Reconciling Management Dichotomies at Honda Motors
Name:Josphat waititu Author: josphat waititu Instructor: A B W Wachira Subject: Management Introduction Honda Motor Company is a Japanese manufacturing company primarily involved in the manufacture of motor cycles and motor vehicles. It is currently the world’s leading motor cycle manufacturer in the world, a position it has held since 1959 and the world’s sixth largest vehicle manufacturer in terms of volume; being Japan’s second largest vehicle manufacturer and the fourth largest in America.
Some of its other products include power products and engines. The firm also produces lawn mowers, solar panels as well as aircraft and robots. Honda is a publicly traded company listed on both the Tokyo and New York stock exchange and headquartered in Tokyo, Japan. Globally, the company employs over 179,000 people in its operations with a total production volume of over 17 million units of motor cycles sold in the financial year ended 2010 while over 3. 5 million vehicles were sold in the same period. ith Its global operations, the company is s divided into four key business segments, automobiles, motor cycle, power products and financial services, it also divides its business on a geographical basis; Honda has its manufacturing and assembly plants in key current and future markets in order to help it meet the needs of those markets effectively. Some of its manufacturing and assembly operations are based in China, Indonesia and Japan in Asia. In North America, the firm has operations in the USA and Canada; its operations in Europe are mainly based in England and Belgium while its South American operations were based in Brazil and Peru.
Honda motors also has operations in other key emerging markets such as India, turkey, New Zealand and Thailand. Vision statement The firm’s vision statement aims at satisfying the expectations of its stakeholders by taking on new challenges and being flexible. The firm aims at leveraging on new technology in order to supply new cars with more fuel efficiency and competitive pricing. A friendly after sales support is also a key component of its vision all while maintaining quality throughout its key activities.
Mission statement As a firm, Honda strives to meet the needs of its global clientele by supplying them with products that are of the highest quality but at an affordable price. The firms aim to compete at the global stage by competing on both cost and quality. Some of the management policies adopted by Honda to assist in meeting the set goals include encouraging the organization to remain and ambitious and youthful in its outlook in order to be able to respond to changes in market requirements quickly.
The company’s management also seeks to follow the tested and proven management theories and practices all while encouraging the development of fresh ideas and using time efficiently. Towards this end, the company places a lot of value on research and development of new products and maintains an open communication policy to facilitate in the flow of ideas and in maintaining harmonious and a coordinated, working relationship that helps the organization maintaining its harmonious working relationship. History
Honda motors was founded in 1946 as Honda technical research institute before changing its name to Honda motors company two years later. Founded by Japanese entrepreneur Soichiro Honda, the company first found its niche in the market through the manufacture of generator motors during the world war two and the manufacture of motor cycles. Starting operations with twenty employees the company found its first success with the production of the “c” class model motorcycle before manufacturing a “D” model which was a three horse power and twin transmission engine.
The two models were followed by the “E” model which was equally successful. These motor cycle models were quite popular as they were inexpensive and were fuel efficient and helped Honda motors build a reputation for the production of quality products with superior designs to become the top motor cycle manufacturer in Japan. Honda began its international sales in 1959. After realizing the potential of the international market with a keen interest in the American market.
The company officials sought to establish Honda presence in the US market but due to poor reception from American dealerships, negative image about the Japanese culture among Americans and a widely held belief that American goods were superior to Japanese, the company struggled in its first years. This was compounded by the fact that it had to establish its own distribution channel, however, the turning point for Honda’s fortunes in America changed for the better due to the success of its founder in the racing circuit and after he won the race of isle of man in the early ‘60’s.
An extensive advertising campaign and winning manufacturer’s award in 1962. Soon AHMC was dominating the American market with a 62% market share. In the late ‘50’s and early ‘60’s Honda motor company ltd established international subsidiaries in Europe which included sales and manufacturing subsidiaries based in Germany and Belgium respectively. The firm also ventured in the production of motor vehicles after 1964 with an emphasis on sporty vehicles and light weight trucks, but its real production of motor vehicles did not start until the manufacture of the Honda civic in 1972.
