Honda Case Study

Honda is the second-largest automaker in Japan, after Toyota, and the world’s biggest motorcycle manufacturer. (Vault – Honda Motor Company Limited) Honda has four separate business units as listed in Table 1. 0.

| SBU| Revenue (Yen Millions)| COGS and operating expenses (Yen Millions)| Operating Margin| 1| Automotive Products| 5,822,742| 5,899,948| -1. 3%| 2| Motor Cycles| 1,348,828| 1,206,226| 10. 6%| 3| Power Products| 289,374| 293,772| -1. 4%| | Financial Services Business| 526,576| 356,576| 32. 3%| Table 1.

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0Revenue, Costs and Operating Margin for Honda Motors 2012 With almost 73% of Honda’s global revenue generated through the sales of their automotive products but with an operating loss of 1. 3% in 2012, this report will focus on the automotive business of Honda. Using the Boston Consulting Group Matric (BCG Matrix) Honda’s automotive products are positioned as a ‘cash cow’, but edging close to being a ‘star’. With a brand value of $17. billion, Honda is the 21st most valuable brand globally and 4th most valuable automotive brand (Interbrand, 2012). Honda also retains 62% of its owners which is one of highest brand loyalty values in the automobile industry (J.

D. Power ;amp; Associates, 2010).These contribute to Honda being a ‘cash cow’. The automotive industry however is highly competitive and at no time can any manufacturer rest on their laurels. For this reason in particular Honda’s automotive SBU sits on the cusp of being a star. | | | | | | | | | | | | | | Business Growth Rate| High| |  |  |  |  | |  |  |  | ? | | | | | |  |  |  |  |  |  |  |  |  |  | | | | | |  |  |  |  |  |  |  |  |  | | | | | |  |  |  |  |  |  |  |  |  |  | | | | | |  |  |  |  |  |  |  |  |  |  | | | | | Low| |  |  |  |  | |  |  |  |  | | | | | |  |  |  |  |  |  |  |  |  |  | | | | | |  |  |  |  |  |  |  |  |  |  | | | | | |  |  |  |  |  |  |  |  |  |  | | | | | |  |  |  |  |  |  |  |  |  |  | | | | | | High| Low| | | | | | Market Share| | | | 2.

Automotive Industry Analysis 3. 1 PESTLE Analysis 2. 1. 1Political The USA Government has increased security to control borders in relation to transport importation (CIA, USA) making it more difficult for Honda to import/ export. Future expansion into China may be hindered by an ongoing Government dispute over the islands of Senkaku-shoto (CIA, Japan).

These tensions resulted in Japanese automotive manufacturers losing market share (Honda 3. 1%) to foreign brands through consumer boycott. (The Star Online, 2013) 2. 1. 2EconomicLong term concerns for USA include stagnation of wages for lower income families, inadequate investment infrastructure, costs of an aging population, energy shortages, and sizable budget deficits (CIA, USA). The Japanese economy is persisting with deflation, “reliance on exports to drive growth, and an aging and shrinking population” longer term, as well as a debt 200% above GDP (CIA, Japan).

Future growth in China may be unlikely due to a concern about the future of the Chinese economy (The Star Online, 2013). 2. 1. 3SocialBoth America and Japan have almost 40% of their populations in the 25-54 age brackets, resulting in an aging population (CIA, USA and Japan). Ernst and Young suggested that the growth of social media was redefining marketing and consumers have more information when buying a vehicle.

(Ernst and Young). 2. 1. 4Technological Consumers are moving to new technologies in the automotive industry. Electric and hybrid cars recorded a 164% increase in June 2012 from 2011 (Clean Technica).

China may look at increasing their subsidies for onsumers purchasing hybrid vehicles to increase sales (Bloomberg News) 2. 1. 5Legal Manufacturers must adhere to emission standards for new cars- which may differ for each country (DieselNet). Manufacturers also may face continued class action lawsuits for faulty goods. 2. 1.

6Environment USA is the largest single emitter of carbon dioxide. (CIA, USA) Japan has air pollution from power plant emissions which results in acid rain and acidification of waterways degrading water quality (CIA, Japan). Many countries have signed environmental agreements to reduce pollution and emissions longer term. . 2 Porters Five Forces Analysis 2. 2.

