COMPANY BACKGROUND Honda Motor Company, Ltd. is a Japanese multinational corporation headquartered in Japan. The company manufactures automobiles, motorcycles, trucks, scooters, robots, jets and jet engines, ATV, water craft, electrical generators, marine engines, lawn and garden equipment, and aeronautical and other mobile technologies. Honda's lines of luxury cars are branded Acura in North America. More recently they have ventured into mountain bikes. 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. American Honda Motor Co. is based in Torrance, California. Honda Canada Inc. is headquartered in the Scarborough district of Toronto, Ontario, and is building new corporate headquarters in Markham, Ontario, scheduled to relocate in 2008; 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, Guangzhou Honda and Dongfeng Honda in China, and Honda Atlas in Pakistan.
The immense pressure to build future cars on the automobile industry has really compelled the automakers to invest more in their R&D activities to build environmentally friendly cars that would run without traditional fuel. Because of raise in fuel price and increasing environmental awareness, consumers are deciding to purchase new generation future cars or hybrid cars. In order to meet that demand, many of the automobile companies have started investing huge amount of capital to meet the demand the need for future cars. Honda as one of the market leader has also considered the fact and thus has already introduced some models of hybrid future cars. From the 1970s to the 1990s, Honda earned a reputation as the most technically innovative and ecologically sensitive Japanese automaker. Honda introduced the first
For 2010. The success of the Toyota Prius.
Political-legal • Government Intervention (T). although Honda took an early leadership role on hybrids. was totally eclipsed by Toyota’s Prius. unfortunately Honda hit a few bumps on the hybrid highway. • Formula 1 – Speed (T).
• • • •
. • Pressure to produce cars with cleaner emissions (T). Although based on the Honda Fit. •
Technological Specialization through machinery (S) Safety requirements (T) Clever Cars (O) Environmentally friendly Cars (O)
Socio-cultural • Language Barriers (W) • Increased desirability of Personalized Cars (O). • Desire for City cars (O).hybrid to the American market. But Toyota. Hybrid versions of the Civic and Accord did little to stem Toyota’s PR gains. one the Honda’s formidable competitor continued to dominate the green car mindscape in the automobile industry. Moreover. its reputation for green tech leadership took a big hit when the original Insight. especially after discontinuing the Honda Accord Hybrid and Honda Insight in 2006. Honda appears to have learned this lesson—sort of. suggested that people didn’t want a hybrid that looked like any other car. and the Insight was impractical as a two-seater. Honda has introduced an all-new Insight hybrid. The Accord Hybrid over-emphasized power instead of fuel economy.
MACRO ENVIRONMENT ANALYSIS
Economic • Investment in Europe (O) • High Inflation rate of foreign country (T) • Raise in Income (O) • Cost of Fuel (T). the new Insight looks like no other Honda. an EV1ish tear-drop-shaped two-seater. Unfortunately. and relative failure of all other hybrids.
Specialization through machinery: Machines that specialize at one task ensures that the product is made much quicker and of a higher quality.Economic
Investing in Europe: Selling in Europe Manufacturing inside of Europe has meant that they wouldn't have had to add the cost of extra tarriff to their cars. Clever cars: Cars have had to include Satellite Navigation systems etc as standard. Cost of Fuel: Because of raise in oil price Honda has had to accommodate for the market by introducing more economical cars such as the 1. Rising incomes means that people have more to spend: Honda has kept up with this by introducing newer models. Safety Requirements: Because of Legal & Consumer pressure.4 Honda Jazz. This would be at the expense of their R&D Department. ample torque and clean emissions. especially the new Honda Civic which is to go on sale this year. Environmentally friendly cars: Honda developed i-vtec. car manufacturers have had to develop cars with significant safety features which Honda would have had to research and test.
. The weakness of the yen makes Honda's cars expensive in the UK. The vi-tec engine provides fuel economy. Honda has had to catch this up in their newer models. This is significantly different from a decade ago when crashtesting dummies were used. Exchange rate: Pound to Yen. which is a follow on from their infamous vtec engines.
MICRO ENVIRONMENT ANALYSIS Porter’s five forces analysis
Threat of New Entrants . stylistically and performance wise.
Government proposal to limit number of cars being sold in the USA & UK: This would affect the sales of Honda as they couldn't manufacture at the level they previously could have. Honda is one of the leading motorbike manufacturers and has a huge R&D budget devoted to that cause. Increased desirability of Personalized Cars: Honda is a leading manufacturer of cars which can be easily modified. Desire for City cars: This has meant Honda has had to create smaller and economic cars such as the Honda Jazz & Honda Beat.
.Very Low In order to enter the automotive market a huge amount of capital is required.
