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Honda Motor Company Limited Honda Motor Co., Ltd. operates under the basic principles of "Respect for the Individual" and "The Three Joys", commonly expressed as The Joy of Buying, The Joy of Selling and The Joy of Creating. "Respect for the Individual" reflects our desire to respect the unique character and ability of each individual person, trusting each other as equal partners in order to do their best in every situation. Honda Motor Co., Ltd., is perhaps best known as an automaker--it is the third largest automaker in Japan--but the company has its roots in motorcycles, and is the world's top motorcycle manufacturer. Its best market is in the United States, where the majority of its sales are generated. Honda's automobile product line accounts for approximately 90 percent of its sales, and includes well-known U.S. top-sellers such as the Accord, Legend, Civic, Prelude, and the luxury Acura. In the United States Accord is the second most purchased car. Super Cub, Foresight, and Shadow 750 are Honda's produces motorcycles. The power products division makes agricultural and industrial-use machinery, portable generators, outboard motors, and all-terrain vehicles that augmented annual sales of Honda. While describing the history and success of Honda Motor Company we must look into the complementary penchants of its founders--Soichiro Honda and his partner, Takeo Fujisawa. Soichiro Honda's accomplishments as a mechanical engineer were similar to that of Henry Ford.
The company was formed in 1948 when Honda and Takeo Fujisawa joined together and Fujisawa, whom Honda knew since 1940's, provided financial and marketing strategies along with the capital to start the new company.
http://ivythesis.typepad.com/term_paper_topics/honda_motors_strategy_development/ (7th September 2010 )
Historical Development of Honda Motors:
Development of Processes:
Honda History Timeline:
1946- After WWII, Honda got its start in Hamamatsu, Japan in 1946, Soichiro Honda, a motorcycle racer, opened the Honda Technical Research Institute and produced the A-type bicycle engine, which were cheap and efficient transportation.
1948- Soichiro Honda founded his Honda Motor Company, Ltd., and became a company was to become one that achieved a lot of "firsts."
1950- Honda stunned the engineering world by doubling the horse-power of the conventional four-stroke engine. By the end of 1950 it had won all of the most prestigious motorcycle racings in the world.
1952- The Head Office was moved to Tokyo.
Going Global: (Expansion)
1959- On June 11, first US store, American Honda Motor Company, was opened in Los Angeles, with six employees.
1962- Honda began selling power equipment such as tillers and generators in the US.
1964- Automobile production begins at Sayama Factory (presently Saitama Factory). Asian Honda Motor Co., Ltd. (Thailand) established.
1965- Thai Honda Manufacturing Co., Ltd. (Bangkok) established. Honda (U.K.) Limited established in London. This was their first move to the European market. Honda wins its first F1 victory, in Mexico.
1969- Honda Dream CB750 was the first motorcycle in the US and began importing its first car in the US, the Honda N600.
1971- Honda Motor do Brazil Ltda., was established in Sao Paulo and now known as Honda South America Ltda. Knockdown motorcycle production begins in Mexico.
Achievements and Technological Progression:
1972- Flagship Car Honda Civic rolls out.
1973- The Honda Civic hatchback was sold in the US. Honda produced the first fuel efficient 4 stroke outboard marine engines.
1974- Honda Civic's - The first car, to pass the requirements of the Clean Air Act, was new CVCC engine, without a catalytic converter.
1976- Honda Accord hatchback came in.
1977- The Civic, with its's 40mpg, became number one , on the first EPA list of fuel efficient vehicles. The Honda GL Gold Wing touring motorcycle first introduced.
1978- Honda Prelude launched.
1979- Honda Accord sedan introduced. First Japanese car company to open a production facility in the US, making the CR250M Elsinore motorcycle.
1982- First Japanese car company to produce a vehicle in the US - Honda Accord.
1983- Honda Civic CRX -winner in American gasoline fuel consumption market.
1984- Fuel-Efficiency - Honda CRX-HF, the first vehicle with an EPA fuel rating of over 50mpg. Walk-behind lawn mowers in the US.
1986- Honda introduced Acura Integra and Acura Legend and became the first Japanese automaker to produce a luxury line.
1987- Prelude - first passenger car in the world to employ 4 wheel steering.
1988- Honda Accord Coupe became the first car built in the US be exported to Japan.
1994-Honda , in keeping with the racing history of its founder, entered the Indy open wheel series.
