Globalisation has left a big impact on the automobile industry. Now there is less restriction for auto dealers to operate in overseas market. Porter's model will help us analyse organisation industry structure in strategic processes how corporate strategy should meet the threats and opportunities in the organisations external environment. Porter's identified 5 different competitive forces considering different market. The aim of the corporate strategy is to modify these forces in a way that helps to improve the position of the organisation.
The relationship among Porter's five forces in the automobile industry below clearly prove its competitive nature
Bargaining Power of Suppliers are higher when there few large suppliers, buying industry has low barriers to entry, with no substitutes for the particular input, etc. As lot of suppliers are dependent on automakers to buy their products but if automakers decide to change their suppliers it would badly affect their role in automobile industry. Honda defines group of suppliers as affiliated group in which it holds more than 20% equity stake. The largest group suppliers for Honda in Japan are TS Tech Co. Ltd (seats and headrests), Keihin Corp.(ECU's), and Showa Corp. (Shock Absorbers) (Suppliers Business LTD, 2009) Bargaining of Customers is higher when there less demand for product in the market, when supply industry less volume of small operators, customers are price sensitive and have low margins. If Honda plans to increase its pricing strategy it has to be careful though it acquires important customers but there also a risk of loosing important customers. Honda cars are selling fast in the global market with proven reliability. (Newsoxy, 2009)
Threat of Substitutes exists when there is lower price of better performance for the same purpose. The rise in price of gasoline may bind to influence the buyers to have alternative option. Consumers now a day prefers for the fuel efficiency cars which also helps in reducing emissions. Honda has been given the distinction of ‘2007 Greenest Automaker' from the union of concerned scientists. (Honda, 2009) Threat of new entrants always depends upon their barriers to entry like economics of scale, high initial investment and fixed cost, legal procedures, distribution channels, etc. As Honda always disapproved that the Big Three were invincible G.M, Ford and Volkswagen group. (Global Automobile Industry, 2009). With the current market situation there is no threat of new entrants for Honda.
Competitive Rivalry basic known fact is that higher the competition lowers the profit margin. The presence of many global players in the market with little differentiation between them is the features highly competitive automobile industry. Honda Motor Co. The Japanese automobile manufacturer who came into the global market in the late 1980's faced the tough competition from the biggest car manufactures of all time ex: - General Motors and Ford but Honda is currently facing the tough competition from its biggest rival Toyota. As it believes in longer term its best defence to beat Toyota it introduce new products into the marketplace. To do that Honda is trying to increase its manufacturing flexibility by developing vehicles suitable to Asia, North America and Europe. (The Wall Street Journal, 2000)
The current modern world is all about global integration. Global integration has normally has not been accompanied by the increase of four types of global concentration methods national/ regional hegemony, cross industry super concentration, industry seller concentration and geographic concentration. (Ghemawat and Ghadar, 2006) Integration in the global economy is almost challenging for everyone who dares to enter in to globalisation and is prepared manage the risk involved in it. Globalisation has emerged as one of the most powerful forces in shaping domestic and international economies.
Government plays an important role in negotiating the international and regional agreements and in creating an environment that allows the domestic producers to compete in the international market. (Lloyd, 2008) Globalisation of the automobile industry has taken a huge growth during the last half of 1990's due to build of overseas facilities and establishment of big mergers between the tycoons of the automobile industry. Globalisation is the main reason of the change between the relationship among the automakers and the key suppliers. Due to increase in the Global Trade it also led to increase growth in the world commercial distribution system which also enhances competition among global automobile manufactures.(Hiraoka, 2004)
Different types of global strategies depend upon the starting point of the individual firm from where the vehicles are been sold, designing vehicles with common global platforms at the same time adapting wide range characteristics of local conditions, by creating assembly capacity that is more generic and less model specific. ( ) The relationship between Honda's global corporate strategy and domestic operating environments of its factories is mediated by the employment relations framework, hiring and training process and organisations process. (Boyer et al., 1998; Freyssenet et al., 1998; Mair, 1998a)
b) Pressures for local responsiveness
Globalisation presents various challenges for the automobile industry to meet the demands of the local responsiveness. Differences in the customer taste and preferences, differentiating in various product offering and marketing strategy meeting the demands of the local government, differences in the distribution channels ex: local content rules, protectionism. In the global environment Honda management operations is also facing different pressures because of various fluctuations in the price of oil and raw materials, currency fluctuations and economic uncertainties. Under these circumstances Honda is trying to strengthen its corporate strategy flexibly to meet the demands as per requirements.
