A Company Analysis Report

Of

Honda

Managerial Economics Project

Business Summary
Honda Motor Co. Ltd. together with its subsidiaries, engages in the development,
manufacture, and distribution of motorcycles, automobiles, and power products
primarily in North America, Europe, and Asia. Its motorcycle line consists of
business and commuter models, as well as sports models, including trial and motor-
cross racing; all-terrain vehicles; personal watercrafts; and multi utility vehicles. The
company also produces various automobile products, including passenger cars,
minivans, and multi-wagons, sport utility vehicles, and mini cars; and power
products comprising tillers, portable generators, general-purpose engines, grass
cutters, outboard marine engines, water pumps, snow throwers, power carriers,
power sprayers, lawn mowers and lawn tractors, home-use cogeneration units, thin
film solar cells home use, and public and industrial uses. In addition, it sells spare
parts and provides after sales services are through retail dealers, as well as involves
in retail lending, leasing to customers, and other financial services, such as wholesale
financing to dealers. The company was founded in 1946 and is based in Tokyo,
Japan.
Introduction
Honda Motor Co., Ltd. is a Japanese public multinational conglomerate corporation
primarily known as a manufacturer of automobiles, aircraft, motorcycles, and power
equipment. Honda has been the world's largest motorcycle manufacturer since 1959,
as well as the world's largest manufacturer of internal combustion engines measured
by volume, producing more than 14 million internal combustion engines each year.
Honda became the second-largest Japanese automobile manufacturer in 2001.
Honda was the eighth largest automobile manufacturer in the world behind Toyota,
Volkswagen Group, Hyundai Motor Group, General Motors, Ford, Nissan, and Fiat
Chrysler Automobiles in 2015. Honda was the first Japanese automobile
manufacturer to release a dedicated luxury brand, Acura, in 1986. Aside from their
core automobile and motorcycle businesses, Honda also manufactures garden
equipment, marine engines, personal watercraft and power generators, and other
products. Since 1986, Honda has been involved with artificial intelligence/robotics
research and released their ASIMO robot in 2000. They have also ventured into
aerospace with the establishment of GE Honda Aero Engines in 2004 and the Honda
HA-420 Honda Jet, which began production in 2012. Honda has three joint-ventures
in China (Honda China, Dongfeng Honda, and Guangqi Honda).
In 2013, Honda invested about 5.7% (US$6.8 billion) of its revenues in research and
development. Also in 2013, Honda became the first Japanese automaker to be a net
exporter from the United States, exporting 108,705 Honda and Acura models, while
importing only 88,357.

History
Throughout his life, Honda's founder, Soichiro Honda, had an interest in
automobiles. He worked as a mechanic at the Art Shokai garage, where he tuned
cars and entered them in races. In 1937, with financing from his acquaintance Kato
Shichirō, Honda founded Tōkai Seiki (Eastern Sea Precision Machine Company) to
make piston rings working out of the Art Shokai garage. After initial failures, Tōkai
Seiki won a contract to supply piston rings to Toyota, but lost the contract due to the
poor quality of their products. After attending engineering school without
graduating, and visiting factories around Japan to better understand Toyota's quality
control processes, by 1941 Honda was able to mass-produce piston rings acceptable
to Toyota, using an automated process that could employ even unskilled wartime
laborers.
Tōkai Seiki was placed under control of the Ministry of Commerce and Industry
(called the Ministry of Munitions after 1943) at the start of World War II, and
Soichiro Honda was demoted from president to senior managing director after
Toyota took a 40% stake in the company. Honda also aided the war effort by
assisting other companies in automating the production of military aircraft
propellers. The relationships Honda cultivated with personnel at Toyota, Nakajima
Aircraft Company and the Imperial Japanese Navy would be instrumental in the
postwar period. A US B-29 bomber attack destroyed Tōkai Seiki's Yamashita plant
in 1944, and the Itawa plant collapsed in the 13 January 1945 Mikawa earthquake,
and Soichiro Honda sold the salvageable remains of the company to Toyota after the
war for ¥450,000, and used the proceeds to found the Honda Technical Research
Institute in October 1946.
With a staff of 12 men working in a 16 m2 (170 sq ft) shack, they built and sold
improvised motorized bicycles, using a supply of 500 two-stroke 50 cc Tohatsu war
surplus radio generator engines. When the engines ran out, Honda began building
their own copy of the Tohatsu engine, and supplying these to customers to attach to
their bicycles. This was the Honda A-Type, nicknamed the Bata Bata for the sound
the engine made. In 1949, the Honda Technical Research Institute was liquidated for
¥1,000,000, or about US$5,000 today; these funds were used to incorporate Honda
Motor Co., Ltd. At about the same time Honda hired engineer Kihachiro
Kawashima, and Takeo Fujisawa who provided indispensable business and
marketing expertise to complement Soichiro Honda's technical bent. The close
partnership between Soichiro Honda and Fujisawa lasted until they stepped down
together in October 1973.
The first complete motorcycle, with both the frame and engine made by Honda, was
the 1949 D-Type, the first Honda to go by the name Dream. Honda Motor Company
grew in a short time to become the world's largest manufacturer of motorcycles by
1964.
The first production automobile from Honda was the T360 mini pick-up truck, which
went on sale in August 1963. Powered by a small 356-cc straight-4 gasoline engine,
it was classified under the cheaper Kei car tax bracket. The first production car from
Honda was the S500 sports car, which followed the T360 into production in October
1963. Its chain-driven rear wheels pointed to Honda's motorcycle origins.
Over the next few decades, Honda worked to expand its product line and expanded
operations and exports to numerous countries around the world. In 1986, Honda
introduced the successful Acura brand to the American market in an attempt to gain
ground in the luxury vehicle market. The year 1991 saw the introduction of the
Honda NSX supercar, the first all-aluminum monocoque vehicle that incorporated a
mid-engine V6 with variable-valve timing.
CEO Tadashi Kume was succeeded by Nobuhiko Kawamoto in 1990. Kawamoto
was selected over Shoichiro Irimajiri, who oversaw the successful establishment of
Honda of America Manufacturing, Inc. in Marysville, Ohio. Both Kawamoto and
Irimajiri shared a friendly rivalry within Honda, and Irimajiri would resign in 1992
due to health issues.
Following the death of Soichiro Honda and the departure of Irimajiri, Honda found
itself quickly being outpaced in product development by other Japanese automakers
and was caught off-guard by the truck and sport utility vehicle boom of the 1990s,
all which took a toll on the profitability of the company. Japanese media reported in
1992 and 1993 that Honda was at serious risk of an unwanted and hostile takeover
by Mitsubishi Motors, who at the time was a larger automaker by volume and flush
with profits from their successful Pajero and Diamante.
Kawamoto acted quickly to change Honda's corporate culture, rushing through
market-driven product development that resulted in recreational vehicles such as the
first generation Odyssey and the CR-V, and a refocusing away from some of the
numerous sedans and coupes that were popular with Honda's engineers but not with
the buying public. The most shocking change to Honda came when Kawamoto
ended Honda's successful participation in Formula One after the 1992 season, citing
costs in light of the takeover threat from Mitsubishi as well as the desire to create a
more environmentally-friendly company image.
Later, 1995 gave rise to the Honda Aircraft Company with the goal of producing jet
aircraft under Honda's name. On 23 February 2015, Honda announced that CEO and
President Takanobu Ito would step down and be replaced by Takahiro Hachigo by
June; additional retirements by senior managers and directors were expected.
Corporate Profile and Divisions

