1. Piaggio Group
Project Work
in Corporate Strategies
Lorenzo Bocci
Fabrizio DâArezzo
Edoardo Falchetti
Marco Modanesi
Domenico Santoro
Konstantin Zedelius
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PIAGGIO GROUP
Table of Contents
Chapter 1: Issue of the work and Group summary...................................................................3
Introduction and Size........................................................................................................................3
Global Presence ................................................................................................................................4
Chapter 2: Analyzing the current Corporate Strategy .............................................................6
Differentiation Strategy & Business Units.........................................................................................4
Chapter 3: Our Recommendation â an acquisition in the Sharing Economy............................7
The 3 Tests......................................................................................................................................10
The attractiveness test.....................................................................................................................11
The Cost-of-Entry Test ...................................................................................................................12
The better-off test ...........................................................................................................................12
Financial Implications ....................................................................................................................13
Chapter 4: Financial data and financial analysis
Exhibits...................................................................................................................................13
Exhibit 1: GITA and KILO innovative projects..............................................................................13
Exhibit 2.1: Major Financial Facts..................................................................................................14
Exhibit 2.2: Product Range Worldwide Selling Data ......................................................................15
References...............................................................................................................................16
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PIAGGIO GROUP
Chapter 1: Issue of the work and Group summary
Our aim is to help our client, Piaggio Group, providing them with a strategic perspective of the firm
from the corporate managementâs point of view. First, we think it would be helpful to summarize
the major facts about the company, in order to have an overall picture of the Group. Secondly, we
want to analyze its corporate strategy, examining if it actually adds value to their shareholder: as we
are going to see, Piaggio chose a dominant corporate strategy, as approximately 70% of its revenues
comes from the dominant business of two-wheel vehicles (see Exhibit 2.2). Finally, we will draw
our final recommendation: our issue is to check out whether the acquisition of the Scoo.mee start-
up can improve the effectiveness of the corporate strategy and increase the shareholder value.
Introduction and Size
Piaggio Group is an important international player in the automotive industry, one of the worldâs
most important economic sectors by revenues. It was established in 1884 by Rinaldo Piaggio in
Sestri Ponente (Genova, Italy). The Group is listed on the Italian stock exchange, and itâs controlled
since 2003 by Immsi S.p.A., an Italian holding with participations in the real estate, industrial and
naval businesses.
Piaggio Group is a large and internationally expanded firm, with a total workforce of 6â706
employees (at 31st
December 2016), 3â518 in Italy (52,5%).
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PIAGGIO GROUP
Differentiation Strategy & Business Units
The Piaggio Group is a corporate with a differentiation strategy consisting of 7 business units,
which reflect its 7 different brands, with a product range that goes from commercial vehicles to
two-wheel vehicle such as scooters and motorcycles, wherein itâs the European leader.
The business units are: Piaggio, Vespa, Aprilia, Moto Guzzi, Derbi and Scarabeo. These brands are
among the most remarkable and unique in the industry. Two brands deserve particular regard:
Vespa, which is an icon brand in the scooter sector representing Italian style all over the world, with
more than 18 million vehicles produced since 1946, and Aprilia, that currently competes in the
MotoGP and the Superbike world championships under the name Aprilia Racing.
Global Presence
Despite its Italian origins and style, Piaggio expanded itself also in other countries, having global
operations and production plants all around the world, in countries like India, Vietnam, United
States and China. The result is that now Piaggio vehicles are sold all over the world.
The Piaggio Group headquarter is in Pontedera (Pisa, Italy). Vespa and the majority of Piaggio
brands for the European market are produced in Italy, where Piaggio also has a technical center for
development of motorcycles in Noale (Venice, Italy).
International operations are basically done in Baramati (India, in the state of Maharashtra), where
Piaggio produces vehicles for the Indian market and for export and in Vinh Phuc (Vietnam), where
it produces for the local market and the Asia-Pacific area.
