Analysis of Honda's Business Strategy

Introduction

Honda Motor Company, Ltd. is a Japanese multinational corporation primarily known as a manufacturer of motorcycles and automobiles.

Honda is the world’s biggest and leading manufacturer of motorcycles as well as the world’s largest manufacturer of internal combustion engines measured by volume, producing more than 14 million internal combustion engines per year. Honda surpassed Nissan in 2001 to become the second-largest Japanese automobile manufacturer. As of August 2008, Honda surpassed Chrysler as the fourth biggest automobile manufacturer in the United States of America. Honda is the sixth largest automobile manufacturer in the world.

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Honda was the first Japanese automobile manufacturer to release a dedicated comfort brand, Acura in 1986. Aside from their core automobile and motorcycle businesses, Honda also produces garden equipment, marine engines, personal watercraft and power generators, amongst others. Since 1986, Honda has been involved with artificial intelligence/robotics research and released their ASIMO robot in 2000. They have also ventured into aerospace with the establishment of GE Honda Aero Engines in 2004 and the Honda HA-420 Honda Jet, scheduled to be released in 2011. Honda spends about 5% of its revenues into R&D. Its head quarters are in Tokyo the capital city of Japan and thus it spreaded almost all over the world. The Honda company not only manufactures the cars but also they produces various bikes and scooters.

History of the company

From a young age, Honda’s founder, Soichiro Honda had a great interest in automobiles. He worked as a mechanic at a Japanese tuning shop, Art Shokai, where he tuned cars and entered them in races. A self-taught engineer, he later worked on a piston design which he hoped to sell to Toyota. The first drafts of his design were rejected, and Soichiro worked painstakingly to perfect the design, even going back to school and pawning his wife’s jewelry for collateral. Eventually, he won a contract with Toyota and built a plant to construct pistons for them, which was damaged in an earthquake. Due to a gas shortage during World War II, Honda was unable to use his car, and his novel idea of attaching a small engine to his bicycle attracted much curiosity. He then established the Honda Technical Research Institute in Hamamatsu, Japan, to develop and produce small 2-cycle motorbike engines. Calling upon 18,000 bicycle shop owners across Japan to take part in revitalizing a nation torn apart by war, Soichiro received enough capital to engineer his first motorcycle, the Honda Cub. This marked the beginning of Honda Motor Company, which would grow a short time later to be the world’s largest manufacturer of motorcycles by 1964.

The first production automobile from Honda was the T360 mini pick-up truck. Powered by a small 356 cc straight-4 gasoline engine, it was classified under the cheaper Kei car tax bracket. The first production car from Honda was the S500 sports car. Its chain driven rear wheels point to Honda’s motorcycle origins.

In the 1950s, Honda first exported its motorcycles to Europe. In 1961, Honda became the first Japanese motorcycle manufacturer in Europe to establish a local subsidiary, and in the same year, Honda won victories in the Isle of Man Tourist Trophy races, sweeping 1st through 5th places in the 125cc and 250cc classes. In 1963, Honda opened a motorcycle manufacturing plant in Belgium, the first such facility outside of Japan for the company, followed in 1976 by a motorcycle plant in Italy. Now, Honda motorcycles are popular for their dynamic performance, ease of riding, and environmental performance, earning the top market share in many European countries. In fact, Honda earned top sales in eight of ten Western European countries in 2008. Honda continues to expand its product lineup in its determination to increase customer satisfaction in Europe.

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 our best in every situation. Based on this, “The Three Joys” expresses our belief and desire that each person working in, or coming into contact with our company, directly or through or products, should share a sense of joy through that experience.

In line with these basic principles, since its establishment in 1948, Honda has remained on the leading edge by creating new value and providing products of the highest quality at a reasonable price, for worldwide customer satisfaction. In addition, the Company has conducted its activities with a commitment to protecting the environment and enhancing safety in a mobile society

Basic Principles

Respect for the individual. The Three Joys (buying, selling and creating.

