Resource Based Strategy 

Project

HERO HONDA MOTORS LTD 

Submitted to:

Prof. Manoj Thomas

Group Members: 

Satadru Bagchi  ‐ G08 – 088 

Soumitra Dhali – G08 – 090 

2

Contents Page

1. Introduction

1.1. Hero Honda Group & Hero Honda Motors Ltd. 3

1.2. Two - Wheeler Industry in India 4

1.3. Strategic Intent of HHML (Vision & Mission) 10

1.4. Key Milestones 11

2. Resource Analysis

2.1. Financial Resources 13

2.2. Physical Resources 16

2.3. Human Resources 17

2.4. Technological Resources 19

2.5. Reputation 20

2.6. Leadership 22

2.7. Value Chain Analysis 24

2.8. Slack 29

2.9. Stretch & Leverage of the Resources 30

3. Corporate Parenting & Critical Success Factors: Hero Group 34

4. Competitive Advantages of HHML 35

5. References 37

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1. Introduction

1.1. Hero Honda Group & Hero Honda Motors Ltd.

"Hero", the brand name symbolizing the steely ambition of the Munjal brothers, came into

being in the year 1956. From a modest manufacturer of bicycle components in the early

1940's to the world's largest bicycle & two-wheeler manufacturer today (Hero Honda Motors

Ltd. was started in the year 1984 as a JV between Hero Group & Honda Motors, Japan), the

odyssey was fuelled by one vision - to build long-lasting relationships with everyone,

including workers, dealers and vendors. This philosophy has paid rich dividends through the

years.

Hero, a name synonymous with two-wheelers in India is today a multi-unit, multi-product,

geographically diversified Group of companies. Through fully integrated operations, group

roll its own steel, make critical components such as free wheels for their bicycles, and have

the foresight to simultaneously diversify into myriad ventures, like product designing, IT

enabled services, finance and insurance, just to name a few.

Like every success story, Hero's saga contains an element of spirit and enterprise; of

achievement through grit and determination, coupled with vision and meticulous planning.

Throughout its success trail, the Hero Group and its members have displayed unwavering

passion of setting higher standards for themselves and delivering simply the best to their

customers.

"Engineering Satisfaction" is the prime motive of the Hero Group and it has become a way of

life and a part of the work culture of the Group. This is what drives the Group to seek newer

vistas, adopt faster technology and create quality driven products to the utmost satisfaction of

customers, partners, dealers and vendors.

From now on, we would mean Hero Honda Motors Ltd. whenever we state either “Hero

Honda” or “HHML” and the Hero Group in totality when we state simply “Hero”.

4

1.2. Two – Wheeler Industry in India

Automotive market in India (2007-2008)

The automotive market of India is dominated by two – wheelers which constitute about ¾-th

of the entire market.

The manufacturing facilities for all these automotive players are well – spread across the

country with the east zone having the least of participation. The following figure shows the

spread. The zones which are circled show the presence of the two – wheeler manufacturers.

Three wheeler3.78%

Two wheeler75.13%

Passenger Vehicle16.04%

Commercial Vehicle5.05%

5

There are many factors which affect the India automotive industry as a whole which is

analyzed in the following figure. These factors drive the industry & make it competitive

globally. India is slowly becoming the manufacturing hub for the automotive sector.

Delhi-Gurgaon-Noida- Ghaziabad

Kolkata

Mumbai-Pune-Nasik Aurangabad

Jamshedpu

Chennai Bangalore Hosur

Rajkot-Halol

Hyderaba

Ludhiana Haridwar

Pitampu

6

After analyzing the drivers, let’s take a look at the projected sales in the automobile sector.

Contemporary products 

Shorter life cycle  

  Growth in  Income  levels

Easier financing 

Lower interest loans 

Fast paced urbanization (28‐40 % by 2020) 

Middle class expanding by 30‐40 mn every year 

Poor public transport system 

Government   Policies 

New Product Launches  

Indian Automotive Industry 

Increasing Consumer Demand  

Cost Competitiveness 

Overall economic  growth  

Lower duties & taxes 

Policy impact on oil prices 

Export  Competitiveness 

Reduced cost  to consumer  

India emerging as a manufacturing hub 

Potential Vehicle sales in India in 2015 - 16 (in mn)

2.65

0.64

27.8

0.87

0 5 10 15 20 25 30

2015-16

Cars CVs Two wheelers Three Wheelers

7

Key insights into the projections are:

• Sale of motorcycles in India is likely to touch 10 million mark by 2010 as per Frost

and Sullivan report.

• The size of the Indian automotive industry is expected to grow at 13% p.a over the

next decade to reach around US$ 120 - 159 bn by 2016.

• The total investments required to support the growth is estimated at around US$ 35 -

40 bn.

Now turning our focus into the two – wheeler industry we find that motorcycles dominate the

industry.

8

Players in the two – wheeler industry in India

All the manufacturers in the automobile industry can be broadly classified into the following

categories:

Major players are:

– Hero Honda Motors Ltd.

– Bajaj Auto Ltd.

– TVS Motor Company

– Honda Motorcycle & Scooter India Ltd.

Minor players are:

– Suzuki Motorcycles India Ltd

– Yamaha

– Royal Enfield (Niche Segment)

New Entrants

– Mahindra & Mahindra (Acquired Kinetic Motor Co. Ltd. in 2008)

– Mahabharat Motors (Will start producing TVS branded 2-wheelers in Apr.’09)

Other Players

– Manufacturers of electric two – wheelers such as Yo Bikes

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Brief Details about Major Competition & Domestic Two-Wheeler Market Share (2006-’07)

BAJAJ

Second largest two-wheeler manufacturer and the

largest three-wheeler manufacturer in India. New

product launched (Bajaj Discover) in 125cc category

in July 08. Four new product launches are proposed in

this year itself. Bajaj Auto has seen August sales

decline by 3.7%. Its sales growth was virtually flat

during the April-August period.