The Piaggio Group also operates in China through a joint venture (Zongshen Piaggio Foshan
Motorcycles, based in Foshan in the province of Guangdong) and in the United States: in Pasadena
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PIAGGIO GROUP
(California), where it has the Piaggio Group Advanced Design Center for R&D, and in Boston,
where it has the Piaggio Fast Forward Inc., established in 2015 to develop innovative mobility and
transport solutions and technologies. In February 2017, this subsidiary introduced GITA and KILO
projects (Exhibit 1), smart technological transport solutions to assist people by carrying up to 18 kg
(GITA) and 100 kg (KILO), through a disruptive technology which allows them to follow,
communicate and interact with people.
Financial facts
Piaggio financial data shows that the Group is going well; almost all the major financial margins are
improving over time, as also the number of vehicles sold all over the world (see Exhibits 2.1 and
2.2 for detailed information).
It can be interesting to analyze some geographical data. In the EMEA area (Europe, the Middle East
and Africa), Sales increased in 2016 (+5,7% versus previous year), with this data more than
counterbalancing the Group Sales decrease reported in India and in Asia Pacific, due to negative
exchange rate effects.
In the same year, the Group continued to strengthen its leadership in the European two-wheeler
market with an overall market share of 15,4% (15,2% in 2015), and 25,4% (24,1% in 2015) in the
scooter sector alone, with a lead of more than 12% from the second competitor.
On the Indian market for the three-wheel commercial vehicle, Piaggio has an overall share of 28,9%
and confirmed its leadership in the Cargo segment with a market share of 50,7%.
The Group also strengthen its presence on high-potential markets such as Latin America, Africa and
Asia, with the expansion of the distribution network to 23 countries, and further growth planned for
2017.
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PIAGGIO GROUP
Chapter 2: Analyzing the current Corporate Strategy
As we said before, Piaggio has a dominant corporate strategy, as almost 70% of its revenues comes
from the dominant business of two-wheel vehicles. The Group has decided to carry on an
internationalization strategy with the aim of improving the revenues. Letâs now analyze the industry
in which Piaggio operates, through the strategic tool of Porterâs five forces.
Financial Analysis
According to our financial analysis (see exhibit 3.1), all the main performance ratios have grown
compared to the last fiscal year. The six ratios we examined are: Operating Margin, ROA, R&D
Intensity, ROIC, Current Ratio, Acid Test Ratio.
Operating Margin, ROA and ROIC belong to the âProfitability ratiosâ category, which comprises
those financial metrics used to assess a businessâ ability to generate earnings. Their increase was,
respectively, 5.93%, 12.46% and 6.83%. ROIC is probably the most significant of a companyâs
growth, since it represents the rate of return of the investments made by the company in the market.
It is almost in line with Piaggioâs WACC, which means that the company should invest in new
projects in order to increase the value for its shareholders (in according to shareholder value
creation theoryi
, see exhibit 3.2). The acquisition strategy we propose could be effective in
diverting this trend, because it would allow the company to increase its ROIC throughout 2
different ways:
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PIAGGIO GROUP
- By increasing the companyâs revenues: the scooter sharing industry is a fast growing
industry with high prospective revenues. Higher revenues lead to higher net income and
higher ROIC as well.
- By cutting down the transaction costs related to the current partnership with scoo.me. Lower
costs lead to higher profit margin and ROIC.
Current Ratio and Acid Test Ratio are part of the liquidity ratio category, that includes those ratios
which measure the companyâs ability to pay back its own obligations. These ratios show if a
companyâs assetsâ maturity is in line with the liabilities(â one?). In our case, the values of Current
Ratio and Acid Test Ratio were respectively 0.84 and 0.51. So, it is recommendable to the firm to
try to convert some long-term assets into short-term (ones?).
The last ratio that we analysed is R&D Intensity. It represents the percentage of R&D expenditure
over the revenues, and it is slightly grown compared to the last year.
Chapter 3: Our Recommendation â an acquisition in the Sharing Economy
Evolving market conditions and customer behaviour should consequently lead to a change in
Piaggioâs corporate strategy to optimally satisfy the changed customers needs and therefore the
stakeholders.