Honda is headquartered in Minato, Tokyo, Japan. Their shares trade on the Tokyo
Stock Exchange and the New York Stock Exchange, as well as exchanges in Osaka,
Nagoya, Sapporo, Kyoto, Fukuoka, London, Paris and Switzerland.
The company has assembly plants around the globe. These plants are located in
China, the United States, Pakistan, Canada, England, Japan, Belgium, Brazil,
México, New Zealand, Malaysia, Indonesia, India, Philippines, Thailand, Vietnam,
Turkey, Taiwan, Perú and Argentina. As of July 2010, 89 percent of Honda and
Acura vehicles sold in the United States were built in North American plants, up
from 82.2 percent a year earlier. This shields profits from the yen's advance to a 15-
year high against the dollar.[23]
American Honda Motor Company is based in Torrance, California. Honda Racing
Corporation (HRC) is Honda's motorcycle racing division. Honda Canada Inc. is
headquartered in Markham, Ontario,[25] their manufacturing division, Honda of
Canada Manufacturing, is based in Alliston, Ontario. Honda has also created joint
ventures around the world, such as Honda Siel Cars and Hero Honda Motorcycles in
India,[26] Guangzhou Honda and Dongfeng Honda in China, Boon Siew Honda in
Malaysia and Honda Atlas in Pakistan.
Following the Japanese earthquake and tsunami in March 2011 Honda announced
plans to halve production at its UK plants.[27] The decision was made to put staff at
the Swindon plant on a 2-day week until the end of May as the manufacturer
struggled to source supplies from Japan. It's thought around 22,500 cars were
produced during this period.
Leadership

Name Period

Soichiro Honda 1948-1973

Kiyoshi Kawashima 1973-1983

Tadashi Kume 1983-1990

Nobuhiko Kawamotu 1990-1998

Hiroyuki Yoshino 1998-2003

Takeo Fukui 2003-2009

Takanobu Ito 2009-2015

Takahiro Hachingo 2015-Present

Products

 Automobiles

Honda's global lineup consists of the Fit, Civic, Accord, Insight, CR-V,
and Odyssey. An early proponent of developing vehicles to cater to different needs
and markets worldwide, Honda's lineup varies by country and may feature vehicles
exclusive to that region. A few examples are the latest Acura TL luxury sedan and
the Ridgeline, Honda's first light-duty uni-body pickup truck. Both were engineered
primarily in North America and are exclusively produced and sold there.
The Civic is a line of compact cars developed and manufactured by Honda. In North
America, the Civic is the second-longest continuously running nameplate from a
Japanese manufacturer; only its perennial rival, the Toyota Corolla, introduced in
1968, has been in production longer. The Civic, along with the Accord and Prelude,
comprised Honda's vehicles sold in North America until the 1990s, when the model
lineup was expanded. Having gone through several generational changes, the Civic
has become larger and more upmarket, and it currently slots between the Fit and
Accord.
Honda increased global production in September 2008 to meet demand for small
cars in the U.S. and emerging markets. The company is shuffling U.S. production to
keep factories busy and boost car output, while building fewer minivans and sport
utility vehicles as light trucksales fall.
Honda produces Civic hybrid, a hybrid electric vehicle that competes with
the Toyota Prius, and also produces the Insight and CR-Z.
Its first entrance into the pickup segment, the light duty Ridgeline, won Truck of the
Year from Motor Trend magazine in 2006. Also in 2006, the redesigned Civic
won Car of the Year from the magazine, giving Honda a rare double win of Motor
Trend honors.
It is reported that Honda plans to increase hybrid sales in Japan to more than 20% of
its total sales in fiscal year 2011, from 14.8% in previous year.
Five of United States Environmental Protection Agency's top ten most fuel-efficient
cars from 1984 to 2010 comes from Honda, more than any other automakers. The
five models are: 2000-2006 Honda Insight (53 mpg-US/4.4 L/100 km; 64 mpg-
imp combined), 1986-1987 Honda Civic Coupe HF (46 mpg-US/5.1 L/100 km;
55 mpg-imp combined), 1994-1995 Honda Civic hatchback VX (43 mpg-
US/5.5 L/100 km; 52 mpg-imp mpg combined), 2006- Honda Civic Hybrid
(42 mpg-US/5.6 L/100 km; 50 mpg-imp combined), and 2010- Honda Insight
(41 mpg-US/5.7 L/100 km; 49 mpg-imp combined). The ACEEE has also rated
the Civic GX as the greenest car in America for seven consecutive years.

