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As a background to international trading, explain what is Globalisation and how does it relate to at least two theories of international trade (e.g. Mercantilism)?
As shown in the case study, identify and evaluate a major benefit and a major challenge that Honda's globalisation strategy is facing Honda in India.
Identify and assess what theoretical framework of international trade and globalisation, in terms of a supporting organisational structure, Honda may be employing.
International tradeÂ is basically the exchange ofÂ goods, ideas or services among different countries across their borders. Recent times has seen a rise of this and not only the economic conditions but the social, cultural, political and cultural factors or situation of the countries involved is also highly influenced and dependent upon international trade. It is just like the usual trade except that it across borders of two or more countries and involves a huge amount of money to do so. International trade is a major component of globalisation as well as a driver of it. International trade is necessary for globalisation to take place and globalisation on the other hand is making it possible to reduce the costs of engaging in international trade day by day. Globalisation refers to the interdependence and interdependence of historically distant, distinct and different markets. Globalisation has finished the concept of different national markets and has come up with the concept of one single, unified global market. It not only involves countries, consumers, producers, businesses or markets but globalisation impacts and there is globalisation of everything such as cultures, language, people, governments etc. The aiding factor to this phenomenon of globalisation is international trade, information technology and the huge investments being made everywhere around the goal mostly by the developed nations. Globalisation is of two types. One is globalisation of markets and the other globalisation of factors of production or simply production. Globalisation of markets is the movement towards the creation of a single global market meant and open for all. The creation of this is being helped by lowering of tariffs, trade quotes etc and by the creation and implementation of rules of organisations such as WTO, GATT agreements etc which focus on improving and giving leverage to free trade across borders of different countries. This is what has given rise to the identification of global brands like Song, McDonalds etc. McDonalds is a global brand which has a worldwide presence and anywhere in any part of the world can not only identify it but finds the same great quality and taste in every nook and corner of the world. The second thing refers to either outsourcing or moving your production processes and plants to place where there are favourable conditions and easy and cheap availability of factors of production that help you to lower your costs. For example most of the countries like US, UK etc have moved their production houses to Chine to manufacture products as labour is available at a very cheap rate there which helps you to drive down your costs. Globalisation helps to boost the economy of the under developed countries or the developing ones and also improves the living standards of the people of these countries. Many theories are associated with the concept of international trade Two of them are international product life cycle theory and comparative advantage. International product life cycle theory suggests that when a product is initially developed all of the factors of production such as capital, labour etc as well as the process of production re done at home but as the product becomes a part of the market and becomes well known its production is shifted somewhere else. This may even go the extent that the original country stats importing that product. This is what is being done by shifting production at a later stage of the product cycle to areas where labour is cheap. An example of this is the computer industry of the United States of America. Theory of comparative advantage is an extension of the free trade argument and states that this happens when countries have a difference in the relative cost of doing a business. It basically asks to a country to produce that product in which it has the highest efficiency in comparison to all the other products it can produce. This is in total contrast to the theory of absolute advantage and is what we see happening today. Countries produce and trade using this principle because it helps earn the highest return and profit margin in this era of globalisation where there is fierce competition from all sides.
A major benefit of Honda's globalisation strategy in India is that it already has joint venture there which has enabled Honda to become a famous and well known brand name in the market that enjoys a good reputation in the eyes of the customers. This joint venture has helped Honda to have equal stakes in the company and all decision making elements and it gets to share the risks and the financial costs involved. On the other hand, it can take advantages of the resources and capabilities of the local firm and achieve synergies and enjoy a competitive advantage. But at the same time the plan of setting up a wholly owned subsidiary involves a lot of capital and great risk is attached to it which Honda will have to face at its own all alone. Moreover, by deciding to enter the motorbike market Honda is affecting its corporate image and credibility in the eyes of other firms who were or could be its strategic partners at any point of time.
Learning Outcome 2
In order to assess, what actions are helping or hindering Honda's performance, identify what were actual and possible organisational goals that Honda had for its operations in collaborating with Indian companies such as Firodias in India and examine and evaluate how effective and how efficient Honda was in achieving these goals. Also, if you were a management consultant, employed by Honda to help it achieve its organisational goals, what possible alternative courses of action, using analytical tools such as S.W.O.T or P.E.S.T.L.E., would you recommend and why (consider both product portfolio issues and cooperative arrangements)?
