group2 honda motor corp assign

Honda Motor Corporation 2014

1 Honda Evolution

Honda Company Ltd. Founded by Soichiro Honda (17 November 1906 – 5 august 1991).In 1937, Honda founded Tōkai Seiki (Eastern Sea Precision Machine Company) to make piston rings in the Art Shokai garage.

In 1941 Honda started making mass production of piston rings for Toyota. During world War 2, after the destruction of Yamashita plant and the ltawa plant Soichiro Honda sold all the salvage of the company to Toyota.

In October 1946 Soichiro Honda founded the Honda Technical Research Institute with staff of 12 men. Company first built and sold motorized bicycles. Honda made 500 two-stroke 50 cc Tohatsu war surplus radio generator engines. After some time when the engine ran out Honda make own copy of the Tohatsu engine and supplying these to customer to attach their bicycles. This was the Honda Model A.

In 1949 Honda started producing complete motorcycle with both the frame and engine its name was Dream and Model was D. Till 1964 Honda become the world’s largest manufacturer of motorcycles.

Honda makes first automobiles production which was the T360 mini pick-up truck. This was ready to sale in August 1963.Pick-up truck contain a small 356-cc straight -4 gasoline engine. Honda first production car was the S500 sports car in October 1963.

Honda expands its product line and expanded operations and exports to numerous countries around the world. Honda introduced in 1986 Acura brand in American market.

In 1991 Honda introduced the Honda NSX supercar.

Honda’s Sites for production:-

Country No. of factories LocationJapan 2 Saitama, SuzukaUS 3 Ohio, Alabama, IndianaCanada 1 OntarioUK 1 SwindonThailand 1 AyutthayaIndia 2 Greater Noida, BhiwadiBrazil 1 Sao Paulo

Honda’s cater the in automobile, motorcycles, power equipment, engines, robots, aircrafts, solar cells, mountain bikes, motor sports and electric & alternative fuel vehicles. Below figure show the presence in different segments

1 | P a g e


Honda Motor Co. is world’s biggest motorcycle producer and a lead supplier of automobiles. But it has never defined itself either as a motorcycle company or a motor vehicle company Since its founding in 1948, its strategy has been built around its strategy has been built around its expertise in the development and manufacture of engines; this capability has successfully carried it from motorcycles to a wide range of gasoline-engine products

2 | P a g e


2 Financial Summary: Operating income amounted to 228.5 billion yen (2.24 billion USD) an increase of 73.2% mainly due to the positive impact of new model introductions in Japan, North America and Asia, as well as cost down effects and favourable currency effects

Below gives the revenues by business segments where Automobiles provides the biggest share for the revenue with 78% followed with motorcycle having 14 %.North America counts for the 47 % of the revenue by region and Japan and rest of Asia account of 21% and 20% respectively.

78%

14%

6%

3%

Reveues by business segment(% of total revenues)

automobilesMotorcycleFinancial servicePower products

19%

47%

19%

5%9%

Revenue by Geography(% of total revenue)

JapanNorth AmericaAsiaEuropeOthers

3 | P a g e


4 | P a g e


3 External Environment Analysis

We have studied the different aspects of external environment like political, economical, social, technological and legal. These factors affect the business but are out of its control, such as when a new political party takes office and changes regulations, in turn requiring the business to invest in new equipment or modify its products. An analysis of the external environment includes a list of factors in a business's external environment and their influence on the business. It further discusses opportunities the business can pursue and threats that could negatively impact it. This type of analysis concludes with a plan on how the business can take advantage of opportunities and either overcome or minimize its threats.

Changes in the external environment are caused by factors outside of a company's control. For instance, its customer base can change when faced with shifting demographics, trends and needs. Likewise, the competitive landscape can change because of the entrance, exit or development of new technologies. The economic and political environments also can affect it when there are changes in political parties, when new regulations are added or when economic instability occurs. Not all changes in a business's external environment are threats — a company that heavily invested in green technology, for instance, might find itself a leader in the industry because of the shift in consumer demand.

For the Honda’s external environment analysis we have divided the World into 7 Regions based

7 geographical and economic zones which are the following

5 | P a g e


3.1 Economic Analysis:

3.1.1 GDP (Annual Growth %):

North America, East Asia and Pacific and Europe has the highest consolidated GDP in the world in last four years with average of 16.9 Trillion USD, 16.8 Trillion USD and 21 Trillion USD respectively as indicated in the Exhibit 1a.

South Asia is growing at an average rate of 6.56 % in last four years with India growing at an Average rate of 7.52 %. North America and Europe are showing a negative growth. As show in the Exhibit 1b.Europe and North America is growing at the less pace compared with the other region of the world with Africa and Asia countries are outperforming the developed nations as indicated below table 1.

BRICS and Indonesia Emerging Nations:

China is showing consistence performance following with India even though in last year there is a dip is the GDP growth due the global economic situation and internal movement policy. With the new Indian government in place India with focus on the industry expansion is expected to grow at a faster pace as show in table 2.

3.1.2 GNI per capita, PPPAs show in the Exhibit 2, North America and Europe are leading with respect to GNI Per capita but South Asia is showing the highest growth in GNI per capita based on purchasing power parity growth when compared with Europe and North America. Middle East and North Africa showing a negative growth as show in table 3.

3.1.3 Inflation, consumer prices (Annual %)There is high Inflation in South Asia, Sub African Nations and Middle East nations which indicate a dynamic and promising market prospect. Europe and

6 | P a g e


North America is showing a flat inflation in last four years as shown the Exhibit 3.


India has an inflation of 10.91 % in 2012 and has the highest as compared with all other BRICS nation as indicated by table 4

3.1.4 Interest Rates (%)Interest Rates among the South Asia (12.56%), Sub Saharan Africa (18.82%) and Latin American (13.62%) are higher compared to the developed geography such as North America (3%) as indicated in the Exhibit 4.


China has lowest inflation rates among the all the emerging nation with 5.92% and Brazil is having as very rate of 441.29 % as show in the table 5.

