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honda

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Published by: Prashant on May 13, 2011
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The Honda motorcycle businessin the Vietnamese emergingmarket
Nguyen Duc Tiep
Graduate School of Economics, Kyoto University, Kyoto, Japan
Abstract
Purpose
– To explore subsidiary development in emerging markets and highlight the role of localfactors on driving foreign firm business strategy.
Design/methodology/approach
– This study builds upon the diamond of competitive advantageframework with regard to determinants in the local environment. Chinese motorcycle penetration intoVietnamese market has made considerable changes from which Honda has upgraded manufacturingcapability, moved to higher value activities. It shows a confident process of subsidiary development.The analysis is supported by interview data in three field trips.
Findings
– The penetration of Chinese motorcycle into Vietnam has brought more opportunities.Honda can utilize for long-term investments than challenges the firm hadto temporarily deal with. Theeffect of changes in the local market was quite specific to Honda business. Consequentially, localfactors have driven the firm emergent strategy into low-price model which is considered as Honda’slocal specific product in Vietnam.
Practical implications
– Selective environment disadvantages play an important role in makingpressures on firms to engage in more sophisticated activities. The distinctive competence is obtainedfrom co-evolution between external and internal resources rather than one itself. Continuousimprovement, finding discontinuity, and reconciling resources are necessary for firms, especially whencompeting in international emerging markets.
Originality/value
– The case study reflects an interesting picture of competition in motorcycleindustry under the new stage of international competitive environment. Honda Vietnam case showsdifferent features from Honda in the past and other subsidiaries in the region as the firm exists toharmonize the two dichotomizations of motorcycle business architecture: Japanese and Chinese model.
Keywords
Motor cycles, Emerging markets, Vietnam, International investments, China
Paper type
Case study
1. Introduction
Recently, the emergence of Chinese motorcycle industry has made internationalcompetition change. Business architecture was dichotomized into close-integral andopen-modular models, which present to Japanese and Chinese styles, respectively,(Ulrich, 1995; Fujimoto
et al.
, 2001; Hoang, 2005). Vietnamese motorcycle market hasbecome a significant ground for fierce competition between Japanese and Chinesecompetitors since the penetration of Chinese motorcycles into the country. It led toconsiderable changes in the domestic industry and widely impacted on all existingmotorcycle makers as well as consumers and suppliers. Among foreign firms, Honda
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1746-8809.htm
This study is a part of a dissertation conducted at Graduate School of Economics, KyotoUniversity. The author is particularly grateful to Professor Sugiyama for his helpful commentsand suggestions. Thanks are due to Japan International Cooperation Agency (JICA) for financialsupport.
IJOEM2,3
298
International Journal of EmergingMarketsVol. 2 No. 3, 2007pp. 298-309
q
Emerald Group Publishing Limited1746-8809DOI 10.1108/17468800710758413
 
Vietnam stands out as showing significant story about subsidiary development inemerging market. Although there were big challenges to Honda, the company haseffectively responded to the changes in the local environment and expanded to highervalue activities (Table I).This case study emphasizes on Honda’s motorcycle business in Vietnam. Therefore,it addresses some questions: what were impacts of Chinese phenomenon on HondaVietnam Company? – described the emergence of Chinese motorcycle into Vietnamesemarket and the effects on Honda Vietnam business; what did local factors play role indriving Honda strategy? referred to the characters of main determinants whichshaped the strategy of making local specific product in Vietnam; how did Hondarespond to integrate internal and external resources in order to develop manufacturingcapability? focused on Honda’s activities to take advantages in the localenvironment.The paper is organized as follows. Section 2 reviews the Vietnamese motorcycleindustry and the changes in industrial structure after the penetration of Chinesemotorcycle. Section 3 explains the specific impacts of local environment on HondaVietnam. Section 4 focuses on Honda product strategy in Vietnamese market. Finally,the paper closes with a discussion of overall case study in Section 5.
2. Chinese motorcycle emergence and the changes in market structure
Prior to 1990s, Vietnamese motorcycle industry did not exist as demand for motorcyclewas quite small and all motorcycles were imported. It only started to develop in early1990s when there was a presence of foreign companies in the country. The first onewas VMEP, a Taiwanese firm, who invested in Vietnam in 1992. Japanese companiesentered the motorcycle industry later: Suzuki in 1996, Honda in 1997 and Yamaha in1999. From the late 1990s, Vietnamese enterprises which made motorcycles under thecomplete-knock-down (CKD) entered the manufacturing industry and then shifted toincomplete-knock-down method of production. Following the firms in downstreamindustry component suppliers also started developing domestically.The market grew rapidly in late 1990s due to the emergence of huge number of domestic companies who imported and assembled Chinese motorcycle[1] in Vietnam(Figure 1). Total motorcycle production increased rapidly and approached 2 millionunits in 2001, of which Chinese products accounted for nearly 1.5 million units.Geographically, Vietnam is close to China. Before 1999, domestic motorcycleindustry was still less developed while the motorcycle industry in China wasat maturity[2]. Vietnamese motorcycle industry was inevitably influenced.
Product 1997 1998 1999 2000 2001 2002Super Dream (Honda) 2,100 1,978 1,702 1,325 1,290Sirius (Yamaha) 2,010 1,708 1,392 1,392Angel (VMEP) 1,450 1,400 1,280 1,171 961 961Viva (Suzuki) 2,280 2,020 1,870 1,688 1,492 1,492Chinese (Longcin) 1,000 627 464 464Average price 2,273 2,096 1,897 935 630 718
Source:
Ministry of Trade
Table I.
Motorcycle prices
The Hondamotorcyclebusiness
299
 
Chinese motorcycles were mainly imported to Vietnam in 2000 by more than 50domestic companies who were established within just two years 2000-2001. As theyinitially made CKD products, almost all components were imported directly fromChina; very few parts were manufactured in Vietnam. Although the production of FDImotorcycle makers increased slightly in this period, their market shares reducedsharply, especially Honda Company (Figure 2). All foreign competitors had toexperience decreasing performance.
Figure 1.
Number of motorcycles inVietnam
Thousand units02000400060008000100001200019901991199219931994199519961997199819992000200120022003All licensed motorcyclesNewly licensed motorcycles
Source:
NEU-JICA MotorcycleProject
Figure 2.
Market share of motorcycle companies
0%10%20%30%40%50%60%70%80%1997199819992000200120022003YearHonda VietnamTotal HondaYamahaSuzukiVMEPChineseOthers
Source:
Ministry of Trade, Ministry of PublicSecurity
IJOEM2,3
300

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