Question.3130 - Write a management report on Honda Motors. The case study “Reconciling managerial dichotomies at Honda Motors”, in your core textbook De Wit & Meyer (2010) “Strategy: Process, Content, Context”, 4 th edition, pp.657-672 acts as an initial starting point to introduce you to the case study organisation. Please note that you are expected to carry out your own, additional research. The report should not exceed 3,000 words (excluding references and appendices) and should have the following structure with each section numbered exactly as shown below: Section/Title Details/Guidance Cover Page Include module code, student name, ID and word count for the main text. Do not add pictures - keep the page clear and simple. Contents Include page numbers. 1. Introduction (10 marks) Company background. As a minimum, this should include its main products/services, the industry is in, its main markets, main competitors and recent financial data. Avoid cutting and pasting from the company’s website. Explicitly select the SBU unit of analysis. 2. Analysis of the current business environment affecting the industry (35 marks) Focus on the industry that is relevant to the company’s core business and respective geographical focus. Look at the macro-environment and micro- environment (including customers and competitors). Identify important market trends. Use analytical tools such as PESTLE and Five Forces as appropriate and additional frameworks/theory where they add value to your analysis. This section MUST conclude with the main opportunities and threats affecting the industry derived from the above analysis. 3. Analysis of the company’s strategic capabilities (35 marks) You need to look at things such as value-adding activities, resources (tangible, intangible, threshold and unique). Use tools from the RBV and apply them correctly. Does the company currently have any competitive advantages? Discuss capability building required for competitive survival. In the future? This section MUST conclude with the main strengths and weaknesses of the company derived from the above analysis. 4. Evaluation of possible future strategies for the company (20 marks) What are the key strategic issues deriving from your analysis? Identify potential future strategies (options). Which one would you recommend and why? Justify your recommendations and show how they address the key issues and could assist the company to achieve competitive survival. 5. Conclusion Maximum 100 words. Would you recommend a friend to invest in this company? Why? References All sources must be cited and referenced in Harvard style. Appendices Maximum five pages - use for supporting data. Only include relevant data that add value and are relevant to the report.
Answer Below:
CONTENTS COMPANY BACKGROUND …………………………………………………3 ENVIRONMENT AND INDUSTRY OVERVIEW……………………………4 PORTER’S FIVE FORCE MODEL…………………………………………….5 PESTEL ANALYSIS…………………………………………………………...8 COMPANY’S STRATEGIC CAPAPBILITIES……………………………… 9 KEY STRATEGIC ISSUES……………………………………………………10 POSSIBLE FUTURE STRATEGIES………………………………………….10 CONCLUSION…………………………………………………………...........11 REFERENCES…………………………………………………………………12 INTRODUCTION COMPANY BACKGROUND Headquartered at Minato, Tokyo, Japan Honda motors is a Japanese public multi national corporation primarily engaged in the production of automobiles and motor cycles. Since 1959 Honda has been the world’s largest motorcycle manufacturer and manufacturer of internal combustion engines across the globe. Apart from its master reign in core automobile and motorcycle production, Honda also manufactures commuter models, sports model including trial and Moto car racing; allterrain vehicles and multi utility vehicles and is also involved in research related to artificial intelligence and robotics research. The product line also comprises of power products in terms of tillers, portable generators, general purpose engines, grass cutters, outboard marine engines, water pumps, snow throwers, power carriers, power sparayers, lawn mowers and lawn tractors and home use cogeneration units including thin film solar cells for home, public and industrial uses. The firm is also engaged in selling spare parts and providing after sales services through retail dealers and also offers retail lending and leasing to customers as well as wholesale financing to dealers primarily in North America, Europe and Asia. Operating mainly in the automobile sector, the firm faces stiff competition from players like General Motors company, Daimler AG, Toyota Motor Corporation, Ford Motors, Volkswagen AG, Nissan Motors, Peugeot S.A and Fiat, to name a few. The recent financial data presents a net income of $2,570,000 thousand as compared to the previous year of $6444000 thousands as on 31 st March 2011. The stock holders equity remain somewhat same as compared to the previous year however the net assets show an increasing trend. In the most recent quarter, ending at December 31, 2012 the current ratio stands at 1.27 and the book value per share is 33.13 whereas the payout ratio stands at 18%. ENVIRONMENT AND INDUSTRY OVERVIEW The expansion of foreign commerce in automobile industry dates back to technology transfer of Ford Motors Company’s mass production from the US to Western Europe and Japan following both World Wars I and II. The advancement in industrialization led to significant increase in growth and production of Japanese and German markets. As a result of the oil embargo from1973-74, the exports of fuel efficient cars from Japan were exported to US. This was the second defining event of the industrial globalization of automobile industry. All such series of events have led to growth in world commercial distribution system and at the same time has increased the competition. Automakers in such circumstances have reciprocated by institutionalizing innovative production and distribution methods. The global factors that have led to few trends in the automobile industry can be traced as follows: ? Global market dynamics: The integration of emerging markets into the production process in order to reduce the production cost is one of the major global trends of the automobile industry. These emerging markets include Latin America, China, Malaysia and other markets of Asia and South East Asia. ? Initiating Global Alliances: The “Big Three” (GM, Ford, Chrysler) have merged with and formed commercial strategic partnership with other European and Japanese automobile manufacturers. One of the reasons behind this is to strengthen its position in the U.S market. ? Industry Consolidation: the global auto industry has been divided into three tiers. GM, Ford, Toyota, Honda and Volkswagen belong to the first tier. The other two tiers attempt to consolidate and merge with each other in order to gain strategic benefits and compete with the first tier manufacturers. Few mergers are as follows: ? 