3.1.5 Population (%)North America with 5% population is providing 47 % of the total revenue HONDA. Asia is having 55% of world population contributing 41% of the revenue (wherein Japan contributes 21% of Asia’s revenue).With 9% Latin America and 13 %Sub-Saharan Africa region has potential for Honda to penetrate as indicated in the Exhibit 5.

3.1.6 Population Aging The number of older persons is 841 million in 2013, which is four times higher than the 202 million that lived in 1950. The older population will almost triple by 2050, when it is expected to surpass the two billion mark.

The trend in the number of older persons in the world is dominated by the fast growth of theolder population in the less developed regions, where the size of the older population is 554million in 2013, which is five times greater than in 1950 (108 million). The number of olderpeople in these regions will further triple by 2050 to attain 1.6 billion.

The proportion of the population aged 60 years or over in the more developed regions was12 per cent in 1950, rose to 23 per cent in 2013 and is expected to reach 32 per cent in 2050. In the less developed regions, the proportion of older persons increased slowly between 1950 and 2013, from 6 per cent to 9 per cent; however, the increase in the proportion of older persons is expected to accelerate in the coming decades, reaching 19 per cent in 2050. In the least developed countries, the proportion of older persons has remained fairly stable

7 | P a g e


at about 5 per cent for many decades, but this proportion is expected to double by 2050.

3.1.7 Motor Vehicle per 1000

North America has the largest penetration of motor vehicle with 633 followed by Europe and Central Asia with 441 as shown in Exhibit 6a. Also North America lead in the passenger car segment with 401 cars per 1000 flowed closing with Europe with 383. In this scenario, preference shall be for an upgraded version i.e. new car should be better than previous one.Also Honda can penetrate more into the South Asia and Africa where the average of passenger cars are around 17-42 cars per 1000 people.Also Latin America (167 passenger cars per 1000)is an attractive market as shown in Exhibit 6b.

8 | P a g e


4 Industry Analysis: Porter’s Five Force Analysis

This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market. Porter’s five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organisation’s current competitive position, and the strength of a position that an organisation may look to move into.

4.1 The Threat of Substitutes: Moderate

The threat of substitutes to the automotive industry is Moderate. Various other forms of transportation are available, but none offers the utility and convenience of automobiles.

In the emerging markets like India where there exists an efficient public transportation system, people try to avoid usage of Cars for daily activities. But it’s limited to movement of individuals rather than movement in groups (i.e. with family or friends). This was also expected with the commencement of Delhi Metro project; however below study on Delhi traffic do not support this general understanding.

9 | P a g e

Threat of new entrants :Low> high investment> Brand equity > Sales and Service Network of existing brand>Brands name of players Bargaining Power of

Suppliers :Moderate>Fragmentized market> Many suppliers of same type> Innovative parts/ technology parts give bargaining powere> JIT technology increases reliance on one vendor

Bargaining Power of Buyer :High> Educated and learned buyers> Information about all features available for comparision> Many cars in particular segment to cater the customer requirements

Threat of Substitutes: Moderate> Major threat is public transport> Other major substitue two wheelers

Industry Rivalry : Intense

> Many competitors in market

> Easy to replicate the designs


Car

Two

Wh..

. Auto

Ri... Bus

Metro

Train

...

Bicycle

Cycle

Ri...

10.317.2

3.1

59.8

00.700000000

000001 5.3 3.613.9

21.5

3.6

41.5

4.10.700000000000001

6.8 7.9

Modal split % of Person Trips(excluding walk trips) in Delhi(Figures in Percent)

2000-01 2007-08

Source: Delhi Traffic & Forecast Study (2008) commissioned by DIMTS to RITES

The switching costs associated with using a different mode of transportation, such as train, may be high in terms of convenience, and utility (e.g., luggage capacity), but not necessarily monetarily (e.g., round trip train fare on Delhi Metro would most likely be less expensive than the cost of fuel consumed on a similar round trip, daily parking, car insurance, and maintenance). However with reference to above study, people have preferred convenience over cost.

However, in the developed countries such as Europe, North America, Japan, etc have very network of public transportation like metro, bus and local trains. With the congestion in the traffic and focus on the cleaner environment the use of cycle has increased.

The same report can be referred for understanding substitute effect on two wheelers. They are also not affected by the substitute effect of various other transportation options. Share of two wheelers ride have also increased in the total share. This indicates that effect of substitute product is Moderate on two wheeler industry.

4.2 Threats for new Entrants: Low to MediumIn the Four Wheeler and Two Wheeler industry, the threat of new entrants ranges from low to medium. There are several industry specific reasons why this holds true. It is difficult for any new automobile manufacturer to come into the industry and have success. One of the greatest barriers to entry in the automobile industry is the extremely huge amount of capital at is required to purchase physical manufacturing plants, raw materials, as well as to hire and train employees. It takes a great amount of capital and involvement, not only for the manufacturing process, but also to keep up with the latest innovations in order to compete with the industry leaders. Research and development is an integral part of automobile manufacturing. New technologies are constantly being discovered that improve the quality of automobiles on the market as well as reduce costs throughout the manufacturing process. Given the nature of the industry, manufacturers must be able to achieve economies of scale. Therefore, manufacturing companies must also have the ability to mass-produce so that they can make cars affordable to customers. This can be a significant barrier for a prospective new automobile manufacturer and is often a major deterrent. Another barrier to entry is the access of distribution. It can sometimes be difficult for a new company in the industry to find an adequate

10 | P a g e


means of distribution because space within a dealership lot is limited to provide sales/service/spares. It also requires huge capital investment by an individual or group to set up a new dealership with triple S facility at any given location with above average return on investment. However, It is important to note that, while the average individual does not have the means to come along and start an automobile manufacturing company but foreign competitors such as Toyota and Honda have been able to enter the US and various other markets to compete with such companies as Ford, General Motors, Chrysler. Many foreign companies are already well established in their own countries and have achieved a certain level of success and brand loyalty. Many foreign automakers have the capital, managerial skills, and required technologies that are necessary to be a strong competitor in the global market.