TVS

TVS is the third largest two-wheeler manufacturer in India. It established a manufacturing

facility in Indonesia as well. TVS entered into a JV in Jun 2008 with Mahabharat Motors of

Kolkata to increase presence in eastern region. TVS launched the last product Flame in

March 2008. TVS Motor has also seen sales stagnate, with a growth of only 1.15% between

April and August.

Honda Motor

Has recently entered the Indian market through its direct subsidiary (in addition to its joint

venture Hero Honda).

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1.3. Strategic Intent of HHML (Vision & Mission)

Vision/Mission

Mission -

“Hero Honda’s mission is to strive for synergy between technology, systems and

human resources, to produce products and services that meet the quality, performance

and price aspirations of its customers. At the same time maintain the highest standards

of ethics and social responsibilities.

This mission is what drives Hero Honda to new heights in excellence and helps the

organization forge a unique and mutually beneficial relationship with all its stake

holders.”

Mandate -

“Hero Honda is a world leader because of its excellent manpower, proven

management, extensive dealer network, efficient supply chain and world-class

products with cutting edge technology from Honda Motor Company, Japan. The

teamwork and commitment are manifested in the highest level of customer

satisfaction, and this goes a long way towards reinforcing its leadership status.”

Objective & Values

The Hero Group philosophy is -

"To provide excellent transportation to the common man at easily affordable

prices and to provide total satisfaction in all its spheres of activity."

The group philosophy clearly states what the group objectives are and stresses the

focus on – customers, providing reliable and affordable mobility for the masses and

other stakeholders like employees, suppliers, distributors, society and environment at

large.

Apart from being customer-centric, the Hero Group provides its employees with a

fine quality of life and its business associates (suppliers & distributors) with a total

sense of belonging, thus strengthening the bond that is already deep-rooted.

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1.4. Key Milestones

YEAR Milestones

Joint Collaboration Agreement with Honda Motor Co. Ltd. Japan signed 1983

Shareholders Agreement signed

1984 Hero Honda Motors Ltd. incorporated

1985 First motorcycle "CD 100" rolled out

1987 100,000th motorcycle produced

1989 New motorcycle model - "Sleek" introduced

New motorcycle model - "CD 100 SS" introduced 1991

500,000th motorcycle produced

1992 Raman Munjal Vidya Mandir inaugurated - A School in the memory of

founder Managing Director, Mr. Raman Kant Munjal

New motorcycle model - "Splendor" introduced 1994

1,000,000th motorcycle produced

New motorcycle model - "Street" introduced 1997

Hero Honda's 2nd manufacturing plant at Gurgaon inaugurated

1998 2,000,000th motorcycle produced

New motorcycle model - "CBZ" introduced

Environment Management System of Dharuhera Plant certified with ISO-

14001 by DNV Holland 1999

Raman Munjal Memorial Hospital inaugurated - A Hospital in the memory

of founder Managing Director, Mr. Raman Kant Munjal

4,000,000th motorcycle produced

Environment Management System of Gurgaon Plant certified ISO-14001

by DNV Holland

Splendor declared 'World No. 1' - largest selling single two-wheeler model 2000

"Hero Honda Passport Programme" - CRM Programme launched

New motorcycle model - "Passion" introduced

One million production in one single year

New motorcycle model - "Joy" introduced 2001

5,000,000th motorcycle produced

12

New motorcycle model - "Dawn" introduced

New motorcycle model - "Ambition" introduced 2002

Appointed Virender Sehwag, Mohammad Kaif, Yuvraj Singh, Harbhajan

Singh and Zaheer Khan as Brand Ambassadors.

Becomes the first Indian Company to cross the cumulative 7 million sales

mark

Splendor has emerged as the World's largest selling model for the third

calendar year in a row (2000, 2001, 2002)

New motorcycle model - "CD Dawn" introduced

New motorcycle model - "Splendor +" introduced

New motorcycle model - "Passion Plus" introduced

2003

New motorcycle model - "Karizma" introduced

New motorcycle model - "Ambition 135" introduced

Hero Honda became the World No. 1 Company for the third consecutive

year.

Crossed sales of over 2 million units in a single year, a global record.

Splendor - World's largest selling motorcycle crossed the 5 million mark

New motorcycle model - "CBZ*" introduced

Joint Technical Agreement with Honda renewed

2004

Total sales crossed a record of 10 million motorcycles

Hero Honda is the World No. 1 for the 4th year in a row

New motorcycle model - "Super Splendor" introduced

New motorcycle model - "CD Deluxe" introduced

New motorcycle model - "Glamour" introduced

New motorcycle model - "Achiever" introduced

2005

First Scooter model from Hero Honda - "Pleasure" introduced

2006 Hero Honda is the World No. 1 two-wheeler co. for the 5th year in a row

2008 Hero Honda is the World No. 1 two-wheeler co. for the 8th year in a row

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2. Resource Analysis

The resources that HHML has are analyzed from various viewpoints so as to ascertain

whether it has actually achieved competitive advantage by not only utilizing, but also

stretching & leveraging its resources. Additionally, we tried to extricate the interlinkages

between the value chain and the resources of HHML. Further, we tried to establish what

“slack” HHML has in the resource pool to tackle adverse situations.

2.1. Financial Resources

We begin the resource analysis of Hero Honda Motors Ltd. with the break up of the capital

structure of the firm & the financial comparison of different players in the two – wheeler

segment. The company is 100% debt free with the break up of the capital structure as

follows:

26% of the shares are each owned by Hero Group & Honda Motors, Japan while the rest is

owned by equity shareholders. Apart from this Honda Motors, Japan gets a royalty fee of

25% of the contribution margin because of the technical - know how provided to Hero

Honda. Needless to say, this has been one of the most successful overseas joint ventures by

Honda Motors, Japan. There are no such schemes like ESOP’s in place. However, employees

are free to take the company’s shares at their own discretion. It is interesting to note that in

spite of the global meltdown, Hero Honda’s net profit has increased by 47% as in the first

three quarter as compared to last financial year.