 Motorcycles
Honda is the largest motorcycle manufacturer in Japan and has been since it started
production in 1955. At its peak in 1982, Honda manufactured almost 3 million
motorcycles annually. By 2006 this figure had reduced to around 550,000 but was
still higher than its three domestic competitors.
During the 1960s, when it was a small manufacturer, Honda broke out of the
Japanese motorcycle market and began exporting to the U.S. Taking Honda’s story
as an archetype of the smaller manufacturer entering a new market already
occupied by highly dominant competitors, the story of their market entry, and their
subsequent huge success in the U.S. and around the world, has been the subject of
some academic controversy. Competing explanations have been advanced to
explain Honda’s strategy and the reasons for their success.
The first of these explanations was put forward when, in 1975, Boston Consulting
Group (BCG) was commissioned by the UK government to write a report
explaining why and how the British motorcycle industry had been out-competed by
its Japanese competitors. The report concluded that the Japanese firms, including
Honda, had sought a very high scale of production (they had made a large number
of motorbikes) in order to benefit from economies of scale and learning
curve effects. It blamed the decline of the British motorcycle industry on the
failure of British managers to invest enough in their businesses to profit from
economies of scale and scope.
The second explanation was offered in 1984 by Richard Pascale, who had
interviewed the Honda executives responsible for the firm’s entry into the U.S.
market. As opposed to the tightly focused strategy of low cost and high scale that
BCG accredited to Honda, Pascale found that their entry into the U.S. market was a
story of “miscalculation, serendipity, and organizational learning” – in other
words, Honda’s success was due to the adaptability and hard work of its staff,
rather than any long term strategy. For example, Honda’s initial plan on entering
the U.S. was to compete in large motorcycles, around 300 cc. It was only when the
team found that the scooters they were using to get themselves around their U.S.
base of San Francisco attracted positive interest from consumers that they came up
with the idea of selling the Super Cub.
The most recent school of thought on Honda’s strategy was put forward by Gary
Hamel and C. K. Prahalad in 1989. Creating the concept ofcore competencies with
Honda as an example, they argued that Honda’s success was due to its focus on
leadership in the technology of internal combustion engines. For example, the high
power-to-weight ratio engines Honda produced for its racing bikes provided
technology and expertise which was transferable into mopeds. Honda's entry into
the U.S. motorcycle market during the 1960s is used as a case study for teaching
introductory strategy at business schools worldwide.

Motorsports
Honda has been active in motorsports, like Motorcycle Grand Prix, Superbike racing
and others.

 Automobiles
Honda entered Formula One as a constructor for the first time in the 1964 season at
the German Grand Prix with Ronnie Bucknum at the wheel. 1965 saw the addition
of Richie Ginther to the team, who scored Honda's first point at the Belgian Grand
Prix, and Honda's first win at the Mexican Grand Prix. 1967 saw their next win at
the Italian Grand Prix with John Surtees as their driver. In 1968, Jo Schlesser was
killed in a Honda RA302 at the French Grand Prix. This racing tragedy, coupled
with their commercial difficulties selling automobiles in the United States, prompted
Honda to withdraw from all international motorsport that year.
After a learning year in 1965, Honda-powered Brabhams dominated the 1966
French Formula Two championship in the hands of Jack Brabhamand Denny
Hulme. As there was no European Championship that season, this was the top F2
championship that year. In the early 1980s Honda returned to F2, supplying engines
to Ron Tauranac's Ralt team. Tauranac had designed the Brabham cars for their
earlier involvement. They were again extremely successful. In a related exercise,
John Judd's Engine Developments Company produced a turbo "Brabham-Honda"
engine for use in IndyCar racing. It won only one race, in 1988 for Bobby Rahal at
Pocono.

Honda returned to Formula One in 1983, initially with another Formula Two partner,
the Spirit team, before switching abruptly to Williams in 1984. In the late 1980s and
early 1990s, Honda powered cars won six consecutive Formula One Constructors
Championships. WilliamsF1 won the crown in 1986 and 1987. Honda switched
allegiance again in 1988. New partners Team McLaren won the title
in 1988, 1989, 1990 and 1991. Honda withdrew from Formula One at the end of
1992, although the related Mugen-Honda company maintained a presence up to the
end of 1999, winning four races with Ligier and Jordan Grand Prix.
Honda debuted in the CART IndyCar World Series as a works supplier in 1994. The
engines were far from competitive at first, but after development, the company
powered six consecutive drivers’ championships. In 2003, Honda transferred its
effort to the rival IRL IndyCar Series. In 2004, Honda-powered cars
overwhelmingly dominated the IndyCar Series, winning 14 of 16 IndyCar races,
including the Indianapolis 500, and claimed the IndyCar Series Manufacturers'
Championship, Drivers' Championship and Rookie of the Year titles. In 2006,
Honda became the sole engine supplier for the IndyCar Series, including the
Indianapolis 500. In the 2006 Indianapolis 500, for the first time in Indianapolis 500
history, the race was run without a single engine problem.
During 1998, Honda considered returning to Formula One with their own team. The
project was aborted after the death of its technical director, Harvey Postlethwaite.
Honda instead came back as an official engine supplier to British American
Racing (BAR) and Jordan Grand Prix. Honda bought a stake in the BAR team in
2004 before buying the team outright at the end of 2005, becoming a constructor for
the first time since the 1960s. Honda won the 2006 Hungarian Grand Prix with
driver Jenson Button.
It was announced on 5 December 2008, that Honda would be exiting Formula One
with immediate effect due to the 2008 global economic crisis. The team was sold to
former team principal Ross Brawn, renamed Brawn GP and subsequently Mercedes
GP.
Honda became an official works team in the British Touring Car Championship in
2010.
 Motorcycles
Honda Racing Corporation (HRC) was formed in 1982. The company combines
participation in motorcycle races throughout the world with the development of high
potential racing machines. Its racing activities are an important source for the
creation of leading edge technologies used in the development of Honda
motorcycles. HRC also contributes to the advancement of motorcycle sports through
a range of activities that include sales of production racing motorcycles, support for
satellite teams, and rider education programs.
Soichiro Honda, being a race driver himself, could not stay out of
international motorsport. In 1959, Honda entered five motorcycles into the Isle of
Man TT race, the most prestigious motorcycle race in the world. While always
having powerful engines, it took until 1961 for Honda to tune their chassis well
enough to allow Mike Hailwood to claim their first Grand Prix victories in the 125
and 250 cc classes. Hailwood would later pick up their first Senior TT wins in 1966
and 1967. Honda's race bikes were known for their "sleek & stylish design" and
exotic engine configurations, such as the 5-cylinder, 22,000 rpm, and 125 cc bike
and their 6-cylinder 250 cc and 297 cc bikes.
In 1979, Honda returned to Grand Prix motorcycle racing with the monocoque-
framed, four-stroke NR500. The FIM rules limited engines to four cylinders, so the
NR500 featured non-circular, 'race-track', cylinders, each with 8 valves and two
connecting rods, in order to provide sufficient valve area to compete with the
dominant two-stroke racers. Unfortunately, it seemed Honda tried to accomplish too
much at one time and the experiment failed. For the 1982 season, Honda debuted
their first two-stroke race bike, the NS500 and in 1983, Honda won their first
500 cc Grand Prix World Championship with Freddie Spencer. Since then, Honda
has become a dominant marque in motorcycle Grand Prix racing, winning a plethora
of top level titles with riders such as Mick Doohan and Valentino Rossi.

