles and electric motors, and three-wheelers in new frames or new bodies with motorcycle engines.

PAS, the world’s first electrically power-assisted bicycle, is another innovation created by Yamaha Motor in the early 1990s, when the Japanese market was developing environmental consciousness. As restrictions and regulations increasingly surrounding the motorcycle market, our engineers were motivated to create a new type of mobility combining human and electric power in a solution that does not require licenses or helmets. Twenty years later, almost a half million units are still sold annually in Japan and almost 1 million units in Europe. It is especially popular in Germany and the Netherlands. We are creating these new innovations through our unique combination of existing technologies.

 

If we look at Yamaha Motor’s results for 2014, its net sales rose by 7.9% year-on-year in what was globally an uncertain time. Its share price has risen from 1,329 yen in early 2011 to more than 2,300 yen today. What in your opinion have been the key reasons behind such impressive growth?

Indeed, this has been our performance track record for the last several years now. We have now come to the end of our 2015 medium-term plan, which was concluded with reasonably good figures and indicators. Our net sales revenues have grown by approximately 137%, including all foreign currencies, which is better than the average for most Japanese companies. In developed markets, this growth can be explained by the yen, which is much weaker now compared to previous years. About 60% of our business today comes from emerging economies, while 40% comes from advanced economies, similar to most Japanese automobile manufacturers.

With regards to market share, Yamaha Motor has grown its market share in both advanced and emerging economies. In the last three years, we have gained significant market share in advanced economies, especially the United States and Europe. We are offering a vast array of best-selling models in the big motorcycle category, so we are strong in this segment. Production volumes were a bit down this year due to the general economic slowdown in most emerging markets. Production in Asia and mainland China declined almost 10%. Yet, in spite of generally declining production, we managed to grow sales in other advanced economies, and, compared to emerging markets, we grew business in advanced economies through higher prices. Yamaha business is strong in the premium categories, for example, in motorcycles. In Asia, customers are stepping up to high-end motorcycles, so that’s why our sales were up even though volume was down.

Our market cap is almost 300% compared to three years ago, so we have tripled it to surpass the average Japanese market cap of almost 200%. The results that we achieved last year are quite a success for us. We had have taken action in a number of variables these past three years in terms of products, cost reduction and business restructuring, which have contributed to our strong performance. In addition, we were successful in motorcycle racing, such as MotoGP, and in rugby and football. Overall, this great combination of factors and events has helped us improve performance despite slower business in emerging economies.

 

As we come to the end of this year and as Yamaha Motor starts its new medium-term plan through 2018, what are the challenges you anticipate over the next two years?

We are assuming that growth in emerging economies will remain sluggish for the next two to three years, meaning that our business in these regions will be slow. At the same time, we anticipate that advanced markets will remain strong enough to overcome the emerging markets and enable us to achieve the same level of global profits as in this last year.

Within the next three years, we hope to reach sales of 2 to 3 trillion yen and at least 9% operating profit, if not 10%. But we also will have to consider what Janet Yellen will say about the Federal Reserve Rate going down or up, which will affect our business over the next two to three years.

 

Yamaha prides itself as a Kando-creating company. How do you feel it contributes to the growth of society in places where you operate?

We are doing various things to contribute to society and realize our vision, which is to provide ‘Kando’ – or excitement – to our customers. Although Yamaha Motor and Yamaha Corporation are independent corporate entities, they are united by ‘one passion’ which we created a few years ago to be unique both in the music and transportation industries. We share the same brand charter and a common commitment to passion, innovation and quality, and for the creation of Kando.

Kando in Japanese refers to an emotional feeling that people have when they experience something that exceeds their expectations. If the experience just meets their expectations, then it doesn’t draw an emotional response. The experience must surpass their expectations to draw the emotional response of Kando. That is our brand and what it says about Yamaha.

Exceeding people’s expectation is the key. Both companies share this vision and want to provide such opportunities and deliver that experience to people who encounter the Yamaha brand worldwide.