1Rivalry: High Toyota, Nissan, Ford, Mazda and General Motors would be considered the main competitors of Honda Globally (De Wit, Meyer 2010). Competition in the automotive industry is high with so many companies offering customers a number of choices and options. Competition needs to do it best to offer something unique to the customer, in order to gain more profits and gain more market share. “Auto manufacturing involves great capital investments, scale returns are important, and the product development periods are long.That is why the copying and matching is sometimes neither exact nor immediate” (Hanssens, Johansson 1991).

2. 2. 2Threats of new entrants: Low It is not easy for a new entrant to enter the automotive industry due to the high set up costs and the strong brand loyalty customers have with existing companies. Many of the existing companies look to enter new markets by acquiring existing brands. 2.

2. 3Threats of substitutes: Low- Medium Possible substitutes include trains, aeroplanes, bikes, buses, etc.Many of these are less convenient than cars- however buyers must also weigh up the considerations relating to the fuel, maintenance and insurance costs. Due to there being no direct substitutes the threat would be low-medium. 2.

2. 4Buyers bargaining power: Medium Customers have a range of cars and brands to chose from depending on their choice of – design, cost to run, quality, technology, price etc. 2. 2. 5Suppliers buying power: Medium Many of the suppliers in the fragmented automotive industry rely on one or two companies to purchase the majority of their products (Investopedia- the Industry Handbook: Automotives).Therefore, “if an automaker decided to switch suppliers, it could be devastating to the previous supplier’s business.

As a result, suppliers are extremely susceptible to the demands and requirements of the automobile manufacturer and hold very little power” (Investopedia- the Industry Handbook: Automotives). However, Honda’s relationship with their suppliers is unique in that they invest their own capital, or place a Honda employee inside the organisation as a means of reducing risk for its smaller partners (De Wit, Meyer 2010).Honda builds a close relationship with its component suppliers- purchasing materials on their behalf for efficiency in cost, and intervening directly in internal activities when it becomes necessary (De Wit, Meyer 2010). 3. 3 Trends and Opportunities and in the marketplace 3.

4. 1 Governments’ push for safer, cleaner transportation Penalties and incentives will influence customer’s decision to own a vehicle and how it will be used. Penalties may include congestion and road user charging, and rebates as incentives (Ernst ;amp; Young – Mega trends in the light vehicle industry). . 4.

2 Collaboration among industry stakeholders Original equipment manufacturers (OEMs) and Tier 1 suppliers will likely work together to draft standards for emerging technologies, such as common protocols for in-vehicle connectivity and a common battery charging infrastructure for electric cars (Ernst ;amp; Young – Mega trends in the light vehicle industry). 3. 4. 3 New risks arise from globalisation of the industry OEMs are being challenged to devise radical operational strategies to tackle the new risks emerging from globalisation. From emand-supply misalignment and volatile raw material prices, to changing regulatory policies and shortage of qualified workers in developed markets, the automotive industry’s globalisation efforts are facing a reality check today (Ernst ;amp; Young – Mega trends in the light vehicle industry).

3. 4. 4 Recession and OEMs press Tier 2 and 3 suppliers toward new strategies Tightening of belts at the OEMs and Tier 1 suppliers exposed the vulnerability of Tier 2 and 3 suppliers, in particular their relatively weak financial health and the absence of product, market and customer diversity.However, rather than simply try to cope with increasing demands to do more with less, Tier 2 and 3 suppliers will need to become increasingly strategic. The winners are likely to jettison non-core businesses for greater profitability and diversify their risks by creating relationships with a range of OEMs, and developing products that can serve customers, even outside the automotive ecosystem (Ernst ;amp; Young – Mega trends in the light vehicle industry). 3.

4 Critical Success Factors 3. 5. Innovation In order to compete efficiently with other leading manufacturers, Honda needs to continuously invest in R;amp;D and innovative technologies to come up with high quality, environment friendly and innovative vehicles. 3. 5. 6 Brand Equity Honda needs to maintain its strong brand equity globally.

Honda’s brand is valued at U. S $17. 3 billion which positions Honda as the 21st most valuable brand in the world and the 4th most valuable automotive brand. 3. 5.

7 Operational EfficiencyExtensive focus on operational efficiency and bottom line results, so that Honda can compete with other efficient manufacturers and offer high quality vehicles at lower costs. 3. 5. 8 Emerging Markets and Product Segments The ability to identify and penetrate market opportunities in new emerging markets such as India and China as well as emerging product segments such as hybrid and electric vehicles to maintain a consistent growth level in this competitive world. 3. 5.

