Expansion Strategy of Honda
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Published: Wed, 25 Jul 2018
Honda was started by Soichiro Honda in the 40s after receiving his first contract with Toyota in manufacturing piston ring. Since in school, Soichiro Honda started developing piston ring in order to get a contract with Toyota. His determination had bring Honda into today’s success, Fail for so many times, Soichiro Honda never give up and continue his dream and successfully get the contract with Toyota. Honda Motor Company produces not only cars as known generally but also produces track, motorbike, watercraft and those gasoline engines. Instead, Honda is the world largest engine manufacturer (Ronnie, 2009)
Started in Japan, Honda expand into many other country using different kind of entry mode includes Foreign Direct investment, exporting, alliances and joint ventures. At first, around 1970’s Honda enter into USA market by exporting the N600 which say to be the fastest at that time. In 1976, Honda continues expanding in USA by building car plant is Accord plant in Marysville. Today, Honda has total of three plant in Ohio where the other two is located at Alabama and South Carolina. (Ronnie, 2009)
Honda is a successful automobile which is manufacturer’s lawnmowers, power equipment, motorcycles, and generators. Therefore, Honda has opened its doors to the franchising market. After Honda was franchising it market, Honda was continuous successful in automobile industry. With an establishing brand name of Honda, the franchisees can get the recognition from the customers. They can easily to the franchisees to start doing their business.
The Honda franchisees are required to pay Honda franchise at least $250,000. As a return, Honda franchisees are able to list everything you need and want from the franchise deal before you sign the agreement. In addition, Honda franchise also has taken good care to the franchisees. They have provides 2 week training course for new franchise owners. This can able the new franchisees to learn how to operate the businesses. Besides that, Honda Franchise also has give the ongoing support for the franchise through internet and online support, regular visits, newsletters and meetings and so on. The Honda Franchisees can apply their owns concept to the business, but they need to discuss with the Honda franchise first before apply it.
In 2010, Harley-Davidson and American Honda Motor Company were announced to be merger as one which is known as Honda-Davidson Motor Company. The merger happened when the American Honda Motor Company was completed purchase of 51% of Harley-Davidson stock. With the merger, Honda-Davidson Motor Company was promised to provide the most comprehensive line of Motorcycles to the customers. The combination of both companies will continue to providing the world with the highest quality motorcycles. Besides that, the new company also exploring the opportunities to provide additional models that combines the best of both former companies. Honda -Nowadays, Davidson Motor Company is the only major U.S.- based motorcycle manufacturer, produces heavyweight motorcycles and a complete line of motorcycles parts, accessories and general merchandise in united state.
2.0 Current Expansion Strategy
Expansion strategy may here be referred to market entry strategy which is commonly used by companies to venture and expand their businesses to other country. Before penetrating to other countries’ market, companies must make sure that they have sufficient financial resources and the nature of the products or services must fit into culture group of that particular country. Having ranked for 3rd largest Japanese automobiles, Honda is able to expand it businesses across Asian countries such as Thailand, Taiwan, China, India and Indonesia.(How To Enter China, 2000) Knowing the importance of international trade, different entry mode strategies have been adopted by Honda in respond to different countries.
In Malaysia, Honda has a joint venture company named Boon Siew Honda Sdn Bhd which formed 50/50 between Honda Motor Co. Ltd and Oriental Holdings Bhd. (Boon Siew Honda profile,2012) The joint venture agreement was formed in 2008 which means that Honda has expanded its businesses in Malaysia through joint venture. Aside of Boon Siew Honda Sdn Bhd which solely trades on motorcycles, Honda has expanded its automotive business through joint venture strategy. Currently, Honda Malaysia Sdn Bhd is a joint venture company formed by DRB-HICOM Bhd, Honda Motor Co. Ltd and Oriental Holdings Bhd. ( Honda Malaysia profile,2012) The main reason Honda to use joint venture strategy to expand its businesses in Malaysia is to diversify the business risks. Having said that, using joint venture strategy as an expansion strategy can reduce the risk of by forming coalition with other companies in host country.
Besides that, Honda has also expanded its “realm” using foreign direct investment in Taiwan. A plant was built by Honda in Taiwan in 1961 prior to produce cars and has made Taiwan to become major producers of motorcycle for Honda. (How To Enter China, 2000) This allows the company to export most of the motorcycles to other countries such as China, Europe and Middle East. The main reason Honda to build its manufacturing plant in Taiwan is to reduce exports of motorcycles from Japan. Foreign direct investment has also benefited Honda in a sense that the company can have better control over the plant in Taiwan at the same time achieved economies of scale.
In Thailand, Honda practiced foreign direct investment which has formed Asia Honda Motor Co. Ltd in 1964. (How To Enter China, 2000) The plant set up in Ayutthaya, Thailand aimed to produce motorcycles and export to Asian countries. In addition, Thailand’s plant has more production capacity which has contributed to major exports across Asia. Particularly in Thailand, Honda has obtained a market share more than 60%. This is because the Honda brand recognition in host country is high and this has led to local support for Honda.