Honda's technology and manufacturing capability are well known but in deciding on coming to India, Honda thought that the best way to do this was by entering into joint ventures with the leading businesses and manufacturers of India that belonged to the industry that Honda did and had the same market segment that Honda catered to. This was a great benefit to Honda as Honda had to provide the technical knowledge and assistance which was its core competency and the rest was already there. Honda was able to make use of the distribution and network system of the local firm, capitalise on their assets, resources and capabilities and take advantage of their core competencies and strategic advantage. Moreover, the costs and risks involved became all shared, Honda did not have to enter and go through the rigorous process of doing market research, market intelligence, setting up its own subsidiary or a green field investment, looking for local employees, trying to understand the local market's needs and wants etc. Moreover, the names of the local firm got attached to Honda's name as its image, equity and overall reputation and credibility improved even further. Also, Honda was equally involved in all the decision making process. Moreover, as India is one of the fastest developing markets and emerging markets, Honda realised and could foresee great economic benefits and return there along with a huge market growth and industry growth potential and these were the things it wanted to capitalise on. But Honda could not achieve what goals it had set for itself regarding the Indian market. Honda did not exhibit an efficient or effective performance in this part of the world and the actual and expected results were in total contrast after the initial stage of the introduction phase of the product's life cycle. Only after a little time has lapsed post introduction stage of Honda manufactured products in India, it suffered great losses and tremendous loss and decrease in its market share. In contrast to this, the performance of Honda's competitors both in terms of profit margin and market share kept on increasing as their sales were on the rise continuously. Another reason of this bad performance was the bad calculation and estimation when setting objectives and financial goals. Honda was wrong in calculating the purchasing or the buyer power and extent of disposable income of the target market it was catering to. It limited itself to the upper segment of the society only and even in doing that, the financial projections, estimates and budgeting it did proved wrong and thus it was unable to achieve the goals and objectives it had set for itself.
Various reasons contributed to this poor, ineffective and inefficient performance of Honda in India and to better able to understand this, a SWOT and PESTE analysis of Honda is imperative. SWOT stands for finding out and focusing on the strengths, weaknesses, opportunities and threats an organisation faces where as PESTEL stands for political, economic, socio cultural, technological, environmental and legal forces that externally affect an industry. SWOT is meant for internal analysis of a firm operating in an industry where as PESTEL is done to access and analyse the overall environmental factors and their impact on an industry and the firms operating within it. SWOT is done to see what are your strengths so that you can work and cash upon then in order to earn a competitive advantage, realise and understand your weaknesses so that you can overcome them, see what opportunities you have so that you cash upon them before anyone else in the industry does and analyse the potential threats and dangers to your firm so that you can devise strategies to combat them in time. Competitor's SWOT is also done to see what threats and weaknesses it has so that you can exploit can and see what are the strengths and opportunities that are giving him an edge over you in the market.
Strengths: Honda's biggest strength was its technology and manufacturing processes. Moreover, it enjoyed equal decision making capability in the joint venture and had huge access to resources and capabilities.
Weakness: Honda lacked any market orientation, there was no customer orientation and no attention was paid to consumer's changing buying patterns, needs, wants, desires, expectations and attitudes. They used highly costly imported raw materials. They did not reply and focus on any kind of innovation which was the need of the hour. No money was spent on R&D, marketing strategies and advertising campaigns. No group could manufacture each other products due to Honda's joint venture. Honda's main focus was on other markets such as Thailand and Indonesia even though they were more profitable and successful as compared to India, there was no or little interests in the management issues of the company. Honda did not introduce any tailor made product meant solely for the Indian market. It did not make any investments. Honda was a many layered organisation that was slow in response to external dynamically changing market environment and tactics and there existed a lack of mutual trust in the joint venture between the partners. It also incurred high manufacturing costs.
Opportunities: Having a joint venture with the industry leader in the scooter segment in Indian market was one of the biggest opportunities anyone could have and Honda had it. Also, it had access to a large and existing distribution network.
Threats: It faced strong competition, its products were expensive as compared to the substitute products, the competitors had customer and market orientation, and they paid attention and innovated in accordance with fulfilling changing customer's needs and wants. They spent heavily on R&D and innovation.
Political: the political environment of India was becoming volatile and dynamics for Honda in particular as the kind of practices and policies it got engaged to in spite of having joint ventures in the country.
Economic: the economic condition was stable and the country had huge growth and market potential.
Social-Cultural: it had some considerations that Honda did not take into account and as a result the customers were disappointed for example in spite of having all the necessary resources and technology. Honda did not make any product particularly suited for the Indian roads.
Technological: the technology sector was getting advanced day by day.
Environmental: the environmental conditions were favourable for the automobile industry.
Legal: there were no legal considerations.