4.3 Bargaining power of suppliers: ModerateEnd customer for auto part manufacturer and OEM is same that is the customer purchasing the car.On reverse integration the price of the auto part depends on the price at which the end customer (car customer) is willing to pay. Subsequently the target pricing is set by OEM to procure parts.The suppliers can be categorized as raw material suppliers and auto component suppliers. Raw material like steel demand and supply is more like commodity. The prices are fixed on global level. Thus the bargaining power of suppliers for such raw material is negligible. However for special grades of steels, availability in emerging markets is low thus there is bargaining power in hands of supplier in such market.Auto components category can further be divided into sheet metal & plastic, engine & transmission parts and propriety parts. In auto parts category sheet metal/plastic/rubber parts suppliers are many in nos. For maximum parts the OEM decides the design, process, raw material source etc to reach their target pricing. Accordingly the prices are negotiated with suppliers. For tools the OEM have sometimes different set of tool makers and part suppliers. Thus the prices of this category cannot be hiked much by the part supplier. The process to be followed is also recommended by OEMs.

There is one other view point to it. With techniques like JIT(Just in Time) taking weight-age the OEM Tend to have limited suppliers which increase the bargaining power of suppliers.

Special technology is required in engine/transmissions and propriety items. The major cost proportion of a vehicle goes into it. Engine/transmission is developed in-house by Honda for both automobiles and 2 wheelers. It is also core competency of Honda.Propriety items forms maximum 10% of all parts. For that also suppliers can’t sell their parts if they are not cost effective.

The automobile OEMs can very easily switch the suppliers for both 4 wheelers any 2 wheelers. For every new product development new set of vendors are identified and bided which can be same as earlier supplier or new. This gives exposure to new potential and cost effective supplier.Companies also do have vendor development activities, by which they develop vendors’ capability they require thereby reducing the new supplier power to be rigid on cost.

In process of capability expansion, OEM also increases in-house development of most depended parts.

However for auxiliary parts and spare parts, brand name does matter where they can have pricing strategy however the cost of such parts is generally additional to customers. Thus this again reduces their bargaining power.

11 | P a g e


4.4 Bargaining Power of Buyers: MediumBargaining power of buyer is medium. With the present age of internet based information system, buyer is aware of all the relevant information related to automotive purchase i.e. technical and financial. Buyers have choice among most of the competitive brands. This takes their bargaining power upwards.

However there are some limitations to buyers. A buyer does not represent a very high percentage share in any automotive sales nor can he backward integrate to make automobiles. A buyer has to buy an automobile from one of the existing automotive manufacturer. This limitation of an individual buyer for not having a significant share in purchase and nil capacity of backward integration pulls down his bargaining power.

Combining both the effects, we can say that bargaining power of a automotive buyer is medium.

4.5 Intensity of Rivalry: HighIn most countries all car makers are engaged in rough competition. Tit-for-tat price slashes, ad campaigns, and product developments keep them on the edge of innovation and profitability. Margins are low and pressure between rivals is high.

All major car-producing nations experience this intense rivalry. It includes the US, Japan, Italy, France, the UK, Germany, China, India, and more.

2 Highly competitive industries generally earn low returns because the cost of competition is high. The auto industry is considered to be an oligopoly, (which helps to minimize the effects of price-based competition. The automakers understand that price-based competition does not necessarily lead to increases in the size of the marketplace; historically they have tried to avoid price-based competition, but more recently the competition has intensified – rebates, preferred financing and long-term warranties have helped to lure in customers, but they also put pressure on the profit margins for vehicle sales.3 The major competitors are so closely balanced that it increases the rivalry. In order to gain market share in the automobile must gain market share by taking it from their competitors. One of the other reasons there is such high rivalry is that there is a lack of differentiation opportunities. All the companies make cars, trucks or SUV's. The competitors are compared to one another constantly. The price, quality, durability, and many other aspects of different manufacturers are greatly taken into consideration when deciding what type of vehicle to purchase. When the different manufacturers advertise they even compare their products to their competitors. For example, the commercials will focus on areas where the company outperforms its competitors.

Source1. http://porters-5-forces.blogspot.in/2011/11/porters-5-forces-in-automobile-industry.html 2. http://giantkillers13.wordpress.com/2013/04/03/strategic-management-at-honda-2/ 3. http://www.academicmind.com/unpublishedpapers/business/management/2004-11-000aaa-automotive-

industry-analysis.html

12 | P a g e

http://www.academicmind.com/unpublishedpapers/business/management/2004-11-000aaa-automotive-industry-analysis.html

http://www.academicmind.com/unpublishedpapers/business/management/2004-11-000aaa-automotive-industry-analysis.html

http://giantkillers13.wordpress.com/2013/04/03/strategic-management-at-honda-2/

http://porters-5-forces.blogspot.in/2011/11/porters-5-forces-in-automobile-industry.html


5 Competitor Analysis

Through competitor’s analysis we have tried to analyze major competitor strengths and advantage of Honda over its competitors.

Description of the capabilities that the major in automobile industry possess:

5.1 Honda Diversified product portfolio. Honda automotive does not focus only on car manufacturer

instead it has a capability of making engine for any kind of machine, that’s why Honda has a presence in making of jets, yachts, cars, bikes, lawn movers, power generators and robotics.

Huge investments in R&D. Honda has invested around 5% of its revenue into R&D. It is trying to achieve a competitive edge over its competitors through this R&D investments that includes improved vehicle painting process and hybrid engines. In 2012 Honda owned around 42000 patents.

Strong brand image. Honda is the 21st most valuable brand in the world and it holds 4 th

position in automobile’s brands after Toyota, Mercedes-Benz and BMW.

5.2 Toyota Innovative culture. Toyota has a culture focused on constant innovation. It is one of the most

innovative auto companies. Toyota was the first one to introduce Kaizen (philosophy or practices that focus upon continuous improvement of processes in manufacturing, engineering, business management or any process).