Honda has its operations in Japan, North America, Asia and Europe. A global economic slowdown, loss of customer confidence in these markets, growing competitions among the rival could trigger the reason for the decline in the demand for the automobiles which may have adversely affect Honda's operations. (Annual Report , 2007) Honda's operations in Asia especially in India where 70 percent of the motor vehicles are two wheelers they tried to explore the market with the help of the family owned bicycle company Hero one the leading bicycle brand. It faced tough competition from the locals TVS, Bajaj and other joint ventures which made them to introduce first four stroke vehicles in India with the increase fuel efficiency and less maintenance which the market demanded. (Krippendorff, 2009) Honda entered the European market in around 1961 with the motor cycle and with rather late entry with its automobile operations which dearly effected their operations with their net sales coming down 249 Yen billion in 2000 to 191Yen billion in 2001 facing tough competition from local car manufacturers BMW, Audi, Volvo and other foreign companies Toyota and Ford. As it owns only 2.4% European market. (Honda in Europe, 2009)
In North America Honda heavily invested advanced manufacturing flexibility to meet quickly efficient changes market demand. It has 9 auto assembly lines 7 plant sites producing 16 distinct Acura and Honda models. In Canada to meet the demand Honda introduced fuel-sipping Civic by adding the production of the model on the same line as the Ridgeline pick up in Alliston. (Corporate Honda, 2009)
c) Cultural dimensions of management at Honda Motor Co. Ltd.
Business practices are the extensions of different cultures. In business culture determines structure, policy and style of the organisations. For an organisation to be successful for long term it needs to manage different cultures effectively. Japanese management cultures are known for highly paid salaries, good working conditions and provide job security. Graduates from the high ranked colleges are always favoured to work in large companies. There has been lot of differentiation has been made on the Western management culture and the Japanese management culture. As per different management theorists Western firms are different from Japanese firms in the terms of organisational structures, inter-firm relationships, manufacturing systems, labour relations or market strategies.
After looking at the management strategies of Japanese firms the questions to be raised whether Honda is considered a Japanese firm as only 1/3 of its manufacturing is done in Japan and rest throughout the world. As Honda has injected western attributes into the way its functions which co-exists with the Japanese features that employees bring with them the results of their upbringing in Japan as they enter the firm. (De Wit & Meyer, 2004) Lot of issued has been raised regarding the Honda's failure in the European market and the point to be discussed is Honda faced in European market is they failed to understand the European culture as it treated Europe as a one single market with countries like Italy, France and Germany having different cultures.
Planning versus Learning
For a company to succeed in the business market it must never be standstill or allow its employees thoughts to congeal in fact it must be associated with continuous learning and adaptability process at different levels of organisation. However at the same time company should have some strategic business plan to identify different business imperatives. (Mintzberg, 1991)Concentrating on just planning the strategic move will help the organisation to achieve strategic goals but at the same time it also has to learn different type's things occurring in between to achieve the goals. It totally depends upon the seniors managers how they absorb what are the things going around business environment and to react on the information available by making necessary moves. Honda planned and adopted new strategies on root to achieve its goals. Honda's rapid and interactive new product development process and the flexibility in the manufacturing process appear to support just such as an approach. As per Geus (1988) on his survey conducted on around 30 companies who are in the business for more than 75 yrs was their ability to move on survival mode which situation was turbulent and to self development mode when the pace of change was slow.