.In motocross, Honda has claimed six motocross world championships. In the World
Enduro Championship, Honda has captured six titles, most recently with Stefan
Merriman in 2003 and with Mika Ahola in 2007 and 2008.
In observed trials, Honda has claimed three world championships with Belgian
rider Eddy Lejeune.
Marketing
Honda's official slogan is "The Power of Dreams". They have never used this slogan
to sell their products. Mr. Honda's belief is that well-built products will sell
themselves.
In 2003, Honda released its Cog advertisement in the UK and on the Internet. To
make the ad, the engineers at Honda constructed a Rube Goldberg Machine made
entirely out of car parts from a Europe Domestic Market Honda Accord (upon which
the USDM Acura TSX is based). To the chagrin of the engineers at Honda, all the
parts were taken from two of only six hand-assembled pre-production models of the
Accord. The advertisement depicted a single cog which sets off a chain of events
that ends with the Honda Accord moving and Garrison Keillor speaking the tagline,
"Isn't it nice when things just... work?" It took 606 takes to get it perfect.[71]
In 2004, they produced the Grrr advert, usually immediately followed by a shortened
version of the 2005 Impossible Dream advert.

A post 2005 style Honda dealership in Moncton, Canada

In December 2005, Honda released The Impossible Dream a two-minute panoramic
advertisement filmed in New Zealand, Japan and Argentina which illustrates the
founder's dream to build performance vehicles. While singing the song "Impossible
Dream", a man reaches for his racing helmet, leaves his trailer on a minibike, then
rides a succession of vintage Honda vehicles: a motorcycle, then a car, then a
powerboat, then goes over a waterfall only to reappear piloting a hot air balloon,
with Garrison Keillor saying "I couldn't have put it better myself" as the song ends.
The song is from the 1960s musical Man Of La Mancha, sung by Andy Williams.
In 2006, Honda released its Choir advertisement, for the UK and the internet. This
featured a 60-person choir who sang the car noises as film of the Honda Civic are
shown.
For the last several years in the United States, during model close-out sales for the
current year before the start of the new model year, Honda's advertising has featured
an animated character known simply as Mr. Opportunity, voiced by Rob Paulsen.
The casual looking man talks about various deals offered by Honda and ends with
the phrase "I'm Mr. Opportunity, and I'm knocking'", followed by him "knocking"
on the television screen or "thumping" the speaker at the end of radio ads. Also,
commercials for Honda's international hatchback, the Jazz, are parodies of well-
known pop culture images such as Tetris and Thomas The Tank Engine.
In late 2006, Honda released an ad with ASIMO exploring a museum, looking at the
exhibits with almost child-like wonderment (spreading out its arms in the aerospace
exhibit, waving hello to an astronaut suit that resembles him, etc.), while Garrison
Keillor ruminates on progress. It concludes with the tagline: "More forwards please".
Honda also sponsored ITV's coverage of Formula One in the UK for 2007. However
they had announced that they would not continue in 2008 due to the sponsorship
price requested by ITV being too high.
In May 2007, focuses on their strengths in racing and the use of the Red H badge —
a symbol of what is termed as "Hondamentalism". The campaign highlights the
lengths that Honda engineers go to in order to get the most out of an engine, whether
it is for bikes, cars, powerboats — even lawnmowers. Honda released
its Hondamentalism campaign. In the TV spot, Garrison Keillor says, "An engineer
once said to build something great is like swimming in honey", while Honda
engineers in white suits walk and run towards a great light, battling strong winds and
flying debris, holding on to anything that will keep them from being blown away.
Finally one of the engineers walks towards a red light, his hand outstretched. A web
address is shown for the Hondamentalism website. The digital campaign aims to
show how visitors to the site share many of the Hondamentalist characteristics.
At the beginning of 2008, Honda released - the Problem Playground. The advert
outlines Honda's environmental responsibility, demonstrating a hybrid engine, more
efficient solar panels and the FCX Clarity, a hydrogen powered car. The 90 second
advert features large scale puzzles, involving Rubik's cubes, large shapes and a 3-
dimensional puzzle.
On 29 May 2008, Honda, in partnership with Channel 4, broadcast a live
advertisement. It showed skydivers jumping from an aeroplane over Spain and
forming the letters H, O, N, D and A in mid-air. This live advertisement is generally
agreed to be the first of its kind on British television. The advert lasted three minutes.
The next flight of one of the two planes involved resulted in a fatal crash as the plane
broke apart in mid-air.[72]
In 2009, American Honda released the Dream the Impossible documentary series, a
collection of 5-8 minute web vignettes that focus on the core philosophies of Honda.
Current short films include Failure: The Secret to Success, Kick out the
Ladder and Mobility 2088. They feature Honda employees as well as Danica
Patrick, Christopher Guest, Ben Bova, Chee Pearlman, Joe Johnston and Orson
Scott Card. The film series plays at dreams.honda.com.

Sports
In Australia, Honda advertised heavily during most motor racing telecasts, and was
the official sponsor of the 2006 FIA Formula 1 telecast on broadcaster channel
"Ten". In fact, it was the only manufacturer involved in the 2006 Indy Racing
League season. In a series of adverts promoting the history of Honda's racing
heritage, Honda claimed it "built" cars that won 72 Formula 1 Grand Prix.
Skeptics have accused Honda of interpreting its racing history rather liberally,
saying that virtually all of the 72 victories were achieved by Honda powered
(engine) machines, whereas the cars themselves were designed and built by Lotus
F1, Williams F1, and McLaren F1 teams, respectively. However, former and current
staff of the McLaren F1 team have reiterated that Honda contributed more than just
engines and provided various chassis, tooling, and aerodynamic parts as well as
funding. Ayrton Senna, arguably the greatest F1 driver of all time, repeatedly stated
that Honda probably played the most significant role in his three world
championships. He had immense respect for founder, Soichiro Honda, and had a
good relationship with Nobuhiko Kawamoto, the chairman of Honda at that time.
Senna once called Honda "the greatest company in the world".
As part of its marketing campaign, Honda is an official partner and sponsor of
the National Hockey League, the Anaheim Ducks of the NHL, and the arena named
after it: Honda Center. Honda also sponsors The Honda Classic golf tournament and
is a sponsor of Major League Soccer. The "Honda Player of the Year" award is
presented in United States soccer. The "Honda Sports Award" is given to the best
female athlete in each of twelve college sports in the United States. One of the twelve
Honda Sports Award winners is chosen to receive theHonda -Broderick Cup, as
"Collegiate Woman Athlete of the Year."
Marketing Strategies
It has described a category scheme consisting of three general types of strategies that
are commonly used by businesses to achieve and maintain competitive advantage.
These three generic strategies are defined along two dimensions: strategic scope and
strategic strength. Strategic scope is a demand-side dimension and looks at the size
and composition of the market you intend to target. Strategic strength is a supply-
side dimension and looks at the strength or core competency of the firm. In particular
he identified two competencies that he felt were most important: product
differentiation and product cost (efficiency).
He originally ranked each of the three dimensions (level of differentiation, relative
product cost, and scope of target market) as either low, medium, or high, and
juxtaposed them in a three dimensional matrix. That is, the category scheme was
displayed as a 3 by 3 by 3 cubes. But most of the 27 combinations were not viable.

