Honda Case Study

PRESENTED BY  GROUP-3

OVERVIEW: 1. FACTS ACTS ABOUT ABOUT HONDA HONDA MOTOR OTORS S 2. MOTO MOTORBI RBIKE KE MARKE MARKET T IN US BEFORE BEFORE HONDA HONDA ENTRY ENTRY 3. POSITI POSITIONI ONING NG OF OF HONDA HONDA IN US US MARKE MARKET T 4. COMP COMPET ETIT ITIV IVE E FORCES FORCES OF OF STRATE STRATEGY GY 5. STREN STRENGT GTH H OF HONDA HONDA MOTOR OTORS S 6. STRA STRATEGY TEGY OF HONDA HONDA IN US (AS PER BCG) BCG) 7. COUNTER COUNTER ARGUMENTS ARGUMENTS OF OF STRATEGY STRATEGY MENTIONED MENTIONED IN POINT POINT 6 (BY PASCAL) 8. WHY DIFF DIFFERE ERENCE NCES S IN IN THE ANAL ANALYSI YSIS S ?? 9. SUMMARY

FACTS OF HOND HONDA A: 1. Honda Honda is the world's largest largest manufacturer manufacturer of motorcycl motorcycles es as well as the world's larg larges estt manu manufa fact ctur urer er of inter internal nal comb combus usti tion on engi engine ness measu measure red d by vo volu lume me,, producing more than 14 million internal combustion engines each year. 2. Hond Honda a surp surpas asse sed d Niss Nissan an in 2001 2001 to beco become me th the e seco second nd-l -lar arge gest st Japa Japane nese se automobile automobile Manufactur Manufacturer. er. As of August 2008, Honda surpassed surpassed Chrysler as the fourth fourth largest automobile manufacturer manufacturer in the United United States. Honda is the sixth largest automobile manufacturer in the world. 3. Honda Honda headquarter headquarters: s: Minato, Minato, Tokyo. 4. Trades Trades in: Tokyo Stock Stock Exchange Exchange and the New York Stock Stock Exchange, Exchange, as well as exch ex chan ange gess in Os Osaka aka,, Nago Nagoya ya,, Sappo Sapporo, ro, Ky Kyot oto, o, Fuku Fukuok oka, a, Londo London, n, Pari Pariss and and Switzerland. 5. Lead Leader ersh ship ip 1948²1973 ³ Soichiro Honda 1973²1983 ³ Kiyoshi Kawashima 1983²1990 ³ Tadashi Kume 1990²1998 ³ Nobuhiko Kawamoto 1998²2004 ³ Hiroyuki Yoshino 2004²2009 ³ Takeo Fukui since 2009 ³ Takanobu Ito

FACTS OF HOND HONDA A: 6.

With high high fuel fuel prices and and a weak US economy economy in June June 2008, Honda Honda reported reported a 1% sales increase while its rivals, including the Detroit Big Three and Toyota, have reported double-digit losses. Honda's sales were up almost 20 percent from the same month last year. The Civic and the Accord were in the top five list of sales.

7. Analysts Analysts have have attribut attributed ed this this to two two main factor factors. s. i. ii.

8.

First, First, Honda Honda's 's product product lineup lineup consi consists sts of mostly mostly small small to mid-size, mid-size, highly highly fuelfuelefficient vehicles. Secondly, Secondly, over over the last last ten years, years, Honda Honda has designed designed its factories factories to to be flexible, flexible, in that they can be easily retooled to produce any Honda model that may be indemand at the moment. The The compan company y has assemb assembly ly plant plantss around around the glob globe e locate located d at Chin China, a, USA, USA, Pakistan, Pakistan, Canada, England, England, Japan, Belgium, Brazil, New Zealand, Zealand, Indonesia, Indonesia, India, Thailand, and Turkey.

RKET MOTORBIKE MARKET

IN US BEF BEFORE

1. Harley Harley Davidso Davidson n was was market market leader leader with $ 6.6m sales in 1959. 2. Bad image of the motorcycle motorcycle riders, riders, as a trouble maker. 3. British and US companies major supplier supplier of of the motorcycles. 4. Target Target custom customers ers were were the police, police, army army ..etc ..etc 5. Leaking oil and clutch problems problems were the major issues in the bikes (1959).

POSITIONING

OF HOND HONDA A IN US: US:

1. Positioned themselves as number one company company post Japan success. success. 2. Positioned itself itself as a customer friendly company company with products for common man. 3. Positioned itself as a company that develops develops innovative products. 4. Positioned itself as a company with quality products with low price. price. 5. Positioned Positioned in terms of value value for money. money.

