Hero Honda

SWOT Analysis
Strengths

Ability to understand customers needs and wants Recognized and established brand name Effective advertising capability Its after sells service

Technology Maintenance cost is low Resell value is high Companys name is synonymous with fuel-efficient bikes and connectivity

 Weaknesses

R&D is not close to the Hero manufacturing plant Hero is vulnerable in the joint venture because Honda Motor Company has so much power Brand name of Hero itself has no influence in the automobile industry.

 Opportunities

Global expansion Expansion of target market (include women) Become Indias leader in the scooter market Financial help easily available Relatively low rate of interest and the discount of prices offered by the dealers and manufacturers lead to the increasing demand for two-wheeler vehicles Large market for the high performance segment which is increasing with the upliftment of the lifestyle of people

 Threats Honda Motorcycles and Scooters India can take away market share and cause joint venture to go sour Bajaj Motors is a strong competitor The big giant like Harley-Davidson will introduce soon in Indian market. FDI announced in Automobiles is 100%. \ Petrol price increases Pollution norms Aluminum and steel price increases

BCG Matrics
HIGH

S TARS

Q UES NMARKS TIO

C HC W AS O

DO GS

LOW HIGH LOW

= Hero Honda =Bajaj =TVS

= Y aha am =K inetic

Market Share

Explanation of BCG Matrix

Industry growth is 17% The relative market share of Hero Honda is

highest among its rivals (48%) so it will fall in the star quarter of BCG matrix. Company has the only two option Innovative or Die

Source - CAGR

Question 1 What were the dominant characteristic of the market for mopeds, scooter and motorcycles in India? What host the government restriction have affected country two-wheeler market?

Market Dominant Characteristics

The Indian two-wheelers Industry can be broadly

classified in scooters, motorcycles and mopeds. The era of post independence from the 50's to 70's saw the emergence of the two-wheeler industry. There were a handful of players like Bajaj Auto, Yezdi, Royal Enfield, though with limited production. Manufacturing was licensed, expansion restricted and locations for setting up plants decided by the government. Two wheeler productions were under a lakh during the 70's and iconic brands like Royal Enfield' s bullet and Bajaj Auto's Chetak won the hearts of Indian consumers.

 But the 80's proved to be the transformational decade. A

slew of global alliances were struck. Hero tied up with Honda, Bajaj with Kawasaki, TVS with Suzuki and Escorts with Yamaha. It was hero Honda that moved the Indian market from scooters to bikes with the promise of fuel economy, better technology and a stylish product. Post liberalization the focus was on technology, pollution control, emission norms, increased competition and segmentation. The last 7 years have seen an increase in exports, capacity expansion, more investments and almost a dozen vehicle manufacturers.

Indian Market Scenario

Until a decade ago, the auto sector in India had been a

relatively protected industry limiting the entry of foreign companies with high tariffs against imports. Today, as part of a broader move to liberalize its economy, India has opened up the sector to Foreign Direct Investments up to 100%. since then has also progressively relaxed trade barriers. Today, almost all of the major global companies are present in India producing two-wheelers and passenger cars in almost all segments.

Two-Wheelers: Comparative Characteristics

Scooter Price*(Rs. as in January 2007) Stroke Engine Capacity (cc) Ignition Engine Power (bhp) Weight (kg) Fuel Efficiency (kms per liter) Load Carrying > 27,000 2-stroke, 4-stroke 90-150 Kick/Electronic 6.5-9 90-100 50-75 High Motorcycle > 30,000 2-stroke, 4-stroke 100, 125, 150,>180 Kick/Electronic 7-8 and above > 100 50-80+ Highest Moped > 15,000

Two-Wheelers: Comparative Characteristics

2-stroke 50, 60, Kick/Electronic 2-3 60-70 70-80 Low

Demand Forecast for Motorcycles and Scooters for 2011-12

2-Wheeler Segme nt Regions South 2835 (12.9) 203 (2.6) West 4327 (16.8) 219 (3.5) NorthCentral 2624 (12.5) 602 (2.8) East & NorthEast 883 (11.1) 99 (2.0) All India 10669 (14.0) 1124 (2.08)

Motorcycle Scooter

Source www.ibef.com

 Table suggests two important dimensions for the two

wheeler industry. The region-wise numbers of motorcycle and scooter suggest the future market for these segments. At the all India level, the demand for motorcycles will be almost 10 times of that of the scooters. The same in the western region will be almost 20 times It is also evident from the table that motorcycle will find its major market in the western region of the country, which will account for more than 40 per cent of its total demand. The south and the north-central region will follow this. The demand for scooters will be the maximum in the northern region, which will account for more than 50 per cent of the demand for scooters in 2011-12.

Demand Drivers
Inadequate public transportation system, especially in the

semi-urban and rural areas Increased availability of cheap consumer financing in the past 3-4 years Increasing availability of fuel-efficient and lowmaintenance models Increasing urbanization, which creates a need for personal transportation Changes in the demographic profile Difference between two-wheeler and passenger car prices, which makes two-wheelers the entry level vehicle Steady increase in per capita income over the past five years; and Increasing number of models with different features to satisfy diverse consumer needs.