Brand reputation valued at $30 billion. Toyota’s brand is the most valued automotive brand in the world. The business is known for its environmentally friendly, safe and durable cars with a wide presence in 170 countries around the Globe.

Industry leader in production and sales. Toyota pioneered the lean manufacturing and total quality management practices in manufacturing process. Quiet for a period it was the only practitioner of these processes and had the lowest costs of production worldwide. Although competitors were able to replicate the process, Toyota is still one of the most profitable auto manufacturers in the world.

Strong brand portfolio. Toyota has a wide range of models. Currently around 70 different models of cars are present in market with its flagship models Corolla and Prius. Toyota take care of almost every consumer group needs.

5.3 BMW Brand reputation. BMW is the third most valuable automotive industry brand in the world

valued at $29 billion.

Quality products. BMW is valued on its engineering capabilities, skilled workforce and quality products. This can be said on the basis of recalls, which is comparatively less to its competitors.

Highly skilled workforce. BMW employs the most skilled workforce to produce its vehicles.

13 | P a g e


Corporate Social Responsibility (CSR). BMW is strongly committed to the environment protection, employee and community well-being and sustainability programs. The company invests large sums in employee health management, programs promoting balanced work life, sustainability requirements for its suppliers and producing zero waste at its plants.

Strong brand presence in China. BMW has a strong presence in Chinese market, which is the largest automotive market in the world. In 2012, BMW sold 326,444 vehicles there.

5.4 General Motors: Global presence. GM has a very wide presence over globe with operations in 157 countries.

New vision and strategy. After 2008 bailout, GM has experienced major changes and reorganized the way it does business. It make changes in GM’s bureaucratic organizational culture and introduced new strategy and visions to the business.

Strong brand portfolio. GM is currently selling 18 automobile brands to grab maximum

market share possible. The most popular brands are Cadillac, Buick, GMC and Chevrolet that sell very well in USA and China.

Strong presence in China. China is the second largest market for GM in terms of vehicle

units sold. An early entrance into China and partnerships with local Buick brand may be the reasons why GM has a strong position in China’s automotive market.

Knowledge of home market. GM is the largest car manufacturer in US and currently holds more than 18% market share. This is mainly due to extensive knowledge of US market and its consumers.

5.5 Nissan Strong financial performance. Nissan’s revenue has been growing over the last few years

from 7,517,277 billion yens in 2010 to 9,409,026 billion yens in 2012 Strategic partnerships. Nissan has strategic partnerships with other companies. For example

with Renault and Daimler AG. It acquired some of the important technologies from these partnerships.

Innovative culture. The business invests 4.5% of its revenue to R&D. This strategy helped Nissan to develop currently the most popular electric vehicle (LEAF) and some important innovations in production process. Nissan’s R&D capabilities are one of the sources of its competitive advantage.

Growing brand reputation. Nissan’s brand was the fastest growing automotive brand in 2012, according to Interbrand. Its value rose by 30% to nearly $5 billion and became the 73rd most valuable brand in the world.

5.6 Volkswagen Group Global presence. Volkswagen is operating in 153 countries worldwide and was the third

biggest auto manufacturer in 2012

Strong brand portfolio. The business owns and sells 13 automotive brands: Bentley, Audi, Bugatti, Porsche, Lamborghini, SEAT, Volkswagen, Skoda, Scania, MAN and other commercial vehicles. Such wide range of models helps VWG satisfies nearly all consumer needs

14 | P a g e


Synergy. Volkswagen Group benefits from the synergy created between all 13 separate automotive brands. All 13 separate companies share a part of R&D and servicing costs, learns from each other best practices and shares distribution channels.

Strong presence in China. China is the biggest market for Volkswagen vehicles also, where the company captures nearly 20% of the market mainly with its Audi and Volkswagen brands.

Well performing brands. Without its namesake brand, the company owns a few other very successful brands, including Audi and Porsche. Audi is also the second biggest brand in the firm’s portfolio and is growing impressively.

5.7 Ford Strong position in US market. Ford is the second largest automaker in US, the second

largest vehicle market in the world.

ECOnetic initiative. Ford’s ECOnetic initiative is an effort to produce highly fuel-efficient engines by improving existing engines rather than new hybrid engines. The result of this initiative is the Ford Fiesta, currently the lowest emitting mass-produced car in Europe and Ford Focus ECOnetic that has better fuel consumption that Toyota Prius.

Sound financial performance. Ford was the only big US car business that didn’t need the government bailout and was the first to get investment status back.

‘One Ford’ approach. The carmaker no longer produces customized vehicles for different regions but focus on designing and engineering the car that fits different regional tastes and regulations.

Significant growth in China. Ford not being the largest player in China shows a growth in sales by 46% in 2012.

5.8 Hyundai Growing brand reputation. Hyundai’s brand is the second fastest growing brand in the

automotive sector. In 2012, Hyundai’s brand value grew by 24% to US$ 7.43 billion and became the 53rd most valuable brand in the world, according to Interbrand

Strong focus on R&D. Hyundai has established R&D centers in 6 different locations and has smaller R&D offices all around the world. Firm’s commitment to innovation yielded positive results for the company.

Growth in Europe. While the Europe’s car sales were falling in 2012, Hyundai was experiencing significant growth in the region. It grew its market share in Europe from 2.9% in 2011 to 3.5% in 2012

Successful marketing campaigns. Hyundai has launched many successful marketing campaigns through their CSR programs, sponsorship of many sport events and using celebrities to promote their products, which resulted in increased brand popularity.

Conclusions Diverse range of Products: (Moderate Advantage) Honda has a diversified product folio

but its competitors (VWG, Toyota and GM) also have the same competency. So little advantage in market over other than these.

15 | P a g e


R&D Investment (High Advantage): Honda has huge investments in R&D which has a clear advantage in terms of R&D. Even though it is getting a great competition from Hyundai and Ford.

Brand Value (High Advantage): Being at the 4th position in brand value, it has a clear advantage apart in market except Toyota, because Mercedes and BMW has niche market share.