Language Barriers: Honda decided to set-up in Swindon because they preffered to deal in the English Language.g. Formula 1 – Speed: This is an aspect of Honda which is mainly concerned with show-boating rather than profit. an entering firm would need to have a tremendous amount of tacit and explicit knowledge to design and manufacture products. Pressure to produce cars with cleaner emissions: This has meant Honda has had to invest heavily in R&D to produce cars with cleaner engines e. i-vtec. This is perhaps their USP.
Power of Buyers . buyers do have some leverage in being able to negotiate a purchasing price from HONDA.Extremely High Any competitor in this market is generally a global company with billions of dollars in assets and can compete on any level that HONDA can. and distribution. Furthermore. they still have an immense amount of information available to them regarding the pricing and cost to manufacture a HONDA Car. delivery. As a result they have some flex in determining product pricing.Competitive Rivalry .Medium Some suppliers are smaller and as such do not have that much power over the pricing and distribution of their products.Medium While buyers are individuals and are not grouped together. there is intense competition on all fronts in the car market in general.
Probable impact on corporation
.Medium Available substitutes include public transportation such as buses. trains. and aircraft. consumers can use other conventional means of transportation such as bicycling or walking. In addition. As a result. boats. Threat of Substitutes . there are not that many small parts manufacturers in this market and therefore. However. not to mention the luxury car market. Power of Suppliers . Major manufacturers such as Toyota and Mitsubishi are pinching HONDA with their luxury & sport segments (Lexus & Acura) in terms of quality product and reliability. the majority of suppliers to major automotive makers are medium to large businesses.
1) In order to increase capacity. 3) Pressure for Environment friendly Cars. 1) Health consciousness of people. 2) Investment and Fixed Cost is high so the Exit barrier is high 1)Higher bargaining power of off premise buyers
Probability of occurrence
. high amount of capital is required. 2) Higher tax requirement 3) Government Deregulation.High
1) Competitive pressure from the four major branded automobile company. 2) Increasing potential of raising prices of raw materials.
EXTERNAL ENVIRONMENT ANALYSIS: Opportunities: Increasing focus on fuel efficiency Increasing demand in underserved areas New manufacturing facilities Reputation of producing environment friendly cars
Threats: High price for raw materials Short-term demand fluctuations Market overcapacity Currency fluctuation Potential collapse of three large suppliers Tremendous competitive rivalry in car market
EXTERNAL ENVIRONMENT ANALYSIS SUMMARY (EFAS)
External Factors Opportunities Weight Rating Weighted score
05 .15 .15 1.45 .75 .15 .05 . Honda adopted ‘Just in Time’ (JIT) manufacturing philosophy which demanded close coordination between manufacturing facilities and the vendors
.15 .15 .1)New Manufacturing Facilities 2)Technological Innovation 3)Increased sales of new hybrid vehicles 4)Increasing demand in underserved areas 5) Having reputation of producing environment friendly cars.05
5 3 3 5 4
.05 . Honda tried to have close integration with suppliers as vendor management is critical for its operation. Thus.00
5 3 5 3 4
.50 .50 .10 .25 .45 .15 .60
INTERNAL ANALYSIS VALUE CHAIN ANALYSIS OF HONDA
PRIMARY ACTIVITIES: Inbound logistics: Suppliers of Honda From early days. Additionally. With these aims. it is critical for Honda to ensure tight control $ reduction of logistical cost and transaction cost when procuring components. for the simple fact that 73% of production cost is due to material components. reduction of inventory will be an added advantage/boon so that working capital requirement will be less. Threats 1) Market overcapacity 2) Short term demand fluctuations 3) Raise in Fuel price 4) Currency fluctuations 5) Tremendous competitive rivalry in car market Total
with usual benefits like increased cash flow. The effort is to provide for minimum waiting period or rather filling the regions as per the demand and market trends.and ancillary units. Marketing & Sales: Marketing arm of Honda started the hedge successful ‘’Fill it. JIT & Integrated Supply Chain have been applied from the start in worldwide making it highly efficient. use high degree of automation levels (full automatic robotic operation in welding and some other specific areas) to ensure high efficiency. These fully equipped plants where these manufacturing concepts have been applied during plant layout. To ensure customer loyalty. Honda is probably the only Japanese company to have truly mastered the art of JIT manufacturing. Operation: As described above. Furthermore. in the operational & strategic decisions of the vendors as well like production planning. capacity expansion etc. Outbound Logistics: Honda Follows three steps in its Honda feeds the demand in Japan and exports thousands of Cars through its well established delivery channels from the Manufacturing Plants worldwide. All these vendors will be connected to the main plant by conveyors to prevent chances of time & material loss due to multiple handling. in promotions) to focus the value for money and reliability of its products and thus attracting new customers and retaining customers as well. Efforts are afoot to extend the JIT beyond shop floor. low inventory production. reduced cash & operating cycles and thus improved working capital conditions. Honda has come up with Honda Passport Program which gives special privileges to its
. the concepts of lean manufacturing. It has been a constant strive for Honda’s marketing effort (in advertisements. design & commissioning phases are the unique tangible assets that Honda Has. Forget it’’ Campaign years ago to pitch for its better fuel efficiency and thus lower owning cost. The productivity per employee is very high. Technological know-how. Shut it. design improvements etc for Honda Car are provided by Honda after the initial design requirements as espoused by customers and market trends put in a structured form by Honda R&D team all over the world. Honda also follows Lean Manufacturing.
