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After World war II, Japanese market was in miserable condition because of the shortage and fuel, but Japan was still in need of basic transportation. Honda, utilizing its manufacturing facilities, attached cycle that created a cheap and efficient method of transport. Thus Honda took a leading position in the fields of motorcycles, automobiles and power products.
In automobiles industry Honda Motors Co. Ltd is the leading manufacturer across the world. It also aids its customers and dealers by providing financial services. Through four business segments and 397 subsidiaries are operated by the company. The segments of Honda Company are divided into Automobile business, motorcycle business, power products and financial services. Automobile business segment of the company is responsible to produce Passenger cars, sports utility vehicle, multi wagons, minivans, sport coupe and mini vehicles. Company offers its passenger cars with different brands such as Legend, Accord, Civic, Acura RL, Acura TL and Acura TSX.
Honda stands as the largest manufacturer of motorcycle and stands in 7th position for automobile manufacturer in the world. Honda is the world's largest engine manufacture and market leader in motorcycles in the global market. In 29 countries Honda is operating its 120 manufacturing facilities and employs human resources more than 167,231 people around the world. Thus Honda has expanded in main markets following:
1959 American Honda Motor Co Ltd established (Honda's first overseas subsidiary).
1964 Asian Honda Motor Co Ltd. (Thailand) established. Honda enters into the F-1 race.
1965 Honda (UK) Limited established in London (the first market of Honda in Europe
1971 Honda Motor does Brazil Ltd established in Sao Paulo (presently Honda South America Ltda)
In 1981 Honda produces the 1st ever Honda City Car
In 1983 Honda come back to F1 race
In 1987 the first ever Air bag system was introduced.
The key point lead to Honda's success is the continuous innovation that was found by Mr Honda as a basis. It stands as the largest motorcycle manufacturer and the 9th largest automobile manufacture in the world. Honda's market share now is 10.2 percent and it is ranked as No. 5 in US. In Asia, Europe and North America Honda has become a technological force in the motorcycle and automobile industries.
Honda Aircraft Company begins sales of its Honda Jet Advanced Lights Honda Jet was also selected by popular Science magazines as the winner of the publication's 2006 "Best of what's New" Award in the Aviation and Space category.
Honda Philippines begins mass production at new motorcycle plant
Honda brand has three integrated dealer channels into one Honda brand
Honda establishes subsidiary in Ukraine. Flexible car at Brazil and new automobile plant in Vietnam begins operations.
Launched the Gold Wing Airbag, the first mass - market motorcycle with an airbag system
New business was established to conduct solar cell.
I n 2007
It started launching low- priced hybrids and advanced diesel technology in the near future, they were also voted the number one car manufacturer in the world for the third period.
In March 2008, Consumer Reports in US, ranked Honda as the best car in the US.
The Automobile Industry Crisis of 2008 - 2010
In 2008-2010 Automotive Industry Crisis was also a part of a global financial downturn. This was first felt in the American automobile manufacturing industry whereas it also affected European and Asian automobile manufacturers.
Due substantial increase in the price of automotive fuels linked to 2003 - 2008 energy crises which have low fuel economy.
Due fewer fuels - efficient models to offers to consumers the sales began to slide.
The prices of raw materials placed more pressure on which led more critical situation on credit crunch.
Impact of the Automobile Crisis on Honda Motors:
Honda Motor was no exception for the continuing economic slowdown that has hit the automobile industry. Honda felt that the conditions would be worsening by next year 2009.
It has already decided to come out with the plans to cut productions in Japan.
It has lowered its financial forecast for the year ending March 31.
The company expect the sales to be down by 13 percent from previous year (expected sales to be $118 billion in yen by the current the exchange rate).
An expected profit to be about $ 2 billion, which is significantly, is down more than two-thirds from the year ago period.
Honda has to put off its plans for a year-end dividend. Dividend can be declared only after the fiscal year is forecast completes.
Honda has also decided to cut monthly pay for directors by 10 % starting next year.
It is in fact cutting 119,000 units from its plan across all North American facilities.
It had earlier in October this year affected a 38,000 - unit cut and again made an 18,000- unit reduction in November.