In the terms of planning Honda used a strategy which shows the different characteristics of traditional dichotomous poles. Formulating the strategic plans may be a longer process such that learning from environmental change can only extend it to marginal weeks. Honda's strategy concentrates on high technology built on all its products and also quick on offering advanced engines, electric windows, brakes, etc thus simplifying product variety within its each model type. (De Wit & Meyer, 2004) One of the examples for Honda is that in the beginning of 2008 it was producing 400 Honda civic a day which was its original plan but due to recession that started and the slump in demand Honda learned that its sales would decline so it adopted to changes in its production capacity and reduced it from 400 to 300 a day. (Mclaughlin, 2009)
b) Market positioning versus Developing Internal resources
The resources based view and market positioning can be said in ways where firm's specific resources and assets are deployed in such way like it adds positioning advantage in firm's product- markets. (Hunt and Morgan, 1995). Every business firm has their unique resources like capital equipment, patents, finance, brand name and individual employees which provide the base for the strategy and the primary sources of its return. (Chandler and Hanks, 1994) Honda is known for praising the successes of the individual employees and sense of increasing the competition among them which clearly shows their art of developing internal resources and getting best out of them. (De Wit and Meyer, 2004)
As per Roth and Morrison (1992) the product market position can be represented in four different dimensions conservative cost control, marketing differentiation, complex innovation and product/market scope. Honda's successes in the U.S market can be traced on their marketing and managerial strategies as they seized on opportunities in the U.S as it has tailored own practices to fit American culture and also used the strategy of borrowing foreign idea and improving on it. As Honda holds a benchmark which other automakers are now been measured. Honda entered into U.S market with three key plans firstly exploiting the market opportunity secondly it used unique marketing strategies by position itself by motorcycle manufacturer and then by a car company that would appeal wide variety of U.S citizens and later with selling environmentally friendly, affordable and high quality cars. Finally it introduced managerial strategy for its U.S production that was unique for its Japanese plants but also for American auto plants in general. (Koepp, 1996) Resource in and of themselves offer no value to the organisation its only when they put into some productive use that value follows. The resources of the firm are classified in two different terms tangible and intangible resources.
As Honda operates with the use of both types of resources as it is necessary for its firm. For ex: conducting smooth exercise of voting rights via internet and mobile phones for its shareholders, as audit office has been given independent supervisory under direct control of the president, by awarding the skilled labours on individual performances. (Annual report, 2007) As it is normally said intangible resources hold a competitive advantage because of its less visibility and difficult to imitate. As Honda's culture of having the principle of ‘right first time' or ‘build in quality' differentiates it from other western firms enhancing its brand image.
Product – related core competencies versus Process – related core capabilities
A firm's success rate lies behind its core competencies. As per Hamel and Prahalad's (1990) the term core competencies or the collective learning and coordination skills lays behind the firms product lines. Normally core competencies always lead to the development of core products. Honda's core competence lies in its advanced internal combustion engines which generates power to whole range of products.
Core products are not directly sold to the consumers but they are used to build a large number products finally sold to the consumers. It is difficult for the competitor's to imitate the core competency of the other's. And this core competency helps the firm to have a good market position. Honda's image as sporty and innovative cars, fully three quarters of the company's global sales comprise the relatively simple civic and Accord models which occupy the market position which has combination of high quality with low cost based on core capabilities. Honda's strength goes far deeper, a dichotomy reconciling characterizes of both mental and technology research and the main philosophy behind the actual product design. The technology and the design are the main features of Honda products are the embodiments of successful reconcilations of dichotomies which deliver direct and immediate competitive advantage. (De Wit and Meyer, 2004)
Honda has invested huge amount of resources in developing the CVCC engine was widely accepted on the global basis of automobile industry which produces low emission source for its vehicle ex:- electric and solar power to have a competitive position in the market.