 

Innovation is also key for Yamaha Motor’s future. You said you have earmarked 130 billion yen ($1.1bn) for new growth strategies. How are you going to utilize this money over the three-year period of the new medium-term plan, and what is Yamaha Motor’s strategy to stimulate creativity and innovation in your products?

Indeed, an additional 130 billion yen has been earmarked for new growth strategies in our new plan from this year.

Right now, we have identified four themes for new growth. The first theme is mobility. We are working to grow the concept of personal mobility through bicycles, motorcycles, scooters, multi-wheelers, recreational vehicles and compact four-wheelers, all featuring the ‘unique style of Yamaha.’ The second theme is marine business. Yamaha is the #1 brand in world in the marine market. Our marine business currently accounts for sales of almost 300 billion yen and 20% operating profit, which is a unique business model. But we must continue to improve and develop this business. The third theme is our solutions business, which includes robotics, surface mounters and unmanned systems, such as drones, which we are continually trying to expand. The fourth theme is foundational technology development.

We will spend the additional 70 billion yen to continue building on our product leadership and technological edge in the four fields, or themes, that I just mentioned. In the growing world of personal mobility, for instance, we are now advancing research on compact four-wheelers and multi-wheelers, such as twin-front-wheel systems. In the marine business, where Yamaha Motor already has solid market leadership and strong engine know-how, we are developing more integrated controls for total boat systems, as well as advanced on-board IT systems to further improve performance and customer experiences.

 

What kind of strategies do you have in place to further increase your position and leadership in the marine business?

We are also developing the marine business as a system supplier. Being a system supplier means that we supply not only engines, but also boat packaging, boat control systems, IT systems, and marine-life value. That is a direction we will pursue for the next several years.

 

The core part of your business remains the motorcycle business, even if it derives only 6% operating profit compared to 20% in the marine business. What initiatives are you promoting, especially in the motorcycle business, in developed economies, to remain ahead of competitors like Honda or Suzuki?

Over the next several years, we will launch new initiatives to consolidate our position in the motorcycle industry. In Japan, we need to continue restructuring our business, as we are still importing most of our motorcycles and scooters from Taiwan, so we are suffering from currency fluctuations. As the Taiwanese currency is linked to the US dollar, importing items from Taiwan turns out to be very expensive for us, since the dollar is very strong and the yen is weak against the dollar. A number of negative factors are requiring us to restructure our business. In Europe, we are now facing a new emissions regulation, called Euro 4, which will require us to spend much more on R&D to further upgrade the emissions performance of products.

But developed markets still account for the core of our business and sales. The Yamaha brand was really created in the United States and Europe and shaped in these markets before spreading out across the world. So we are spending more money in developed markets to strengthen our brand there first, after which it will spread to emerging markets.

 

Let’s talk about AI and robotics. The majority of the world’s large automobile operators or motor producers are taking this direction. Toyota just announced a new $50 million deal with Stanford University and MIT for the development of AI and robotics. What can you tell us about Yamaha Motor’s efforts in regard to AI and robotics?

At the Tokyo Motor Show this year we presented the robotics and automated systems that we have developed and embedded in our new products. We call them the ‘Motobot.’ We have already been working on this project for a couple years, so we are developing autonomous motorcycle-riding robots in collaboration with Stanford University. The point for us has been to gain technological expertise and know-how in this field and then apply this technological know-how to develop rider-support systems. In markets such as Europe, where motorcycles and advanced safety technologies are well embraced by consumers, we wanted to provide enhanced rider-support systems. Generally, motorcycle riders spend almost 50% of their time on operating the machine; 20% on selecting the best track on the road; and the last 30% on safety, viewing and controlling. With our new automated systems, we are trying to reduce machine-operation time from 50% to 20%, so the rider can use the remaining 30% for safety control or safety viewing. This is the concept we are working on right now.