Company Principle

(Mission Statement)

Maintaining a global viewpoint, we are dedicated to supplying products of the highest quality, yet at a reasonable price for worldwide customer satisfaction.

Management Policies

Proceed always with ambition and youthfulness.
Respect sound theory, develop fresh ideas, and make the most effective use of time.
Enjoy work and encourage open communication.
Strive constantly for a harmonious flow of work.
Be ever mindful of the value of research and endeavor.

Dreams inspire us to create innovative products that enhance mobility and benefit society. To meet the particular needs of customers in different regions around the world, we base our sales networks, research and development centers and manufacturing facilities in each region. Furthermore, as a socially responsible corporate citizen, we strive to address important environmental and safety issues. And by the year 2008 honda company is the 6th largest company of automobile industries and highly recommended industry.

PRESENT SITUATION

APPLY 5 LEVELS OF STRATEGY TO YOUR COMPANY

Enterprise Strategy

The Mission Statement of Honda is try to maintain a global point of view, with the dedication to supply the highest quality products at a reasonable price for worldwide customer satisfaction.

Moreover, taking new challenges with the pursuit of Initiative, Technology and Quality, Honda is pursuing their 2010 Vision: Striving to be a company society wants to exist through creating new value, globalization, and commitment for the future.

Corporate Strategy

Honda’s portfolio includes three businesses: Automobiles business, Motorcycles business, Power business. Even though stepping into Automobile industry rather late at 1963, Honda quickly leads the industry with characteristics like superior fuel economy, optimum safety, and driving pleasure. Honda’s sales and production in this industry prove successful steadily not just in U.S. but also in many regions worldwide.

Meanwhile, motorcycle business is the first business of Honda, from 1963 with the event of the first oversea plant in Belgium, Honda has devoted in one basic rule: build products close to the customer. Honda has operated successfully in 28 motorcycle plant in 21 countries, as well as Honda R&D operations in the U.S., Italy, China, Germany, Thailand, and India. In 2005, the 150-millionth Honda motorcycle created, its business goal is to make Honda cycles more popular than ever.

The first Power Product engine started in 1953, and now has expanded – includes tillers, portable generators, outboard engines, lawn mowers, power carrier. Cumulative production of power products has exceeded 70 million units (May, 2006). Power Products are produced at 11 plants in 9 countries worldwide, sold in 156 countries, and used by around 5.5 million people annually. Honda is now expanding into robot industry with ASIMO, reaching the sky through Hondajet, providing financial services worldwide to enhance sales increasing. They all create a very promising and potential Honda in the future.

Business Strategy

R&D is sharpening the business advantage of Honda, together with the fierce competition between Honda and competitors, and they all define the Business Strategy of Honda. One of the proudest things about Honda is its R&D system. With the systematic way of resembling, focus on durability, reliability and basic performance to establish a creative and innovative technical foundation.

With the wisely approach to the future, the Honda products do care about the economical, environmental, and social issues – This leads to a increase steady in American and Europe recently meanwhile the whole industry is going down by some external factors such as U.S.D. depreciation, Oil price raising, political recession. Honda is keeping involving in the research and development that benefit people in the future through leading-edge technology and commitment to innovation that opens up new possibilities in mobility.

With “The Joy of Selling” The dealership of Honda is also one of its strengths. Through creating products and services that provide the core values that make Honda unique, the Honda’s associates around the world keep creating such inspiring experience for its customer. Honda put heartfelt endeavors into services, responding to changing values and increasingly complicated needs of customer worldwide. Its services focus on improving customer relations, with friendly and attentive sales, responsive service support, thorough maintenance and repairs. “Life with a Honda” Honda began unifying its multiple dealership channels into a single Honda sales channel, seeking to strengthen the Honda brand, enhance customer satisfaction, and help ensure lifetime customer loyalty.

The manufacturing and distributing system of Honda are also sources for the succession of Honda. With the global network, Honda’s global strategies somehow include the globalization characteristic. Honda has established independent local operation around the world and pushed local autonomy and proactive efforts to localize the needs regional with mutual understanding. The competition between Honda and others speed up year by year. This is somehow carry the win/lose characteristic.