GOVERNMENT RESTRICTIONS

Before 1990s, Government did not allow foreign direct investment. For local players there was licensing process. Controlled Imports. Steep excise duties & sales tax Vehicle Emission Norms Euro Norms Setting up of clean technology mechanisms in polluting industries. Setting up of Common Effluent Treatment Plants (CETPs) in industrial estates.
New pollution under control (PUC) checking system for all categories of vehicles to be put in place by April 1, 2005

THE PARAMETERS DETERMINING EMISSION FROM VEHICLES

Vehicular Technology Fuel Quality Inspection & Maintenance of In-Use Vehicles Road and Traffic Management

Question 2 How has Honda chosen to enter in the Indian market for scooters, motorcycles and electric generators? What are the standard features of Honda's international strategy?

Honda In India
Glocalization strategy In the environment of liberalization, Honda had come

looking for partners Building plants in local areas to meet local demand Wanted to make strong footholds in Moped, motorcycles and electric generators Made a short list of indian prospects (companies) Negotiation with Bajaj Auto (which was in joint venture with Piaggio of Italy) failed. Went in talks with Kinetic Engineering Ltd (First manufacturers of moped, Maharastra), 44% of the indian moped market and 15% of the total two-wheeler market.

 Negotiation resulted in a 50/50 percent joint

venture forms Kinetic Honda Motors Ltd. Objective of launching a line of scooters in india This was all about how Honda entered in India's Two-wheeler market. On basis of prevailing electricity penetration in urban, semi urban and rural areas Honda went on talks with another partner for Shri Ram Generators Pvt Ltd.

Hondas International Strategy

Honda's Global Vision

Soichiro's vision was international in character. His desire was to lead the world in technology, and make a significant contribution to the creation of a better society. As a result, most of the products that Honda developed started out by making a difference.

 Honda raised its stake from 26% to 51% in Kinetic Honda. In 1983 Honda exists from the joint venture by selling its

stack back to Firodias In 1984, Allied with the Hero Group (Munjal Group) to enter in motorcycle business in india and formed Hero Honda Motors Limited. Honda agreed to provide technology know how to HHM and assist in setting up manufacturing facilities Focused on the quality of the modals on the aspect of durability, fuel efficiency and pollution control Honda decided to consolidate its R&D activities worldwide in three countries, but not in india. Well managed distribution network.

Question 3
What were the key structural events of the business relationship between Hero and Honda? Has the relationship produced the successful results?

Key Structural Events

In 1984.. The Company entered into a technical-cum-financial

collaboration agreement with Honda Motor Co. Ltd., Japan (HML) As per this collaboration agreement, HML was to furnish complete technical information and know-how and trade secrets and other relevant data Hero Honda CD-100 is the first four stroke motorcycle to be introduced in India in 100cc range. Its most attractive features are fuel efficiency and its light weight. CD-100 will be equipped with electronic ignition system, illuminated speedometer, 4 speed gear box, neutral and flasher indicators, etc Both partner held 26% of the equity with another 26% sold to public and the rest held by financial institutions.

 In 1985 The Company embarked on its 2nd phase of expansion

of increasing its installed capacity from 1,20,000 to 1,50,000 vehicles per annum by the addition of several critical aluminum and steel components. In 1989 The Company introduced a new model "Sleek" during July In 1990 The Company was planning to launch a new model motor cycle-CD 100 SS suitable to semi-rural conditions. In the domestic market the Company was reported to have a market share of 46%. In 1994 The Company extended its JV till 1994. Hero Honda Splender was launched in 1995 for urban areas.

 In 1997 Hero Honda Motors has launched its newest

motorcycle, the Street, a 100 cc bike designed for use in congested urban traffic conditions Hero Motors of the Rs.1,600 crore Hero group, as part of its globalization plan, has set up a plant in Brazil for manufacturing hero winner scooters. In 1999 Hero Honda Motors Ltd (HHML) and 20th Century Finance Corporation Ltd have signed a Memorandum of Understanding (MoU) for financing of Hero Honda motorcycles In 2001 - Hero Honda Motors Ltd. has launched a new 100cc motorcycle named `Passion Launches its new 223-cc, 16.8 BHP Karizma at Rs 79,000 Introduces Passion Plus, new version of Passion motorcycle 2005 Two-wheeler major Hero Honda on October 5 announced launch of its first scooter 'Pleasure' In 2006 Hero Honda launches CBZ variant X-treme

 Results

Hero Honda

Between 1995-2001 economic spread (deference between WACC and ROIC) expand frosm 16.5% to 65.4% was among the highest in country 1997-2000 hero Honda's quarterly sales grew 303.28% and its net profit jump from 16.28Cr to 98.3Cr While the industry grew at an average 21.74%/annum between 1997-2001 and hero Honda average growth rate of 35.46%/year Hero Honda maintained its grip in the motorcycle segment with a lead of more than one million motorcycles over its competitor Current market share of 48 per cent in motor cycle segment and industry growth as 36.54% Company accounted for 40 per cent of the Indian two-wheeler market.