1997 -Honda with its 1988 Accord became first to pass Calfornia's strict low emission standards.
1999- Honda Insight became the US's first hybrid vehicle, with rating of 70 mpg.
2001- Honda's Civic Coupe became the first compact car to achieve a 5-star safety rating from the National Highway Traffic Safety Administration.
2005- Honda FCX - first fuel cell car sold to a family.
2006- Honda began selling it's Hondajet light jet.
2008- Honda began production of the FCX Clarity fuel cell vehicles. Began work on a facility in North Carolina to produce jet engines.
http://world.honda.com/investors/annualreport/2005/pdf/ar2005-102.pdf (6th September 2010)
http://www.car-history.org/honda-history/ (6th September 2010)
http://www.referenceforbusiness.com/history2/67/Honda-Motor-Company-Limited.html (7th September 2010)
Strategy Applied by Honda:
The vision of Honda was to look at the market from a global perspective. The company's objective is to provide the best quality of products at the most reasonable price. Simultaneously Honda also achieved great competitive advantage when they continually went ahead to manufacture products with higher differentiators. They are one of the fastest innovators in the global automobile industry.
Since its inception, Honda's portfolio includes three lines of business, namely:
The three most important features in their products that give Honda an advantage are:
Fuel efficient engines
Robust Engineering Design
The motorcycle business of Honda is the group's first business. Through the motorcycle business Honda has developed a deeper approach in manufacturing customer centric products. Honda motorcycles are the most popular two wheeler transports across twenty one countries across the world. In 2005 Honda manufactured its 150 millionth motor cycle thereby becoming the world's largest manufacturer of motorcycles. At the present Honda looks to continue its position of becoming the largest manufacturer of motorcycles.
Honda started manufacturing its Power Product Engines in 1953 and it has now developed a wide range of products in this segment such as tillers, portable generators, lawn movers, outboard engines and power carriers. In May 2006, the production of power products exceeded 70 million units. Honda power products are distributed and widely accepted by about 5.5 million people across 156 different countries.
Honda at its corporate level looks at innovation and rapid technological development; it therefore started to foray into other lines of business such as the robot and human intelligence industry (with its flagship product ASIMO) and the Honda Jet for the market of sky sports.
Innovation is also the key to success even at individual business levels. One of the main reasons of Honda Motors success is the Research & Development. Through continuous research and development Honda has gained a sustainable competitive advantage over its competitors in the automobile market. The business level strategy of Honda Motors looks forward to invest more in research and development in order to produce superior quality products that encourage more customers to buy their products thereby increasing sales and revenue. Over the last couple of decades the factors at which Honda has focused upon in order to establish a creative and innovative technical foundation are:
With a wiser approach to the future the Honda products are more viable economically, socially, and environmentally.
The sales perspective of the company is another aspect wherein Business Level Strategy of Honda Motors play an important role. By creating products and services core values and makes Honda cars unique, Honda sales associates around the world keep creating a continuous exciting experience for its customers. Honda puts the best in for its services, responds to changing values and complicated needs of customers worldwide. Its services focus on building good relationship with the customers, with responsive support through its after sales services like maintenance and repairs.
Integrating end customers in their value chain: Contrary to global businesses that see the size of their business as a key to success, Honda extends in the world globally but maintaining the qualities of a small player very close to the customers. Hence they have decentralised control over their units in different zones. Their aim is to produce a worthwhile product with the speed, flexibility and efficiency of a small company but also have the elements like global reach and technological strength like a large company.
Achieving efficiency through decentralisation by implementing a five region strategy: As discussed earlier in the historic development process, Honda has migrated into different geographic regions of the world namely North America, Europe/Middle East/Africa, South America, Asia/Oceania and Japan. Decision-making responsibility regarding sales, manufacturing and research are afforded to each region. Products that best serve the region are pushed to the forefront of the development and manufacturing process. Research & Development operations in Japan created a unique and flexible global platform that is adjusted to produce cars of different lengths, widths and engine types, thus providing a cost-effective solution for each region.
CURRENT STRATEGIC SITUATION:
Main areas of focus:
High Quality products at reasonable price:
Looking at Porter's model of generic strategies it can be mapped that Honda Motors as a company follows a combination of differentiation and overall cost leadership strategies. Through continuous research and development they aim at producing products with greater safety, ergonomic designs and more fuel efficient cars thereby being perceived to be more unique by customers. On the other hand through decentralisation control and automation of manufacturing process they aim at reducing their cost and gain overall cost leadership.