((2266%%)) ((4488%%))

EEQQUUIITTYY SSHHAARREEHHOOLLDDEERRSS

((2266%%))

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Now, let us take a look at the profit & loss account & balance sheet of Hero Honda Motors

Ltd. & compare those with that of its main competitors i.e TVS Motors & Bajaj Auto. The

analysis is done for financial year 2007 – 08. HMSI is not included as it is not listed.

PROFIT & LOSS ACCOUNT

HHML BAJAJ TVS

2007-08 2006-07

% AGE

CHANGE

2007-

08 2006-07

% AGE

CHANGE

2007-

08

2006-

07

% AGE

CHANGE

Gross Sales 12038.5311542.04 4.30 9689.9510606.09 -8.64 3683.53 4473.44 -17.66

Less excise

duty 1706.73 1642.08 1026.661313.86 464.03 618.48

Net Sales 10331.8 9899.96 4.36 8663.299292.23 -6.77 3219.5 3854.96 -16.48

Other

income 185.42 189.85 505.55 783.82 90.85 65.93

Total

Revenue 10517.22 10089.81 4.24 9168.84 10076.05 -9.00 3310.35 3920.89 -15.57

Expenditure

+ Interest +

Depreciation

9106.94 8843.71 8034.118348 3274.98 3830.04

PBT 1410.28 1246.1 13.18 1134.731728.05 -34.33 35.37 90.85 -61.07

PAT 967.88 857.89 12.82 755.95 1237.96 -38.94 31.77 66.6

-52.30

15

Balance Sheet 2008

BAJAJ TVS HHML

2007-08

% Change

from

2006-07

2007-08

% Change

from

2007

2007-08 % Change

from 2007

Share Capital 144.68 42 23.75 0 39.94 0

Reserves & surplus 1442.91 -73 797.83 1.8 2946.3 21.25

Loans (Secured &

Unsecured) 1334.34 666.34 132

Fixed Assets 1292.82 0 1043.05 4 1548.7 14.2

Current assets 1649.71 774.79 936.78

Current Liabilities 1877.29 566.77 1824.74

The net sales for Hero Honda has increased by 4.36% while that of its competitors Bajaj Auto

& TVS Motors has decreased by 6.77% & 16.48% respectively. During this time Hero Honda

has been able to regain its market share from a low of 44% to current levels of 56%. The total

revenue for Hero Honda has increased by 4.24% while that of its competitors Bajaj Auto &

TVS Motors has decreased by 9% & 15.57% respectively. PAT for Hero Honda has

increased by 12.82% while that of its competitors Bajaj Auto & TVS Motors has decreased

by 39% & 52% respectively. The reason for this success of Hero Honda has been due to the

adoption of a two pronged strategy. First, it introduced products in the 150 c.c segment along

with variants of its existing product portfolio. Also, it undertook a program called the “Rural

Vertical” in which it focused itself in improving the distribution network in the rural areas so

as to access the untapped market.

Looking at the balance sheet we find that the reserves & surplus for Hero Honda has

increased by 21.25% while that of its competitors Bajaj Auto has decreased by 73% & for

TVS Motors has increased by a meager 1.8%. The increase in fixed assets for Hero Honda

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has been due to the massive investment in green field project – a state of the art

manufacturing facility called the “The Shrine of Technology” at Haridwar.

Comparing the operating ratios we find that HHML has been performing better than its

nearest competitors.

FOR FINANCIAL YR. 2007-08

HHML BAJAJ TVS

Net Profit Margin (in %) PAT / SALES 8.04 7.8 0.86

Assets Turnover Ratio SALES / TA 4.84 3.29 2.03

2.2. Physical Resources

Hero Honda has got three manufacturing facilities at Dharuhera & Gurgaon in Haryana &

Haridwar in Uttarakhand. The production capacity of the first two plants is 6500 vehicles per

day while for the third plant is 3500 vehicles per day. The cycle time for vehicle production is

maintained at 18 secs. Its distribution network is controlled by regional offices & area offices

& includes about 3000 dealers, stockists & SSP’s (Service & Spare parts) across the length &

breadth of India. The concepts of Lean Manufacturing are applied in all the plants to improve

performance & drive down cost.

2.3. Human Resources

The following model has been developed by Gallup to understand the importance of a fit

between a person & the organization he is working to the performance of the organization.

17

According to this model, stock price of a company depends upon its sustainable growth

which in turn depends upon engaged customers, engaged employees & how they are

managed. So, it becomes imperative to find the right fit between the - would be employee to

the organization.

The following are the salient features of Hero Honda managing of human resource.

Recruitment

• Use of PI as one of the tool

• Right Fitment - both culturally and Job based

Orientation

• Start with MDP – specific to the requirement and

understanding the products

Development & Learning

• Functional & Behavioral input in single program,

through consultant networking

ENTER HERE

IDENTIFY STRENGTHS THE

RIGHT FIT

GREAT MANAGERS

ENGAGED EMPLOYEES

ENGAGED CUSTOMERS

SUSTAINABLEGROWTH

REAL PROFITINCREASE

STOCK INCREASE

To reliably

influence these . . .

. . . these must be

managed.

