We live in an uncertain period that is characterised by a difficult economic context.
The economic crisis hardly affected all industry sectors all over the world and especially the automobile sector.
During this report, we will try to explain the mechanisms used by Honda motors to reconcile dichotomies and come out with efficient strategies in order to become one of the most respected companies in its sector.
A. Porter's five forces is a framework that analyzes the industrial context in which the organization is evolving to deploy competitive strategies. The diagnosis is based around the five competitive forces that affect the long-term profitability of the organization:
-Buyers' bargaining power which is the ability of customers to make pressure on the firm.
-Suppliers' bargaining power which is the ability of suppliers to make pressure on the firm.
-The threat of new entrants is the possibility that new businesses may enter the industry and dilute the profitability for everyone.
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-The threat of substitutes is characterized by products that are not part of the market, but which represent an alternative to the offer and which satisfy the same need.
-The competitive rivalry describes the degree of competition between existing companies in a specific industry.
Buyers: Honda has always been oriented towards satisfying its customers.
In the automobile sector, the majority of buyers don't have high purchasing power and they are willing to buy efficient but cheap cars.
The buyers can easily switch from a supplier to another.
Buyers have power over suppliers and Honda is aware of this fact that is why the company is doing its best to recognize and satisfy its customer's needs in every segment.
Suppliers: In Japan, Honda does not have the same relationship with its suppliers as the other Japanese firms. Only few suppliers are part of its supplier family.
The company also builds long term relationships with its suppliers.
In North America, Honda has a channel of 80 Japanese component makers that supply the firm.
Honda also combines its component makers network to benefit from the advantages of spatial concentration and spatial dispersal. In other words, the company can do just in time and at the same time keep the local wages at a low level in some regions.
Honda has power over its suppliers.
Competitors: The automobile industry market is controlled by a small group of firms. In this case, the consequences of price competition are not very important.
After the automobile industry crisis of 2008, the competition has increased to attract new customers. The automobile makers and especially Honda offered new deals to attract customers.
Honda = International co. large competitors locally and worldwide.
New entrants: It is somehow difficult to enter the automobile market for new competitors because of high entry barriers.
The sector requires high investment and capital.
However, some companies like 'Tata' with high capital and technology entered the market and competed with Honda and other companies who already have strong brand names.
Threat of substitutes: In this case, substitutes are composed of the other means of transportation that can replace a car. The decision to choose an alternative to cars is influenced by many factors such as energy price. Honda has worked on offering affordable cars with low fuel consumption to avoid losing customers that can be attracted by cheaper and more efficient alternatives to its cars.
Porter's value chain is a systematic approach to examine the development of a competitive advantage. The chain consists of a series of activities that add value. These values lead to the total value provided by a company.
The company's activities are divided into two major groups: 'core business' and 'support activities'.
Honda combines the primary activities and the support activities to provide an added value and gain competitive advantage.
The company does quality checking by sending engineers to check the production quality and raw materials which make Honda able to produce high quality cars.
The company also does just in time arrangements with its suppliers to reduce costs and time. Right first time is also used to produce quality products with no errors and therefore reduce costs and time but at the same time keep a high quality level.
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The products are also supported by a strong brand name which gives them an added value and a competitive advantage.
Honda also organises an annual ceremony to reward its best suppliers. It contributes in motivating and encouraging them to work hard and to make fewer errors to obtain these rewards and therefore, provide the company with good quality products.
"Honda and its dealers around the world put their best efforts into all stages of customer satisfaction activities from sales to after-sales service." (Honda.com, accessed 2010) Satisfying customers and providing them with an excellent after-sales service builds brand loyalty and can play in favour of the company in order to gain new customers.
"Honda provides global training programs to further enhance service and also by introducing more IT-based tools and equipment." (Honda.com, accessed 2010)
B. The 'positioning' versus 'developing internal resources' dichotomy resulted in a paradox of reducing costs internally and at the same time produce high quality cars and to be well positioned in the market.
Honda had to keep an eye outside the company to create an identity and an image for its brand and its products.
At the same time, Honda had also to look inside the company to be aware of its strengths, to use efficiently its resources and competences.
Honda's progress in developing engines gave the company an advantage to utilize efficiently its core competency which allowed the company to come up with quality products.
Honda started also investing huge resources to come up with low pollution power sources for its cars with the desire to focus its skills on potential breakthrough market positions.
In the last years, Honda made significant progress in this field and developed power sources like 'Electric power', 'Natural Gas' and 'Ethanol'. The company also came up with next generation clean diesel engines and hybrid cars.
Honda demonstrated through its strategy that the two concepts were not contradictory and that they can be combined to gain competitive advantage.
C. The pressures for global integration of activities and the pressures for local responsiveness can be considered as a paradigm which impacts the adoption of an adequate international business strategy within a company.
In the automobile industry, companies are willing to protect their brands and to reduce cost by making standardized products and using similar pieces in the production of many of their car models.
However, companies have to adapt themselves to local needs. First of all, buyer's tastes are not the same and demand can vary from a region to another. Secondly, the regulations and the laws can be different from a country or a region to another.
In this case, the company has to be "Glocal" which means it must think globally but act locally and be able to adapt to local markets.
Honda has been working on reducing its costs but at the same time on adapting to local markets by developing sister models for different segments and use the same components to produce these models even if they are different.
"Honda will further strengthen its efforts to address environmental issues and provide products that accommodate the diverse needs of customers in each region." (Honda.com, accessed 2010) Honda has lately been working on cheaper and less pollutant cars with low fuel consumption in order to respond to some environmental regulations and to its customers needs in some regions of the world.