6 3. internet browsing and shops etc.8
. Movement in exchange rates.customers.12 .2
. Service: Honda has constituted one the best after sales service network in the car industry. Honda does not indulge in price wars in an effort to maintain the perception of enduring quality among present & political customers. Apart from improving the quality of service and easy availability of spare parts. to ensure the in house experience of the consumers at those ‘’customer touch points’’ INTERNAL ENVIRONMENT ANALYSIS Strengths: Leader in individual product categories Global network Strong brand equity Engineering capacity Efficient production and lean process
Weaknesses: High R&D cost.
INTERNAL FACTOR ANALYSIS SUMMARY (IFAS)
Internal Factors Strengths 1) Well known & Trusted Brand name 2) Market leadership Weight Rating Weighted score
. Car plants represent a huge investment in expensive fixed costs. Honda has also focused on cleanliness and other aesthetics of the service stations and added amenities such as air-conditioned waiting area. Fluctuating economic & political conditions.
12 .75 .50 .2 .60 .15 .05 1.6 .10
4 5 3
5 5 3 4 4
STRATEGIC FACTOR ANALYSIS SUMMARY
.15 .10 .3) Better product/service quality 4) Design and introduction of new models 5) Geographical diversification Weaknesses 1) High R&D Cost 2) Not being able to charge lower prices than competitors 3) Fluctuating economic & political conditions 4) Car plants represent a huge investment in expensive fixed costs 5) Movement in exchange rates Total
5 4 5 4 5 5 5 4
.75 .75 .15 .15 .15 .60 .Strategic factors
S1) Brand image S4) Design and Introduction of new models W1) High R&D cost W5) Tremendously high fixed cost O2) Technological innovation O3) Increased sales of new Hybrid vehicles T3) Raise in Fuel price T5) Tremendous competitive rivalry in car market Total
.15 .75 .75 .15 .15 .60 X X X X X X
X X X
2) Honda can partially avoid the fluctuating exchange rates by increasing the sales in the domestic market.
1) Honda can beat the competitive market by charging premium price for its quality and service.
As Honda moves forward us advice strategic focuses on these areas:
. 2) Honda should keep improving and designing new generation cars such as Hybrid and electric fuel cars.Strengths (S)
Internal factors (IFAS) S1) Brand image S2) Market leadership S3) Better product/service quality S4) Design and introduction of new models
W1) High R&D Cost W2) Not being able to charge lower prices than competitors W3) Fluctuating economic & political conditions W4) Car plants represent a huge investment in expensive fixed costs W5) Movement in exchange rates
External Factors (EFAS)
O1) New Manufacturing Facilities O2) Technological Innovation O3) Increased sales of new hybrid vehicles O4) Increasing demand in underserved areas O5) Having reputation of producing environment friendly cars
SO Strategies 1) Honda should be more
technologically advanced to sustain its strong brand image.
T1) Market overcapacity T2) Short term demand fluctuations T3) Raise in Fuel price T4) Tremendous competitive rivalry in car market
1) Honda should develop and sell fuel efficient Hybrid cars to offset the loss sales of traditional cars.
1) Honda should invest its profit from increased sales in more R&D.
3. some are still in the development phase and yet to come to the market for the final customers. It clear that Honda hasn’t fallen that behind compared to its competitors and is still in the track for producing next generation cars since Honda has the right technological advantage and adequate resources to support the research & development activities. Improve production flexibility. Continue heavily in R&D 2. 4. Honda roars back with the second-generation Honda Insight—a more practical four-door hybrid vehicle aimed at great fuel economy and absolute affordability. The company is following a well-defined fuel efficiency strategy: hybrids for small cars—and diesel engines for larger vehicles.1. Asia Russia Europe
Honda is continuously trying to innovate new designs of hybrid cars and therefore. The others competitors of Honda such as Toyota has already produced new generation hybrid car which makes the industry more competitive for hybrid and next generation cars. Broaden sales distribution base beyond the North American and Japanese market. And the company continues to innovate. Improve responsiveness of production systems to market conditions and demand. Some of the future cars that Honda have produced are already in the market. But the company is back on track. Starting in 2009. investing in its R&D.