S - Curve for Success

A GOOD BUSINESS SENSE

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Managing Performance

• High performers – lateral movement, special

assignment, developmental program, Coaching &

Counseling

• Low performer – Development, coaching &

counseling

Employee Communication

• Stand-Up meetings

• Open House

• Monthly Communication Meetings

Employee Involvement

• Various competitions like debate, speech, poem,

poster, quiz, slogan

• Cross-functional teams

• Suggestion scheme

• Quality circles

• Idea camps

Even IT services are extensively used to support employee welfare. This includes -

Intranet

• Employee Policies

• Leave Application System

• Resource Reservation System

• Bulletin Board

• ESS

• Salary

• Loan status

• Attendance

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SOME OF THE UNIQUE PRACTICES AT HERO HONDA MOTORS LTD

Joint prayers & exercises – The employees start their shift by saying joint common prayers

followed by physical exercises and discussion on a theme for that day. As part of this, the

employees get together at the atrium. One of them acts as a leader of the gathering. All of

them recite a prayer wherein they pray for the well – being of the world and freedom from

pain, fear & misery. They pray for the success of their work. This helps them in affirmation

towards achievement of the company’s targets. Another leader leads the gathering for

undertaking physical exercises which propel them toward better physical & mental efforts in

achieving the company’s targets.

Self managed team members – The operator on the assembly line also undertakes quality

checks and maintenance activities apart from operation related activities. As a part of this, the

operator identifies using prescribed systems, the quality check points maintenance check

points. These check – points help him in improving quality and reducing break downs. This

results in having post – production quality checks and scheduled overhauls, which

considerably results in saving time, material & manpower.

Quality Circles – Cross functional teams work together to solve factory related problems

using quality control techniques. As a part of this, the employees voluntarily form their teams

after trained by the qualified trainers in applying the above. The team identifies and selects

problems. The solutions are presented to the senior management for approval.

2.4. Technological Resources

The company believes in the concept called World Class Manufacturing. Its major

ingredients are shown in the figure below -

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The Direct Online System (DOL) is similar to JIT. Here the vendors are selected for DOL

category based on a variety of parameters such rate of parts being defective & replaced in

warranty. In order to remove bottlenecks & improve quality of work fully integrated robotic

lines are used such as in Aluminium phase (for manufacturing cylinder heads, crankcase etc.)

and in weld & paint shops.

Flexible manufacturing system is followed where in any product assembled in any assembly

line.

2.5. Reputation

Hero Honda has toiled hard for the brand image it now has. This has been achieved not only

by the continued excellence of its products & services, but also due to the several of the

following social & environmental initiatives that it has under taken –

Safety, Health & Environment Policy –

Extensive use of incinerators, effluent treatment plants, sold waste disposable systems. It has

also been awarded ISO 9001, ISO 14001, OHSAS 18001 certifications.

Rainwater harvesting system –

It has an extensive system of rain water harvesting as is shown in the following figure:

ZERO INVENTORY CONCEPT

FULLY INTEGRATED VALUE CHAIN

QUALITY

LEAN & FLEXIBLE MANUFACTURING

5 S SYSTEM

T P M

DIRECT ONLINE SYSTEMS

W C M

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CSR Initiatives –

Another name for the Delhi – Jaipur Highway is the “killer highway”. This is because this

highway is notorious for accidents. In order to take care of such casualties, Hero Honda has

opened “The Raman Munjal Memorial Hospital”. The hospital also caters to the needs of the

people of the rural areas of Haryana through mobile dispensaries etc. “The Raman Munjal

Vidya Mandir” was opened to provide quality education to the poor & needy.

Hero Honda Traffic Park & Ride Safe Program –

This was initiated to teach people traffic rules & riding their vehicles in the most appropriate

manner to avoid accidents.

Promotional Activities –

Time and again Hero Honda has been associated with the major sporting events in the

country like golf & cricket. It has sponsored reality shows like MTV Roadies & Sa Re Ga Ma

Pa.

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2.6. Leadership

Dr. Brijmohan Lall Munjal, Chairman, Hero Honda Group, is one of the best known first-

generation entrepreneurs in India. Dr. Munjal started Hero group right from the scratch along

with three of his brothers after shifting base to Ludhiana, India from Pakistan after 1947 and

built a business empire of US$ 3.2 billion in a span of nearly six decades comprising of 20

companies in diverse fields including auto parts, bicycles, motorcycles, education, BPO, IT

software etc.

From a modest beginning as bicycle component manufacturer in the early ‘50s to world’s

largest bicycle maker in 1986 till date to world’s largest two-wheeler maker in 2001 and

continuing – Hero Group has achieved much within this limited period of time, thanks to the

guiding vision and principles of its founding father, Dr. Brijmohan Lall Munjal. The core

values that he inculcated from the beginning of his academic life as he attended the Gurukul

system of education guided him through thick & thin. The value set, which forms the intrinsic

core of his business philosophy, is based on simplicity, honesty, highest integrity & sense of

fairness.

Dr. Munjal traversed the road to success with the Hero group following these principles –

• “Trust the instincts”,

• “Deal with people with compassion”,

• “Think ahead of time”,

• “Show others the way through highest form of corporate citizenship”.

The examples for all of the principles just mentioned are easy to find out. Dr. Munjal, never

satisfied being only a bicycle component manufacturer, moved up the value chain by

becoming a complete bicycle manufacturer in 1956. Through continuous growth and

establishing a nation-wide supply & distribution network which was based on mutual trust

and relationship, within 30 years of starting, Hero Group became the largest bicycle

manufacturer in the world and it continues to be so till date. Hero Group, under the able

leadership of Dr. Munjal, pioneered bicycle exporting from India as early as in 1963. Though

exports were initially limited to Africa & Middle East, now Hero Group caters to the US &

23

European markets as well. Adoption of key new technologies and providing best-in-class

value & performance are the hall marks of Hero Cycles.

At a time when the Indian two-wheeler industry was known by the rusty Bajaj Chetak and

other two-stroke engine vehicles, Dr. Munjal revolutionized the industry by bringing the first

four-stroke motorbikes to the table. It was a brilliant strategic move. Since these technologies

were not indigenously available, he collaborated with the Honda Motor Company of Japan

and Hero Honda Motors Ltd. was formed in 1984 as a JV between Honda & the Hero Group.