In light of the above analysis, Honda firstly should have developed a relation of mutual trust with its partner. It should have participated whole heartedly in the management affairs, changed its organisational structure by decreasing levels of hierarchy so that it could be more responsive, flexible and a learning organisation with rapid flow of communication and decision making. It should have invested in R&D and innovated according to the changing trends in order to bring the best products to the market that were in accordance with the customers current needs and wants and so they could have been thoroughly satisfied. It should have developed a proper marketing plan and spent heavily on advertising both above the line and below the line. It should have advertised in both print and electronic media and did awareness programmes with customers. It should have relied on effective supply chain management so that all of its processes would have become more integrated and the costs would have been reduced.
Learning Outcome 3
Using both a soft and a hard systems methodology, assess how effectively Honda used its resources and processes. In addressing this matter, focus upon the following points:
The general social, political, technological, cultural, and communicative interactions between its strategic, tactical, and operational levels of management within Honda in India.
The actual and possible roles of the value chain with its competences in meeting the needs of the Indian consumer
The soft system methodology is a technique meant to do deal with practical and existing problems that are real. This is basically a management tool that is designed to resolve management issues and problems by using the systems engineeringÂ approach. It can be used to solve both technical and management problems. At first, the problem is identified and a problem statement or definition is made in order to be resolved. But this is also a subjective thing because it is not necessary that what one person perceives as a problem others also view the same thing as the main problem to occur in the organisation because there is not one but many stakeholders to the firm. On the other hand, there is a hard system methodology that is a total contrast to this. It is used to contrast the various kinds of systems problems that are thought to occur. Soft system states problems as non quantifiable where as hard system has a more systemic approach by making use of research and analysis methods to do so. It assumes that there is a single defined problem that only has one solution to it. It assumes that technology will be the foremost factor affecting this and takes a scientific approach towards problem solving. Soft system uses the techniques that the user thinks and takes as best to fit the situation to solve it where as the hard system has a set and rigid approach with fixed procedures and standards. In the soft system, there is no fixed approach where as in the hard system there is but both strive to attain the desired end goals.
Honda's use of its resources and processes was not efficient and effective at all which showed in its poor performance. There was no involvement in the partners and no environment of mutual trust exited between the two. Honda did not show any interest in the management processes and decisions. Honda itself lacked interaction and communication within the different layers of its firm and there was no top down or bottom up flow of information and communication. It did not pay attention to the need of innovation and technological advancement and did not make any investment in these fields. Moreover, they did not come up with any product that was only meant for the Indian market and its people. Its value chain system was not integrated and organised. Effective value chain management was not there and it was not integrated. Although it had an effect network of distribution it did not utilise it. Later, Kinetic overcome all these issues. It launched programs for its customers so that it could better interact with them it engaged into talks and discussions with other stakeholders such as suppliers and distributors and shared its strategic plans with them. Power was delegated and decentralised. They invested and relied heavily on technology and innovation.
Learning Outcome 4
Analyse and assess the success of Honda's business strategy and how this influenced the local and national Indian environment. In doing this task, identify the key aspects and dynamics of customer driven strategies, leadership issues (e.g. management style), and competitive forces affecting the business.
Business strategy is basically how you position yourself in the market relative to your competitors and the strategic action you take to remain above your competitors and have a competitive advantage so that is becomes a sustainable competitive advantage over time. This can include a lot and all the things as it is basically any action taken to improve and maintain the position of your company in the market. It ranges from the kind of business structure an organisation has, the kind of plans it makes, the strategic moves it makes such as joint ventures, exporting, licensing, franchising, green field investments, trying to have a first mover advantage, the positioning you do of your business in order to create an image of yours in the minds of the consumers etc.