Customer Satisfaction: The customer satisfaction perspective is taken into deep consideration presently. Honda Company has a standard operating procedure that guides employees and sales staff to behave in a particular manner with customers. Special deals and complimentary offers are always provided along with their cars adds to higher level of customer satisfaction.
Become a market leader: Presently Honda motors ranks at number six, however with continuous improvement the company is looking forward to gain a higher market share and become a market leader in the automobile industry.
Core Competencies in Honda Motors:
Manufacturing Capabilities: Very similar to that of its Japanese competitor Toyota, Honda motors also has a high level of operational effectiveness in its manufacturing process. With the recent practice of total quality management Honda has gained great competitive advantage. The innovation process revolves at designing aerodynamic designs, and fuel efficient engines. Honda motors have manufacturing units across the globe and they have an automated manufacturing process with multiple lines of production. This helps them to supply large number of units in order to keep pace with the market demand.
Culture of Innovation: Honda Motors has evolved to produce a large range of technology in order to deliver improved variety of cars. Technologies such as ivtec and common rail direct injection systems have evolved in the 1990's as an advent to produce more fuel efficient cars. During the period when this case study was set, Honda has also innovated to manufacture electric cars, which became very popular. During the timescale when this case study has been set up, the world was suffering from oil crisis, especially the Asian countries. This was the time when electronic cars introduced by Honda motors became highly popular. Innovation has also come through Honda's dedicated team of engineers and the research and development centre of Honda Motors.
Expertise in engine: Fuel efficiency complemented with power is what Honda offers to its customers. Due to this, Honda engines are highly popular thus making Honda very popular in the automobile industry.
Analysis of the Business model and the Business Environment:
Research and Development: The biggest strength of Honda Motors is it Research and Development techniques. R&D budget now exceeds that of Japan's No.2, Nissan. Honda spends 5% of revenues on R&D. It has supplied engines for Formula 1 cars for years and has rolled out a dizzying array of envirocars.
Brand: Honda has a strong brand name worldwide. The brand is a symbol of quality & style. Research shows that in countries of South East Asia where consumers are not very conscious of brands, the first global brand that they recall is Honda. This is a great advantage for Honda, since it is leveraging its business in most of these developed economies.
Quality: Honda motors is famous for the quality of products it produces & sells whether its motorcycles, cars or power products.
Innovation: "Do Not Imitate." The mandate of Soichiro Honda echoes in the minds and hearts of everyone at Honda. Honda as a company challenges itself to seek out new initiatives & lead the competition.
Participation: Honda participates in Formula1 & Moto GP. This helps them to reach a vast audience all over the world. It also strengthens them to achieve a higher level of penetration in the international market of vehicles.
Variety: Honda manufactures a variety of products from automobiles to motorcycles and from marine engines to jets. Due to diversifying their product portfolio into a wide array of products, the company mitigates risk of failing brands.
Environment focus: Honda lays a lot of importance on environmental factors. It is focusing a lot of low emission engines & other environment friendly products like electronic and hybrid cars. This makes Honda an automobile manufacturer having deep interest in corporate social responsibility.
Market share leadership: The company has a global reach that stretches from Brazil to China. With economies starting to raise in the BRIC nations Honda makes greater revenue from the international markets than from its home nation Japan.
Balance between future research and current profits: Honda often conducts research and innovation in the fields that has no practical application or that are too generic issues. For example, their fuel efficiency research; Honda is a market leader in fuel efficiency from 1985 till date. Instead of investing in the fuel research they could have divested more of their resources to other activities like competing within the Sports Utility vehicle market, which could have yielded more profits.
Relying on "entry first, organizes later" strategy: According to Wright Report Honda launches a new product before doing proper research on the market. They first introduce the product and then develop an infrastructure and organization for it. This strategy worked for them in the case of light truck division, where its Ridgeline won Truck of the Yea but it didn't in the case of Acura .Acura was launched by Honda in mid1980's and was the first Japanese manufactured luxury car, however lacked many features that the customers were looking for in a high end car and Acura incurred continuous losses for 5 years. Basically Honda relies too much on their ability to adjust once a product enters the market which can be very risky.
Over dependence on North America: Honda largely depends on North America for its profit.85% of its profit comes from sales in North America.