In China, the entry strategy proposed by Honda is somewhat unfamiliar to other countries. Honda has used equity joint venture strategy which has formed 2 joint venture companies named GuangZhou Honda Automobile Co. Ltd and Dongfeng Honda Engine Co. Ltd respectively. (How To Enter China, 2000) In the meantime, Honda has 50% of stake in each of these joint venture companies which has allowed Honda to have partial control over these two companies. In recent years, sales of Honda cars in China were terribly declined by 5 % compared to the time the company first entered China. The declining sale was caused by the high demand of low-cost cars produced in China. Another reason was due to the existing rivalries in China which consists of several “big” players such as Toyota, Nissan and Mercedes.
Generally speaking, Honda is adopting low-risk expansion strategies in the first place to evaluate market respond of a particular country. After building up the brand recognition, the company will decide whether to expand further in that particular country. This can be seen when Honda formed a joint venture company in Malaysia to market its motorcycles to Malaysian. After assessing the profitability of the products, Honda started to sell luxury cars such as Honda City and Honda Civic. This could have helped Honda to reduce the risk of “losing everything” proposing a joint venture strategy in the first place. Foreign direct investment is used by Honda in Taiwan and Vietnam to increase the production of motorcycles and motorcars to increase exports. At the same time, increased production will help Honda to fulfill the demands of other importing countries.
3.0 Future Expansion Strategy
As mention in the previous part of the assignment we can see Honda with extraordinary expansion strategy has allowed the company group to triumph in the highly competitive world market especially against domestic competitor. These expansion strategy though practical and effective are in some way lack of aggressive to compete with other automobile MNC (multinational corporation). Since Honda is originated from Japan we decided to compare Honda with its domestic competitor such as Nissan and Toyota.
For decades Honda has been compete with Nissan and Toyota domestically and abroad, however till this day Honda still maintain the position of Number 3 right after Toyota the first and Nissan, second. This comparison allowing us to realize that the successfulness of Honda is still in behind this two multinational automobile giant. As such below we will provide some entry modes strategies for future expansion for Honda based on some global market that we have analyses.
3.1 South Korea: An overview
Take Korea into consideration. Honda has already exporting cars to Korea for a decade and however the sales there are always below the profit margin until Honda are no longer expecting high returns on Korea market. In actual fact, not only Honda are doing unwell in S.Korea most Japanese MNC had a hard time penetrating S.Korea market due to war history between Korea and Japan to be the main reason why Korean are less relying on Japanese products. However based on our knowledge Korea is a very potential market, and Honda should use joint venture in Korea to triumph where other Japanese competitor failed.
Why South Korea? There are some facts that indulge all investors in the world to invest in South Korea market. South Korea is the world’s largest democracy & among the strongest emerging markets in all business field. Furthermore, it has liberalized economy with 300 million in the middle class bracket, with well matured financial and securities market and time-tested judicial systems. Apart from that, Seoul capital of South Korea is growing with enormous speed to compete with world most successful city including New York and London, financially.
With the sound potential of the market, let us look at the action of the government of South Korea, firstly it is a WTO member committed to providing opportunity to the global market. The Korean Government is constantly undertaking reforms in every sector with Infrastructure Sector receiving Government’s fullest attention, the S.Korea government also permits foreign investment virtually in every sector of the economy. Majority foreign equity, even up to 100 per cent in some sectors, is encouraged and special investment incentives are provided.
In short South Korea is a potential Market that Honda should not overlook due to the points below,
- Large pool of educated land expertise of manpower in South Korea.
- Disposable income is continuously increasing with the economy growing at more than 8.5% p.a.
- Cities booming with world class integrated infrastructure.
- South Korea has potential to attract more than US $ 100 billion over next five years.
- Potential for creation of near 1 Million direct and indirect jobs each year.
As for now that the certainty of South Korea was an expansion market. A suitable partner must be recognized in Korea to allow the joint venture to be successful. Our group varies in suggesting a partner but agreed that Asia motor is among the best to Joint Venture with Honda to create a Asia-Honda venture.
We select Asia motor for a numerous reasons, first its engineering capability, Asia motor founded in 1965 is one of South Korea most highly reputable automobile industry focusing in medium and big sizes vehicle is the best partner for both Asia Motor and Honda to penetrate into a new market. Beside that, relevance and salience of Asia Motor brand is also one of the core reasons in selecting Asia Motor, furthermore its company distribution network as of since 1965 have been matured and controlling large traffic in sense of party needed in a successful network. Lastly the company also announces with well function internally such as low turnover rate. These points allowing us to believe that Asia-Honda ventures is going to turn out fine. As such we recommended Joint ventures in South Korea due to its potential and Honda future development.