It’s one of the best success stories in India as a collaborative effort between two different

cultures and entities. The JV thrived because the roles of the partners were clearly

demarcated by the leadership – Honda to provide the technological inputs and overall

guidance, Hero Group to provide the manufacturing resources and foot the distribution

efforts.

With this, Dr. Munjal ensured cheaper, affordable mobility to the millions of Indians. Not

only the four-stroke engines gave better mileage, but these are reliable, less polluting

machines which immediately became the darling of the masses and for Govt. regulators as

well. He was at the forefront of the campaign by Hero Honda Motors Ltd. - 'Fill it - Shut it -

Forget it', which brought forth the value-of-money aspect of these bikes and endeared the

masses. The testimony to all these efforts came in 2001 when Hero Honda Motors Ltd.

became the largest two-wheeler maker in the world with a customer base of over 20 million.

Though without teamwork & commitment, all these achievements would not have been

possible, it was the vision and zeal of the founder which pushed Hero Group to rise higher

and higher and touch the horizons.

Dr. Munjal is not known only by his business acumen, but by his philanthropic activities as

well. He spearheads Corporate Citizenship & CSR activities of the Hero Group. In his

personal capacity, he is an active Rotarian and he co-ordinates various social initiatives in the

capacity of Rotary District Governor.

In recognition of his contribution to Indian industries and society at large, he was conferred

numerous awards and recognized, the important among these are –

• Businessman of the Year in 1994 by business magazine "Business India".

24

• National Award for outstanding contribution to the Development of Indian Small

Scale Industry in 1995.

• In 1999 Featured in Most Admired CEO List of the magazine "Business Barons".

• The Distinguished Entrepreneurship Award from The PHD Chamber of Commerce

and Industry in 1997.

• Sir Jehangir Ghandy Medal for Industrial Peace in 2000 by XLRI, Jamshedpur.

• Featured as Ernst and Young Entrepreneur of the year in 2001.

• The Lifetime Achievement award for "Management" from All India Management

Association in 2003.

• Banaras Hindu University, Varanasi conferred him with a Doctorate; degree of

"Doctors of letters" Honoris Causa in October 2004.

• Awarded "Padma Bhushan" in March 2005 for his contribution to Trade and

Industry in 2005.

2.7. Value Chain Analysis

It is quite obvious that Hero Honda possesses some competitive advantages over competition,

enabling them to be the largest two-wheeler maker in the world for the 7th year in a row and

commanding a hefty market share of 52% of Indian two-wheeler market (Ref. Annual

Report, ’07-’08, HHML) and continuing to grow at a healthy rate of 13% (PAT) amid

worsening financial crisis and deepening of recessionary influences. We attempt to ascertain

the competitive advantages that HHML has by analyzing its value chain.

Primary Activities

Inbound Logistics

From early days, HHML tried to have close integration with suppliers as vendor management

is critical for its operation, for the simple fact that 73% of production cost is due to material

components. Thus it is essential for HHML to ensure tight control & reduction of logistical

cost and/or transaction cost when procuring components. Additionally, reduction of inventory

will be an added boon so that working capital requirement will be less.

With these aims, HHML adopted “Just In Time” (JIT) manufacturing philosophy which

demanded close coordination between its manufacturing facilities and the vendors and

25

ancillary units. For example, ~ 100 ancillaries are setting manufacturing bases in Haridwar

near the newly started HHML plant to ensure integrated supply chain. All these vendors will

be connected to the main plant by conveyors to prevent chances of time & material loss due

to multiple handling. Efforts are afoot to extend the JIT beyond shop floor, in the operational

& strategic decisions of the vendors as well like production planning, capacity expansion etc.

In this respect, HHML has succeeded in establishing online real-time connectivity between

its operation and that of ~ 72% of its 300 plus-strong vendor base (in 2007-‘08). All these

initiatives have helped to reduce transactional & logistical costs and save Rs. 343 per vehicle

in 2007-’08. During 2008-09, HHML plans to work with vendors to develop new vendor

production facilities. 3rd Party Logistics (3PL) service providers have also been identified for

the Haridwar plant — if 3PL is started, this will be a first for any two-wheeler company in

India.

Operations

As was being described above, HHML is probably the only Indian company to have truly

mastered the art of JIT manufacturing. HHML also follows Lean Manufacturing, uses high

degree of automation levels (full automatic robotic operation in welding and some other

specific areas) to ensure high efficiency, low inventory production, with usual benefits like

increased cash flow, reduced cash & operating cycles and thus improved working capital

conditions. These fully equipped plants where these manufacturing concepts have been

applied during plant layout, design & commissioning phases are the unique tangible assets

that HHML has.

HHML has three manufacturing facilities at Dharuhera, Gurgaon and Haridwar (newest),

with annual production capacity of 4.5 million units. With employee strength being in the

range of 4320, the productivity per employee is very high. Further, the concepts of Lean

Manufacturing, JIT & Integrated Supply Chain have been applied from the start in Haridwar

plant making it highly efficient.

Technological know-hows, design improvements etc for two-wheelers are provided by

Honda after the initial design requirements as espoused by customers and market trends put

in a structured form by Hero Honda R&D team in India.

Outbound Logistics

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HHML feeds the demand in India & exports ~ 95,000 bikes through its well established

delivery channels from the 3 plants. The effort is to provide for minimum waiting period or

rather filling the regions as per the demand forecasts and market trends.

Marketing & Sales

Marketing arm of HHML started the hugely successful “Fill it, Shut it, Forget it” campaign

years ago to pitch for its better fuel efficiency and thus lower owning cost. It has been a

constant strive for HHML’s marketing efforts (in advertisements, in promos) to focus the

value for money and reliability of its products and thus attracting new customers and

retaining customers as well. To ensure customer loyalty, HHML has come up with Hero

Honda Passport Program which gives special privileges to its customers. HHML does not

indulge in price wars in an effort to maintain the perception of enduring quality among

present & potential customers. Of late, there were complaints from customers that HHML is

not dynamic enough to present newer, flashier & more powerful bike models in the premium

segment that competitors like recharged Bajaj is offering. Another complaint was that many

of the variants offered by HHML have little or insignificant product differentiation which can

justify the price difference. HHML has paid heed to these stated & unstated needs of its

customers and improved the 4P’s (Product, Price, Place & Promotion). Its offerings now are

well accepted in the market.