Toyota

BMW

Mercedes

Honda

Ford

Nissan

Volkswagen

Audi

Chevrolet

Hyundai

0 5 10 15 20 25 30

29.6

25.73

21.54

14.9

11.81

11.1

8.4

7.06

4.92

4.26

Brand Value 2014 (US $ billion)

Brand Value (US $ billion)

Source: http://www.statista.com/statistics/267830/brand-values-of-the-top-10-most-valuable-car-brands/

6 Resources and Capabilities

6.1 ResourcesResource can be defined as tangible resources and intangible resources.

16 | P a g e

http://www.statista.com/statistics/267830/brand-values-of-the-top-10-most-valuable-car-brands/

The FirmGoals and ValuesResources and CapabilitiesStructure Systems

STRATEGYThe Industry EnvironmentCompetitorsCustomers Supplies

The Firm-Strategy Interface The Environment Strategy Interface


6.2 Capabilities

6.3 Core competence

Analyzing resources and capabilities: the interface between strategy and the firm

17 | P a g e


Largest range of engines currently being produced by Honda from single cylinder to 8 cylinder engine across various. Honda's first N series diesel engine, a four-cylinder common-rail diesel engine for medium-sized Honda vehicles. It features the ubiquitous Common-Rail Direct Injection configuration which Honda brands as their i-CTDi (Intelligent Common rail Turbocharged Direct injection). With the most notable feature is the aluminum block, which uses proprietary technology to the manufacturing process of the cylinder block, and provides both light weight and high rigidity. It adds another feather to Honda’s core competence of Building Engines.

7 SWOT Analysis:

After the external and internal environment analysis we have done the SWOT analysis which is Opportunities & Threats from external environment correlation with Strengths and weakness from internal environment. Based on the same different strategies (SO, ST, WO and WT) are being identified

Honda is one of the leading manufacturers of automobiles and motorcycles in the world. The company develop, manufactures and markets automobiles, motorcycles, and power products. Honda has abroad product portfolio, which reduces business risks and also provides a future growth platform for the company. However, the price volatility in any of Honda’s markets could adversely impact its results of operations.

Strengths: Major strengths are its diverse portfolio. The company offers a number of products, including automobiles, motorcycles, power products and others products. Honda's automobiles business offers passenger cars, light trucks and mini vehicles. Honda's automobiles use gasoline engines of three, four or six-cylinder, diesel engines and gasoline-electric hybrid systems. Honda also offers alternative fuel-powered vehicles such as natural gas, ethanol, and fuel cell vehicles.Robust production and sales network provides a wider reach. Strong focus on research and development allows differentiating its product offering. Furthermore, as of March 2013, the company owned more than 19,400 patents in Japan and more than 25,200 patents abroad. Honda also had applications pending for more than 10,800 patents in Japan and for more than 15,800 patents abroad.

Weakness: The Company’s plants are both inside and outside Japan and it manufactures products according to the strictest globally accepted quality control standards. However, the company has recalled some vehicles in the past year due to quality issues.Limited segments: The automobiles segmentation is for upper middle class. Many products are not available.

18 | P a g e


Opportunities: The market in Asia is increasing and the trends will continue the developed markets are saturating. The purchasing power of the developing countries is also increasing. With the increase in the strictness of the government regulations and environment awareness, demand of the fuel efficient car is increasing.With the government focus shifting on the greener and cleaner fuels, the demand of hybrid cars are expected to increase in future. At present the growth is not attractive as the infrastructure required for such vehicles is not readily available in developing and emerging markets.Easy availability of finance is also a good opportunity for automotive industries across the world this increase the purchasing power of customers.

Threats

Volatile raw material prices could adversely disturb the results of operations. The worldwide automotive market is highly competitive. Honda faces strong competition from automotive manufacturers in its various markets. The competition among various auto players is likely to intensify in light of continuing globalization and consolidation in the worldwide automotive industry. The factors impacting competition include product quality and features, the amount of time required for innovation and development, pricing, reliability, safety, fuel economy, customer service, and financing terms. At present there are many cars with similar designing. In addition to this there is one more threat that the government policies will make it difficult for automotive manufacturers to produce the cars in the similar fashion. These stringent regulations will increase the cost of manufacturing thus reducing the profit margins and making it difficult to offer prices similar to present scenario.

19 | P a g e


HONDA MOTORS SWOT ANALYSIS

Opportunity1) Opportunities in the

emerging markets2) Increasing demand of

fuel efficient cars3) Increase in hybrid cars4) Easy availability of

finance

Threats1) Economic slowdown2) Many competitors with

low price3) High level imitation of

automobiles4) Volatile fuel and raw

material prices5) Stringent environment

and safety regulations

Strength1) Fuel efficient cars2) Strong R&D like hybrid

technology3) Five star rating in

safety4) Broad product portfolio

future growth platform (lawn mower, robotic, automobile, 2 wheeler)

5) Core competency in engine technology

6) Strong brand equity7) Strong revenue profit

SO Strategy:S1,O2: Focus on dominance in fuel efficient car segment

S6,O1: Use of strong brand image to penetrate in new market S7,O1: Use revenues from matured countries for entering in new markets

S5, O2: Use of core competency to bring differentiated products

S2, O3: Increasing Intellectual Propriety rights to benefit from future growth

ST strategyS3, T5: Promote the vehicles in line with future safety requirements

S2, T5: Strive to attain cost advantage in hybrid vehicles

Weakness1) Low advertising budget2) Recall of vehicles 3) Presence in limited

segments( upper middle segment)

4) Deficiency of diesel engines

WO strategyW3, O1:Branding of high cost cars in different tag to create niche market

WT Strategy

On the basis of SWOT analysis we have further formulated the strategies which can be focused on in near future by Honda Motors.

20 | P a g e


ST Strategy:

1) S1 O2: S1,O2: Focus on dominance in fuel efficient car segment:The fuel efficient car is cake of revenues. All the competitors are vying for the same. Honda should strengthen the core competency to develop fuel efficient car by providing such cars at lower prices. For this R&D is required to reduce the cost.