1 st tier Company mergers comprising of Volkswagen- Lamborghini, BMW-Rolls Royce. ? 2 nd tier Company mergers comprising of Chrysler- Mercedes Benz, Renault- Nissan Fiat ? 3 rd Tier Company mergers- Mazda- Mitsubishi; Kia-Volvo ? Slow growth in emerging markets especially in BRIC nations (Brazil, Russia, India and China) mostly because of the continuous attempts by their government to curb inflationary pressures. Honda being a part of the automobile industry and its structure and operations are an outcome of these trends as mentioned above. The operations of Honda can be better understood by the analytical tools: PORTERS FIVE FORCE MODEL Porter’s five force models represent the set of factors that influence the functioning and strategy formulation of the firm. The Porter’s five force model as applicable to Honda: ? Bargaining power of suppliers: since Honda forms a significant part of the market, suppliers are reliant on high volumes. This enables them to cast less bargaining power from the firm. As a result the firm Honda remains in a dominant position whereby the producer can threaten to cut volumes and hurt the supplier’s profits. Hence Honda has significant bargaining power of suppliers. ? Bargaining power of customers: Due to a higher proportion of the customers, no one customer can affect the price of the firm or exert pressurize the firm in terms of pricing. Hence Honda stands at a win- win situation. Such a situation often gives rise to an increase in cost of the product. ? Competitive rivalry between the firms in an industry: usually this force gains momentum due to the government policies and regulations. When government limits competition, it turns to a positive sign for firms as investment turn to inflows soon and vice versa. This factor is subject to change every fiscal year. Again the automobile industry has a huge size. In such a scenario the auto industry allows multiple firms and goes on prospering without stealing market share from each other. Thus, even this factor turns out to be a positive ark for player like Honda which gets a substantive portion of the market due to its innovative products and competitive prices. ? Threat of substitutes: Automobile industry does not seem to be adversely affected by this factor. As for Honda, this factor is almost negligible, as the firm has a well diversified line of almost every type of automobile. Be it the bike or the car or airlines, Honda has a market share in all. Hence the threats of substitutes do not stand much of a chance with Honda. ? Threats of new competitors: Every business and firm faces this threat irrespective of their industry and market share. Though the possibility of any new firm entering the market cannot be denied, however there are few factors which affect this threat and need attention are by new players are: ? High sunk costs make it difficult for a competitor to enter the market and thrive successfully. In such a case the new entrants have to commit money without any guarantee of returns in the end. Hence Honda has less threat of new competitor’s in the market. ? Strong distribution network required: automobile industry needs a strong distribution of network in the possible markets. This requires huge capital outlay, the return of which is not very impressive. Hence any player to enter into the market gets this as a major stumbling block. Thus, Honda and the other established firms have less threat of new entrants into the industry. ? High capital requirement: Right from the production stage to the ultimate delivery, the firm requires huge quantum of capital. It becomes important for the firms to have a huge flow of cash during the production stage as the ultimate recovery of this fund is not certain and regular. Hence any firm entering into the market would require capital to a great extent ? Strong brand names: the purchase of any vehicle is associated with the brand names as these names have their goodwill and endorse a silent promise of great quality. As the purchase of automobile is often a luxury item, hence the presence of a strong brand name turns out to be a important criterion in such a case. Hence, new entrants need to assure this. ? Patents limit new competitors: this industry basically revolves around patents. Such patents guarantee the manufacturers of a product differentiation which separates them from existing players and their offered goods. ? The requirement of advanced technology and economies of scale pose another obstacle to firms to enter into the market. Thus, new competitors in order to thrive into the industry need operational efficiencies to a great extent before entering into the market in any scale: big or small. PESTEL ANALYSIS However the existing players get adversely or favorably affected by certain factors. The PESTEL analysis shall disclose this in case of Honda Motors. ? Political factors: UK government had proposed a limit in number of cars being sold in the country. Thus Honda shall face issues of sales and production units as the firm would not be in a position to manufacture more number of cars as it used to do previously. Again the UK consumers tend to pay higher pre tax prices for cars than any country apart from Europe. ? Economic factors: exchange rates often provide difficulties to the firm in terms of fluctuation in prices and resultant profit or loss arising from such conversion. UK and Japan do not enjoy stable and smooth exchange rates. Hence the pricing strategy, however effective be is bound to face instability due to the exchange rate fluctuation. Rising income of the families have given disposable incomes to the families. As a result there lies a scope of buying luxury items. Often at countries, car or automobiles constitute the top priority in luxury item list. Honda in such a case has been introducing new models