We are trying to implement more automation within the machine-operation process, which is something we have implemented in our new ‘YZF-R1’ model. The R1 is Yamaha’s flagship super sports model. This year, we launched our fifth-generation R1. The new model features ultra-high-performance technology and highly advanced control systems with its rider-support system. Riders have the same feeling of motorcycle riding as before, but our new rider-support system reduces machine-operation time, allowing them to concentrate on safety and controlling. The system senses and determines the machine’s position at any point of time to automatically control the engine, suspension and brakes. Riders are supported in every sense, so they can focus less on machine operation.

We want to introduce this concept and technology across all our entire range of motorcycles, even in emerging markets if we can implement it optimally and at minimum cost. We believe that the system won’t be too expensive to introduce in all products, which is why we are developing Motobot with the goal of exceeding human capabilities. Next year, when Valentino Rossi visits our San Francisco lab, we want him to challenge Motobot in a showdown on the track. We shall then see who is the better rider, Mr Rossi or Motobot.

 

The US market represents about 20-25% of your global sales. What steps are you taking to grow your presence and deepen partnerships there?

The United States is a special market for Yamaha Motor. In Europe, 80% of our business comes from motorcycles, but in the United States, our business comes from a variety of segments. The US marine market is the biggest in the world and offers us high volume and high sales. The US motorcycle market also offers high business volume based on large motorcycles. Recreational vehicles, like the ones we call All-Terrain Vehicles (ATVs) and Recreational Off-highway Vehicles (ROVs), are another substantial market for Yamaha Motor in the United States; we expect to deliver more than 400,000 units this year alone, which makes this an important market for us.

Our challenge is to create a new category of vehicles in United States, so we need to be creative and launch new concepts. In 2004, we introduced ATVs and ROVs as new types of recreational vehicles in the United States. The category grew bigger and bigger, but suddenly we encountered product liability issues and had to pull them from the market. Just after I became president of Yamaha Motor, we decided to suspend the business for three years, from 2010 to 2012, to sort out our court cases one by one. We were able to win all of our court cases and resolve the product liability issues, so we resumed the business in 2013. Yamaha Motor created the market, so we had to reclaim and regain that market.

The United States is a market that offers many opportunities for growth and many chances for new business launches, not only in the automotive or marine segments, but also in the off-road market and new-vehicle markets that have not been developed yet. If we can succeed with a new business in the US, we can expand it to other markets. So this is a field where we try hard to leverage our innovation.

 

Katsuaki Watanabe, your Senior Executive Officer for motorcycle business operations, said that you must build better marketing and communication strategies to speak to your customers. How do you plan to better communicate your brand to new and existing customers?

First, we need to reinforce our communication from the customer’s point of view. Our distribution network is very important to us, so we are focusing on building the best-possible dealership networks and educating our people. In this area, we have introduced a number of initiatives, such as our ‘three-block’ strategy to create three blocks, or segments, in our European network. This will enable us to differentiate each block to meet the special needs and expectations of customers in each one.

Another example is the time-commitment service that we provide in Asia, where we try to commit to servicing a machine within 30 minutes. Customers in Asia are different from customers in Europe or the United States; in the latter, they take their machines to a dealer or service shop and come back two or three days later to pick them up. In Asia, however, they drop the machine off at the service shop before going to office and then expect to wait for it to be serviced promptly. Therefore, time is more important than in other markets. This is an example of the kinds of new concepts and systems that Yamaha Motor is introducing throughout Asia.

Another example is in India, where we are collaborating with Yamaha Corporation to expand music schools for children. In Indian society, family is exceptionally important, so we try to help children have fun in music school and benefit from increased road safety. So our initiatives depend on each market after we see what works best locally. This is part of being a global company.

 

Would you like to offer a final message to international readers?

Yamaha Motor strives to be a unique company, not just a conventional company. We want to be a unique mobility company and create fun, new things for each market. We would like each individual to feel the Yamaha brand concept of creating fun, new things.

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