The world Automobile market is being taken by Asian Brands. In the U.S. market, the foremost threat to U.S. car makers is the emergence of Toyota, Honda, and Nissan that are threatening directly to the wealth being of these Big Boys here, General Motors – the world’s current largest car manufacturer, Ford – the pioneer of automobile industry, and some others big boys of Detroit. The raise of Honda and Toyota hit General Motor the most because they came so strong many years ago.

Honda’s greatest competitor of all time worldwide is Toyota Motor, but the competition around the world involve Hyundai, Volkswagen, Nissan, General Motor, Ford, Kia, Mazda. The rivalry against these top car manufacturers in the world has created a work ethic that is unmatched in the American auto scene. With their constant improvement on their cars, the healthy competition – that mostly in Japan – leads the way for the production of vehicles that gets more and more miles per gallon.

Operational Strategy

Honda operates in the worldwide market – with 134 production facilities in 28 countries and at 31 R&D facilities in 15 countries, about 167000 Honda employees and associates serve 23 million customers worldwide annually. Honda’s global operations are divided into 6 administrative regions responsible for operating. Hiring and engaging the people and philanthropic initiatives locally in the communities that Honda operates. Honda is pushing the independence of their local management and sales operations, at the same time with integrating and forward-looking plan for each region. They operate under the conduct guidelines that help member companies and associates in evaluating and managing risks, complying with laws and regulations, keeping a high level of transparency in operational level, that’s all to maximize the worldwide customer satisfaction.

The Individual Strategy

The individual strategy of Honda is reflected through the Honda’s philosophy – The Three Joy

The Joy of buying:- the Honda’s associates must try their best to exceed the customers’ expectation.
The joy of selling:- which concern not only about the relationship between the dealers and their customers, but they also feel the pride of having a positive relationship with their customers.
The joy of producing:- comes from manufacturing, research and development. by producing quality products that satisfy customers worldwide, the Honda’s employees can experience pride in exceeding the expectation of their customers.

That all bring the strategies of Honda from their enterprise level, through corporation, business, operational level, to individual strategy level, that spread the Honda’s strategic spirit throughout the company.

FUTURE

The future of a company or the strategies to be made to keep an company alive in future can be framed by keeping in mind the environment and the challenges that are expected to arise in near future. So we will analysis the future policies of the company by taking Potter’s 5 force model for environment and challenges that may arise in future

ENVIRONMENT:- Potter`s 5 force model

The threat of substitute products:

That is defined as the existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases (source from Wikipedia.org). This does mean that when a Honda’s competitor can produce with high performance and economical price rather than Honda’s. This product will replace Honda’s product in the market. Hence, simultaneous reducing market share and profit of Honda are the results. For example, for the product line of sport motorbike, R6 of Yamaha is the close substitutes of Honda’s F4. If Yamaha can achieve an innovation to produce R6 with the lower price against F4, It can actually replace Honda’s F4 on the market because customers have the same expectation on both two products.

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The threat of the entry of new competitors.

The theoretical meaning is that in marketing with many competitors existing, the profit of each company will be lower than the maximum level. American Market as an example, Ford and Honda aggressively compete together in this market. Honda cannot get the maximum profit in this market because of the policies from American Government protecting domestically Company. Additionally, Honda has to spend money on accessing to distribution in American market. Moreover, it also finds difficulties in adopting the culture differences, etc. those reasons will reduce the Honda’s profit level.

Rivalry among existing competitors:

Among five characteristics important to the automobiles industry analysis is the competitive rivalry. Three main rivals that Honda has to compete fiercely are Toyota Motor Corp. (TM), Ford Motor Co. (FM), and General Motor (GM). Whatever change in strategy of one of these competitors can have influences on performance of Honda. At the end of fiscal year 2007, FM reported 172,455 million dollars of sales and 16,418.5 million dollars of market capability, while GM experienced 181,122 million dollars of sales and 11,853.3 million dollars of market capability. Toyota with 299,394 employees generated 202,864 million dollars of sales in the fiscal year 2007. Honda as well as its three rivals always keeps on innovating, improving, researching and developing to compete effectively in this auto industry. For example, whenever one of these four company releases a new model, the others will catch up and have similar products to compete. Like when Honda has just released its FCX Clarity, the next generation of its fuel cell vehicles, GM put their fuel cell platform into the body of a Chevy Equinox SUV.

