Ducati, the Italian company that is to motorbikes what Ferrari is to cars, has a powerful friend in Thailand.
General Prayuth Chan-ocha, who leads the military junta that seized power in a coup in May, counts himself as a fan. “I love their red motorcycles,” he has said.
The Thai general isn’t the only Ducati admirer in the kingdom. The manufacturer, based in Bologna and acquired by the Volkswagen Group two years ago, opened an assembly plant near Bangkok in 2011, and has been hard pressed to keep up with demand ever since.
Close to 10,000 motorcycles rolled off the Thai assembly lines in 2013. Production is expected to increase to 11,000 by 2015 and about 20,000 by 2020.
“The possibilities in the region are enormous,” said Francesco Milicia, managing director of Ducati’s subsidiary in Thailand.
Ducati’s Munich-based competitor, BMW, is experiencing similar growth in motorcycle sales in Asia, where Thailand, Malaysia and China are the most important markets.
“The possibilities in the region are enormous.”
The brisk trade in Asia stands in stark contrast to the dismal situation in Europe, where sales still haven’t recovered since the beginning of the financial crisis in 2008. Motorcycle dealerships in the European Union sold close to 2.5 million bikes in 2007, but sales declined to less than half that number by 2013.
The outlook is particularly dire in Italy and Spain, where sales are down by more than 70 percent compared to 2007.
So it’s no surprise that BMW and Ducati are pinning their hopes on the Asian market, especially when government authorities are giving them some major incentives.
Thailand, for example, recently lowered its corporate income tax rate to 20 percent from 30 percent. And if motorcycle manufacturers buy more than 40 percent of their components in Thailand, they pay no duties on imported machinery and equipment.
Ducati has invested more than €20 million ($25 million) in Thailand, where roughly 400 employees assemble five different models. At the Cologne Motorcycle Show later this month, the company will unveil a model with less than 100 horsepower, which is manufactured in Thailand and Italy and sold worldwide.
The brisk trade in Asia stands in stark contrast to the dismal situation in Europe.
“We didn’t go to Thailand because of the low wage costs,” said Mr. Milicia as he led a tour of the meticulously clean factory buildings. The decision was driven not only by government incentives, he said, but by the region’s highly-developed supply industry.
Another favorable factor was the single economic market formed by the 10 member states of the Association of Southeast Asian Nations (ASEAN), which will go into effect in early 2015. This will allow Ducati to export bikes to neighboring countries, such as Malaysia, without paying duties.
Similar reasoning led BMW to set up shop in Thailand. After years of exporting motorcycles to Asia, the company began producing them in a plant near Bangkok earlier this year. Because of the removal of import duties, the two-cylinder F800R model will no longer be more expensive than in Germany, where it sells for €8,900.
The toughest problem facing European producers is finding skilled workers in Thailand, where there is virtually full employment.
In the past, BMW paid import duties at rates of 60 percent in Thailand, 50 percent in Indonesia and 77 percent in Vietnam.
While BMW sales in Thailand are still relatively low, with just 400 motorcycles sold there in 2013, figures have increased by 16 percent in the first half of this year. BMW plans to assemble 1,000 bikes at its Thai plant by the end of the year.
The toughest problem facing European producers is finding skilled workers in Thailand, where there is virtually full employment. Even though Ducati gives its employees three months’ salary as a year-end bonus, the company still must deal with an annual turnover rate of 15 percent each year.
“Foreign companies are engaged in ruthless competition for talent,” Mr. Milicia said.
Perhaps the Ducati cafeteria boosts loyalty by serving pasta every day. The employees love it, said Mr. Milicia, “especially when the chefs combine Italian cuisine with local specialties like chili peppers and pineapple.”
This story originally appeared in the business magazine WirtschaftsWoche. The author is based in Munich and covers corporate news in southwestern Europe, but was previously correspondent in China. To contact the author: email@example.com