Production rose to hit 1,000,000 in sales within four years, which was followed up by the Honda accord which was equally successful. Within 25 years of venturing in to the manufacture of motor vehicles, the company managed to get into the top 10 worldwide manufacturers having produced 1. 34 million cars in 1985. It was the vehicle manufacturer with the largest component of international sales among its competitors at 77% of its total sales. Honda also established a technical relationship with the Rover group in order to enable it develop its capacity to manufacture motor vehicles.
Part ii Analysis Strategies Internationalization of sales. Since its inception, Honda Motors Company limited has always strived to establish an international presence in terms of sales. Towards achieving this project, the firm has established subsidiaries in various key markets such as in the USA where its operations are handled by American Honda Motor Company. In terms of sales 77% of its sales being outside its home market of Japan and 46% of its production capacity being outside Japan. The firm only accounts for less than 10% of the market size in its home market.
Out of total sales of about 3. 7 million only 647,000 were made in Japan while the United States market accounted for the bulk of sales with over 1. 23 million vehicles sold. The most important markets for Honda worldwide were USA, Japan, china, Oceania and the European region. Appendix 1 shows the distribution of sales 2010. This international strategy has been supported by the investment decisions the company has made over the years by opening up operations in key markets, which present opportunities for growth for the firm.
For example, Honda was the first Japanese manufacturer to establish its operations in the United States back in the 1960’s while its rivals were concentrating on consolidating their market share in their home market. This strategy has benefitted the company by enabling it to get a head start in key markets than its rivals as well as offering a hedge against currency fluctuations and natural calamities. For example, the company was not affected as much by the recent strengthening of the Japanese yen against other world currencies due to the large percentage of its activities outside the country.
It was also not affected as much as its Japanese rivals when a tsunami struck the country halting almost all manufacturing activities. In order to capture international markets, Honda motors applied a low cost model supported by economies of scale achieved by increased production for its domestic, Japanese market. For example, in Britain, the firm sought what the Boston Consulting Group called segment retreat by rivals by out pricing their competitors in the segments that would have given them economies of scale such as the small capacity motor bikes and, therefore, forcing them to retreat from the segment.
In the united states, the firm engaged in a massive media campaign as well as competing in motor races to build awareness about its bikes as well as showcase their capabilities. Product diversification Honda has strived to diversify its range of products by mixing its sales within its large range of products. Apart from its main products of motor vehicles and motor cycles, Honda has ventured into the manufacture of other products such as internal combustion engines, power products, aviation and robotics. The firm also produces solar cells and mountain bikes.
This helps protect the company from exposure from collapse in demand from one of the sectors. Appendix 2 shows the amount of sales by business segments. From the operating data, in2007, the contributions of the various business segments to the business were as follows: ?Motorcycle Business: 13. 44% ?Automobile Business: 78. 46% ?Financial Service Business: 4. 01% ?Power Product and Other Business: 4. 09 Strategic partnerships and focus on emerging markets Honda has in the course of its existence undertaken several strategic partnerships with other vehicle manufacturers in order to achieve various objectives that it has set.
Its first partnership was with British motor manufacturer the Rover Group for a period of around 25 years from 1979 to 1994. The firm has strategic investments in china which represents a huge future market by operating joint ventures in research and development, as well as manufacturing of motor vehicles with various local firms. The firm is also keen to grow its presence in other emerging markets of Brazil, India and turkey by being present in those countries in order to be able to meet future demand as well as be competitively placed to benefit from increased consumer spending in these economies.
Through partnership with Chinese motor cycle manufacturers, Honda has been able to license its partners to produce affordable, genuine Honda motor bikes that are meant to fight counterfeit products prevalent in the south East Asia market. By undertaking these partnerships, the firm has been able to create a whole new market segment for its motor cycles that have enabled it to cement its position as the number one motor cycle manufacturer in the world while fighting counterfeit product that has a negative impact on its brand equity. Research and development and innovation
Honda has always focused its efforts in the production of smaller more fuel efficient cars, and in the past, this strategy has worked against it forcing it to venture in the development of sports utility vehicles in order to be able to meet the needs of consumers for larger vehicles. However, due to increasing awareness among consumers on the effect of motor vehicles on the environment as well as record high fuel prices, the world seems to prefer smaller fuel efficient cars. This has led to increased demand for a vehicle in a niche Honda motors ltd. Has built experience over the years leaving it in a competitive advantage.