HHML has roped in popular heartthrob Hrithik Roshan as its brand ambassador to give

impetus to its marketing efforts. It has been a constant endeavor of HHML to cater to both

urban and rural markets with similar zest, with advertising campaigns and promotional events

clearly focusing on the two markets – “Har Gaon, Har Angaan” is the recent rural connect

initiative to cover ~ 23,360 villages with a population of 5000 or more by 500 specially

trained rural sales executives.

HHML has a conscious strategy of penetrating new markets and unrepresented territories

through its distribution network which is made up of dealers, authorized representatives,

stockists and SSPs. In March 2001, the company had 826 such customers points in India. By

March 2008, this number went up to over 3500. On an all India basis, 50 dealers, 150 SSPs,

267 dealers and 45 city work agents were added within this period.

27

The distribution network of HHML is both wide & deep rooted; it is based on both mutual

trust & relationship between HHML & its distributors and HHML’s philosophy of ensuring

its partners to grow with its own growth. Trust & loyalty of distribution network is very

important in maintaining the leadership position in this highly competitive industry. In fact,

HHML’s strength in Supply Chain & distribution network is one of the unique intangible

resources that it has; superior brand image & reliability perception of its brand is the

outcome of these intangible & tangible key assets.

Service

HHML has constituted one the best after-sales service network in the industry. Apart from

improving the quality of service and easy availability of spare parts, HHML has also focused

on cleanliness and other aesthetics of the service stations and added amenities such as air-

conditioned waiting area, internet browsing and coffee shops etc. to enhance the in-house

experience of the consumers at those “customer touch-points”.

To ensure that millions of customers in the rural areas are not left waiting for adequate

service as it is impossible for HHML to introduce service stations at every nook & corner of

the country, mobile service stations are regularly arranged with prior intimation to public

about the route that the mobile workshop would take when passing through that region, so

that consumers can come and get their two-wheelers serviced. All these activities are aimed

to increase the customer loyalty and thus retaining customers.

The value activities done by HHML in its value chain (both primary & support activities) are

given in Fig. IA1. The unique value activities of HHML that is at the heart of its competitive

advantages are shown in Fig. IA2.

Virtual Value Chain

All the activities that HHML is doing in its Physical Value Chain (PVC) are being augmented

multifold by its efforts in establishing and improving the Virtual Value Chain (VVC -the flow

of information across its value activities). For example, HHML has implemented SAP ERP

package for all necessary modules like production, materials, finance, marketing, assets,

quality, sales and distribution so that only single version of right information is available with

everybody at any time. It reduced duplication of efforts across many functional areas.

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Fig. IA1. Hero Honda’s Business System (Value Activities Mapped in the Value Chain)

Further, HHML has been able to connect real-time with ~72% of its vendors. This ensures

seamless flow of information about the products, components between itself and its

collaborators beyond the physical boundaries, making the whole process much more

integrated & robust, as if the same system is being used across location & plants, irrespective

of the ownership. Significant reduction of transaction costs can be achieved in this manner.

These aspects are essential factors of its successes in applying the JIT manufacturing

philosophy. Dealer Management System & CRM are other examples of VVC for HHML. By

managing PVC & VVC together in concert, HHML is able to exploit its value chain much

more effectively.

 

Inbound Logistics 

Operations Outbound Logistics

Marketing / Sales

Service 

 Infrastructure 

Human Resource Management 

Technology Development 

Procurement 

 SUPPORT  ACTIVITIES 

Oversee supplier  & management 

PRIMARY ACTIVITIES 

personnel 

Streamline turnaround time with suppliers to ship parts 

Streamline ordering and documentation systems 

Adopt faster means to order and receive com onents 

Develop new virtual teams; union relations; oversee workers

Oversee personnel involved in distribution

Make and assemble components into autos 

Invest in new eng. designs, bike models; new   factories, 

p

t liSource parts, components; partner with key suppliers

Streamline shipping time; web‐based inventory tracking 

Purchase capacity on railroads/trucks

Ship to dealers using railroads/ trucks; deliver 

Work with dealers to improve selling, product mix  

Buy media time; work with advertisers

Advertise, promote product to public; work with dealershi

After sales service; Spare parts availablity 

Oversee marketing ersonnel

Oversee service personnel 

Improve service turn around time with spl. Tools & tackles 

Source spare parts & tools; partner with key suppliers

p

ps

Administrative, legal and accounting tasks managed systemwide

29

Fig. IA2. Hero Honda’s Competitive Advantages through Value Activities & Virtual Value

Chain (Ref. Exploiting the Virtual Value Chain - J F Rayport, J J Sviokla)

2.8. Slack

“Slack” is defined as that cushion of factual or potential resources which allow an

organization to adapt successfully to internal pressures for adjustment or to external pressures

for change in policy as well as to initiate changes in strategy with respect to the external

environment.

