Business Policy

HONDA (A)

Written Analysis of case

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Introduction:
The Japanese invasion of the world motorcycle market was spearheaded by the Honda Motor
Company. Sochiro Honda, the founder of Honda was a visionary leader and industrialist. He had
been peripherally involved in the automotive industry prior to World War II. Due to Japans post
war devastation, motorcycles were technologically manageable and economically affordable
product for the average Japanese.
Reflecting to Hondas commitment to technologically based strategy, the Honda Technical
Research Institute was established in 1946. This institute dedicated to improvements in internal
combustion engines, represented Hondas opening move in the motorcycle field. In 1947, Honda
introduced its first A-type, 2-stroke engine.

Qualitative Facts:

Sochiro Honda was the founder of Honda Motor Company.

He was a visionary inventor and industrialist.
Motorcycles were technologically manageable and economically affordable.
Establishment of Honda Technical Research Institute.
Honda expanded its presence by introducing light weight D-type motorcycles.
Competitors operated in ill-equipped job shops, adapting clip-on engines for bicycles.
Larger manufacturers endeavored to copy European motorcycles but were hampered by

inferior technology and materials resulting in unreliable products.

Hondas engines were more reliable than most of its contemporaries engines and had a

superior metal frame.

Honda acquired a plant and developed manufacturing expertise to become a fully

integrated producer of engines, frames, chains, sprockets, and other ancillary parts.
Motorcycle manufacturers in Japanese industry tended to minimize risk by investing in

one winning design.

Milking the product until it became obsolescent.
Honda began to depart from the pattern by offering multiproduct line, product innovation

and exploit opportunities for economies of mass production.

Hondas bold move set the stage for a yet bolder decision- to invade the US market.
Honda followed a policy to develop the market region by region (West coast to
Eastward).
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Honda advertising represented a concerted effort to overcome the unsavory image of

motorcyclists.
The transformation and expansion of the motorcycle market.
Honda achieved significant product advantage through a heavy R&D and advanced

manufacturing techniques.
Cold Storage designs.
Short-term losses in order to build up an adequate selling and distribution network.
Marketing Philosophy- market share and sales volume.
As overall market leader the Japanese have dominated pricing in the motorcycle industry.
Experience based price reductions clearly go a long way towards explaining the historical
competitive effectiveness of the Japanese in the marketplace in small and medium
motorcycles.

Quantitative Facts:

1947-Honda introduced its first A-type, 2 stroke engine.

1948- Japanese competition consisted of 247 Japanese participants in a loosely defined

motorcycle industry.
1951-Honda came up with a superior 4 stroke design.
1950s-Honda offered multiproduct line, product innovation and economies of mass

production.
50cc Honda was an explosive success.
3000 units per month after six months on the market.
Investing in a highly automated 30,000 units per month manufacturing plant.
1959-Honda Motor Company entered US market.
1961- up to 125 dealers and spent $150,000 on regional advertising.
By 1996 Honda, Yamaha and Suzuki together had 85% of the US market.
By mid-1970s the Japanese were able to dominate the market shared by European and

American producers.
Interval between consumption and production was estimated to be only 18 months.
Hondas annual growth rate was 14%.
Average annual growth rate of Japan Automobile industry was 19.5%.
Kawasaki was strong in the 750cc and over class due to the Z1.
Yamaha was weak due to poor 750cc model.
126-250cc following an experience curve slope of 76%.
Real prices have declined along experience curve slopes in the region of 85%-87%.
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Premium in US even after allowing for freight, duty and packaging is 20%.Hondas
motorcycle business showed returns of 20% as compared to 12.4% return earned by the
company.

Honda
SWOT Analysis
Strengths

Hondas founder Sochiro Honda was a visionary inventor and industrialist.

Establishment of Honda Technical Research Institute in 1946.
Honda acquired a plant and developed manufacturing expertise to become a fully

integrated producer of engines, frames, chains, sprockets, and other ancillary parts.
Honda began to depart from the pattern by offering multiproduct line, product innovation

and exploit opportunities for economies of mass production.

Hondas engines were more reliable than most of its contemporaries engines and had a

superior metal frame.

Significant product advantage through a heavy commitment to R&D and advanced

manufacturing techniques.
In terms of value per employee, Honda outperformed its competitors by as much as four
times.

Weakness

Average annual growth rate of Japan Automobile industry was 19.5% while Hondas
annual growth rate was 14%. (Table A).

Opportunities

The transformation and expansion of the motorcycle market during the early 1960s

benefited the British and American producers as well as the Japanese.

Cold Storage of designs that could be introduced if the market developed.
Honda, Yamaha and Suzuki together had 85% of US market.
The overall market leaders, the Japanese have dominated pricing in the motorcycle
industry.