Within the urban mobility sector one of the largest trends in the past years has been a push towards
the sharing economy, including cars, just as scooters and motorcycles. Many large manufacturing
companies such as BMWii
and Daimleriii
have set up their ventures to be a part of this movement. As
established before, Piaggio believes in evolving with customer needs, so a strategic entrance in this
market could present itself to be a great opportunity for diversification into a future oriented market.
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PIAGGIO GROUP
Current data on scooter and motorcycles sharing services is still rather scarce, so analysing the
customersâ behaviour trends in the more developed car-sharing industry can be seen as a clear and
reliable indicator on where the future is heading in the light mobility sector as well.
A study conducted by McKinsey & Company expects 28% annual growth within the car-sharing and
e-hailing growth until 2030, resulting in a total market potential of more than two trillion USDiv
.
Further according to statista.com the number of global car sharing users has quadrupled in the time
frame between 2010 and 2014, up to 4,94 million usersv
. In comparison to the entire automotive
market this figure is extremely small, proving not that the actual market will continue to be small but
rather that there is still a lot of potential left. This conclusion can be followed from various predictions
of future market size, ranging from 35 million users in 2021vi
, according to a large German industry
journal, up to 650 million users in 2030, as predicted by ABIresesearchvii
. In conclusion, similarly
steep development can also be expected in the scooter and motorcycle sharing industry.
As of 2017 the Piaggio Group is already part of this industry to some degree. In the Italian market
the company Enjoy, a fully owned subsidiary of Eni, is providing its own sharing service, which uses
exclusively Piaggioâs MP3 model. Enjoy has purchased 300 vehiclesviii
. Internationally some other
players also use Piaggio products, for example the Munich based company scoo.me offers the
traditional Vespa models to their customersix
. But to maximize the value for the Piaggio Groupâs
shareholders it should be the next logical step to enter the market deeper, not just as a supplier of the
vehicles. From Piaggioâs perspective only delivering the vehicles for sharing services will most likely
lead to decline in average amount of vehicles owned per person, while simultaneously not selling to
sharing services would just shift revenues to competitors. McKinsey describes this thought process
of OEMs as the fear of cannibalizing their own success. A possibility to circumvent this problem
would be to enter the market with an own service, as BMW did with DriveNow and Daimler with
Car2Go. According to the McKinsey study âMobility of the Future â Opportunities for Automotive
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PIAGGIO GROUP
OEMsâ, entering the car sharing industry is a triple win for automotive OEMsx
. Considering the
extremely close parallels of an automotive OEM and Piaggio, an OEM in the light mobility sector,
the same wins could be applicable to Piaggio. Firstly, entering the sharing market early is a possibility
to lock in market share early and therefore maximize profits in the future. These profits are an
immediate increase for shareholder value and are the most important aspect of why Piaggio should
consider this direction for the companyâs future corporate strategy. Secondly, a strong presence in
shared vehicles can also be considered a strong advertisement for individual sales, whereas people
might decide to purchase the scooter or motorcycle they tested via a sharing app. This point is also
directly related to a positive shareholder value. Thirdly, sharing services provide a brand such as
Piaggio with a young and environmentally friendly image.
In conclusion, entering the sharing industry as soon as possible would be a smart move for the Piaggio
Groupâs corporate strategy, as it would be a very close kind of related diversification into a fast
growing market. Missing out on this opportunity might have strongly negative consequences in the
long run.
In 2017 the sharing landscape has become seemingly saturated, also in the light mobility sector. In
Italy players like Enjoy, ZigZag and Ecooltra have established their brand and internationally other
companies like Coup, Emmy, scoo.me, SCO2T and Cityscoot are already active today. The market
in general can be described as quite fragmented, as most companies are not active across multiple
countries and even more often not even across multiple cities. In the light mobility sector most cities
have their respective services, consequently limiting customer comfort when traveling to other cities.
It can be concluded that the Piaggio Group could still become a leading force, considering its
monetary power in comparison to most of these start-ups.