In his 1980 classic Competitive Strategy: Techniques for Analyzing Industries and
Competitors, Porter simplifies the scheme by reducing it down to the three best
strategies. They are cost leadership, differentiation, and market segmentation (or
focus). Market segmentation is narrow in scope while both cost leadership and
differentiation are relatively broad in market scope.
Empirical research on the profit impact of marketing strategy indicated that firms
with a high market share were often quite profitable, but so were many firms with
low market share. The least profitable firms were those with moderate market share.
This was sometimes referred to as the hole in the middle problem. Porter’s
explanation of this is that firms with high market share were successful because they
pursued a cost leadership strategy and firms with low market share were successful
because they used market segmentation to focus on a small but profitable market
niche. Firms in the middle were less profitable because they did not have a viable
generic strategy.
Porter suggested combining multiple strategies is successful in only one case.
Combining a market segmentation strategy with a product differentiation strategy
was seen as an effective way of matching a firm’s product strategy (supply side) to
the characteristics of your target market segments (demand side). But combinations
like cost leadership with product differentiation were seen as hard (but not
impossible) to implement due to the potential for conflict between cost minimization
and the additional cost of value-added differentiation.
Since that time, empirical research has indicated companies pursuing both
differentiation and low-cost strategies may be more successful than companies
pursuing only one strategy
Some commentators have made a distinction between cost leadership, that is, low
cost strategies, and best cost strategies. They claim that a low cost strategy is rarely
able to provide a sustainable competitive advantage. In most cases firms end up
in price wars. Instead, they claim a best cost strategy is preferred. This involves
providing the best value for a relatively low price.

Demand Forecasting
Honda Motor lifted its full-year net profit forecast by 6 percent, betting that Chinese
customers will keep buying its XR-V and Vezel SUVs and the popular Civic sedan
after robust demand there boosted Asian sales sharply in the latest quarter.
Japan's third-largest automaker by sales said on Monday it expects full-year net
profit to hit 415 billion yen ($3.95 billion), compared to its previous forecast of 390
billion yen. Honda upgraded its global sales forecast to reflect strong demand in
China, the world's biggest auto market and the company's second largest.
It also expects cost cuts and lower quality-related costs to offset the impact of a
stronger currency and lift its bottom-line this year, after taking a hit last year due to
hefty provisions for costs to recall Takata air bag inflators.
Strong demand in growing cities has pushed Honda's Chinese sales up 26 percent
higher year-on-year to 872,000 in the first nine months of 2016, boosted by a near
doubling in sales for the Civic, which underwent a model change this year.
This prompted it to lift the forecast for group vehicle sales in Asia by 11 percent on
the year to 1.915 million for the year ending in March 2017, after overall Asian sales
rose 22 percent on the year in the second quarter.
As a result, it sees global sales rising by 5 percent from last year to 4.98 million cars.
"We're seeing a positive impact from our new models. The Civic is doing very well
in North America, China, and South America," Honda Executive Vice President
Seiji Kuraishi told reporters at a briefing, adding that strong demand for the XR-V
compact SUV crossover was also lifting Chinese sales.
To keep up with rapidly growing demand for its sedans and SUVs in China, Honda
is planning to build a new factory in the country with partner Dongfeng Motor, two
people familiar with the matter told Reuters earlier this month.
Honda sells roughly 40 percent of its global production in North America, but as
growing demand in China drives Asian sales higher, the automaker expects sales in
the two regions to be roughly the same this year.
Despite the rosier profit outlook, Honda's new profit forecast remains lower than the
average 482 billion yen profit expected by 21 analysts polled by Thomson Reuters,
and Honda said that its conservative outlook was largely due to global uncertainties.
"At the moment we see uncertainties related to the U.S. elections, Brexit and a
weaker sterling, and in Asia, the outlook for Thailand after the death of the country's
monarch," Kuraishi said.
"We haven't seen the impact of these factors yet, but we're taking a cautious approach
to our forecasts."
Honda operates a plant in Britain, producing around 140,000 vehicles per year,
including the CR-V crossover SUV and Civic sedan at its plant in Swindon. Half of
its production is exported to the EU.
Kuraishi said that the automaker had no plans at the moment to shift its production
away from Britain, adding that it would consider factors including the value of
sterling and the likely introduction of tariffs when deciding its future in the country.
Honda is assuming an average rate of 103 yen to a dollar for the current year, against
its earlier forecast of 105 yen.

Production Forecast from 2012 to 2017 (in million units)

This graph displays Honda's projected vehicle production between 2012 and 2017.
Honda's vehicle production is forecast to increase from about 3.8 million units in
2012 to about five million units by 2017. The company's compound annual growth
rate (CAGR) is estimated to stand at 5.8 percent between 2012 and 2017. Honda is
a brand of the Honda Motor Company, a multinational corporation with headquarters
in Minato, Tokyo, Japan.