It has production cuts in US followed with those in Europe and Japan.
It would see an additional reduction of 54,000 units.
It has freeze on a capacity expansion plans in countries such as India and Turkey which came along with a plan to put a plant opening in Yorii, Japan.
Plans to launch Acura in Japan are expected to delay and would be rolled only after 2010.
Honda's Five Forces Analyses:
Porter's Five Forces is a good framework to analyze the business and industries of a company. It helps the strategic marketers and manager to only look outside the current competitors but also has a concern with potential competitors. Moreover, it helps the company understands what its customers want and control its supplier more effective. To analyze Honda Company we can use Porter's Five Forces.
The Threat of substitute product:
It is defined as the existence of close substitute products may make customers to switch to alternatives due to increase in price. This mean that when Honda' competitors can produce a product with high performance and lower price than Honda's products; this will replace and reduce Honda's market by simultaneously reducing market share and profit.
For example, R6 of Yamaha is the close substitutes of Honda F4.
The threat of the entry of new competitors:
Marketing with many competitors existing, the profit of each would be lower than the maximum level. In American market as an example, Ford and Honda aggressively compete together in this market. Due to the policies from American Government protecting domestically Company, Honda cannot get the maximum profit in this market. Additionally, Honda has to spend money on accessing to distribution in American market. Moreover, it also finds it difficult in adjusting the culture differences, etc.... those reasons will reduce the Honda's profit level.
Rivalry among existing competitors:
Competitive rivalry is an important characteristic to the automobile industry. Three main rivals that Honda has to compete fiercely are Toyota Motor Corp (TM), Ford Motor Co (FM), and General Motor (GM). Whatever change in strategy of one of these competitors can have influence on Honda's performance. At the fiscal year 2007 Ford Motors, it reported 172,455 million dollars and 16,418.5 million dollars of market capability, while GM experienced 181,122 million dollars of sales and 11,853.3 million dollars of market capability. Toyota with 299,394 employees generated 202,864 million dollars of sales in the fiscal year 2007. Honda as well as its three rivals always keeps on innovating, improving, researching and developing to compete effectively in this auto industry. For example whenever one of these four company releases a new model, the others will catch and have similar products to compete. Like when Honda has just released its FCX Clarity, the next generation of its fuel cell vehicles, GM put their fuel cell platform into the body of a Chevy Equinox SUV.
Accord, a model from Honda has been competing with its chief rival, Toyota Camry since its first appearance in the market. General Motor's Malibu model and Ford Motor's Fusion model use to compete with Accord and Camry which replaces Honda's in the market industry. Hence Honda has to do is trying to improve its technology, research and development to create a competitive advantage may be as Greener Automaker.
The bargaining power of customers:
In business, if a company wants to exist it must create a good relationship with customers. Honda is a global company, it meant Honda have a lot of competitors. So customers will confuse when they make decision for what brand will be the best choice. It not only depends on the company's brand image but also price and quality.
For example, In Vietnam on April 2007, Honda introduced Air Blade Scooter with sport and fashion function model with more fuel efficient engine technology. But the demand was higher than supply. But due to shortage of Air Blade in the market, price was pushed higher. Waiting time for this product was 1 to 2 month after placing the order. Soon, Suzuki introduced new model - Hayate Scooter that have the same functions of Air Blade but set the amazing price (lower than 23%) and customer can take the product immediately. Due to this Honda's market share shrink.
The bargaining power of suppliers:
One of the factor help the company competes against with other companies is the ability to reduce the cost. Therefore, suppliers play an important role to make the company's success. Suppliers may refuse to work with the firm or increasing prices for unique resources. Honda purchases its raw materials, certain components and parts from numerous external suppliers.
For example there are some key suppliers of Honda in terms of Metal Stamping Part: takao Kinzoku Kogyo Co ltd, Hirata technical Co ltd, Hongo Co ltd, Marujun Co lt etc. Among these companies kikuchi Co Ltd deals with Nissan and Honda both. If Nissan was willing to purchase with higher price or has some promotion than Honda, which may affects on the capacity and increase the cost.