A corporation commonly has three choices on how to enter a new market: 1. Founding an own
company / business division; 2. Founding a joint venture; 3. Acquiring an existing firm. BMW has
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PIAGGIO GROUP
chosen to found the joint venture DriveNow with the car rental service rental service Sixt and Daimler
founded their own company Car2Go. Both companies were early adopters of this trend and were able
to take the necessary time to develop their service from scratch. Piaggio however does neither have
the time nor the necessity to develop its own infrastructure. Given that many sharing start-ups struggle
for additional funds to grow into more regions, an acquisition could enable Piaggio a faster
deployment, as well as an existing customer base. A good fit could be the Munich based company
scoo.me, which is only active in Munich and Cologne so far. The company is still quite small, but
has excellent user feedback proving a strong technological set-upxi
. So by acquiring a small company
such as scoo.me, which already uses Piaggio vehicles and has a great technological backend, Piaggio
could become a player in a matter of months.
The scooter and motorcycle sharing industry is currently experiencing heavy growth and it is expected
by different qualified sources that this trend will continue at least over the next decade. Being part of
this uprising industry will be crucial for OEMs, meaning not only to be the supplier of vehicles but
also providing own services. Best practice examples from BMW and Daimler have proven this in car
sharing already. For the Piaggio Group the addition of this goal to the corporate strategy could prove
beneficial for the future success of the company and the shareholder value. Further the sharing
industry is closely related to Piaggioâs current one and is also aiming at the exact same idea of
Piaggioâs mission statement in providing new solutions for mobility, which adopt to changed
customer lifestyles.
The 3 Tests
The Group must necessarily do 3 essential tests to examine whether such an acquisition proposal
should be implemented, adding value to shareholders, or not.
These 3 tests are;
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PIAGGIO GROUP
1) the attractiveness test: the industry chosen for diversification must be structurally attractive
or capable of being made attractive.
2) The cost-of-entry test: the cost of entry must not capitalize all the future profits
3) The better-off test: Either the new unit must gain competitive advantage from its link with
the corporation or vice versa.
The attractiveness test
To examine the attractiveness of the scooter sharing industry in Germany, we need to do a Porter
analysis of this sector. You can find all the data in the Exhibit 4.1, here instead we briefly discuss
the intensity of the forces. The bargaining power of suppliersâ intensity is irrelevant, due to the fact
that Piaggio will not need to create a new supplier park as it is itself a manufacturer of two-and
three-wheel motorcycles. The threat of new entrants to the German market is quite serious (high
level of intensity), taking into account the high growth rate of scooter sharing, and more generally
the share economy (25%), and the trend to cover new areas. This means that the industry is very
attractive for new entrants which are in search of high profits. Another problem for Piaggio, as well
as for other players, is the need for a clear European regulation that clearly sets out the rules of the
game.
The bargaining power of buyers has a moderate level. Unlike the two-wheeler market where there
is strong competition that puts manufacturers in the hands of buyers, the scooter sharing market is
not yet saturated but it has a strong growth potential which reduces the buyers power. In scooter
sharing the rental price and the ability to access every area of the city are the essential features for
buyers. Piaggio, unlike other players, can reduce the rental price as it can manufacture vehicles by
itself. Finally, it is important to keep in mind that Piaggio enters the German scooter sharing market
through the acquisition of Scoo.me, a company that has been operating with Piaggio fleets over the
years and is thus better acquainted with the needs of German consumers.
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PIAGGIO GROUP
For what concerns the threat of substitutes (low/moderate level), there are many substitutes to
scooter sharing service: public transport is a valid alternative for the importance that have in
Germany and, in addition, taxis are easily available but more expensive. The closest substitute is car
sharing, which however requires a longer rental time and therefore a higher price. Despite the
numbers of substitutes, their characteristics decrease the threat of substitutes.
At last, the industry rivalry scores a moderate/high intensity level. There are already many players
in the German scooter market and, since the industry is characterized mainly by joint ventures and
partnerships, they are more or less equal in term of strength and size. Moreover, it is a constantly
changing market thanks to the use of digital platforms and companies tend to allocate high sums of
money as advertising budgets.