Exporting is not a new term for Honda. In fact Honda had been an expert in exporting worldwide where any place u name it, as long as there is demand, shipment of Honda cars can directly send to your dealer or home in no time. Using exporting as main expansion strategy for Honda is a success for many decades, however they have always overlook what their competitors are doing. Toyota are using this expansion strategy as well an if Honda is an expert in exporting cars, Toyota is a grandmaster.
When we suggest export as Honda future expansion strategy we realizes the fact that Honda are doing it now, good, but not good enough. In this case we suggest that Honda uses this expansion strategy, exporting in a whole new market penetration rather than the traditional car/motor vehicle market. We suggest aircraft market penetration worldwide. If we look at Honda current research on car, we will discover that Honda had a very success researched on hybrid and fuel efficient engine currently focusing on cars and motor vehicle, In fact, Honda GX NGV is termed as the cleanest car on earth as far as centralized agitation engines are concerned, apply that to an aircraft and we have a whole new level of airplane.
Competition in the aircraft industries are High, dominated mostly by Boeing and follow up by airbus it will never be easy as it suggest in the report, but chances are there to expand worldwide in a whole new categories of market. Suggesting in exporting in aircraft is not bold for Honda there has been a history for Honda in aircraft development since the 80’s.
According to the data we acquired on the internet and book research, Honda had been study small sized business jets in the since 1980s, using engines from other manufacturers. TheÂ Honda MH02Â was fabricated and assembled at Mississippi State University’s Raspet Flight Research Laboratory in the late 1980s and early 1990s. The MH02 was a prototype using composites with an organic matrix. Since that a prototype of Honda Jet had been on the development.
The Honda Jet made its maiden flight in December 2003. It debuted to the public at theÂ EAA Air Venture air showÂ inÂ Oshkosh, Wisconsin, in July 2005. On July 25, 2006, Honda returned to Oshkosh to announce it would commercialize the Honda Jet. Honda established theÂ Honda Aircraft CompanyÂ to seek both type and production certification of the Honda Jet. Production is to take place in the United States. The company estimated the sales would be around 70 to 100 per annum.
The certification of aircraft (FAA)Â is expected to follow around August 2011. Delivery of the first plane is planned for the third quarter of 2012. In recent event, the Viking pioneers had been using Honda aircraft engine as their Viking aircraft engine and it had been a huge success and it is considerable that a Viking aircraft engine is the only modern and reasonably priced aircraft engine available today.
Honda has reach a stagnant growth in cars and automobile manufacture worldwide. If Honda start exporting aircraft as their new expansion strategy it might became one of the competitor for Boeing and triumph in a whole new market level.
3.3 Strategic Alliance
Honda should apply strategy alliance as its future expansion strategy to enter the new market. Through strategy alliance, all the automobile company can work together to achieve same goal by using the least resources as they share the resources, information, capabilities and risks to achieve it. One of the successful examples by using strategy alliance is Yahoo and Sina. They teamed up together to offer auction service in China. This partnership will leverage both companies’ respective users’ bases as Sina has 83million registered users while Yahoo’s expertise and technology to support the auction platform. Therefore, Honda need apply strategy alliance with others automobile company such as Nissan, Toyota, Mercedes-Benz and others. Through this, Honda and others automobile company can share their technique knowledge to resolving the specific problem or avoiding the basic mistake, develop a better function of car, design of car which better than before. For examples, Honda recalling over 172,000 vehicles because of door latch issue during July, 2012.
Furthermore, Honda also can use the strategy alliance to institute of technology campus or college, so that Honda might not face lack of labor force problem in future. Honda can recruit the potential student as their technician after they graduate directly. It might not let the potential technician employ by others automobile company if Honda has the opportunities to do so such as having contract to the potential students by providing scholarship to them. Besides, institute of technology campus or college can provide the specific program which require by Honda to train the student so that student is more familiar to Honda company job scope after they graduate. One of the examples is HP is partnership with UoPeople (university of the people), which provides UoPeople students the opportunity to apply for internship to work with the HP Catalyst Initiative.
Globalization is a compulsory for every company in order to be able to stay competitive in the market. Those without it can be easily kicked out from the market. Every bank in the world is somehow connected even though they are from different company. Two different companies with different culture can merger in order to gain win-win profit. This is why globalization is important. Honda is also the same. In order to improve the Research and Development for cars in China, Honda has joint venture with GS Yuasa Formalize Li-Ion. Successful expansion had make the success of Honda today.
Every country has its own culture and government rules. Different approaches might be useful to one and not to the other. hence, it is important to research on the specific country before using different expansion strategies into the country.To conclude, sometimes different cultures, different norms and different rules and regulation might result in conflict. However, foreign market is much more beneficial to invest in compare to the local market. Is tougher, and more challenger but more profitable.
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