2) S6, O1: Use of strong brand image to penetrate in new market:As Honda has good brand value world over, the same can be used to enter the markets and brand itself.

3) S7, O1: Use revenues from matured countries for entering in new marketsThe revenue generation from matured products is invested in growing products to establish both and grow. The same can be applied to developed and developing markets. The future lays majorly in emerging market thus the investment need to done in these markets which will add bulk to revenues.

4) S5, O2: Use of core competency to bring differentiated productsThe core competency of Honda is mainly power train which is very essential component in fuel efficiency. This core competency can be used to offer to market a differentiated product in fuel efficient car category.

5) S2, O3: Increasing Intellectual Propriety rights to benefit from future growthThe future growth lies in hybrid and electric vehicles. The R&D of Honda is strong in the same. Honda should grab the intellectual property rights in this category which will make the entry of any new OEM very difficult and make it costly to imitate

WO strategy1) W3, O1: Branding of high cost cars in different tag to create niche market

Honda has many cars for the upper middle segment. They should channelize there 2 level branding, one for the high end cars and other for the fuel efficient cars. The high end cars can be focused niche segment product.

ST strategy1) S3, T5: Promote the vehicles in line with future safety requirements

Governments affect automotive industry stakeholders when they legislate new regulations and standards. While some of these regulations cost the industry more money, most help drive innovation and new technologies. With increasing accident rate and focus on pedestrian safety & passenger safety, governments are setting stringent safety regulations which in turn are pressuring the automotive industry to highly benchmark the safety features. Honda can use the R&D innovations to get and edge to the same.

2) S2, T5: Strive to attain cost advantage in hybrid vehiclesGrowth from the hybrid & electric vehicle (EV) markets will outpace that of the overall global car mark. The "green" market will account for an increasing portion of global demand. Improvement in the technology and lower price points will help drive adoption. Capturing market share and adopting the right technologies now will position firms for the future.

21 | P a g e


8 Value Chain Analysis:

Source:www.scribd.com

Honda constantly tries for new and better technology for maintaining a global view point of supplying products of the highest quality yet at a reasonable price for worldwide customer.Purchasing Policy

Because of the established international nature of the purchasing function, Honda maintains free trade, treating all suppliers. From this international environment, Honda has developed and maintains a basic purchasing policy that can be described using the following principle:Honda will buy from the most competitive suppliers in order to fulfill customer satisfaction.´

Customer SatisfactionThis principle is based on the idea that Honda's suppliers are not simply selling their parts; they are selling their parts to their customers through them. Honda expects each supplier to develop the same commitment and dedication to customer satisfaction as they have. To accomplish customer satisfaction, what Honda requires of suppliers is competitiveness in what they call Q.C.D.D.M.(Quality, Cost Efficiency, Development, Delivery, Management)

1. QualityQuality is the most important factor in ensuring customer satisfaction. Honda believes quality must be built into the product during the production process. Quality cannot be assured in the final inspection process. It is the responsibility of each supplier and each individual worker to ensure quality. A commitment by the supplier at every level from the top management to the individual worker is essential to continually improve quality.

2. Cost

Competition in the parts supply industry has become very strong in recent years. Suppliers are expected to achieve target cost through their ideas, technologies, improved productivity, plus joint efforts with Honda in VE/VA (Value Engineering/Value Analysis) activities. Honda requires suppliers' continuous efforts to reduce cost year by year. Honda gives the suppliers annual pricing for

22 | P a g e

Honda Purchasing

Parts Supplier

Parts Supplier

Parts Supplier

Honda Trading

Raw MaterialsMill

Parts Supplier

Parts Supplier

Parts Supplier

Honda Assembly

PlantHonda

AssemblyPlant


their raw materials so that they can able to fix the cost of each parts which goes in to different model cars.

3. Delivery

Honda employs the just-in-time production system.In order to respond quickly to customer's needs, it is becoming more and more critical to produce products with the shortest possible lead-time. Suppliers are expected to have a reliable and flexible production system, which can respond in relatively short lead-time, and can be synchronized with the assembly lines. Suppliers will also benefit from just-in-time production system.

4. Development In responding to ever-changing customer demands, and to provide high quality yet cost competitive products, Honda relies heavily on established suppliers as a source for development and improvement of technology. In the course of development, emphasis is on uniqueness. They believe uniqueness in design or specification is a part of competitiveness. It is this uniqueness that makes up the identity of their products. Suppliers are expected to have ability to realize such demand of uniqueness through their technology and know-how in development in a timely manner with high cost performance.

5. Management

It is important for a supplier's management team to be strongly customer-oriented and to provide effective leadership for the entire company that expects to fulfill Q.C.D.D. Such management effort promotes mutual trust between the supplier and Honda.

International Purchasing OperationTo facilitate ease in purchasing on a global basis, Honda has created a unique international organization. This organization consists of establishing local purchasing offices in locations which meet the requirements of local manufacturing. Each office is staffed with trained purchasing professionals who have the authority and responsibility for purchasing their own parts and materials. As local purchasing operations continue to develop, local research and development offices are established. Purchasing Process

1. Initial Contact Initial contact in the purchasing process may take place in two ways. First, according to an established purchasing schedule, Honda may contact suppliers in various areas to explore the potential of purchase. The second way is direct contact by a supplier to Honda. In this manner, Honda encourages suppliers to directly contact the local purchasing office of the production site nearest to the supplier's own location. If there is an initial interest in the product, a meeting will be arranged between the supplier and a Honda purchasing representative. This initial meeting will be arranged between the supplier and a Honda purchasing representative. This initial meeting is of crucial importance to the future relationship. This meeting should include a written overview of the supplier's operations (present products and customers, etc.) and experience as a parts manufacturer. The sample parts and visual aids such as videos or slides can be helpful. A confidentiality agreement will be signed by both parties before the initial meeting.

2. Preparation Investigation of Honda Parts (Homework) Although it is of general interest to know what parts the supplier presently manufacture, Honda is much more interested in knowing,

Exactly what parts the supplier would propose to supply to Honda?