Honda's business strategy in India was a failure due to several reasons. Although at the time of introduction, Honda was able to carve out a special position for itself and managed to attract customers towards it products that was evident in the high sales and profit it had but it could not maintain its position in the market and its competitors took over it. As a result, the market share of the company was lost, the sales dropped and the company earned huge amount of losses. This was due to poor positioning and strategies the company was following. There was no customer orientation r customer driven strategies that the company seemed to follow. They were not focused upon customer relationship management which involves a firm satisfying the needs and want of its customers to the fullest and giving them or even surpassing their standards of quality. They did not pay attention to the changing market dynamics, market conditions, changing attitudes, buying patterns and decision making patterns of the consumers, the way their needs and wants were changing and so were their expectations and thus failed to deliver on this. In contrast, they did not even carry out any analysis of the performance of its competitors in order to see what were doing to remain competitive. They were not able to see any threats to them. They did not carry out any strategic analysis that could have been done easily by applying any strategic tool such as SWOT, PESTEL, Porter's 5 forces model, Porter's country diamond model, VRIO, etc. Thus they failed to see what was coming ahead and were not having a proactive approach. They did not believe in innovation and producing new designs for the customers nor were they spending or making any kind of investment in the technology and R&D sector which also acted as barrier to their success. They failed to analyses the effects of the economical, social, cultural, technological, legal and environmental forces acting in the industrial external environment onto them. They did not pay any attention and were not interested in any management related problems and issues and as a result were not involved in any kind of planning, implementation, designing, and strategy formulation or decision making process. Nor did they talk to their customers or enjoyed good, trustworthy relations with their distributors or suppliers as they did not talk to them. There was no focus on effective management of supply chain, increasing output, efficiency and effectiveness. There manufacturing and raw material costs were high and there was no effort being done to bring them down. Moreover, their management style was such that it was not responsive to external changes and the overall company was not a learning and open company nor flexible. It had a many layered structure which hampered a free and active flow of information and communication from top to bottom and bottom to top. The management was not receptive to any change in the external environment and by the time it came to understand any thing there was a change if management in the place. The management did not have a long term vision and any strategic planning at hand done. Also, it did not create any barriers of entry for the new entrants that could stop them, nor did it pay any attention to the bargaining power of suppliers and buyers and the rivalry among existing firms and as a result its strategic moves and business strategy failed. Marketing planning and strategy which is a part of your business level strategy and helps to build an image of your company and position it the way you want in the minds of the customers was also a total failure. It did not create the kind of brand equity and loyalty it was meant to. No proper marketing plans and actions were devised to be taken. There was no investment in the marketing plans so they could be executed. The company did not spend on advertising and thus this turned out to be the one of the biggest reasons of its failures. Moreover, there were no checks maintained to compare and contrast the actual performance with the expected performance so that the gaps between the two could be fulfilled.
Learning Outcome 5 and 6
Discuss the principles of sound corporate governance and ethics and assess how changes in corporate governance can impact an organisation.
Analyse and appraise how Honda's corporate governance affected its internal controls and provide recommendations, with justifications, for change in its corporate governance in order to be more effective in handling at least two major conflicts in its Indian operations.
There are some general and set business ethics for every industry that are meant to be followed and practiced by everyone operating in the industry. They are general principles of right and wrong that are meant to be observed by everyone. Ethics are necessary so that there is a standard of right and wrong and people adhere to it so that they do not practice false and illegal and unlawful things that are socially, morally, ethically and lawfully wrong and should not exist as they have many negative connotations and affects on every stakeholder of the company. Corporate governance is the way a company is managed with the help of the rules, policies and procedures it used for administration and management. It involves all the stakeholders and the relationship the company enjoys with them be it the employees, the suppliers, the board of directors and top management, distributors, creditors etc. It is a way to maintain a check and ensure that everything is the way it should be. It is meant to see accountability and responsibility check on people to whom this has been decentralised and bestowed. Corporate governance is basically the actions that a company takes that involve social and community goals and actions. It are the things a company does to do social good and benefit to the society at large be it by building parks, hospitals, schools etc or numerous other ways, companies even try to bring innovation in this field now so that they do things differently and valued by the consumers and society they belong to. It is a means to foster a good image of the company in the eyes of everyone in the society and not just the consumers and bring out a good and positive image of the firm through its actions. The decisions of corporate governance are made by the top management of the company as it decides whether to practice it or not and if yes to what extent and how and what courses of action are to be taken for the society and environment that are meant to do god to everyone and increase social welfare and trust between the company and the customers both existing and potential and even the non users and people not belonging to the target market. Corporate governance is meant to influence the minds, hearts and perceptions of the society at large in an appositive manner towards the organisation and it helps to increase the customer base which in turn means increased profit margin and revenue. This is because today customers prefer buying the products of those companies that are actively engaged in corporate social responsibility and are trying to do good to the increase the welfare of the society at large thus benefiting everyone whether they are the users or not. The top management, the board of directors, all the stakeholders are it the suppliers, distributors, customers, employees, social agencies, external parties etc are involved in this. The corporate responsibility actions also take into account the external environmental, technological, political, social, cultural and legal forces acting in the external environment and act accordingly. An organisation that is involved in corporate governance earns more as people tend to buy and attach themselves with such organisations that are involved in doing social good, justice and increasing social welfare.
Honda's corporate governance was a total failure. It was not effective neither strategically nor economically or socially. Honda did not take any social initiatives to do anything for the society so there was no social or communal aspect of it. Management wise also it was a disaster. The company did not believe in giving equal rights to its stakeholders nor did it pay any attention to their interests. A clear example of this was that the company was not customer focused. The management processes and the top management as whole was nit effective and was slow in making decisions are responsive and not at all effective in their implementation. No check and balance occurred in the firm. The roles of the management were not clearly defined. Moreover, the company did not issue any disclosure reports about its financial performance. There were no internal controls to maintain an audit or a check over the performance. Management and accounts of the firm. No attention was paid to the risks the company faced nor were there any other policies such as divided policy etc that helped improve stakeholder's positions and interest.