High Cost Structure: Honda requires a deposit for higher purchase but Nissan and Toyota don't. They depend greatly on profits coming in internationally, where they need to focus more on domestic sales in case something were to happen with others' economies.
Dependency on big volume models: Honda motors rely on Civic and Accord for 55% of its sales. It cannot afford a wrong move on these products.
Spreading of Costs: Honda is unable to spread its fixed costs for engineering, technology, and marketing over a huge volume of vehicles. Thus the profit margins have not risen highly over the years.
Marketing: In developing countries like India people recognize Honda as a company that manufactures motorbikes & cars. They are not aware that it has several other products like tillers, lawn mowers, generators; Water-pump etc thought they are available in the market. Hence Honda should advertise these products to make people aware of the products.
Emerging markets: Honda has made its mark in Asia, North America and Europe they can also target other bigger markets like Australia and South America.
Growing motorcycle markets: Demand for motorbikes is increasing in developing countries like India which gives an opportunity for a market leader like Honda to capitalize.
Fluctuation of oil prices & availability of oil: The biggest threat to any automobile company today if the prices of fuel. If fuel prices increase then the demand for automobiles & other power products will go down which will affect their revenue. The demand for their products will also decrease if fuel is not freely available.
Competition: Companies like Nissan, Toyota & Ford will always be a threat to Honda because they also have the quality, efficiency and service.
Environmental laws: Environmental laws with regards to pollution & fuel consumption can also be a threat to Honda.
Fast technology: Growing technology is always good for n economy but it also has its negative aspects. Selling of humanoid robots (ASIMO) and sports cars can reduce the employment as jobs done by humans will be done by robots.
The environmental analysis has been carried out through two frameworks, the PESTLE analysis and the Porter's five forces model.
Government proposal to set a limit on the number of cars being sold in UK. This would adversely affect Honda's Sales.
Pressure to produce cars with cleaner emissions. This has meant Honda has had to invest heavily in R&D to produce cars with cleaner engines
Regulations regarding fuel economy, noise, safety and noxious substances
Middle East Areas play a very important role to supply the fuel for many industry activities & the Policy situation in there is not stabilized. Therefore the fuel prices can fluctuate which will create doubts in the mind of people whether to buy automobiles or not which will affect the sales of manufacturers like Honda.
Exchange rate - £GBP to Yen. The weakness of the yen makes Honda's cars expensive in the UK.
Honda conducts its business throughout the world including North America, Asia & Europe. A continued economic slowdown and recession could lead to a decline in demand for motorcycles, cars & other power products which will affect Honda's operations.
Rise in fuel prices will adversely affect the sales of Honda motors but they have already started focusing on economical cars such as the 1.4 Honda Jazz.
U.S financial crisis has affected the economics over the world. It's said that Japan is already in recession and shares in Japanese manufacturing corporations dropped sharply. Not only Honda lost 4.1 percent but also Toyota lost 5.1 percent too.
Rising interest & inflation rates in different countries will also affect Honda Motors.
Nowadays the demand for personalized cars is increasing. Honda is a leading manufacturer of cars which can be easily modified, stylistically and performance wise.
In bigger markets like Asia & North America the demand for city cars is increasing because of the increase in population. Honda has cars like Beat and Jazz which are perfect in terms of size & price.
Honda's market segmentation is astonishing. In a country like India the demand for motorbikes is increasing but the budget of the buyers is low & there is high level of competition from Indian manufacturers like Bajaj, Hero Honda & TVS. Honda still has a decent market share in India because they did proper research and understood the demands of the people and manufactured low price vehicles with smaller engine size. Honda Unicorn which is a 150CC bike has been the best bike in the Indian market for years. Honda has succeeded in India considerably unlike their international competitors like Suzuki and Yamaha who have failed.
Because of consumer and legal pressure, car manufacturers have to develop cars with significant safety features which the company would have to test and research. This would be an expense for the R&D department of manufacturer like Honda.
Cars have had to include Satellite Navigation systems etc., as standard; Honda has had to catch this up in their newer models.
Honda is renowned for its Innovation. It has to continue being innovative in terms of its technology to maintain or improve its position in the market.
Increasing pollution in major markets like Asia & Europe have a negative impact on automobile companies however Honda is already working on manufacturing of electric cars & hybrid cars which can work on LPG.
Honda is also planning to manufacture vehicles that will use solar cells. This can be a revolution in terms of protecting environment.
Honda developed i-vtec, which is a follow on from their infamous vtec engines. The i-vtec engine provides fuel economy, ample torque and clean emissions.