As part of its next ten year strategy, the firm aims to introduce more low cost fuel efficient vehicles with green technology features such as hybrids and electric vehicles which it hopes to release into the market ahead of its rivals. In order to achieve this goal, Honda motors ltd. Invests a lot of resources in research and development having one of the largest budgets in the world in terms of research. Coupled with the youthfulness in thinking that is encouraged by management, firm is able to innovate and develop new products that anticipate the needs of the consumer.
For example, Honda will be the first manufacturer to release a fully electric car that matches gasoline fueled cars in most measures of performance in the year 2012, way ahead of rivals. SWOT analysis Strengths •One of Honda motors company ltd. Strengths’ is the high regard with which research and development is held by the management hence continued investment in the sector. •The firm is also innovative and youthful in its outlook hence delivering on new products. •Strategic market positioning in key markets make it prime to take leadership. •The company has strong brand equity. A diversified range of products and intellectual property ownership. •Revolutionary engine technology. •Good public image of the company in the eyes of the public. Weaknesses •A high cost structure compared to that of its rivals •An international outlook in sales means it can not specialize in specific markets. •It does not offer any competitive products in the truck line •It is seen as too conservative in terms of style and design Opportunities •Increased interest in fuel efficient cars presents the best opportunity for Honda to show its market leadership position in the field of green technology. The firm should take advantage of its international experience and strategic position to enter the emerging markets and develop products that will serve these specific markets. •By taking advantage of its partnership with low cost Chinese manufacturers, the firm should introduce a vehicle model which serves the lower segment. •Honda cans increase of its production by focusing on sales and research Threats •Economic slowdown might continue subduing demand for motor vehicles •increased nationalism and trade protectionism might reverse gains of globalization Entry of low cost competitors into the market might lead to a price war. •Increasing commodity prices are pushing up cost of production of motor vehicles by Honda. increased sale of second hand vehicles •substitute products Environmental analysis Economic environment Since 2008 when the world experienced the global financial crisis, the economic recovery has been slow resulting in suppressed consumer demand for new motor vehicles. This has had a huge effect on the profitability of motor companies such as Honda motors ltd. Especially since the economic recession severely affected its key markets of North America and Japan.
Increased nationalism resulting from the global recession and encouragement by the governments for people to buy locally manufactured brands has worked against firms like Honda which have sought to adopt an international outlook. The soaring commodity prices have however, worked in Honda’s favor by encouraging demand for more fuel efficient vehicles. This has led to increased interest in the company’s range of motor vehicles boosting sales. As of the year 2010, Honda was the fourth largest vehicle manufacturer in the US in terms of sales due to an increased demand for its smaller more fuel efficient vehicles.
Political /legal environment As governments strove to rescue their economies from recession and encourage consumer spending, many have instituted stimulus packages that aim to boost consumption in the economy by offering rebates for those who purchase cars and motor cycles. Honda has both been a beneficially where such rebates are offered only to those companies with local operations and are fuel efficient and a victim where such subsidies come with a nationalistic clause attached.
Being a multinational company, Honda motors has over time experienced trouble with various governments over accusations of illegal pricing of goods, transfer pricing and payment of taxes. However, due to the continuous support that the Japanese government offers its indigenous multinationals, the firm has been able to resolve such issues. Honda has also experienced problems with counterfeit products especially in the Asian market where many people cannot be able to afford its motorbikes.
This has led to some unscrupulous Chinese manufacturers violating the trademark and intellectual property of Honda motors limited and developing counterfeit products, which are affordable to such markets. Honda has responded to the situation by partnering with Chinese motor cycle manufacturers to produce competitively priced Honda products under a license that are meant to serve such markets. Through this, they have been able to cut out most of the counterfeit products in the market and establish a whole new market segment.
The firm is also affected by the new government regulations that seek to establish legal limits on the amount of emission that a car can produce. Most governments worldwide with substantial motor vehicle manufacturing interests have set deadlines when motor vehicles manufacturers are expected to reach certain vehicle emission cuts targets in order to qualify for government funding. Honda which has a significant presence in the regions where these measures have been taken such as the European Union and North America, therefore, has to comply with such requirements in order to continue enjoying market share in such countries.
Technological environment The technological environment in general and that in motor vehicle industry in particular, is rapidly changing as new technologies emerge which are making older technologies obsolete. On the production front, many vehicle manufacturers are incorporating new technology that makes driving their cars safer and a more enjoyable experience to use. Such developments include the use of global positioning systems in cars, electronic brakes and stabilizers as well as cameras that detect obstacles as well as gather information from the environment.