9 Manufacturing and Design EfficiencyNew designs must be brought to market to stay in line with modern and fresh appearance and manufacturing processes must be efficient to ensure demand is met. 3. 0 Honda Motors 4. 5 Porters Generic Model Due to the dichotomies that Honda continue to demonstrate it is difficult to define their strategy on one point of the Poster’s Generic Model. Honda has excelled at positioning themselves in the market as differentiating with technological innovative engines and products (De Wit, Meyer 2010).

Honda is also positioned in the market to a broad audience as a low cost manufacture- satisfying customers with originality, innovation and efficiency at a good price (De Wit, Meyer 2010). Differentiation Differentiation Lower Cost Lower Cost Honda Honda Cost Leadership| Differentiation | Cost Focus| Differentiation Focus| Broad Target Narrow Target 4. 6 Company Overview Honda employs in excess of 180,000 people across 17 countries (Honda Manufacturing) and operates 35 major manufacturing facilities globally (Wikinvest – Honda Motor Company). . 2. 1Honda’s Reconciling Dichotomies There are many dichotomies of the Eastern world and the Western world when it comes to business methods and strategies.

Honda is quite a unique organisation in that over time, they have successfully managed to establish business methods and strategies that position them firmly between the two, creating a typical ‘best of both worlds’ situation. Dichotomy 1 – Organisational Strategy and Structures:Vertical (Typically Western)| Honda| Horizontal (Typically Japanese)| Strict hierarchy and vertical reporting systems| Round table meetings between executives and front-line supervisors, who cut across layers of vertical hierarchy | Relaxed hierarchy and face-to-face communications| Individuals awarded for achievements| ‘Quality circle competition’ awarding individual achievements albeit working in small groups | Teams awarded for achievements| Centralised decision making| Collective decision making with strong individual input| Decentralised decision making| Table 2. 0Organisational Strategy and StructuresDichotomy 2 – Product Design: Typically Western| Honda| Typically Japanese| Completely new designs are being released every 8 to 10 years| Models are neither complete changes nor mere facelifts. Instead, every 4 years, when a Honda model is ‘officially’ replaced, the components the driver can see or otherwise notice, are replaced (bumpers lights, interior etc. ) and also ever 4 years with a 2 year lag, vital unseen components are changed (e. g.

engine size, gearbox, braking system etc. )Described as a ‘rolling’ or an ‘iterative’ model change program. | Regular changes to existing models (e. g. cosmetic (bumpers lights, interior etc. or unseen (engine size, gearbox, braking system etc.

))| Table 3. 0Product Design Dichotomy 3 – Production, Organisation and Logistics: Typically Western| Honda| Typically Japanese| Large-lot Mass production| ‘Small batch’ production * Based around key number ‘60′ and it’s factors (10, 15, 12, 10, 6, 5, 4, 3, 2, 1) * Produced in variations of lot sizes, colour, optional extras etc. | Small-lot production| Just-in-case| Able to release vehicles as the demand arises without requirement of large storage facilities and complex logistic systems | Just-in-time| Push system| Combination push-pull system| Pull system|Table 4. 0Production, Organisation and Logistics Dichotomy 4 – Component Sourcing: Typically Western| Honda| Typically Japanese| Vertical integration and market relationships (a number of suppliers for various components – zero or minimal exclusivity or loyalty)| ‘Supplier Family’ * Handful of component suppliers * Honda engineers may regularly visit or even be temporarily stationed in their factories to ensure quality and timelines are met| Supplier Association (forum for suppliers to meet and solve common problems – exclusive supply of components)| Table 5. Component Sourcing “Honda’s strategic thinking rejects the typical Western idea that failure to select clearly one or the other pole leads to indecision” – (De Wit, Meyer 2010- pg 663) “In Japan, Honda is commonly viewed as a peculiarly ‘un-Japanese’ firm” – (De Wit, Meyer 2010- pg 665) “Rather than pursuing a ‘Japanese model’ distinct from a ‘Western model’, the big picture reveals Honda’s innovation to be its simultaneous incorporation of both models so as to work consciously and deliberately with elements of each” – (De Wit, Meyer 2010- pg 665) .