Vision/Goals of Honda
Honda Motor Company’s new CEO, Takahiro Hachigo, unveiled his future vision
for the company. He highlighted two themes that the new ‘Team Honda’ will
pursue:
Advancement of the six-region global operation structure
Continuous development of challenging products unique to Honda and delivering
them to customers around the world
To demonstrate the advancement of the six-region structure, operational functions
of the global headquarters will be enhanced, to strongly promote mutually
complimentary inter-regional relationships. For example, the all-new European
produced Civic Type R will now be exported to Japan from this autumn and the
next generation Civic 5-door will be supplied from Europe to other regions.
Whereas the next generation CR-V will be supplied from Canada to Europe.
Furthermore, Honda will begin local production of the Honda Accord this month in
Nigeria (with planned annual production capacity of 1,000 units.). This is the first
time Honda will assemble automobiles in Africa.
Hachigo stated that ‘Honda will continue to be firmly committed to the creation of
‘challenging products’ unique to Honda’. This renewed commitment will see
Honda strive to begin sales in Japan of the next-generation successor to the FCX
Clarity before the end of Honda’s current fiscal year (ending March 31, 2016). In
addition, Honda will be evolving the next generation of mobility products to use
electricity as a core technology.
In the area of motorcycles, the CRF1000L, also known as the Africa Twin, is
scheduled to be introduced to the European market at the end of 2015. This is the
embodiment of a ‘challenging product’ that is unique to Honda.
Honda has also been continuing its research and development of a Walking Assist
Device which supports people with weakened leg strength. Hachigo asserted that
Honda is striving to commercialize this product before the end of this year.
Finally, under Hachigo’s guidance, Honda will realize a 30 year-long dream by
taking mobility to the skies through the first customer deliveries of Honda’s unique
HF120 jet engine and the new light business aircraft, the Honda Jet, featuring its
revolutionary over-the-wing jet engines.
These Honda’s products have always been generated “at the spot.” Honda’s
strength is that team/project members share one goal and take on challenges and
attain high targets. Hachigo has stated that his role is to further strengthen this
bottom-up environment where teams “at the spot” can take action based on their
own initiatives.
Hachigo concluded, ‘what drives me forwards with my fellow Honda associates is
The Power of Dreams. Driven by The Power of Dreams, Team Honda will keep
moving forward with the goal to share joys with customers all around the world’.
Growth and Future Prospectus
Key growth drivers for Honda Motors include demand for luxury cars in Japan and
North America, growing demand for green vehicles, and improving penetration in
the motorcycle market, especially in China, India and Indonesia. We believe the
company's innovation in making fuel efficient, environmentally friendly and low
cost hybrid vehicles should increase its market share in this growing segment. The
launch of new models in the entry level luxury automotive market is another driver
which can fuel growth in Japan and North America. The motorcycle segment holds
tremendous growth potential and with a high global market share, Honda is well
poised to leverage its leading position and increase penetration in this segment,
driving future growth.

Innovation towards Low Cost Hybrid Vehicles in the U.S.

In 2015 Honda launched the CRZ sports hybrid model, its Civic model fueled with
natural gas, a hybrid Civic model and Accord Hybrid. All these models are priced
at less than $30,000. These new launches are aimed at providing low cost fuel
efficient and environmentally friendly cars to the U.S. market, and we believe that
this focus on green technology is Honda's way of competing in the auto industry.
While Honda was the first company to commercially sell hybrid vehicles in the
U.S., over the last decade its sales in this segment have been surpassed by Toyota.
The global market for Hybrid Electric Vehicles is expected to grow at a moderate
pace over the next few years, reaching nearly 4 million vehicles by 2023. The
success of Honda's models in this space should enable it to capture additional
market share in this segment from Toyota, and we believe this segment will be the
key growth driver for Honda Motors.

Increase in Demand of Luxury Cars

Japan accounts for nearly 15% of Honda's revenues and, given the demographic
profile of the region, we believe sales in the luxury segment will drive the
company's growth in this region. Similarly, in the U.S., the luxury car market is
expected to grow by 10% in 2015 on falling oil prices. North America is the largest
market for Honda in terms of revenues and its new launches in the entry level
luxury cars segment will be its key sales drivers in the region. The company
recorded an 11% increase in sales in North America in Q2 2015 which was mainly
due to an increase in sales of HR-V model and compact SUVs. We believe that the
entry level luxury cars market will be a key driver of growth for Honda in the
future.

Retaining 40% Share In the Global Motorcycle Market

We estimate the Motorcycles, ATVs and Water Motors division to account for
nearly 17% of Honda's valuation. The company's market share in the global
motorcycle market increased from nearly 30% in 2011 to approximately 40% in
2014, and we expect it to maintain this market share over our forecast period.
According to research firm Freedonia, two wheeler sales are expected to grow
5.9% annually to reach 135.2 million unit sales by 2018, driven primarily by
growth in China, India and Indonesia. Honda's penetration rate in India is 25%
compared to 80% in Brazil, indicating the growth potential. We believe as the
company expands into various countries and achieves higher penetration, this
segment would see tremendous growth in the future.

Future Business Strategy

Honda president and chief executive officer Takanobu Ito has revealed the
company's future business strategy, aimed at sustaining financial growth in the
long term.

IHS Global Insight Perspective

Significance
Honda president and chief executive officer Takanobu Ito has revealed the
company's future business strategy.

Implications
The strategy includes Honda's plans for vehicle production in its key markets,
including Japan. There is also a focus on emerging markets and the launch of fuel-
efficient and alternatively fuelled models aimed at reducing carbon dioxide
emissions.
Outlook
This latest business strategy highlights the automaker's ongoing commitment to
ensuring long-term financial growth amid a changing business environment,
tightening emission standards, and a shifting focus towards alternatively fueled
vehicles.
Honda president and chief executive officer (CEO) Takanobu Ito has announced
the automaker's future business strategy, aimed at ensuring sustained growth in its
financial performance amid the changing business environment. Ito revealed that in
order to deliver low-priced quality products with reduced carbon dioxide (CO2)
emissions, the company needs to focus on three core areas: advancement of
environmental technologies; the strengthening of manufacturing systems and
capabilities; and the strengthening of business operations in emerging nations. He
said that, "What I think is most important, and the message I conveyed strongly to
all Honda associates, was to provide good products to our customers with speed,
affordability and low CO2 emissions."

Advancing Environmental Technologies

 Honda will accelerate the widespread market introduction of integrated
motor assist (IMA) hybrid technology by launching several small-sized
models equipped with the IMA system in Japan before the end of 2011. The
first of these will be a hybrid version of its Fit subcompact car, which is
scheduled to hit the market by the end of this year.
 It will use an advanced, high-output, and compact lithium-ion (Li-ion)
battery in its future hybrid models, starting with the next-generation Civic
hybrid, production of which will begin before the end of this year.
 It will launch a plug-in hybrid vehicle (PHV) and an electric vehicle (EV) by
2012, first in the United States and Japan, followed by other key markets
over the next 10 years.
 It will continue focusing on upgraded technologies to improve the fuel
efficiency of gasoline (petrol) engines and will start renewing its engine and
transmission line-up from 2012 in order to achieve improved fuel efficiency
in its vehicles.
 It is accelerating its efforts to develop a smaller diesel engine, and a model
equipped with this engine will be introduced in Europe in 2012.
  It will continue accelerating its efforts to develop hydrogen-powered fuel-
cell vehicles (FCVs) and hydrogen refueling systems.