A famous model of Honda, Accord, has been competing with its chief rival, Toyota Camry since its first appearance. Accord was released into market in 1976, and until 1983, Toyota introduced itsCamry. Since then, these two models have kept on competing with each other. GM Malibu and Ford Fusion are also two models that GM and Ford use to compete with Accord and Camry. For, Toyota, and GM all can replace Honda in this auto industry. So, what Honda has to do is trying to improve its technology, research and development to create a competitive advantage, maybe as a Greenest automaker.

The bargaining power of customers:-

In business, if a company wants to exist it must create a good relationship with customers. Honda is a global company, it means Honda have a lot of competitors. So customers will confuse when they make decision for what Brand will be the best choice. It depends not only the famous company but also the price and quality. For example, In Vietnam on April 2007, Honda introduced Air Blade Scooter with functions like sport and fashion model, more fuel-efficient engine technology. It rapidly attracted the youth , the supply was not enough for demand. Then it made the shortage of Air Blade in the market and pushed price higher. Customer want to buy it must order and wait around one to two months. No longer after, Suzuki has utilized maximize the advantage of its competitors to its product. On July 2007, Suzuki introduced new model – Hayate Scooter – that have the same functions of Air Blade but set the amazing price (lower than 23%) and customer can take their product immediately. As a result, many customers change of their mind, therefore the market share of Honda to shrink.

The bargaining power of suppliers:-

One of the factor helps the company competes against with other companies is the ability to reduce the cost. Therefore, suppliers plays an important role to make the company’s success. Suppliers may refuse to work with the firm or increasing prices for unique resources. Realizing the serious element, Honda purchases raw materials and certain components and parts, from numerous external suppliers. Moreover, Honda relies on some main suppliers for the items and raw material that use in the manufacture of it products. Honda has ability to obtain these supplies in an efficient and cost-effective manner is subject to a number of factor. Some of which are not within Honda’s control, these factors include the ability to provide a continued source of supply and ability to compete with other company in obtaining the supplies. If Honda loss a key supplier, it may affect the capacity and increase the cost.There are some key suppliers of Honda in term of Metal Stamping Part : Takao Kinzoku Kogyo Co.,Ltd; Hirata Technical Co.,Ltd; Hongo Co.,Ltd; Kikuchi Co.,Ltd; Marujun Co.,Ltd, ect,â€¦Among these companies, Kikuchi Co.,Ltd deal with not only the supplier of Honda but also Nissan’s supplier. If Nissan was willing to purchase with higher price or had some benefit promotion than Honda, Honda might be affected on the capacity and increase the cost.

GLOBAL CHALLENGES

In this globally competitive business world, every firm has to face many challenges, and Honda

does, too. There are four common challenges that Honda has to face: problems that cannot be solved, managing intangibles, managing diversity, and addressing new issues for which managers and organization are ill-prepared. In this part, we will discuss more about these challenges of Honda.

Challenge 1: Problems that cannot be solved but must be managed.

Honda has to face some challenges that cannot be solved completely; they just can be managed, like these two examples below.

In Europe, several factors negatively impacted automobile operations of Honda during fiscal 2001, including the appreciation of the yen, the weakness of the euro against the sterling pound and pricing pressure in the United Kingdom. Due to this business environment, Honda’s automobile unit sales in Europe declined 23.3%, to 191,000 units, and net sales declined 30.8%, to Â¥311.2 billion ($2,512 million).

Because of the Asian currency crisis in 1997, Honda had to streamline local operations to ensure profitability within a small-scale production volume. These efforts include cost reductions, technology transfers, human resource development and exports to other regions. These efforts have allowed Honda to enhance its profitability and presence in this region.