Technology is also being used in making vehicles to become fuel efficient with buyers being presented with a choice to buy hybrids or fully electric vehicles. Technology has also changed the way manufacturers such as Honda market their products especially with the advent of the internet and social media. As the means of communication become more and more converged, the marketing department of Honda motors limited must come up with a new marketing mix that takes into consideration the emergence of some new forms of communication and the decline of others as they seek to reach the widest audience as much as possible. Social environment
The social environment that most motor vehicle manufacturers such as Honda operate in is characterized by increasing social awareness on the role motor vehicles have played on global warming and environmental degradation leading to a preference for more fuel efficient cars. Buyer preference in some of its key markets such as the US where most consumers preferred bigger cars has changed to smaller cars. The demographics for some of its customers are changing especially in Japan where most of the market for motor cycles used to be young people. as a result of the general aging of the population, demand for such has reduced in the country.
Honda motors limited corporate social responsibility strategy aims at providing support to the good name of the organization by giving back to the society and its main activities in the field of philanthropy are involved in mainly providing education, improving traffic safety, conserving the environment and taking part in activities that affect the community. This is due to the firm’s concerted effort in building relationships with customers and local markets. Honda has also played a huge role in the development of motor sport by participating as a constructor in the world motor cross and in the motor rallies.
The porter five forces model The threat of substitute products. This threat is defined as the existence of close substitute products which has the effect of increasing the likelihood of customers switching to a rival product easily as a result of an increase in the price of your product. Therefore, if a rival can be able to produce a product that is of the same quality as those produced by Honda, at a lower price, such rivals can actually replace Honda motors’ product in the market with their own. Buyers are also more likely to do a price performance trade off before deciding on which products to buy.
Some of Honda’s products which are facing competition from substitutes, are its range of small hybrid vehicles which are competing in the same category as Toyota’s Prius. The firm’s superbike F4 faces a lot of direct competition from Yamahas R6 superbike. Honda can counter the threat of substitute product by raising the quality of its products while maintaining price as well as undertaking an aggressive product differentiation campaign in order to not build a perception of higher quality in the consumer, but to also build brand loyalty. The threat of new competitors
This threat of new competitors could take either of the following two forms, it could be the entry of a brand new firm in the manufacture of motor vehicles or it could mean the entry of an already existing firm into markets that Honda is already competing in. the threat of new competitors leads to a firm not achieving the maximum profits that it could have achieved if it were not competing. In the first scenario, the level of threat by a brand new firm is remote due to the huge capital requirements and technical knowledge needed to mass produce. onsidering the global nature of the industry, a firm will also need to establish a distribution chain for its vehicles, a process that might be frustrated by existing vehicle manufacturers who might lean on their relationship with the dealerships to frustrate the newcomer thereby establishing barriers of entry. In the second scenario where competition comes from an existing firm, Honda can deal with such competition by engaging in a marketing campaign that builds customer loyalty and enhances brand image.
Where it is the pioneer in the said market, and it has been able to recover most of the sunk costs, the firm can lower its prices in an anticipatory move so as to make it impossible for competition to recover their costs at the prevailing prices. The firm can also use its intellectual property to lock out rivals from the market. Rivalry among existing competitors/intensity. The nature of the global motor vehicle industry is very competitive. The numbers of firms that play at that stage are also quite few such that firms are aware of what their competitors are doing and counter such moves.
Therefore, the firms seek to have products that compete in different categories of motoring such as family sedans, sports utility vehicles, pickup trucks, light trucks and heavy commercial trucks. Some of the direct competitors to Honda Motors Corporation include Toyota and ford motors. For example, Toyota introduced their Camry brand as a direct competitor to Honda’s accord on seeing how well the vehicle was performing in the market. The two have been direct competitors since. Other competitors in this category include the GM Malibu and the ford fusion.
By seeking to be the greenest automaker, ford has been able to innovate itself out of competition. Honda can counter the moves by existing competitors by being innovative in its products, and thus by doing so it can create the perception that it is the industry leader and the rest are copy cats. It can also boost its market share in both the short and long term through an advertising campaign and by adopting the correct, competitive strategies. The bargaining power of customers This threat refers to the ability of the buyers to exact downward pressure on the prices of the products.