COMPETITIVE FORC ORCES & STR STRATEGY:

NEW MARKET ENTRANTS

SUBSTITUTES

FIRM

SUPPLIERS

COMPETITOR

CUSTOMERS

FIRM:  Adv  Advan anta tage ge of bein being g the the Firs Firstt Move Mover: r: 1. Build Honda·s Honda·s reputati reputation on with with buyers buyers.. 2. Early commitment to new technologies technologies & channels had a cost advantage. 3. First time customers customers will remain loyal to the firm, with repeated buying. 4. Moving first makes preemptive strike, making imitation hard / unlikely.  Disadv sadvan anta tage ge of

bein being g the the Firs Firstt Move Mover: r:

1. If pioneering leadership is more more costly costly than imitating leadership. leadership. 2. When When imitat imitator· or·ss produc products ts are primiti primitive ve and follow follower er wins wins over over disenc disenchan hanted ted buyers from leader with better products. 3. When demand demand side of market market is skeptical skeptical about about the benefits benefits of the new technolog technology y introduced. 4. When due due to market evolutio evolution n late movers movers and fast follower followerss respond respond suddenly suddenly to the market changes with better version products.

COMPETITOR / MARKET RKET ENT ENTRANTS: TS: 1. Harley Harley Davidson, Davidson, USA  2. BSA, BSA, UK  3. Triump Triumph, h, UK  4. No Nort rton on,, UK  5. MottoMotto-Gu Guzzi, zzi, Italy Italy British motorcycle company sales decreased in US from 49% in 1959 to 9% in 1974. Reasons: 1. Loss Loss in Market Market Share Share 2. Profit Profitabil ability ity decline decline in a large large scale scale econom economy y and disadvan disadvantage tagess in technolog technology, y, distribution and marketing.

SUB SUBSTI STITUTE TUTES: 1. Anyone Anyone planning planning to buy a motorcyc motorcycle le ONLY, ONLY, would not be expecting expecting a substitut substitute. e. The substitute can be assumed in forms of same type of product by different companies. 2. Anyo Anyone ne plan planni ning ng to buy buy a mo moto torc rcyc ycle le as a TRAN TRANS SPORT PORT me medi dium um,, can can find find substitutes in the terms of car, bus, trains.

CUSTO CUSTOMERS ERS: 1. As mentioned, initial customers for motorcycles were army, army, police, and the trouble makers, with a very limited portion of the gentlemen. ² negative image of bikers. 2. Hond Honda a ex exte tend nded ed th the e mo motor torcy cycl cle e conc concep eptt ov over er th the e comm common on man man with with prope properr designs and marketing strategies.

STRENG STRENGTH TH OF HOND HONDA A MOTORS ORS: 1. It start start with with the roles roles which which the the founders founders played. played. Honda was an inventive genius with a large ego and a volatile temperament. His main concerns were not about the profitability of the company or its products, but rather to show his innovative ability by producing better engines. Fujisawa on the other hand thought about the financial section of the company and how to market the ideas. He often challenged Honda to come up with better engines. By specializing in their own abilities the two of them were able to pool together resources and function effectively as a team. 2. The comp company any utilized utilized its market market posit position. ion. Strengths in design advantages and production methods meant they were able to incr increa ease sess sale saless in Japan Japan ev even en th thou ough gh th ther ere e was was no organ organiza izati tion on with within in th the e company. Once there was a large enough demand for its products, mainly the super uperccub, ub, Honda onda both both in Japa Japan n and and in Amer Americ ica, a, mo move ved d from from a sale sale on consignment basis to one that required cash on delivery. This seemed a very risky decision to make at the time but within three years they had changed the pattern within the motorcycle industry by shifting the power relationship from the dealer to the manufacturer.

STRENG STRENGTH TH OF HOND HONDA A MOTORS ORS: 3. Cultivated a "success against all odds" culture culture into the company. company. This was tested when he sent two executives to the U.S with no strategy other than to see if they could sell something. The weaknesses within an organization can become irrelevant if the strategy is strong and there is good leadership. 4. ´Fortune favors the brave.µ  An element of luck also helped Honda follow an emerging strategy. Restrictions placed on funds by the government for the U.S venture forced Honda to take an alternative route. If they had all the funds necessary they may well have gone through the normal distribution channels. Honda entered the US market right at the end of the motorcycle trade season. When leaking oil and clutch problems occurred on their bikes it did not affect Honda as hard as it would have had they entered in the beginning of the season. Also people noticing the Supercubs led the company to produce a bike which was not at first supported by senior management.

HONDA ONDA STR STRATEGY IN US (BY (BY BCG): 1. Succes Successs of Honda was fueled fueled by success success in the Japan Japan market market.. Heavy demand of  the products in the domestic market led to Honda experiencing economies of scale as the cost of producing motorbikes declined with the level of output. This provided Honda to achieve a highly competitive cost position which they used to penetrate into the US market. The philosophy:  H igh volumes per model provide the potential for high productivity as a resu result lt of usin using g capi capital tal inte intens nsiv ive e and and high highly ly auto automa mate ted d tech techni niqu ques es.. So, they developed high model volumes. 2. The company company also moved away from other companies who relied upon distributors to sell their bikes, bikes, when the company set up its headquarters in the west coast of   America. 3. Honda had a "policy of selling, not primarily to confirmed motorcyclists but rather to members of the general public who had never before given a second thought to a motorcycle´.