Among other indicators of slack based strategies, one is the increase in working capital as a

percentage of sales. For Hero Honda, peak selling period is Sept. to Nov. in the year whereas

the lean period is Jun. to Aug. During the peak seasons, it sells around 0.5 million two-

wheelers in a month, which is around 0.1 million more than it can produce in a month with all

 

InboundLo

 gistics 

Operations Outbound Logistics

Marketing / Sales

Service 

 Infrastructure 

Human Resource Management 

Technology Development 

Procurement 

 SUPPORT  ACTIVITIES 

PRIMARY ACTIVITIES 

No formal labour union;  employee loyalty  

Online real‐time connectivity with vendors 

Streamline ordering & documentation system; SAP ERP 

Adopt faster means to order  & receive components; JIT 

No formal labour union ; employee loyalty 

No formal labour union; employee loyalty

JIT, Lean Mfg., TQM (initiating), World class mfg., Automation

New design & tech. from Honda, new   factories,  

Source parts, components; partner with key suppliers

Streamline shipping time; inventory tracking;SAP ERP 

Purchase capacity on railroads/trucks

Ship to dealers using railroads/ trucks; deliver 

Dealer mgt. to improve selling, product mix ; SAP ERP 

Buy media time; work with advertisersCampaigns ‐“Dhak Dhak Go”; CRM – HH Passport 

After sales service (largest network) ; Spare parts availablity 

No formal labour union; employee loyalty 

No formal labour union; employee loyalty

Improve service turn around time with spl. Tools & tackles 

Source spare parts & tools; partner with key suppliers

Administrative, legal and accounting tasks managed systemwide 

30

3 plants running in their full capacity. Earlier, when Haridwar plant was not commissioned,

the supply-demand mismatch was even more acute. In order to smoothen this fluctuation in

demand and also to ensure that this cyclicality doesn’t impact the operations of the plants,

HHML has a strategy in place which can be summarized as that HHML continues to operate

the plants during lean seasons at high capacity to build up a reasonable inventory. This

inventory increases its working capital considerably in that period and acts as a buffer when

demand surges.

2.9. Stretch & Leverage of the Resources

When Hero Honda entered the two-wheeler market in ‘80s, it was shaped very much by the

regulatory & bureaucratic forces and has been dominated by 2-stroke scooters & bikes

manufactured by Bajaj Auto and some other companies. The 4-stroke technology taken up by

Hero Honda was looked at with skepticism, even though it promised higher power-to-weight

ratio, higher efficiency (and thus better mileage) and less pollution. But Hero Honda aspired

to be the largest player in the industry, the gap between the aspiration & reality being huge.

The promoters of the JV, both Hero Group & Honda of Japan, had a lot of faith & confidence

on the eventual success of this strategic alliance, even though it faced a lot of challenges like

a violent strike which affected its production facilities in 1987. Even Splendor when it was

launched initially had many technical problems. But it stretched & leveraged its resources –

the supplier & distribution network (initially based on the reliable & loyal distribution

channel of Hero Cycles, which is a group resource) and technological superiority of Honda

engines & design to bridge the gap between its aspiration levels & current reality and

eventually succeeding & becoming the largest player in the industry.

The Hero Group, as a whole, has firm beliefs in its capability of successfully borrowing &

extracting knowledge from numerous technical/strategic alliances & JVs that it has formed

over the years as means of resource accumulation in its pursuit of leveraging resources.

Apart from the most celebrated JV with Honda, it has established such alliances with

numerous other companies. As an underlying theme in all these activities, we can see a

general trend emerging – (i) Vertical Integration - this is common for most related

diversifications, (ii) Diversification – importance is given here for risk mitigation &

31

opportunity grabbing by moving in unrelated but high growth areas. In the next few

paragraphs, some of these are discussed -

(A) Technology Related Partnerships/ Alliances and Joint Ventures

• Hero entered a joint venture for technical and financial participation with one of the

world's largest automotive makers, Honda Motor Company Limited of Japan, in

1984 for the manufacture of 100cc motorcycles in India.

• Hero's quest for a low-budget, fuel-efficient and environment-friendly two-wheeler

led Hero Motors to enter into a Technical Collaboration with Steyr Daimler Puch of

Austria in 1987 for the manufacture of the 65cc, Porsche-design mini-motorcycles.

• Munjal Showa Limited was formed in Technical and Financial Collaboration with

Showa Corporation, Japan, to design, develop and manufacture of front forks,

shock absorbers, struts and gas struts.

• Sunbeam Auto Limited has set-up a state of the art piston manufacturing facility in

technical collaboration with M/S Honda Foundry Company Limited of Japan, the

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pioneers in the world for manufacturing high-strength lightweight pistons used in

light, powerful fuel-efficient engines.

• Munjal Auto Industries Limited has a joint venture with the State-owned Gujarat

Industrial Investment Corporation, to cater to the needs of the overseas market.

• Hero Cycles CR Division was set up in consultation with MECON, Asia's largest

engineering consultants and in Technical Collaboration with Wean United, USA.

• Hero Cycles Cold Rolling Division has also entered into a technical collaboration

with Kawasaki Steel Corporation, Japan for the improvement of production yield,

elimination of defects, reduction of customer returns and enhancement of

maintenance operations against certain predetermined targets.

(B) IT/ITES Related Alliances

Munjal-eSystems, the Enterprise-oriented and Software Solutions division of Hero

Corporate Service Limited is a microsoft gold certified partner. It is ISO 9001:2000 certified

and is today, a dedicated and the most preferred solution center for microsoft business

solution.

Navision in the manufacturing sector. It has to its credit many sucessfully completed

projects in various industries like automobiles, switchgears, pharmaceuticals, trading,

indusrial goods manufacture, education services, IT enabled services etc.

Hero Mindmine, the technology based learning solutions provider and training division of

Hero Corporate Service Limited, is one of the largest and premier training powerhouses in

the country focussed on building BPO/Customer Service Professionals in the sector of

Airlines, Automotive, BPO, FMCG, IT, and Pharma. It has alliance with two companies, in

order to facilitate the successful training of students and professionals in globally understood

Business English:

• DynEd Corporation, which provides quality courseware by combining proven

classroom teaching skills with the best of multimedia techniques.

HeroITES, the BPO and Contact Centre solutions provider of Hero Management Service

Limited has a strategic alliance with ACS Incorporated, USA, a leading BPO and IT

services company. With revenues of US$ 4.35 billion ACS is a Fortune 500 company with

33

more than 50,000 people in nealry 100 locations around the world. With this alliance,

HeroITES can provide onshore and nearshore solutions in the customer acquisition and

customer interaction segment of the BPO industry. HeroITES and ACS offer a complete

range of services to clients from their on-shore, near-shore and off-shore centers across the

United States, Canada, Argentina and India. ACS Inc aims at increasing client's prosperity

through Customer Care Solutions that exceed industry norms in Service and Value.