Question 4
Have Hero and its chief rivals encountered various challenges as a result of their relationship with foreign partners? Explain

Definitely it is revealed that any challenges those were encountered by the players in automobile industry that was due to their foreign collaborators

Tvs- Suzuki
Tvs Incorporated in 1982 as Indian motorcycles Pvt. Ltd to

produce motorcycles in collaboration with Suzuki The perfect blend between the best design engineers and the latest technology But in august 2001, Tvs bought out 25.97% stake of Suzuki for 90 million, increasing its stake to 58.43%. The parting also meant that Suzuki would not be allowed to enter India for a 30 month period Tvs group wanted to promote the Tvs brand, grow their revenues, and develop product indigenously They also wanted to export Tvs-made vehicles to rest of the world, a proposition Suzuki motors opposed.

 With decline of two-stroke motorcycle in India, and with the

recent launch of the all-Indian Tvs victor, it was clear that Indian partners can do without Japanese collaborator. TVS' in-house product development was not good

Escorts -Yamaha
In 1995, Escorts and Yamaha Motors formed a 50:50 joint

venture (EYML).

It all started in 1999 when Escorts sold one-third of its shares

in the construction equipment company Escorts JCB to JCB of the United Kingdom for Rs 490 billion. This brought its stake down from 60% to 40%. Next came the turn of Hughes Escorts Communication, a 51:49 joint venture between Hughes Communications of the United States and Escorts. In December 1999, Escorts offloaded 23% of its stake to Hughes for Rs 750 million. This brought its shareholding in the company to 26%.

 mid 2000, Escorts divested 24% equity to Yamaha Motors

and as a result, Yamaha Motors became a majority stakeholder in the venture (74:26)
In May 2001, Escorts sold its remaining 26% equity, thus,

exiting from the joint venture.

Kinetic-Honda
KEL and Honda set up a 50-50 joint venture called kinetic-

Honda Ltd. The terms of agreement specified that KHL could not enter the motorcycle business Throughout the 1980s, Kinetic remained India's largest moped manufacturer with a 44% market share and a 15% share of the overall two-wheeler market. A decade later, the company's moped market share halved to 22% and the overall market share figure reached an abysmal 5%.

Question 5
What obstacles stands in the way of Heros operation one billion? What issue must Hero management address to achieve its 2002 strategic and financial objectives?

Obstacles stand in the operation one billion

 bajaj is the market leader tough competition from the company from competitors like TVS SUZUKI ESCORT YAMAHA BAJAJ PIAGGIO KINETIC HONDA they were totally dependent on the Honda motors for the technology . New product development was not materials as far as the market demand dedicated .

 Threat from local players like monto motors of They were providing rajasthan bikes and mopeds at very lowest cost .

fundamental principal of product of superior value at reasonable price . but Prices of steel , yen (japan) , ruber , are significantly high as compare to previous years .

HERO MANAGEMENT ADDRESS ..

 The market is far from maturity . so penetration is possible .. So concentrate on rural market more as compare to urban market , because urban market is already aware regarding brand of hero . Motorcycles growth as compare to other means of transportation was much higher . Good brand name is availble in the market cost of bikes is much lower to car 40,000 < 3,00,000

India rural market (70% of total population ) Rural people are very much cost conscious . They did not require that much features .

They should develop their own technical institute .

In advertisment .
Shows the feature of bike as compare to brand endorsement .. Because people prefer safety as first and it is the basic criteria through which one can attract to the customers .. They can remove the dominance of bajaj from the market because bajaj is the market leader .

Question 6
What recommendations would you make to Mr. Brijmohan lal to maintain heros dealing position in the market? Should company consider developing new relationship with international partner? Does it make more sense to create stronger alliance with domestic partner or to go outside india?

RECOMMENDATIONS
Concentrate on R & D establishment. Concentrate on entry and premium segment to

increase the market share. Concentrate on pricing strategy As far as entry segment is concerned, bikes should be reasonably priced with above average fuel economy to attract common man Ally with domestic financial firm to provide finance and vehicle insurance.

 In current condition Hero must have to

consider its partner till 2014. But rather than depend upon honda, hero should focus on R&D development on its own There are no domestic partner with which Hero can go for JV to develop R&D

Comparison between Hero Honda and Bajaj Auto in motorcycle segment

Product
Hero Honda CD 100, Hero Honda Splender, CD Dawn, Passion, Plus in below 150cc segment , and CBZ, Karizma in the Upper Segment, durability and fuel efficiency were focused. Boxer AT, CT in the below 150cc segment and Pulser and Discover DTS-I, fuel efficiency was main focus

Price
44000-50000 for .150cc segment And 6000080000 for high end segment

Place
Exclusive outlets of Hero-Honda and Honda for mopeds

Promotion
Both used extensive distribution system to reach Urban as well as Rural areas Desh ki Dhadkan

Bajaj

35000-40000 for below 150cc segment and 50000-60000 for above 150cc segment

Mainly dealt with It also done the franchising same what , method with Hamara Bajaj local distributors

Thank you