6/23/2016 KineticHonda:TheBreakUp|FreeManagementArticles|FreeManagementCaseStudies

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KineticHonda:TheBreakUp
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Themes:Jointventuresstrategic
alliances
Period:19982001 CaseCode:BSTR003
Organization:KineticMotorLimited CaseLength:12Pages
/HondaMotorsLtd. Price:Rs.200
PubDate:2002
Countries:India
Industry:AutoandAncillaries

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ReturnoftheProdigal
In August 1999, Honda announced that it was setting up a whollyowned
subsidiarytomanufacturescootersinIndiawithaninitialcapacityofone
lakh units per year. The company set up an independent distribution
networkforthenewventure.Throughthis$43millionsubsidiary,Honda
plannedtofocusonscootersforaperiodoffiveyears.Later,HeroHonda
and the Honda subsidiary were to be free to expand the range to include
alltwo/threewheelers.Honda'sfirstscootermodelwaslaunchedinmid
2001. Around onethird of the total proposed outlay of Rs 150 crore had
alreadybeeninvestedbythattime.ThoughthecontractwiththeFirodias
prevented Honda from manufacturing the same scooter through a
subsidiaryorajointventure,Hondagotaroundtheclausebyintroducing
scootersinadifferentrange.AHondaofficialsaid,"Thisisanextremely
importantmarketforusandthereisnoquestionofgivingupthescooter
businesswenevergiveup."

Honda'sdecisionsparkedoffdebatesinindustrycirclesoverguidelinesregardingforeigncompaniesbeingallowedtosetup
wholly owned subsidiaries in India, when they already had joint ventures here. The Confederation of Indian Industry (CII)
expressedfearsthatthiscoulddevelopintoatrendthatwouldadverselyafectthelocalpartnersinthesejointventures.

KineticclaimedtheywerenotperturbedbyHonda'sannouncement,asthegroupbelievedtheywerethedefactoleadersin
ungearedscooters.Also,theyhadtheexclusiverightstomanufacturethe100ccand110cc,Marvel,DXandZXscooters.The
Firodias were not really surprised by Honda's announcement, because at the time Honda was negotiating with them for the
Kinetic Honda stake, such a possibility had been discussed. However, many felt that Honda could eventually enter the
motorcycle segment as well something which seemed strategically wrong given the success of the Hero Honda venture.
Sulajjasaid,"IfHondawasseriousaboutitsscooterbusinessinIndiaandwantedtogrowinthemarketbyintroducingnew
models,thenwhydidtheynotdosoduringthe12yearsthatitwaspresentinIndia,throughitsJVwithus?Afterall,ithada
majoritystakeandfullmanagementcontrol.Yes,itstruethatHondahassaidthat it will start by manufacturing a 4stroke
scooterfirstthroughthenewcompany.ButwhatonefailstounderstandiswhyHondashouldreenterabusinessbysetting
upagreenfieldprojectatawhoppinginvestmentofoverRs.200crore,whenithasbarely10monthsagoexitedthatmarket,
unlessithasalargergameplanofmanufacturingmotorcyclestoo."

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