(C) Product Engineering Related Alliances

• Hero Global Design is the largest Certified Engineering Provider (CEP) of PTC

from India. Hero Global Design's alliance with PTC enables the development of elite

corps of engineering professionals, an opportunity to work directly with PTC and its

customers and to gain expertise as a Pro/ENGINEER Expert throughout PTC's

Worldwide Customer Base. It also enables Hero Global Design to provide high

quality Legacy Data Conversion Services.

• Hero Global Design is the exclusive representative of Porsche Design GesmbH

(studio) in India.

• Hero Global Design has a business agreement with Target Design, a leading

industrial and automobile design company in Germany.

Horizontal / Vertical Integration

Over the years the Hero group has diversified into different businesses in which a pattern of

Vertical Integration can be observed. A considerable level of vertical integration in its

manufacturing activities has been ample in the Group's growth and led to the establishment of

the Hero Cycles Cold Rolling Division, Munjal and Sunbeam Castings, Munjal Auto

Components and Munjal Showa Limited amongst other component-manufacturing units. The

integration of the automotive business of the group started with the setting up of Majestic

Auto Limited, where the first indigenously designed moped, Hero Majestic, went into

commercial production in 1978. Then came Hero Motors which introduced Hero Puch, in

collaboration with global technology leader Steyr Daimler Puch of Austria. Hero Honda

Motors was established in 1984 to manufacture 100 cc motorcycles.

34

3. Corporate Parenting & Critical Success Factors: Hero Group

We have already stated that many of the group technical/strategic alliances and JVs are aimed

at increasing the vertical integration of the businesses. From the corporate parenting concepts

also, these initiatives are falling mostly in the Heartland zone (shown below), i.e., these

related diversifications are helped by accumulated competencies of the group as well as

complementing the core business as well. The following Parenting Fit Matrix shows how

major Hero group companies are placed -

The unrelated diversifications into IT/ITES arena should fall in the Ballast zone. But none of the business ventures are either in Alien Territory or in Value Trap category.

35

The following table shows Critical Success Factors as we found out for the Hero Group for its diversifications in various businesses -

Critical Success

Factor Motorcycle Bicycle Mopeds

Healthcare

Equipments

Bicycle

Parts

Automotive

Parts

Marketing Yes

Consumer

Awareness Yes

Operational

Efficiency Yes Yes Yes Yes Yes

Technology Yes Yes Yes

Supply Chain Yes Yes Yes

Cost Yes Yes Yes Yes Yes

NPI Yes Yes

Cost of

Ownership Yes Yes Yes

4. Core Competency & Competitive Advantages

Core Competency of Management

Thrust on Quality – Hero Honda does not sell the cheapest bikes in the Indian market;

instead, the company’s products command a premium as the consumers believe that that they

offer better value for their hard-earned money. This has been possible by the managements

relentless thrust on quality. In a country where focus on quality is perceived to be less

important than achieving cost leadership and volume sales, the company has been exemplary

in its efforts towards maintaining the highest quality standards. The focus on quality is clearly

visible from the various policies of the management, such as linking a major component of

the worker’s wages with factors such as quality and productivity.

But it has to be kept in mind that Hero Honda has achieved and continue to achieve and

provide its customers product and services of such high quality at comparable or at lower cost

36

than its competitors by virtue of its diligent following of Lean Manufacturing & other World

Class Manufacturing concepts.

Focus on Continual Improvement – The management has been successful in leveraging

Honda’s vast product and technology range and the product offerings of the company are a

reflection of the ability of the management to exploit the competencies of its JV partner to the

fullest. For example, the company was the first to introduce fuel injection for two wheelers in

India.

Building Long Term Relationships with Channel Partners – Being at the helm of the

Indian two wheeler industry and sustaining the pole position calls for an efficient supply

chain. The management has been able to live up to this challenge through its ability to build

long term relationship with over a large no. of dealers, suppliers & other channel partners.

The focus has been to create a sustainable business model that leads to a win-win proposition

for all the members of the value chain. The Munjals have gone much beyond the

conventional definition of ancillarisation, making it a point to extend technical and

managerial support to these ancillaries. These ancillary units are manned by friends, relatives,

ex-employees or close associates of the Munjal family since the Group patriarch, Mr

Brijmohan Lall, "… never wanted to march alone."

Domain Knowledge – The management posses in-depth knowledge of the Indian market.

The combination of this knowledge and the supplier network along with Honda’s expertise

over 4-stroke technology has greatly contributed to the success of the Joint Venture. This also

helps the company to think ahead of its competitors and come up with products for satisfying

the ever changing consumer needs.

Global Gearing: Managing Alliances - Over the years, Hero Group has strengthened its

joint ventures, forged profitable relationships with its partners and allied itself with some of

the best players in the market. Technology assimilation through wide sourcing has been and

will continue to be an integral part of the progression of the Hero Group.

In a nut shell, the major reasons behind Hero Honda’s success are:

• Visionary Leadership

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• Technical Superiority

• Superior Customer Focus

• Manufacturing Excellence

• Marketing & Sales Capability.

The following diagram summarizes the competitive advantages Hero Honda enjoys thus -

5. References

i. Exploiting the Virtual Value Chain by J F Rayport, J J Sviokla.

ii. Strategy as Stretch & Leverage by Gary Hamel & C. K. Prahlad

iii. www.herohonda.com

iv. www.herogroup.com

v. www.businessweek.com

vi. www.indiatoday.com

Technical Superiority

Brand Image

Marketing & Sales

Capability

Manufacturing Excellence

Visionary Leadership