The nature of the motor vehicle industry is such that there are few vehicle manufacturers who serve a large crowd of heterogeneous buyers. With no unity, of buyers, the bargaining power of consumers is weakened, and they become price takers. As such, only the competition among firms keeps prices in check as all firms want to be competitive in all categories. Some buyers of vehicles are also not sensitive to price changes; this is especially so in the luxury brand category where Honda motors competes under the brand name Acura. The higher prices of vehicles in this category help to increase snob appeal against customers.
In order to increase its bargaining power in relation to that of the customer, Honda can undertake forward integration by acquiring distributors. This will enable it move its products quickly through the supply chain to the consumer as well as equip it with greater control over the final price of the product. A case in point of customer sensitivity to prices is demonstrated by the Vietnam market where Honda introduced its air blade scooter in April of 2007. However, Suzuki, its rival introduced a new scooter that had the same capabilities three months later but at a significantly lower cost.
This led to most of the Honda customers switching over to the Suzuki brand which had no choice but match its rival in price in order to compete. The bargaining power of suppliers The threat of bargaining power of suppliers suffers to the ability of suppliers to inflate the final price of the product through raising the cost of inputs. Honda motors limited competes by offering quality products at an affordable price and hence it needs to be able to control the cost of its inputs so as to competitively price its products.
Honda motors maintains different supplier who are charged with the task of supplying it with different components for the manufacture of its products. Through ordering in bulk, the firm is able to negotiate special rates with these suppliers and hence take advantage of economies of scale. No supplier has the financial muscle to threaten forward integration; on the contrary, Honda has the capacity to integrate backwards and hence has the balance of power versus the suppliers.
Since most of the suppliers also supply its rivals, it usually signs binding agreements with its suppliers and maintains a list of alternate suppliers for its components. The firm also maintains stock as a buffer against supply chain bottlenecks. Conclusion/recommendations In order to remain competitive, Honda should seek to create synergies among its business segments in order to be able to take developments in one sector and apply them to another sector hence achieving synergy.
However, the firm should take care to ensure that each of the segments do not lose focus in the quest of making the organization more integrated. For example, it should seek ways of integrating developments of its robotics division in its future motor vehicles and aero planes. Honda should take advantage of its more global operations as compared to its other Japanese rivals and invest in flexible assembly lines which can be switched with faster turnaround times to produce other products. For example, due to the tsunami, its American market experienced shortages of the Honda civic brand which was in high demand.
Honda should have been able to utilize capacity at other locations worldwide to cover up for the shortage that resulted from shutting down its Japanese operations by switching to production of the Honda civic. The objective of the firm to compete both on cost and on quality is self defeating especially in the emerging markets where consumers are more sensitive to prices. In order to achieve quality, one must incur higher expenses and hence Honda should not seek to compete on both as it is self defeating. Instead, the firm should create two separate brands which compete on one quality exclusively i. . one should seek to compete on cost and the other on quality and thereby creating two market segments. Honda uses a matrix basis of organizing its management structure on the basis of geographical areas, as well as the different business segments. While this strategy has helped it focus on key markets and allocate adequate resources to help it succeed in that market, it has also overburdened it with a cumbersome system. Honda should seek to stream line its operations in order to be able to lower costs while at the same time maintaining the benefits accorded by its current management structure.
With an aging workforce in countries where it has major operations such as Belgium, Japan and the USA, Honda motors has a problem of high costs associated with retirement and healthcare services that are accorded to such employees. Honda needs to review these commitments so as to reduce the amount of obligation that it owes and has to meet. Benefits in terms of savings achieved should be passed on by lowering the cost of car. Honda should fine tune its global strategy by concentrating its focus in major emerging markets such as china, India and Brazil as these have the greatest potential.
In order to gain a firmer foothold and hedge its risks, the firm should seek to enter into joint ventures and strategic partnerships with locally based manufacturers who are going to give it access to such markets in exchange for technical knowhow. This will help the firm diversify its sales mix geographically from the US which accounted for the major market of its vehicles. While continuing its investment in research and development, Honda should be more vigilant about protecting its intellectual property to avoid cases of other manufacturers stealing it and using it for their own good without license.
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