Strengthening Manufacturing Systems and Capabilities

 Honda's domestic facilities will focus on three key goals: firstly, upgrading
production methodology in order to accommodate production of small-to-
medium-sized low-priced fuel-efficient models; secondly, efficient
production of the products to be sold in Japan; and thirdly, strengthening the
support functions for Honda plants outside of Japan.
 Honda will resume construction of its new factory in Yorii, Saitama
Prefecture. It will build hybrid vehicles and fuel-efficient subcompact
models at this facility when it becomes operational in 2013 (see Japan: 15
July 2010: Honda Abandons Plans to Build Minivehicle Plant in Japan, to
Focus on Hybrid Vehicles Instead—Report).
 In response to the global shift towards smaller vehicles, Honda will begin
production of minivehicles at its Suzuka factory in 2012. However, it has
decided to stop construction of a new ¥50-billion (US$576-million)
Minivehicle factory in Yokkaichi, Mie Prefecture.
 Honda will accelerate its efforts to either increase localization rates or
localize production in emerging and strategically important markets. It will
strengthen its cross-factory/cross-border supply system by increasing the
flexibility of its manufacturing system.

Strengthening Business in Emerging Markets

 In order to remain competitive in emerging and high-growth markets, Honda
will continue its efforts to localize vehicle production by increasing local
sourcing of components.
 Honda will launch its "new small car" in India in 2011 as scheduled, priced
at under 500,000 rupees (US$10,618). It will also launch the same model in
Thailand during 2011 as part of its Thai "eco-car" production plans. The
Thai-made model will also be exported to the Association of Southeast
Asian Nations (ASEAN) countries.
Outlook and Implications
This latest strategy highlights Honda's ongoing commitment to ensuring long-term
financial growth amid the changing business environment, tightening emission
standards, and a shifting focus towards alternatively fueled vehicles. It is also in
line with many global automakers' efforts to promote the use of alternatively fueled
vehicles, especially EVs, hybrid vehicles, and PHVs, in light of tightening
emission standards in many major global markets. Despite being skeptical about
future demand for EVs, Honda plans to sell such models in the United States and
indeed unveiled a concept version of an EV, the EV-N, at the 2009 Tokyo Motor
Show, which was intended to help it meet Californian emission standards.
According to the state Air Resources Board, volume-selling automakers in
California must sell about 60,000 units of PHVs and EVs in total between 2012
and 2014. Meanwhile, Honda's new PHV will be able to deliver fuel efficiency of
almost 60 kilometers per liter (km/l), beating Toyota's planned plug-in version of
the third-generation Prius, which will be able to achieve around 57 km/l under the
JC08 Japanese test cycle2 standards.
The automaker has been making efforts to restructure its domestic production over
the last several months in order to counter the higher exporting costs resulting from
the strength of the Japanese yen against other major global currencies. As part of
this, it will reportedly stop selling the Legand luxury sedan, Elysion multi-purpose
vehicle (MPV), and the gasoline version of the Civic sedan in Japan, while it will
continue selling only the hybrid version of the Civic in its domestic. In addition,
Honda is aiming to reduce production costs while promoting the localization of
automotive components in emerging markets in a bid to counter unfavorable
currency translation effects. It is estimated that with every ¥1 appreciation in the
yen against the U.S. dollar, Honda is likely to see a decline of almost ¥12 billion in
operating profits. Honda produces its vehicles at 25 facilities in 16 countries and
regions, with components sourced from some 2,200 facilities worldwide. The
automaker reportedly procures each component from eight different suppliers; it
plans to reduce this to a maximum of four suppliers in emerging markets, including
India, China, and Brazil. With this move, the automaker reportedly intends to save
¥100 billion in annual costs initially. This should help it price its vehicles
competitively in its key markets.
Meanwhile, Honda has also been witnessing increasing demand for its fuel-
efficient vehicles in key markets, including China and the United States. In an
attempt to further capitalize on growing demand, Honda is increasing its
investments in emerging markets, such as China, Thailand, and India. Honda is
likely to further strengthen its presence in emerging Asian markets by taking
advantage of a trade liberalization system established by the ASEAN to phase out
an intra-regional tariff among member countries, after India reached an agreement
in principle with the bloc on an economic partnership accord in 2008.

SWOT Analysis
Strengths
 Competence in engine manufacturing - company’s core product.
 Diversified product portfolio.
 Dominance in motorcycle and engine industries leading to a high brand
awareness.
 Strong position in Asia’s motorcycle markets.

Weakness
 Dependence on North America to generate most of the revenue.
 Low investments in research and development (R&D) leading to innovative
products.

Opportunities
 Increasing government regulations.
 Improving U.S. economy.
 Timing and frequency of new model releases.
 Low fuel prices are increasing the demand for pickup trucks and SUVs.

Threats
 Increased competition.
 Rising Japanese Yen exchange rates.
 Natural disasters.
Strengths
1. Competence in engine manufacturing - company’s core product.
All Honda’s businesses are built around the engines - its core product. The
company’s first engines were built for motorcycles and power equipment, but were
later produced for cars and marine vehicles. Honda is the world’s largest engine
manufacturer, which produced over 27 million units of engines for automotive,
motorcycle, marine, and power equipment products, in 2015.
The company has lots of experience in manufacturing quality and well-performing
engines. Its engines are praised for their durability, easiness to start, quietness, fuel
efficiency and reliability. According to Reliability Index, Honda’s car engines are
some the most reliable in the industry.
Engines are the key to motor products and the company’s competence in
manufacturing engines is a competitive advantage few rivals can match.

2. Diversified product portfolio

Honda operates 4 different divisions:
Motorcycle business (12.3% revenue)
Automobile business (72.8% revenue)
Power product and other business (2.3% revenue)
Financial Services (12.6% revenue)

Percentage of Sales Revenue by Business

Honda offers many products to consumers including engines, cars, motorcycles,
jets, robots, generators, lawnmowers, water pumps, as well as many other power
equipment products. While the cars generate the most revenue for Honda, its
overall product portfolio is fairly diversified, when compared to Volkswagen,
Toyota, General Motors, or Briggs and Stratton (in an engine industry).
Honda's revenue breakdown by business segment. Honda earns 72.8% of its
revenue through automotive business.