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High growth and scale caused total cost to drop quickly enough to support regular pay

increases and price decreases at the same time.

There is plenty of scope for them to be even more competitive in the market if

challenged.
Honda can reduce their margins to exports to the US to levels more in line with those

enjoyed in their domestic business.

Competitive advantage due to in expensive labor.

Threats

Failure to achieve cost position and cost reductions over time equivalent to your

competitors will result in commercial vulnerability.

Relative Growth: failure to grow as rapidly as competitors, thereby progressing more

slowly than them along experience curve.

Relative Slope: failure to bring costs down the characteristic experience curve slope
achieved by competitors.

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First Mover Advantages:

1. Build reputation with buyers.
2. Early commitment to new technologies & channels had a cost advantage.
3. Customers will remain loyal to the firm, with repeated buying.
4. Moving first makes imitation hard and unlikely.
First Mover Challenges:
1. If pioneering leadership is more costly than imitating leadership.
2 . W h e n i m i t a t o r s p r o d u c t s a r e primitive and follower wins over disappointed buyers
from leader with better products.
3. Bases for differentiation becomes less important to customer.
4. When due to market evolution late movers and fast followers respond suddenly to
the market changes with better version products.

Competitor:
1. Increase in competition will result in Loss in the Market Share
2. Profitability decline in a large scale economy and disadvantages in technology, distribution
and marketing.

Threat of Substitutes:
1. Anyone planning to buy a motorcycle only, would not be expecting a substitute. The substitute
can be assumed in forms of same type of product by different companies e.g. Harley Davidson
etc.
2. Anyone planning to buy a motorcycle as a transport medium, can find substitutes in the terms
of car, bus, subs.

Bargaining Power of Buyers:

1. As mentioned, initial customers for motorcycles were army, police, and the trouble makers,
with a very limited portion of the gentlemen-negative image of bikers.
2. Honda extended the motorcycle concept over the common man with proper

designs

and

marketing strategies.

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Key Success Factors for Honda

Success of Honda in US market is not a miracle, rather than it was beautifully carved by the
company through different strategies adopted overtime. Following are main strategies which
contributed to the success of Honda motorcycles in US market.

Cost Leadership
Market Penetration
Experience Curve Effect
S and D Network
Innovation and R&D

Overall Cost Leadership

It is said that if you want to win a battle in business war, most lethal weapon is low cost and this
is exactly what Honda had when they entered into US market. They were able to produce the
motorcycles of similar power at very low prices than their US counterparts. As a result prices for
the end customers were low. This low cost already gave a superior edge to Honda over their
competitors.
This low cost can be attributed to different factors. One of them is the low labor cost in Japan as
compared to the US as suggested by the BCG team in the case. Other thing is the economies of
scale that Honda achieved in their production process which is result of fix cost being divided
over a very large number of units produced.

Market Penetration
Another strategy which contributed to the success of Honda is their focus on the market volume.
Honda started to gain market share from region to region starting from west all the way east of
the US. They are keeping their prices low to gain market share in the US markets. They are not
focusing on margins instead they are focusing on volume.
Even though their prices are higher than the prices in Japan, these prices are still very low than
the US producers. So they are eliminating all dumping allegations too. As suggested by BCG
team focus of Honda on the market volume is a major contributor in their success.

Experience Curve Effect

From the BCG team result another major factor in the success of Honda was their higher
productivity. After the World War 2 Japanese companies became pioneer in the concepts of total
quality management. Their assembly line processes helped them to achieve a very high
productivity level as compared to their American competitors and gave a competitive edge over
them.

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When we look at the case it shows the Price experience curves of Honda which are having a very
high slope. These curves show that prices of Honda motorcycles are decreasing gradually
irrespective of their different products according to the engine power.

S and D Network
Sales and Distribution channels of Honda in the US are another major factor giving them
competitive edge over their US counterparts. As soon as Honda started the operations they
established a strong network of dealers to support them. Moreover incentives provided to the
dealers are substantial in amounts, which are also keeping these dealers loyal and happy. As a
result they are putting extra efforts on the function of sales.

Innovation and R&D

Being a leader in the market it becomes more important for Honda to stay ahead of their
competitors in terms of product innovations and R&D. Thats why they have invested heavily in
the technology and expertise. They are launching products regularly and offering new models in
response to any competition or new entrant. This is also a major factor in their success.

Conclusion
Although success of Honda motorcycles seems like an overnight miracle but it is not. It is the
result of different strategic measures carved by the company to stay ahead of their competitors.
Their overall low cost strategy along with their focus on market volume helped them make
market leader in less than a decade. Their productivity and their technology is also playing an
important role in their success. Their success in the US market is a very good lesson for the
companies to how compete in a highly competitive market and more importantly how to win the
battle.

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