What the company needs to do in order to overcome all this is first to have an effective and responsive management system. It needs to have internal controls, checks and balances and a proper audit system. It needs to have market oriented and customer focused approach and try to fulfil the needs and wants of the customers and satisfy them. It ought to take steps both socially and financially that help increase benefits to the stakeholders so that they remain with the company. The power should be delegated and decentralised and the hierarchy should be lowered by removing management layers in the organisation. This will also ease the flow of information and communication in the firm. Also, the management needs to have performance appraisals and give rewards, recognition and incentives to its employees on their performance along with due promotions.
Learning Outcome 7
From the case study, in the implementation process in trying to achieve its organisational goals in India, what were actual and theoretically possible major objectives, plans, resource allocation scenarios, and monitoring and control systems that Honda had or may have had in place (discuss and appraise each part). And, highlight to what extent these were successful or unsuccessful in its cooperative activities with Firodias?
You can choose one or more of the following example areas (or another area relevant to this case study);
Incorporating benchmarking in target-setting supporting objectives
Discuss and analyse the value and problems associated with target setting and monitoring for a public sector organisation such as the local council or the NHS.
Honda's main plains in the implementation process were to have an equal stake and control in the joint venture and rely on its technical expertise. Its objective was to become a market leader in this growing country and economy and occupy the largest share in the market. It wanted to earn huge amounts of profit and revenue from India. For this goal, its strategy was to enter into a joint venture in India that it did. This way the cost of investing a huge capital that is involved when u do a green field investment was lowered, the risks were shared, no market research had to be done, it had access to a wide and efficient network of distribution and the main goal was to achieve all the profit objectives by investing the minimal amount and by replying and working upon only its technology which was its core strength. Honda did not have any control mechanisms be it financial or managerial and this was a great and big drawback. It should have ha proper internal controls regarding audit, finance, performance of the top management, the company, its employees, distributors and all stakeholders. It did not have any forecasting or budgeting done nor did it have any SMART goals set that had to be achieved. Moreover, there was no department or part of the company that looked after the customer's related issues. All this needed to be there. These were one of the major reasons that came in its way with its relation with Firodias. There was no environment of mutual trust, nor did Honda participate in any decision making and management process of the venture. It was not interested in any matter and did not pay proper attention. Moreover, Honda did not beehive and let spend in the marketing planning and strategies nor did it spend in advertising which greatly impaired the relation as well the performance of the company because there was no means by which the consumers could be reached and targeted or told about the products. Honda also did not invest in R&D and technology. All these issues did not let the joint venture turn into a success and survive. Also, Honda's management structure was not effective s already explained before. Honda did not have any set strategic planning and did not have a long term vision regarding where the company should go and be in the future. There was no workforce planning in the organisation regarding employee performance, goal setting, target achievement, recruitment, selection, hiring, reward or punishment. There were no checks on them. Honda did not involve itself in bench marking and did not pay any attention to external dynamics of the industry or the position and performance of the competitors and what strategies and moves they were making. Even when its competitors were outshine it, Honda did not do any kind of benchmarking or target setting and was very passive in its approach and course of actions. There was no quality department, quality teams or quality circles that could check the standard of neither the goods being produced nor where there any financial teams for doing financial forecasting and budgeting. This is why they were having so much high costs of manufacturing and still were not able to drive it down because they did not have any mechanism to pay attention to it and solve the issue. The marketing system was also a failure with no marketing strategies formed no advertising or any kind of promotional campaign built and done and thus there was no brand equity, awareness and no brand loyalty.
Target setting and monitoring is equally important for a social organisation such as the local council or the NHS. This is because in order to know what you want to do and wheel you want to see yourself in the future, proper planning is necessary. It helps you to set your goals so that your employees know what they have to do and devise strategies to go about it. It is also necessary to be receptive to any changes and then act accordingly. Also, if there are no set targets there is no motivation and sense of achievement and there is nothing to look forward, achieve and work for. Proper implementation of the policies, procedures and processes is also necessary. Financial audits and checks are also important so that money for the people is not used wrongfully by others. Particularly, a social organisation exits for the welfare of the people and works for the society so it is always in the eyes of the people and the society and it has to constantly monitor its performance. It has to have proper checks to see and evaluate its actual performance with the expected results and set targets and try to fill in the gaps if and where they exist.