7 SWOT Analysis Strengths * Quality and customer satisfaction * High R;amp;D like Hybrid/ Electric Technology * Product diversification – automotive, motor cycles, power products and financial services * Innovation * High Market share * Strong brand equity * Unique product offering * Manufacturing processes * Strategy planning| Weaknesses * Reputation for being underpowered * Quality issues * American dependency for sales| Opportunities * Progressing low emission vehicles and alternative power sources. Mid segment economical small Cars * Expand business into BRICS | Threats * Highly competitive industry * Lower cost competitors * Economic slowdown * Regaining the lead of low emissions is a risky proposition as other companies are coming out with new and cost effective ideas of producing low emission vehicles * External changes (government, politics, taxes, Steel Prices etc)| Table 6. 0SWOT Analysis 4. 0 Recommendations and Conclusion The following recommendations are classified by business divisions and time. Manufacturing | Research and Development | Corporate | Short Term0-4 years| Invest in electronic car component suppliers| Expand the electronic car range offering| Continue to existing corporate culture, and strategy development | Long Term5-10 years| | Continued investment in R;amp;D in new technologies | Continue to existing corporate culture, and strategy developmentExpand into new markets- BRICS| Table 7.

0Recommendations overview 4. 1Ongoing Strategies- Culture and Planning For decades Honda has successfully implemented “reconciling dichotomies” as part of their innovative strategic management process.From buyer-supplier relationships, to business strategy, product development and organisational structure Honda has found a way to implement dichotomies (to traditional views) and achieve success in the market- including competitive advantage. Reviewing the situational analysis these “reconciling dichotomies” are working to Honda’s advantage and should continue to be implemented into future strategies. Honda has historically presented a clear 10 years strategic plan and vision for the company– but is prepared to make necessary changes and adapt to the current situations.Surprisingly the “reconciling dichotomies” are a cultural mindset within the organisation and are not changed with a new business leader (Honda has had at least 7 in the past 65 years).

It is important this culture is supported throughout the organisation. 4. 2Short Term Strategies 4. 2. 1Invest in electric car component suppliers Honda’s supplier relationships are unique in that they invest financially, and also play a significant role in their internal activities.As technology evolves to hybrid and electric components we recommend Honda continue this relationship in supply chain management with future suppliers.

It offers less risk to Honda and provides them with a competitive advantage in a fragmented industry. 4. 2. 2Expand the electric car range offering As Honda has demonstrated previously with the Civic model, they need to continue to expand the electric and hybrid models using the dichotomies of “complete model changes” and “facelift”. Using moderate component changes and upgrades for different markets the range will evolve overtime with cost efficiencies.Honda should expect their competitors to also continue to upgrade their range, and launch new models- consistent with recent decades.

4. 3Long Term Strategies 4. 3. 1Continued investment in R;amp;D in new technologies Honda follows a “corporate policy that stresses originality, innovation and efficiency in every facet of its operations” (De Wit, Meyer 2010). To ensure this culture internally, and the perception to the customer continues it is critical that Honda invest in research and development to remain ahead of the competition in technological advances. 4.

3. 2Expand into new marketsExpanding into the BRICS provides Honda the opportunity to expand its global footprint and brand equity, as well as gain higher sales and profits to re-invest into R;amp;D and innovation. It will increase volume efficiencies in manufacturing. Honda should expect their competitors will also expand into these markets and will therefore need to continue to differentiate their offering.References Bloomberg News (March 9th 2013) – China may increase subsidies for Hybrid Vehicles, Minster Says.

http://www. bloomberg.

com/news/2013-03-08/china-may-increase-subsidies-for-hybrid-vehicles-minister-says. tml– Viewed 19th March CIA FactBook- America- Viewed 19th March 2013 https://www. cia.

gov/library/publications/the-world-factbook/geos/us. html CIA FactBook – Japan – Viewed 19th March 2013 https://www.

cia. gov/library/publications/the-world-factbook/geos/ja. html Clean Technica (2012)- Electric Car ;amp; Hybrid Car Sales up 164% in June. Viewed 19th March http://cleantechnica. com/2012/07/23/electric-car-hybrid-car-sales-up-june-2012/ De Wit, B.

And Meyer, R. (2010) Strategy process, content, context. Cengage Learning, Andover, UK. DieselNet – Emissions Standards for USA, Cars and Light Duty Trucks. Viewed 19th March”>http://www. investopedia. com/features/industryhandbook/automobile. asp#axzz2NZqiLWfz


D. Power & Associates, 2010 – viewed March 16th 2013 http://businesscenter.

jdpower. com/news/pressrelease. aspx? ID=2010238 The Star Online (Tuesday 8th January, 2013). Japanese car sales slump in China on territorial row http://biz. thestar.

com. my/news/story. asp? file=/2013/1/8/business/12545841#13636593850641761&if_height=10 – Viewed March 19th 2013 Vault – Honda