3. Dominance in motorcycle and engine industries leading to a high

brand awareness
Honda is a huge company dominating in most of the markets it operates in,
including engines and motorcycles.
The company is the leading manufacturer of small, general purpose engines for
commercial, rental industry, and consumer applications.[5] Honda is also the
leading global manufacturer of motorcycles having 22.1% of the total market share
in the first half of 2016.[1] Company’s dominance in both of these markets have
increased its brand recognition and reputation.
According to Interbrand and Forbes, Honda is the 21st and 23rd most valuable
brand in the world, worth US$22.1 billion and US$25.2 billion, respectively.
Brand value is closely related to brand awareness and its reputation and only few
other companies, such as Toyota, BMW and Mercedes-Benz, can compare with
Honda in terms of a brand value.

4. Strong position in Asia’s motorcycle markets

Motorcycle business generates 12.3% of total Honda’s sales and is the third largest
revenue group for the company. The company has sold 17,592 units of
motorcycles and all-terrain vehicles in 2016 alone and captured 22.1% of the
world’s motorcycle market in the first half of 2016.
Asia is the main geographic segment for Honda’s motorcycle business, where the
company has sold 15.1 million units or over 88.7% of its total motorcycles,
generating ¥1,107.6 billion in revenue.
Asia-Pacific region, which includes such countries as China, India, Vietnam,
Thailand, the Philippines, Malaysia, Indonesia, Australia and Japan, is the largest
motorcycle region in the world and Honda’s strong position in it is a powerful
competitive advantage.

Weaknesses
1. Dependence on North America to generate most of the revenue
Honda depends on North America region, which mainly includes the U.S. and
Canada, to generate 55.6% of the company’s total revenue.

Percentage of Sales Revenue by Region

Honda's revenue breakdown by geographic area. Honda earns 55.6% of its revenue
in North America alone.
Honda’s reliance on North America grew from 49.3% of the total sales in 2014 to
55.6% of the total sales in 2016. At the moment, North America is the main driver
behind company’s growth where the motorcycle revenue grew 20% and the
automobile revenue grew by 19%. Nonetheless, the U.S. and Canada are saturated
markets and Honda will find it hard to maintain the same level of growth in these
markets.
The company is also becoming more vulnerable to overall negative changes in
North America’s markets.

2. Low investments in research and development (R&D) leading to

fewer innovative products
Honda has spent US$5.4 billion for R&D in 2015. This amounted to 4.5% of the
company’s total revenue.
 Company 2015 R&D As a % of revenues 2014 R&D As a % of revenues

Honda 5.4 4.5 5 4.5

Toyota 8.4 3.7 7.6 3.5

Volkswagen 14 6.9 14 7.1

General Motors 7.5 4.9 7.4 4.7

Comparison of R&D expenditure – Honda and selected major competitors (in

US$ billions)
Low investments in R&D lead to fewer innovative products and significantly
undermine the company’s abilities to compete in the future. The company should
focus its US$5.4 billion R&D investments to certain areas (like Hyundai does),
which would erase company’s low R&D budget disadvantage and would result in
innovative products.

Opportunities
1. Increasing government regulations
Many governments around the world are committed to reducing the greenhouse
gas emissions and are encouraging fuel efficiency initiatives. Such environmental
initiatives may increase production costs for the car manufacturers and these costs
will be either passed to price sensitive consumers or will decrease the company’s
profits. Honda may take advantage of this by introducing more car models running
only Hydrogen fuel cells and bypassing all the government regulations associated
with the greenhouse gas emissions.

2. Improving U.S. economy

Signs of an improving economy and rising consumer confidence have been
reflected in the strongest increase in new vehicle sales for more than a decade in
the U.S. market. 17.5 million New units were sold in 2015, a 5.7% increase over
2014. Interest rates in the U.S. have been low for several years and are forecast to
remain that way for the foreseeable future. In such economic conditions, Honda
has an opportunity to capture higher market share and increase sales in the U.S.
automotive market.

3. Timing and frequency of new model releases

The market share of the automotive companies is significantly impacted by the
timing and frequency of new model releases. Historically, new models have tended
to have major upgrades every 4 or 5 years with only minor modifications in
between. However, due to the rising consumer expectations in relation to in-car
technology and the competitive nature of the industry, there is an argument to
release upgraded models more frequently. Honda is well-positioned to be able to
do this.

4. Low fuel prices are increasing the demand for pickup trucks and
SUVs
Currently, fuel prices are the lowest in a decade. Such situation has encouraged
consumers to buy big fuel-inefficient vehicles such as SUVs and pickup trucks.
Traditionally, Honda’s main focus was on smaller cars like Honda Civic and
sedans such as Honda Accord, but in the current situation, where fuel prices are
low, the company has introduced its next generation pickup truck Ridgeline and
redesigned its CR-V sport utility vehicle to meet the demand for the bigger
vehicles.
The trend of low fuel prices is likely to stay and Honda should introduce more
models of pickup trucks and SUVs to take an advantage of the growing market for
these vehicles and to increase company’s profitability.

Threats
1. Increased competition
Honda is faced with an ever increased competition from the traditional automotive
companies, the new players and saturation of its main markets. In Asia, the
company’s key motorcycle region, markets are nearly saturated. In 2016, Honda’s
motorcycle revenue grew by only 5.4% in Asia, compared to 20.3% growth in
North America region. The company faces many new entrants in India and China,
which offer similar quality motorcycles and scooters for lower price than Honda.
Honda’s automotive business is also experiencing the slowing growth of the
automotive markets and the increased competition from the new Chinese
manufacturers. The company’s international rivals, such as Toyota, Ford, General
Motors, Volkswagen and Hyundai, all have larger budgets and could use them to
aggressively take market share from Honda.
New companies, such as Tesla and even Google, which tries to build self-driving
cars are also threatening the traditional automotive industry. The competition is
further fueled by the fact that the global automotive production capacity far
exceeds the demand. In 2015, there was an estimated global excess production
capacity of 31 million units.

2. Rising Japanese Yen exchange rates

More than 88% of Honda’s revenue come from international markets, which
means that the company has to convert foreign currencies to Japanese Yen in order
to calculate its revenues and send the profits back to Japan. Currency rates are
volatile and the company’s profits and revenue highly depend on the fluctuating
exchange rates. The company cannot control the currency exchange rates, therefore
it is at risk, if Japanese Yen exchange rates would start to rise. In such case, the
company’s profits would decrease significantly. The company itself identifies this
as a key threat that will negatively affect the company over the next few years.

3. Natural disasters
Honda has manufacturing facilities in Japan, Thailand, China and Indonesia. These
countries, including others, are often subject to natural disasters that disrupt
manufacturing processes and result in lower production volumes and profits.