Honda has tough competition in UK from BMW, Toyota, Mazda etc.UK is an open market as we know. Any foreign manufacturer can enter the UK market and pose a threat to existing players. If UK government changes the law of entering the market this would prove beneficial for existing players like Honda.
Exporting laws in different countries could also affect Honda as its business is spread worldwide.
Porter's five forces Analysis:
Bargaining Power of Suppliers: The companies who supply automobile have limited bargaining power. The suppliers have limited bargaining power. The suppliers tend to depend on one or two automakers to purchase the majority of their products. If the automaker changes the supplier, it would badly affect the supplier. Honda utilizes a Just in Time manufacturing methodology where there is a push-pull mechanism. This ensures a good relationship between the manufacturer and suppliers.
Bargaining Power of Buyers: The automobile industry is highly competitive as there are so many manufacturers. The buyers have some degree of control as there are so many companies to choose from. Here it's very important for the automobile manufacturer to build a trust in the buyer's mind and make him loyal. Honda has been manufacturing quality vehicles for years. With the increase in fuel price and the credit crunch buyers are looking for high quality products at a reasonable rate, Honda has been a market leader in producing quality products which are environment friendly and at reasonable prices.
Threat of new entrants: Entering the automobile market is not easy as there is high cost involved and there are legal barriers to entry. However if an auto mobile company has capital and has done proper market study can enter the market.
Threats of substitutes: Substitutes her wouldn't just be a different car but on a broader perspective it will be other modes of transport like buses, trains, cabs, etc. Because of the recession people may switch to other modes of transport which are cheaper. Moreover to own a vehicle there are other charges involved like insurance and registration.
Competitive Rivalry: Industries which are highly competitive earn low returns because the cost of competition is high. The auto industry is to an extent considered to be an oligopoly which helps to minimize the effects of completion which is based on price.
Strategic Direction for Honda's future:
Since its inception Honda has occupied a remarkable market share and has positioned itself as a strong brand among consumers globally. Research shows that Honda is the most commonly recalled brand globally in the road transportation industry. However looking at the macroeconomic environment and keeping the social issues into consideration, Honda will be faced with a number of challenges in the future. Factors which will prove to be impending and will cause road blocks in the growth and development of Honda's market are as follows:
Environment related factors
Competition related factors
Economy related factors
Continuous Innovation is a key to Honda's success and it will continue to help Honda overcome these challenges in the near future. Also Honda must now invest in Research and Development primarily in areas where their leveraging resources lie.
Honda has a large product mix and a wide range of cars hence each brand should be positioned for specific market segments. Hence segmentation would be a key factor to consider. Through segmentation it would be easier to understand & meet the needs of consumers when they are divided into groups. We would also need to make sure that we do proper market segmentation in order to cater the needs of each segment. We would divide the market on the basis of requirements, income, places etc.
European Market: People purchasing Honda cars are generally young individuals possessing high level of disposable income. Hence Honda should come up with stylish designs and cars that have more speed and power. The market trend should also shift towards producing smaller sized cars with smaller engines that would make driving more convenient.
American Market: Most SUV's and MUV's that Honda motors produces should be designed from the American perspective, since the demand of large sized vehicles are higher in these regions. Also Honda should continue to produce more and more hybrid cars for this region.
Asian Market: Due to rising oil prices the company should focus on producing more and more fuel economic design. Honda maintains "fuel-cell electric vehicles will provide the ultimate mobility." The firm will continue to develop its FCX Clarity model, along with the hydrogen refueling infrastructure to accompany it. This would help them to roll out more number of electric cars and also cars with greater mileage and more fuel efficiency.
Australia and South America: Honda should also look at extending their operations in countries like Australia where there is a high market potential in South American markets wherein the economy is on the rise. This would give Honda an advantage to increase its Global market share.
In order to achieve such high level of operational effectiveness, the company must strengthen its lines of production and have more capacity to produce small and medium sized cars such that the fixed cost gets distributed and reduces the price. They should also develop the ancillary production facilities in markets outside Japan to give them more effectiveness in the manufacturing process.
In South East Asian countries where the demand for internal combustion engines is rising, the company must look for strategic alliances and joint ventures to reach the markets. For example in India Honda has tied up with Hero, to form Hero Honda which is the largest seller of motorcycles in the country. It must undertake similar steps in other countries as well to gain more market share.