Corporate Social Responsibility
The Corporate Governance attracted a great deal of attention from mid 1980's. The simplest form of corporate governance focuses on the operation and composition of Board of directors and taking into broader context it is viewed from the angle so called ‘corporate governance tripod' where main attention is given to the relationship between directors, management and shareholders. It also has to give equal level of attention on balancing the weighing the stakeholders interest. Finally the corporate governance debate focuses on the company's existence which also give rise to the questions like value of entrepreneurs, corporate culture and various restrictions and barriers from where company's has to operate.(Berghe, 2002)
Honda also considers corporate governance in one of the most important management issues. To ensure that Company's management objective are in control outside corporate auditors and directors are appointed as per Japan's company's law to the board of directors and board of auditors who are responsible for the supervision and auditing of the company. With the respect of business execution Honda has separate headquarters for each region with having general manager from board of directors or an operating officer assigning with their businesses and function as per the region. In the respect of the internal system every region has been given their own task on the part of risk management and ethical compliance. To enhance more trust in investors and shareholders Honda discloses its management strategies and accurate information on financial results on every quarterly basis.(Honda Corporate Governance, 2009) The question to be asked is should expanding freedom for big corporate players to pursue corporate goals be balanced by greater social responsibility. It basically refers to human development, human rights and environment protection issues.(Morrison, 2006)
If you go in details social responsibility is a set of obligations an organisation undertakes to protect and enhance the society in which it functions. (Griffin and Pustay, 2007) Allthe big corporate are adopting the CSR policy it's almost unimaginable today for a big corporation to be without it. Carroll's model represents corporate social performance on four major players' economic, legal, ethical and philanthropic responsibilities.
Carroll's model provides the overall framework of the social component of CSR is provided by stakeholder theory. It sees an exceeding of minimal legal requirements considering as an aspect of ethical responsibility along with the respect of economic responsibility by which the firm operates and the last one of Philanthropy for ex: giving charity while desirable is the least important among the three.
In case of Honda their policy of reemployment of the retirees even before the introduction of governing laws has created a diverse workforce among the older age people it can be considered as a strategic move as company can use them on their technical expertise towards the functioning of the workplace.(Honda CSR Report, 2008) The global firms are also facing difficulties in managing the CSR across the borders to find the proper balance the roles and the behaviour expected by the home government in which they operate. They have to please them all and they often been criticised for too much of involvement in local politics or for not much involvement. From the beginning itself Honda has always been on building relationships with local markets, customers and with the local market by social activities. Honda's corporate culture is built on the aspect for respect of individual and acknowledging that everybody is unique. This belief is shared by the Honda associates and other Honda stakeholders. Honda basically follows the Three joy principle the joy of buying, selling and creating. (Honda, 2009)
Honda organised its philanthropy into many kinds of different activities like environmental learning, community service, education and beyond. As Honda realizes that education seems to be an important part for the future as they opened schools in Colorado as it provides tuition free education both to the students and the educators. As a part of Global Entrepreneurship Honda introduced a programme called Mark up your challenge a one day programme where students can come with their creative ideas for the new innovative products and services which will not only help them to enhance the knowledge but also helps the firm to get innovative ideas to make strategic decisions. (Honda, 2009) Honda also understands their responsibilities towards the environment. Honda has been innovating technologies to reduce waste and pollution. This can be seen as they are been considered top '10 green giants' Honda also plans to introduce electric cars in the US market by 2015 which can be considered as an strategic move which on one side helps to protect the environment on the other it enhances the brand value and also making consumers aware on the protection of the environment. (Motor Trent, 2009)
Honda strictly follows the safety policy for an individual. Safety policy doesn't mean for Honda protecting people who drive their cars and bikes but also for the pedestrians, cyclists and other occupants. It's basically meant safety for everyone. They have made many first class innovations including first airbag mass- produces bikes, development of pedestrian crash test dummy. With the introduction of this safety technology Honda follow the corporate social responsibility but it also helps for its strategic moves to sell more bikes. (Honda Safety Initiatives, 2009)
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