Competitive advantage can be created by the information resources given by the five forces Model which provides a better way to think.
By using Porter's Model, managers can:
It helps to enhance their competitive position against competitive threats by helping in identifying the proper uses of resources.
It helps in identifying key sources of competition a company faces.
It helps to considering the correct competitive threats over time which is likely to be change.
Honda' Value Chain:
Porter's Value Chain Model looks focus at increasing competitive advantage by reorganizing the activities related to create, support and deliver a firm's product or service in proper time.
These activities can be classified into two board categories
How value is created for a product or service can be related directly in primary activities.
A support activity aids the primary activities by making it possible to manage the co-ordinate of different activities.
The Value chain model suggests that competition can come from two sources:
Reducing the cost to perform an activity.
And increasing value of the product or service by adding more utilities so buyers will be willing to pay more for the valued product.
The firm possesses information on the competition's costs only by lowering costs which can be achieves as a competitive advantage.
Which products are valued? Where can be improvement be made? Can be said as adding valve in strategic advantage if company have accurate information regarding its customer wants.
Its practical relevance at strategic planners at Honda Motors is as follows:
It is quite obvious that Honda possesses some competitive advantages over competition, enabling them to be the largest two-wheeler maker in the world for the year in row and which is greatly affected by the Auto mobile industry crisis.
From early days, Honda tried to have close integration with suppliers as vendor management is critical for its operation, for the simple fact that 73% of production cost is due to material components. Thus it is essential to have and ensure a tight control and reduction of logistical cost and /or transaction cost when pursuing components. Additionally, reduction of inventory will be an added boon so that working capital requirement will be less.
It is important for Honda Motors to ensure high efficiency, low inventory production, with usual benefits like increased cash flow, reduced cash and operating cycles and thus improve working capital equipped plants where these manufacturing concepts have been applied during plant layout and design.
Honda has strong delivery channels from all its plants. The effort is to provide for minimum waiting period or rather filling the regions as the demand forecasts and market trends.
Marketing & Sales:
Honda makes continuous efforts in marketing such as advertisements and in promos to focus the value money and reliability of its products and thus attracting new customers.
The distribution network of Honda is both wide and deep rooted, it is based on both mutual trust and relationship between the company and its distributors and its philosophy of ensuring partnership grow with its own growth. To maintain the leadership position it is important to have trust and loyalty of distribution network.
Its strength in Supply Chain & Distribution is one of the unique intangible resources that it has, superior brand image and reliability perception of its brand is the outcome of these intangible and tangible key assets.
Honda Motors has constituted one of the best after sales service network in the industry. In order to enhance the in house experience of the consumers by not only taking care of improving the quality service and easy availability of spare parts but also by maintaining cleanliness and other aesthetics of the service stations and added amenities such as air- conditioned waiting area, internet browsing and coffee shops etc.
The pressure for global integration of activities and the pressure for local responsiveness in the context of the global automobile industry
Global Integration refers to co-ordination of the firm valve chain which can take maximum advantage from cross fertilization, synergy and achieve worldwide efficiency from the similarities across countries.
Honda's Reconciling Dichotomies:
Right - first time v/s Build in Quality
Right first time:
Operations management can be said as deliberate change process. It includes a series of transformation activities/ tasks to changes inputs (resources) into outputs (finished products/service) which are ready for market consumption.
The principle of these states that the outcome of any process should be error free so that same tasks do not need correct errors or wait for rework because both would cause production delays, increase operational costs and lost of opportunities of sales. Thus it allows more proper inventory control which further saves costs.
So it focused more in process related capabilities.
Build in Quality:
The build in Quality principle focuses on ensuring the effectiveness of the performance outcome of sub transformation activities / tasks. This is achieved by breaking down the aggregate standards of performance measures as expected by customers to more granular in sub task so that value adding can be realized at every step. It only saves the costs but also exceed the customers expectation.
It emphasizes more on product related capabilities that are ultimately measured by the customers.
Doing things right the first time all the time is a cost savings approach as it helps to eliminate the waste and rework which in return helps to have higher margins and lower retail prices which could attract customers to switch over from rival brands.