The Cost-of-Entry Test
Diversification cannot build shareholder value if the cost of entry into a new business eats up its
expected returnsxii
. The more attractive the new business, the more expensive the entry.
Piaggio should enter the German scooter sharing market by acquiring Scoo.me. Since Scoo.me is
not a listed company, we have to assume that the acquisition plan has a positive NPV, i.e. that the
discounted future profits will be higher than the cost of acquiring Scoo.me. Then, we assume that
the scooter sharing market continues its growth trend. It should also be noted that Scoo.me already
exalts the Piaggioâs vehicles (one of the main sources of cost of the German start up), and therefore
for the Italian company this cost would be greatly reduced in case of acquisition.
The better-off test
A corporation must bring some significant competitive advantage to the new unit, or the new unit
must offer potential for significant advantage to the corporation. There are several reasons why
Piaggio should enter the German scooter sharing market by acquiring Scoo.me. First, a wholly
owned subsidiary gives Piaggio tight control over operations in a different country, and this is
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PIAGGIO GROUP
necessary for engaging in global strategic coordination (e.g. using profits from one country to
support competitive attacks in another one). Moreover, an acquisition is useful to realize location
and experience curve economies. This last point is the most important for the fact that Piaggio is a
company that is pursuing a global standardization strategy, characterized by low pressure to local
responsiveness with high pressure for cost reductions. Another advantage comes from the
possibility of penetrating into a new market related to the one where currently Piaggio operates,
two-wheeled vehicles, which represents a saturated market with few opportunities to growth unlike
scooter sharing that is a newly born market.
There are also some disadvantage to acquisition. This type of entry strategies is generally the most
costly method of serving a foreign market from a capital investment standpoint (Joint Venture is
cheaper than acquisition). Another problem with acquisition, including those associated with trying
to marry divergent corporate cultures (Italian employees are different to German employees and
also the management are different).
Financial Implications
Exhibits
Exhibit 1: GITA and KILO innovative projects
Piaggio GITA
(from âIl Mattinoâ)
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PIAGGIO GROUP
Exhibit 2.1: Major Financial Facts
millions of ⏠2016 2015 2014
Consolidated Net
Sales
1â313,1 1â295,3 1â212,8
%yoy +1,4% +6,8%
Industrial Gross
Margin
389,2 374,4 364,5
%yoy +3,9% +2,7%
EBITDA 170,7 161,8 159,3
%yoy +5,5% +1,6%
Net Profit 14 11,9 16,1
%yoy +17,6% -26,1%
millions of ⏠2016 2015 2014
Capital Expenditure 96,7 101,9 94.9
%yoy -5,1% +7,4%
of which
for R&D expenditure 30,9 31,4 /
for PPE, investment
property and
65,8 70,5 /
Piaggio KILO
(from âIl Corriere della Seraâ)
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PIAGGIO GROUP
intangible assets
Net Debt 491,0 498,1 492,8
%yoy -1,4% +1,1%
Exhibit 2.2: Product Range Worldwide Selling Data
Product range data 2016 2015 2014
Total vehicles sold
worldwide
532â000 519â700
%yoy +2,4%
Two-wheel vehicles
sold worldwide
344â000 322â500
%yoy +6,7%
Generating Net Sales
of
916,5
(69,8% of the total)
884,9
%yoy +3,6%
Commercial vehicles
sold worldwide
188â000 197â500
Net Sales
Two-wheel vehicles (69,8%) Commercial vehicles (30,2%)
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PIAGGIO GROUP
Exhibit 3: Major
Financial Facts
Op margin Op revenues/sales
ROA Net income/total assets
R&D intensity R%D costs/sales
Current ratio Current assets/Current liabilities
