Strategic Management

INDIAN INSTITUTE OF MANAGEMENT KOZHIKODE

Case analysis
on Hero Honda Motors (India) Ltd.:
Is it Honda that Made it a Hero

Submitted by Group 2 | Section A

Abdullah Shahab PGPBL0103

Akash Gajeshwar PGPBL0105
Bipin Kumar Sultania PGPBL0112
Mohit Sehrawat PGPBL0118
Vijaya Pai PGPBL0131

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 Question 1: Why did Honda do a Joint Venture? What does the framework inform?
Answer: Honda did a Joint Venture because
• Regulatory constraints
• To access local market knowledge that was not easily available.
• To build plants locally to meet local demand
• To leverage synergies in R&D and manufacturing by regionalizing its operations, consolidating local
strategy at the regional level

Steps Factors Strategy Reasons

Modular Non-equity alliance Honda planned to work on certain tasks and pass on
SYNERGIES
TYPE OF

Sequential Equity Alliance the result to its partner do the work. The tasks are
Reciprocal Acquisition as technical know-how, design specification
Responsibility for future R&D efforts
Low Non-equity alliance Soft resource is High: Honda brough in its
NATURE OF
RESOURCE

Low/ Medium Acquisition technical expert staff – engineering and quality

S

High Equity Alliance support service. Hero Brough local talent – manage
marketing, finance & HR (other functions).
Low Non-equity alliance
REDUNDA

RESOURC
EXTENT

Medium Equity Alliance Since we are starting into a new domain, extent of
OF

NT

ES

High Acquisition redundant resources in this is low

Low Non-equity alliance Motorcycle market was not booming in early 80’s.
DEGREE OF MARKET

Uncertainty about consumer’s view(high) - will use

UNCERTAINTY

Low/Medium Acquisition
the product and time of acceptance since Indian
High Equity Alliance consumers believed that motorcycle was more
accidental prone. Superior to existing rivals (low)-
Indian market largely craved with 3 firm with old-
imported technology.
Low Non-equity alliance
OFCOMPETE
FORCES

Medium Equity Alliance Royal Enfield, Ideal Java , Escorts were the three
TIONN

competitors that were already existing in the

High Acquisition market.

Given the above framework, Honda business desires synergies from factors such as sequential
interdependence in which equity alliance is the best bet. Considering the above-mentioned points and the
framework analysis, Honda opted for a joint venture which is equity alliance. and not an acquisition.
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 Question 2: Why did Honda exit and what does the framework inform?
Answer: Framework Analysis for Honda at 2004
Steps Factors Strategy Reasons

Modular Non-equity alliance The companies generated reciprocal synergies by

SYNERGIES
TYPE OF

Sequential Equity Alliance working closely together and executing tasks through
Reciprocal Acquisition an interactive knowledge sharing process.

Low Non-equity alliance Soft resource is Low, Hard Recourses is High.

Low/ Medium Acquisition Honda was having dealership network, it also
RESOURCES
NATURE OF

High Equity Alliance developed it own expertise which it lacked over the
period thus the soft resources is law. It was now
building its manufacturing plant thus Hard Recourses
is high. As a result of which nature of resources was
low.
Low Non-equity alliance Honda was spending Rs 1 billion to set up
REDUNDANT
RESOURCES
EXTENT OF

manufacturing plant which would double HMSI

Medium Equity Alliance
existing capacity. Thus, having multiple plant is
High Acquisition redundant.

Low Non-equity alliance The market uncertainty had reduced in this period as
UNCERTAIN
DEGREE OF
MARKET

the motorcycle market had grown with CAGR 22%

TY

Low/Medium Acquisition between 1996 -2001. Production and sales of

High Equity Alliance motorcycle grew substantially.

Low Non-equity alliance

OFCOMPETETIONN

The competitors in this period increased to seven and

Medium Equity Alliance
FORCES

were Bajaj Auto, TVS Motor, Yamaha Motor , LML

, Kinetic engineering , Eicher. Even Chinese players
High Acquisition
who enter the marker where selling at very
competitive price.

Given the above framework, the business desires synergies from factors such as reciprocal interdependence
in which acquisition is the best bet.
The reasons for which Honda may exit are
• Growth opportunity, the difference between WACC and ROIC is 48.9%
• As of late 1990s, only 10% market was penetrated, so Honda would like to gain as much as possible
of that
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 • Hero tried to enter in collaboration with BMW for a 650cc bike. This could affect the trust between
Honda and Hero.
• Royalties payment to sales revenue declined from 4% to 0.5% after renegotiation.
• Extent of components purchased from Hero’s supplier networks increased after renegotiation.

Considering the above-mentioned points and the framework analysis, Honda should have opted for an
acquisition instead of the joint venture i.e., equity alliance. Hence it should process its exit.

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