Honda has shown through its manufacturing strategies that the notions of right first time v/s build in quality is not divergent in nature and does not exist in isolation but are rather convergent and complementary processes if the pull strategy is adopted placing customer ahead.
And hence Honda can Position through developing its internal resources with its product in the market with good quality product and low prices giving less chance to switch to competitors in the market.
Objectives of Global Integration:
It seeks economic efficiency on a worldwide scale, promoting learning and cross fertilization within the global network and reducing redundancy.
The need to monitor competitors on a global basis by citing converging demand patterns spread of global, diffusion of uniform technology and available media.
Pressure for Global Integration:
Economies of scale: It is important for the automobile industry to concentrate its manufacturing in few selected locations to achieve economies of mass production.
Capitalize on consumer trends and universal needs: Due to the automobile industry crisis it is more important for the company to capitalize on global consumer trends and needs and target mass market to survive the global competition.
Uniform service to global customers: It is important for the industry to have centralized delivery and creation so as to ease on service standardization.
Global sourcing of raw materials, components, energy and labour: The important for the automobile is to beat its cost of production which can be achieve easily by reducing raw materials, components, energy and labour cost to minimal. Honda has very strong chain for supplier which helps them to maintain the cost and position in the market.
Global competitors: As crisis and increase in the fuel prices, it is very important for the automobile industry to co-ordinate global competitors threats in foreign and domestic market.
Mass media to reach its customers in multiple markets: Automobile industry can now take advantage of the internet and cross national television to advertise their offering in numerous countries simultaneous.
Local responsiveness refers to meeting the specific needs of buyers in individual countries. It requires a firm to adapt to customer needs, the competitive environment, and the distribution structure. It gives firm's practices to suit distinctive local conditions that is enjoyed by local managers.
Automobile industry may need to adjust practices such as promotion strategy, employee training, compensations, merchandise mix and more.
Pressures of the local responsiveness:
Unique resources and capabilities available to the automobile industries, each country has national endowments that the foreign firm should access.
Diversity of local customer needs. It is important to adapt to local customer needs which require targeting market.
It is important for the industry to use the local differences in distribution channels so as to understand local customs and needs.
It is important to adapt to the local needs in order to compete against numerous Local competitors in the local market.
Automobile industry should understand the needs and preference in regards to cultural differences in the local market by adapting the product and marketing.
When governments impose trade barriers or complex business regulations, it can halt or reverse the competitive threat of foreign firms.
Explain your understanding of Whittington's 'Classical and Processual School of thought in context of development strategy at Honda motors?
Classical / rational school is characteristized by deliberate planning and a belief in the primary of markets as clearing mechanisms that lead to efficient transactions.
This schools views managers as deliberately rational, if not purposeful decision makers.
Firms are seen as acting to maximize profits.
It is generally assumed that relatively efficient markets emerge over time in a free market economy.
Rational / classical analysis helps to make a difference in determining the long term success and failure of the firm.
Organizations are seen as monolithic entities.
Strategic opportunities and requirements with appropriate structure, processes and corporate cultures is conceived as co- aligning with strategic implementation.
For many firms, this represents mainstream thinking and it continues to influence the development of thought and practice to the present time.
It regards as a formal planning as important but only as one of many analytical and political events that combine to determine overall strategy.
It agrees that strategies rarely result as originally conceived or intended.
Patterns may appear without preconceptions and plans may go unrealized.
Total strategy is usually arrived by fragmented, evolutionary and largely intuitive.
It sees more of proactive managers.
Managers usually use a series of incremental processes such as peices of formal strategic analysis rather than using a complete design for their overall strategy in a formal planning cycle.
The eventual strategy evolves as internal decisions and external events come together in the minds of managers.
Comparison of Classical and Processual Approach:
Approaches Mapped against critical Elements of Strategy
Internal - plans
Internal - politics
Bargaining / learning
The success depend on top management's ability to create the awareness broaden the understanding, legitimize the acceptance, and secure the commitment needed to implement strategies effectively.
Honda motor's is already facing many problem due the Automobile crisis which has effected it to a great extent and which makes it more important and essential thing for now to survive the competition and market situation.