23 | P a g e


What tentative price the supplier will ask for that part?

Also, Honda wants to know, To what extent the supplier have studied Honda parts before making the presentation.

With this study and effort, beneficial discussions will transpire. The parts that Honda is most inclined to purchase first will be those parts that have world class competitiveness. Also important to Honda is information of suppliers' development lead-time to help them quickly understand a part of the suppliers' development capability.

3. Quotations After evaluating the presentation and based on the tentative target price information, Honda may issue a drawing and the accompanying specifications for the part and request a more specific quotation. This quotation should include first and foremost the quote as per the agreed specification. It may also contain the supplier's own design quote and possible adaptations of their own design to Honda's specifications. Differences in these quotes should be clearly defined.

4. Initial Plant Visit If the initial quote is found to be competitive. Honda will arrange a visit to the company and its operations. This initial plant visit will be made by a combination of purchasing, quality control, and R&D personnel. The purpose of the visit is not only to inspect manufacturing processes and quality assurance activities, but also to determine management policies and philosophies and general conditions.

5. Prototype Development

Following a favourable visit to the supplier, Honda will ask the company to provide prototype sample parts. Along with the samples, they ask the supplier to provide their own testing and evaluation of the samples. The resulting data, samples, plus an outline of the production capabilities and schedules, should also be submitted. The lead time for this development work will probably be shorter than what many suppliers are accustomed to or expect. This is because of Honda's policy of very rapid model changes and accelerated development schedules in response to market changes. Several sample parts should be prepared. This will shorten the response time if modifications of the part are required. A quick response to such requests is very important.Both parties will need to cooperate and communicate.

6. Testing and Evaluation Honda will require extensive testing of parts. Results will combine the suppliers' own test data with that of Honda R&D divisions. Honda’s local capacity for testing and evaluation is developing quickly in conjunction with manufacturing capacity. The testing process will include many discussions between our technical staff and the supplier's technical staff.

7. Mass Production Quotation If the results of evaluations and testing are positive, Honda will move to mass production price negotiations. Pricing is a very critical item and is discussed continuously from the initial meeting. At Honda it is required for suppliers to provide a detailed breakdown of the price. This breakdown will include raw materials, labor, tooling, required packaging, and delivery expenses, administrative expenses, and other expenses.Honda finds the breakdown of costs is helpful in suggesting ways that suppliers can seek to improve and thereby reduce costs.8. Preparation for Mass ProductionHonda will issue tooling orders after the successful completion of final prototype evaluations.

9. Trial Run

24 | P a g e


To confirm that the part will continue to meet requirements in volume production, the supplier carries out trial runs under mass production conditions.

10. QAV Once trial runs are successfully done and mass production schedules are determined, there will be a QAV (Quality Assurance Visit) for an overall evaluation of the process.

Growth-Share Matrix Developed by the Boston Consulting Group

Relative Market Share

25 | P a g e

Bus

ines

s G

row

th

Rat

e

HIGH LOW


CONCLUSION

Based on external environment like GDP, GDP growth rate, automobile density per 1000 persons, total populations of that geography, PPP of a particular geography, average age of the population. Significant observation based on external environment for various geographical locations is as follows:

There are developed regions where PPP may be high but growth is almost stagnant, population is relatively low, there is already a high density of automobiles with per 1000 populations. In this segment buyers shall be buying second automobile as maximum of them are already having one. In this scenario, preference shall be for an upgraded version i.e. new car should be better than previous one. That means, for a small car owner a bigger one, for a relatively expensive car owner it should be for much better car, which shall be an expensive car. There shall be a need for up gradation at least by one level by everyone. It demands for a strategy where focus should be on providing a car which is not a car for entry level. This need shall demand for much more convenient car having better safety features and have some better brand value. Demand for medium to high end segment shall be more. Better fuel efficiency and competitive price shall be icing on the cake.

There is second segment which can be said as developing nations. PPP, GDP and car density are not in comparison with developed nations but they have advantages in terms of very large and relatively young population. Growth rates for PPP & GDP are significant. Significant observations are also there about relatively better political stability of large populations like India, China. Some of the turbulent countries like Pakistan and Srilanka are also showing signs of better political stability .Countries in other continents in this segment are also showing better stability. Volumes in these countries shall be for entry level vehicles. Because of high population even a small portion of buyers buying their second car shall also present option for significant volume of medium level cars. Strategy should be to focus on volume in terms of entry level car with more variety and new models along with necessary push for medium price segment. Wide network and significant advertisement budget shall be important in this segment. Better fuel efficiency shall be a necessity.

There is third category of countries, where there are many combinations. Growth rates are better but base is low. Population may be not so significant or PPP is very less. Difficulty is also there about assessing political environment. The strategy in this kind of countries may be of a follower with minimum stakes. For strategic reason (if compelling) notional presence for visibility of brand purpose may be explored. Choice of reasonable sales network for any segment of car (low, medium or high) shall depend on the specific country.

Industry environment analysis shows that the threat from new entrants & substitute products and bargaining power of suppliers is low. Bargaining power of buyers is medium because of number of choices available with them however an individual buyer’s share of total business is very less.

Many of the popular automobile manufacturers are almost on the same level. The difference may be on geographical presence basis. There are minor advantages or disadvantages for individual automobile manufacturer but overall it’s a highly competitive segment. Geographical dominance is different for different car manufacturer. Overall it can be said that intensity of rivalry is very high. A single strategy for all location for an individual automobile manufacturer may not work. A strategy which is flexible enough to take care of local environment seems to be the need of the time.

26 | P a g e


Effectiveness of flexible strategy shall depend on the efficiency of complete supply chain. Honda’s value chain analysis shows that they have effective systems to explore maximum and long term benefit from suppliers, production processes, R&D capabilities and sales infrastructure. Future strategy shall demand speed-up decision making and faster response to newer trends in the market. A divisional level of manufacturing process shall help in responding the market need in faster way.