Acid test ratio (Current assets-Inventories)/Current liabilities
Input data 2016 2015 2014
Net income 14,040,000.00 11,867,000.00 16,064,000.00
Total assets 1,630,715,000.00 1,550,016,000.00 1,556,608,000.00
R&D costs 50,100,000.00 46,800,000.00 46,300,000.00
Sales 1,313,000,000.00 1,295,000,000.00 1,213,272,000.00
Dividends 17,962,000.00 26,007,000.00 -
Total Capital 1,630,715,000.00 1,550,016,000.00 1,556,608,000.00
Op.income
(EBIT) 60,900,000.00 56,700,000.00 69,700,000.00
Current assets 533,385,000.00 448,439,000.00 477,491,000.00
Inventories 208,000,000.00 213,000,000.00 232,000,000.00
Current
liabilities 633,041,000.00 557,277,000.00 562,173,000.00
WACC 6.69%
industry average
(Bloomberg)
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PIAGGIO GROUP
2016 2015 2014
Operating
margin 4.64% 4.38% 5.74%
ROA 0.86% 0.77% 1.03%
R&D intensity 3.82% 3.61% 3.82%
ROIC 6.10% 5.71% 6.65% source: Bloomberg
Current ratio 0.84 0.80 0.85
Acid test ratio 0.51 0.42 0.44
ROIC (avg) 6.15%
% variation 2016 2015 2014
Operating
margin 5.93% -23.79% N/A
ROA 12.46% -25.81% N/A
R&D intensity 5.58% -5.30% N/A
ROIC 6.83% -14.14% N/A
Current ratio 4.71% -5.26% N/A
Acid test ratio 21.66% -3.25% N/A
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PIAGGIO GROUP
Factors contributing to the strenght of the
Threat of new entrants
Is this true?
Supply side economies of scale Yes
Demand side benefits of scale No
Customer has switching costs Yes
High capital requirements Yes
Incumbent advantage indipendent of size No
Unequal access to distribution channels Yes
Restrictive government policies No
Incumbent aggressive response Yes
Slow industry growth No
OVERALL ASSESSMENT HIGH/MODERATE
Factors contributing to the strenght of the
Buyers
Is this true?
Industry products are indifferentiated/standard Yes
High switching costs No
Available substitutes Yes
Buyers are price sensitive Yes
Concentrated purchases in volumes large relative
to the size of the Industry
No
Buyers are a credible threat of bacward integration No
OVERALL ASSESSMENT MODERATE
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PIAGGIO GROUP
Factors contributing to the strenght of the
Suppliers
Is this true?
The suppliers industries are concentrated No
Industry has switching costs Yes
Suppliers products are differentiated No
Presence of substitutes for the suppliers Yes
Industry is not a large buyer No
Credible threat of forward integration No
OVERALL ASSESSMENT LOW
Factors contributing to the strenght of the
Rivalry
Is this true?
Switching costs Yes
Lack of differentiation Yes
Rivals are diverse No
Rivals are numerous or equal in size Yes
Exit barriers are high No
High fixed costs and marginal costs No
Capacity added in large increments N/A
OVERALL ASSESSMENT MODERATE/HIGH
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PIAGGIO GROUP
References
i http://www.cfasociety.org/srilanka/Linked%20Files/Shareholder_Value_Creation.pdf
ii https://www.press.bmwgroup.com/deutschland/article/detail/T0100973DE/bmw-group-und-
sixt-ag-gruenden-joint-venture-drivenow-fuer-premium-car-sharing?language=de
iii http://media.daimler.com/marsMediaSite/en/instance/ko/car2go.xhtml?oid=9267444
iv https://www.mckinsey.de/carsharing-co-2030-ueber-zwei-billionen-dollar-umsatzpotenzial
v https://de.statista.com/statistik/daten/studie/388022/umfrage/anzahl-der-weltweiten-
carsharing-nutzer/
vihttp://www.automobilwoche.de/article/20160223/AGENTURMELDUNGEN/302239988/studie--
millionen-carsharing-nutzer-im-jahr-
vii https://www.abiresearch.com/press/global-number-of-car-sharing-users-to-reach-650-mi/
Factors contributing to the strenght of the
Substitutes
Is this true?
High number of substitutes Yes
High scope of differentiation No
High switching costs to other substitutes No
OVERALL ASSESSMENT MODERATE/LOW