to cater to the needs. But the increasing tend of rise in petrol is another factor that Honda is facing and would get acute in upcoming future. To combat such pressures Honda has been introducing more economical cars and eco friendly technology cars like the 1.4 Honda Jazz and Honda Civic Hybrid. ? Social factors: UK consumers tend to be patrons of their home brands. In such a case the introduction of eco friendly cars such as Honda Civic Hybrid is one of the efforts to gather buyers belief and patronage to foreign companies like Japan based Honda. ? Technological factors: technology keeps on changing. As a result the automobile companies need to incorporate these changes into their production at a faster rate. As the site of the Honda Company states that it is passionate in innovating technology and challenging boundaries of mobility advancements. ? Legal factors: A high wage rate as institutionalized by the government is one of the alarming situations for the firm. As this high rate shall result into higher cost of production and ultimately would be chargeable to the goods. Thus the price of the good shall increase. ? Environmental factors: global warming has led to petroleum deficiency in countries rich in petroleum. Thus, in such adverse circumstances eco friendly cars provide the ultimate solution. Honda has very well leveraged this situation and has offered the petroleum and eco friendly cars. One of such an example is Honda Hybrid. COMPANY’S STRATEGIC CAPABILITIES A core competency is something that a firm can do well and follows three conditions: 1. Provides customer benefit 2. Hard to imitate by competitors 3. Can be leveraged to many products and markets In such a case the firm sustains profit that exceeds the average of the industry. There are few competitive advantages that Honda enjoys such as: ? Reliability: Honda has a remarkable reputation of quality parts. Honda automobiles are ranked high in terms of quality and reputation. ? Fuel efficient: Honda also ranks high in fleet fuel efficiency. Honda still is the industry leader in high fuel efficiency models that has gained popularity in recent times owing to high gas prices. ? Value: Honda has created an image of creating value whether it is the luxury line or the sports car offerings. Thus, the strengths of Honda are its wide image of value creation by the product differentiation and innovative technologies. KEY STRATEGIC ISSUES However the above analysis points out to some key strategic issues which need to be dealt in future: ? Emerging markets provide an opportunity for growth. However their slow growth shall adversely affect the growth and would provide issues that need to be addressed. Hence Honda needs to come up with remedies and position itself in such a way that shall help Honda to market its products effectively and gain market share. ? Growing fuel prices offer another strategic issues as consumers shall be reluctant to buy cars in such a scenario. Rising oil prices would require fuel efficient cars. However, these cars need to be fully equipped with all technologies. The consumers generally do not accept cars which are not tech savvy or where they have to compromise. Hence this poses yet another challenge in front of the automobile company Honda. This problem aggravates especially in western countries where consumers/ buyers are more inclined towards home brands. Hence gaining a dominant position in such adverse situations shall be difficult and would require strategic decisions to be made. POSSIBLE FUTURE STRATEGIES However there can be steps to overcome these problems. One of the steps that seem feasible in such a scenario is: ? Production and marketing of a fully eco friendly car which is not only fuel efficient but also would be advanced in all technological requirements. In order to gain momentum in the western markets the company can adopt one or more of the following alternatives: ? Penetration pricing, which would enable the firm to launch its product at a low cost than the competitors ? Using its brand image and endorsing value creation by enhanced services. ? Providing customers with online marketing schemes whereby the customers can select their car through the website and can customize their interior and exterior specifications and features. These steps shall help the firm to meet the upcoming challenges relating to: ? Increasing petroleum products ? Decrease in petroleum mining and extraction due to global warming ? Creating an individual identity in the western markets where home brands have an upper hand ? Meeting diversified technological requirements based on demographics and consumer psyche ? Growing awareness relating to environmental pollution and emission. ? In order to penetrate into the emerging nations like the BRIC countries, these tactics along with the fuel and price efficient cars shall help in increasing sales and resultantly the sales turnover and market share. CONCLUSION Honda seems to be having organizational capability and a reputed brand name. This brand name collectively with its strengths contributes to profits which are evident from the financial statements of the firm. While investing in a firm, investors usually expect capital gains along with the wealth maximization of the invested amount. Honda in such a case is capable to fulfill all the criterions of the investment successfully. Thus, Honda as an investment tool seems an attractive option. REFERENCES: Simpson, L. June 26, 2012, Competitive Advantages of Honda Retrieved from: Competitive Advantages of Honda | eHow.com http://www.ehow.com/list_5916489_competitive-advantages- honda.html#ixzz2Q3EerShg Gang, L. (2005), The Honda way to create and sustain a competitive advantage in the Chinese automobile industry: a marketing perspective Retrieved from: http://dspace.lib.niigata-u.ac.jp:8080/dspace/bitstream/10191/983/1/18_0179.pdf Bern, M. February 12, 2012, Review Of The Auto Industry: Upside Potential As World Economy Improves. Retrieved from: http://seekingalpha.com/article/359801-review-of-the-auto-industry-upside- potential-as-world-economy-improves Honda company profile, Retrieved from: http://finance.yahoo.com/q/pr?s=HMC+Profile http://www.loc.gov/rr/business/BERA/issue2/industry.html http://www.honda.com/More Articles From Strategic Management
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