Honda can apply the given strategy in their management in order to resolve many of its problems that cannot be managed easily. But using this approach can help the strategic manager to decide its strategy at every level. Honda has tried to apply the classical school of thought in the strategy which can more useful and beneficial to the management and others. Honda has applied this approach in the following level of strategies:
The Mission statement of Honda is tried to maintain a global point view, with the dedication to supply the highest quality products at a reasonable price for worldwide customer satisfaction. Moreover, taking new challenges with the pursuit of initiative, technology and Quality, Honda is pursuing their 2010 vision: Striving to be a company society wants to exist through creating new value, globalization, and commitment for the future.
Honda's includes three businesses: Automobile business, Motorcycles business and Power business. It has leads the industry with features like superior fuel economy, driving pleasure and optimum safety. Its strategy to lead industry for sales and production in this industry proves successful steadily not just in U.S but also in many regions worldwide.
It has set it eye to make Honda motor cycle business to be more popular than ever.
Its approach for Durability, Reliability and Focus Foundation and its dimension is for Economical, Environmental Social Issues, Globalization characteristic.
It has divided into 6 administrative regional groups. It pursues independence of local management and sales operations. Operate under conduct guidelines, where it keep evaluating and risk managing. It has high level of transparency
Theory of culture in Management:
"National culture is embedded deeply in everyday life and is relatively impervious to change". National culture theory becomes one descriptor of human behaviour. According to Hofstede, national culture distinguishes the inhabitants of one country from those on another. Along with organization and structure component, process plays an important role in company's achievements. Process is the set of continuous activities of company in achieving its goals. Hofstede's national culture theory defines five national culture elements to describe the preferences for certain behaviours by a country's inhabitants.
Five Dimensions of National Culture:
The Cultural dimensions model of Geert Hofstede is a framework that describes five sorts (dimensions) of differences / value perspectives between national cultures:
Individualism / collectivism: The degree to which individuals are expected to look after themselves versus remaining integrated into groups.
Power distance: The degree to which less power members of an organization accept and expect an unequal distribution power.
Uncertainty avoidance: the extent to which members of a culture feel comfortable in unstructured situations.
Masculinity / femininity: The distribution of emotional relies between the gender with the masculine role being seen as tough and the feminine role as being tender. Masculine cultures tend to emphasize accomplishment and technical performance while feminine culture tend to emphasize interpersonal relationships and communication.
Long term versus short term orientation: Long term values oriented towards the future like saving and persistence, short term values oriented towards the past and present, like respect for tradition and fulfilling social social obligations.
In global business environment, Honda's processes uphold the Honda's competitive advantages; two important processes of Honda are Organizational Culture and Innovation Management.
The founders of Honda, has built up the organization philosophy which serves as the basic endeavours now and in the future. In global business nowadays, company's philosophy somehow has been changed. But still philosophy remains the same with the two fundamentals beliefs, which are "Respect for the individual" and "The Three Joys".
Respect individual means that company considers every associate be important, respected, should be given opportunity to develop, should be expected to contribute and honoured for his or her efforts. This was based on: Initiative, Equality and Trust.
Applications of Culture Dimensional to International strategic managers are as follows:
International strategy managers in Honda Company would involve exploiting parent company knowledge and capabilities through worldwide diffusion and adaptation.
Firms emphasize professional management and the transfer of technology and enterprise knowledge to subsidiaries.
Top management also relies on tight systems for strategic control and concentration of executives to coordinate activities. Also, the extension of the home market strategies into subsidiaries market does not ensure responsiveness to local pressures and differences.
National culture in Honda will play an important strategic choice.
Honda Company competing in international markets must decide whether to compete in all or some of the world markets or regions.
Competing in many markets may enable the firm to achieve economies of scale because of the size of the combined markets, but only if consumer preferences in multiple markets are similar.
It will also help to focus the firm to understand cultures, legal and social norms and other factors that may be important to achieving strategic competitiveness.
Above diagram reflect the link between the International Strategic and National culture / Culture Dimensions in Honda Motors.