Challenge 2: Managing intangibles. Building relationships

Most of firms that want to become industry leadership or be competitive globally must have strategic partners, and Honda is not an exception. Building relationship (with business partners and governmental agencies) is a challenge that Honda has to face to successfully compete globally.

Business Transactions: To maintain a fair and sound relationship with business partners, Honda conducts fair and sound transactions. Honda starts with the selection of business partners. When they need to purchase products or services, they will select a business partner by comparing and evaluating in an impartial manner the terms and conditions offered by various business partners. After selecting, in their dealings with business partners, they will neither offer nor accept gifts or benefits beyond that normally considered appropriate. In addition, they also prohibit on improper exercise of positions and authorities. They will not exercise positions or authorities inappropriately to exact improper benefits from business partners; nor will they give business partners improper benefits.

Relationships with Governmental Agencies: To build strategic relationships with governmental agencies, Honda abides laws and regulations for ethics. They act in a manner that recognizes government officials’ ethics and what are considered conflicts of interest under the relevant laws and regulations. Furthermore, prohibition on excessive gifts and benefits is also conducted. They do not offer government officials any gift or benefit exceeding the social custom or socially accepted limits.

Honda is reliant on the protection and preservation of its intellectual property: Honda owns rights in a number of patents and trademarks relating to the products it manufactures, which have been obtained over a period of years. These patents and trademarks have been of value in the growth of Honda’s business and may continue to be of value in the future. Honda does not regard any of its businesses as being dependent on any single patent or related group of patents. However, an inability to protect this intellectual property generally, or the illegal breach of some or a large group of Honda’s intellectual property rights, would have an adverse effect on Honda’s operations. So, managing these intellectual properties is also a challenge for Honda.

Challenge 3: Managing diversity

Honda is a global organization. Its associates come from many places all over the world, so diversity certainly occurs and needs a lot of attention. How to deal with diversity is really a difficult challenge for Honda.

Respecting diversity- an open-door employment policy, is the policy that Honda choose to manage its diversity. Even since the days when Japanese corporations tended to favor employing only graduates of a few elite educational institutions, Honda has had an open – door employment policy, hiring the most capable and motivated individuals available. In addition to hiring new graduates, they also welcome talented individuals in mid-career, enriching the company with a diverse mix of personalities and experience.

Challenge 4: Addressing new issues for which managers and organizations are ill-prepared. Some problems have just occurred recently, but did not in the past, give Honda’s managers considerable difficulties, because they are not well-prepared for them. Climate change is a good example for this situation.

Climate change and the increasing demand for mobility

The problem of climate change is of global scope it cannot be solved through isolated regional measures alone. The entire world must work together to face this problem. However, there is still a significant gap between developed and developing countries in terms of access to convenient transportation. Improvement in the quality of mobility is indispensable to the betterment of people’s lives. Consequently, the demand for automobiles and other means of transportation will likely continue to increase. Honda is working to apply advanced technologies to help resolve the conflicting issues of climate change and the growing demand for mobility.

Products: improving global average fuel economy

Since the internal combustion engine seems likely to remain the primary source of power for human mobility until at least 2020, improving its fuel economy and overall efficiency is an issue of vital importance. In the US, Europe and other regions, automakers are being required to improve the average fuel economy of their products through compliance with tough standards like the US Corporate Average Fuel Economy (CAFE) regulations. However, climate change is a global issue and needs to be addressed on a global level. Honda is shifting from a regional strategy to one based on a global perspective; and from fuel economy targets for product by weight or model to worldwide targets for all product categories.

Swot analysis of Honda company

Strengths:

Its strength is high innovation
Its strength is manufacturing different products
Strong brand equity
Market share leadership

Weakness

It has high cost structure
It has high deposit structure where It differs from Toyota and Nissan.
Some cars are very high in cost so that only some people can buy.

Opportunity:

Due to high interest from customers into more fuel efficient and lower pollution cars, honda can use it’s strength in high R&D to develop these kind of cars to suit customers needs.