HONDA ONDA STR STRATEGY IN US (BY (BY BCG): 4. The small, small, lightwei lightweight ght Honda Honda Supercub Supercub sold at under under 250 dollars dollars compared to the bigger American or British machines which were retailing at around 1000 to 1500 dollars. 5. In 1960 Honda's research team comprised of around 700 designer and engineer staff compared to the 100 or so employed by their competitors showing the value which the company placed on innovation. Production per man-year was 159 units in 1962, a figure not reached by Harley-Davidson until 1974. 6.

Honda was following Honda following a strategy strategy of developing developing region region by region region.. Over a period of  four to five years they moved from the west coast of America to the east coast.

7. Honda Honda paid to advertisi advertising ng when the com compan pany y spe spent nt hea heavil vily y on the advertis advertising ing theme ´you meet the nicest people on a Honda" thereby disassociating themselves from the rowdy, hell's angels type of people.  According to analysts «.  H onda onda portrays itself as a firm dedicated to being a low cost producer, utilizing its dominant position in Japan to force entry into U.S market, redefining redefini ng that market by putting the nicest people image and exploiting its comparative advantage via aggressive advertising and pricing.

COUNTER ARGU RGUMENTS ENTS BY PASCAL: ASCAL: ´There was a smooth entry into the U.S market which led to an instant success.µ Hond Honda a ente entered red th the e Ameri America can n mark market et at th the e end end of th the e mo moto torc rcyc ycle le trad trade e seas season on showing their impotence to carry out research in the new market. As they entered the market at the wrong time sales were not as good as they should have been and any success was not going to be instantaneous. ´Honda was superior to other competitors in productivity.µ Honda was successful in Japan with productivity but circumstances indicate that the company was not superior. The lack of funding from the ministry of finance and the pouching back of profits into inventory meant they had a tight budget to follow. ´Honda had smooth policy of developing region region by region, moving from west to east.µ Hondas advertising was still in Los Angeles in 19 63, four years after setting up their subsidiary. ´Honda had a deliberate strategy of disassociating themselves from the hells angels type of people by following the nicest people advertisement policy.µ This was not an intentional move since there were disputes within the company with the director of sales eventually persuading to management against their better judgment.

COUNTER ARGU RGUMENTS ENTS BY PASCAL: ASCAL: ´Honda pushed into the U.S market with small lightweight motorbikesµ The intended strategy was one of promoting the larger 250cc and 350cc as Honda felt that this was what the market wanted since Americans liked all things large. The bikes bikes were were unreli unreliable able which which led to the promot promotion ion of the superc supercubs ubs.. These These bikes bikes salvaged the reputation of the company. An idea which hardly came from an inspired idea but one of desperation. For these analysts «. The impression that it was through an incidental sequence of events which led to Honda gaining a strong hold in the U.S market, mainly through the unexpected discovery of a large untapped segment of the market while at the same time trying to retain the interest of the current market.

WHY DIFF DIFFEREN ERENC CE IN ANALY ALYSIS ??? 2 models were used for the analysis: Andrew Model Emergent Strategy  

ndrew  A ndrew

Model: (used by BCG)   Andrew came up with the idea that there were two stages to corporate strategy, form formul ulat atio ion n and and imple impleme ment ntati ation on.. Form Formul ulati ation on invo involv lved ed look lookin ing g at th the e mark market et,, compet competitor itorss and resour resources ces and formul formulati ating ng a corpora corporate te strateg strategy y wh which ich would would be implemented throughout each process of the organizational structure. This model was also supported by Porter. This is how the BCG saw Honda, as a corporation, who had looked at the market,   formulated a strategy to cope with the environment and competition pressures and implemented implemented it, making all Hondas plans and activities deliberate. Emergent

Model: (used by Pascal) The model shows a realized strategy made up from a an intended strategy together with an emergent strategy which is not planned but emerges in relation to activities within the environment. ascal seemed seemed to think that in Hondas Hondas case a substantial proportion or the  P ascal companies corporate strategy was emergent and less was actually intended strategy.

TO SUMMARIZE «.. 1. The The succ succes ess s of Honda Honda was not the resu result lt of senio seniorr ma manag nagem ement ent coming coming up with with all the answers. In fact senior executives in most Japanese manufacturing companies do not take their strategic strategic positions positions too seriously. 2. Salesman, Salesman, cleaners cleaners and those those working on the the manufacturing manufacturing floor floor all contribute contribute to to the comp company any is run run and there thereby by influe influenc nce e its its stra strate tegic gic posit position ion.. It is this this ab abili ility ty of an organization to move ideas from the tom to the bottom and back again in continuous dialogue that the company company values the greatest. greatest.