Comparing the resources and capabilities of Honda, a clear competitive edge is engine. With the focus of the government regulations on cleaner and greener technologies a huge scope lies in engine technology development and patenting for engines of alternative fuels. Though the process of replacement of petrol/diesel engine cars will not be at fast pace but it is future of car industry. The strategic collaboration with prospective alternative fuel suppliers can also be looked into to capture this segment and raise barrier to entry.

In addition to the future technology, Honda can look into the further innovation in engine technology which helps in reducing the weight and size of a car. The one major aspect of increasing the fuel efficiency of car is to reduce weight. Thus strategic collaboration with raw material suppliers can be looked into to reduce the weight by some alternative raw materials which are lighter in weight but compose of same technical specification.

Honda’s product portfolio analysis on the basis of BCG matrix shows that two wheeler segments is cash cow, automobiles are star performers and other products (power products, robotics & air craft engines) may be future star performers.

SWOT analysis provides various strategic options. There is significant opportunity in terms of volume and this opportunity needs to be cashed in with best of the available strength. All the five choices available in SO segment can be used on the basis of specific market in different geography. This shall provide necessary flexibility to the strategy which is needed in an era of rapid change.

Comparing the resources and capabilities of Honda, a clear competitive edge is engine. With the focus of the government regulations on cleaner and greener technologies a huge scope lies in engine technology development and patenting. Though the process of replacement of petrol/diesel engine cars will not be at fast pace but it is future of car industry. The strategic collaboration with suppliers can also be looked into to capture this segment and raise barrier to entry.In addition to the future technology, Honda can look into the further innovation in engine technology which helps in reducing the weight and size of a car. The one major aspect of increasing the fuel efficiency of car is to reduce weight. Thus strategic collaboration with raw material suppliers can be looked into to reduce the weight by some alternative raw materials which are lighter in weight but compose of same technical specification.

Business Growth:

Shinzo Abe, the Japanese Prime Minister, Robotics has been highlighted as a key industry to potentially help revive the Japans economy in coming decades, particularly in the context of the nation’s ageing population and its declining workforce. Special task force to develop a “robotic revolution” and treble the size of Japan’s robotics industry to a value of 2.4 trillion yen (£13.8 billion).

ASIMO, an acronym for Advanced Step in Innovative Mobility, is a humanoid robot designed and developed by Honda. Introduced on 21 October 2000, ASIMO was designed to be a multi-functional mobile assistant. With aspirations of helping those who lack full mobility, ASIMO is frequently used

27 | P a g e


in demonstrations across the world to encourage the study of science and mathematics.ASIMO was designed to operate in real-world environments, with the ability to walk or run on two feet at speeds of up to 6 kilometres per hour.

The future of robotics is for Civil and defence use. Cooperation between robots with different capabilities is one of the aspects which can influence on the future of robotics. In this situation coordination is an important factor which must be take to account for making a robust behaviour for each robot.

Robots will soon be everywhere, in our home and at work. They will change the way we live. This will raise many philosophical, social, and political questions that will have to be answered

Sources

world.honda.com

www.strategicmanagementinsight.com

wheels.blogs.nytimes.com

Table 1:

Exhibit 1a: GDP (Source: http://databank.worldbank.org )

28 | P a g e

http://databank.worldbank.org/


East

Asia &

Pacific

Euro

pe &

Cen

tral A

sia

Latin

America

& C

aribb

ean

Middle

East &

Nor

th Af

rica

North

Amer

ica

South

Asia

Sub-S

ahar

an Afri

ca0

5000000000000

10000000000000

15000000000000

20000000000000

25000000000000

'09'10'11'12

Exhibit 1b: GDP growth Annual % (Source: http://databank.worldbank.org )

East Asia & Pacific

Europe & C

entral Asia

Latin America &

Caribbean

Middle East &

North Africa

North Am

erica

South Asia

Sub-Saharan Africa

-6

-4-20

24

68

'09'10'11'12

29 | P a g e



Table 2

Table 3

Exhibit 2 GNI per Capita, PPP (Source: http://databank.worldbank.org )

East Asia & Pacific

Europe & C

entral Asia

Latin America &

Caribbean

Middle East &

North Africa

North Am

erica

South Asia

Sub-Saharan Africa

0.0010,000.0020,000.0030,000.0040,000.0050,000.0060,000.00

'09'10'11'12

Table 4

Exhibit 3

30 | P a g e



Inflation, Consumer prices(Source: http://databank.worldbank.org )

East Asia & Pacific

Europe & C

entral Asia

Latin America &

Caribbean

Middle East &

North Africa

North Am

erica

South Asia

Sub-Saharan Africa

-5

0

5

10

15

'09'10'11'12'13

Exhibit 4

Lending interest rate (%) (Source: http://databank.worldbank.org )

East Asia & Pacific

Europe & C

entral Asia

Latin America &

Caribbean

Middle East &

North Africa

North Am

erica

South Asia

Sub-Saharan Africa

05

10152025

'09'10'11'12

Table 5

31 | P a g e




Exhibit 5

Population (Source: http://databank.worldbank.org )

East Asia & Pacific66%

Europe & Central

Asia6%

Latin America & Car-ibbean

4%

Middle East & North Africa

3%

North America

2%

South Asia12%

Sub-Saharan Africa7%

'12

Exhibit 6a

Motor Vechile per 1000 (Source: http://databank.worldbank.org )

32 | P a g e




East Asia & Pacific

Europe & C

entral Asia

Latin America &

Caribbean

Middle East &

North Africa

North Am

erica

South Asia

Sub-Saharan Africa

0200400600800

'08'09'10'11

Exhibit 6b

Passenger Cars per 1000

East

Asia &

Pacifi

c

Euro

pe &

Cen

tral A

sia

Latin

America

& C

aribb

ean

Middle

East &

Nor

th Afri

ca

North

Amer

ica

South

Asia

Sub-S

ahar

an Af

rica

0

100

200

300

400

Average of 2008Average of 2009Average of 2010Average of 2011

33 | P a g e

group2 honda motor corp assign

Documents