Name of student Aastha Gupta

PG Roll No. PG 20111073

Submitted to Submitted on Marks Allotted Remarks(if any)

Mr.Rahul Mishra 3 March 2012

External factors influencing innovation/major issues in a case: 1) Regulation & deregulation:

In 2007, car sales decreased by 3% in North America and by 11% in Japan. With these 2 major markets for automobile reaching their saturation level, Honda was forced to find new markets for its products. Thus Honda decided to enter into Chinese markets with registered an increase of 21.68% in 2007 in cars sales. In first half of 2008, cars production increased by 16.71% and sales increased by 18.52%. Moreover in 2007, china overtook Japan to become 2nd largest automobile maker in the world after USA. GDP of china is 9.48% in 2011-2012. Chinese automobile industry had various restrictions. To boost the growth of automobile sector, Chinese State Development and Reform Commission had relaxed various restrictions and removed many tariffs & non tariffs barriers. However there were 2 restrictions that were strictly followed. The first one is equity participation by foreign automakers was restricted to 50% and second one is minimum investment required in auto projects was US$292 million.

2) Competitors:
In china competition exists in 2 ways: the first form of competition was through the joint ventures between Chinese companies with foreign automakers. While the second form of competition was from local automakers producing proprietary brands. The objective of joint venture is to transfer the technology while the objective of local automakers is to develop indigenous technology and brands. In 2003, all major competitors of Honda like Toyota, Volkswagen, GM, Ford, and Hyundai were already present in china and were among top 10 players in automobile industry of china.

3) Customer expectations:
Per capita income of Chinese is US$ 4428 in December 2011 according to World Bank. Chinese customers wanted a car that reflected their own identity or, personality. Over the years their preference has changed from any car will do to a car that reflects their identity. They give importance to aesthetics of the car. For them intangible attributes were more important than tangible attributes. In china word of mouth is the most trusted and credible source of information. There were many online car forums and communities like sina.com where discussion takes place about merits/demerits of different car brands. Chinese customers buy cars on cash rather than going for car loans, this means that companies would require less working capital and risk of default/bad debts is also with the companies.

4) Social demand and supply:

80% of the Chinese buyers are first time buyers, hence there is a huge potential for automobile industry in china. With per capita income US$4428, Consumers are ready to spend 3 times of their salary on cars because they believe the more expensive the car the higher the status in the society. Fuel prices in china are low than global standards, this increases the demand for cars in china. Chinese customers buy cars on cash rather than going for car loans. In 2007, china overtook Japan to be 2nd largest economy in automobile market. In first half of 2008, cars production increased by 16.71% and sales increased by 18.52%. According to Chinese state information centre, china could become largest automobile consumer and largest automobile manufacturer in the world by 2010.

5) R&D Centers and universities:

In china all major players put heavy emphasis on R&D. Honda spends 5% of its revenue on R&D. It has created regional R&D centers in North America, South America, Europe, Asia and china. GM has built 7 laboratories and 26 higher education institutes to overcome the shortfall of R&D talent in china. It has also announced to invest US$4 million to develop research institute with Shanghai Jiao Tong University. When Guangzhou and Honda entered into a partnership and formed Guangzhou Honda Automobile, it has created its own R&D Center Guangzhou Hondas Research and Development Co. Ltd. (GHRD).

6) Related Industry:
After entering into the joint venture with Guangzhou, Honda has set up many related industries like Honda engineering china to manufacture production equipments; Dongfeng Honda Engine to produce passenger car engines, Hondas suppliers in Japan which supply brake tubes, lamps, and motors also opened their business in Guangzhou. Thus the whole supply chain of Honda was very well managed and Guangzhou Honda automobile was being able to procure raw materials and other inputs at low cost and thereby reducing cost of production.

Linking Hondas vision to innovation

Hondas vision is respect for individual and three joys. Respect for individual means all the employees are being treated equally irrespective of their position in the company. This was being reflected in regional Honda R&D center in china where all the employees have to wear same white color uniform. In order to fulfill respect for individual vision Honda has come up with an innovative idea of waigaya meetings. These meetings are being scheduled for product development and

employees freely exchange their ideas, discuss pros-cons of each idea regardless of their position in the company. Three joys say that employees, suppliers and customers should have a happy experience while dealing with the Honda. In order to fulfill the vision of three joys Honda has come up with the following innovative ideas: 1) To give happy experience to dealers, Honda provide them training for merchandising, selling, floor planning, service management and Honda has also created computerized dealer management information system. 2) To give joy to customers Honda has come up with three reality principle where employees go to actual market place, observe and take the experience of the real happening and then come up with the product idea which is as per the expectations of the customers. 3) To give happiness to employees, Honda treats all its employees equally. They wear same color uniform despite the level of management. Employee at lower level can freely criticize the idea of the employee at higher level.

Linking Hondas mission to innovation

Hondas mission is to create a product that is being accepted worldwide at an affordable price. It has linked its mission with the innovation by introducing Element concept development team. This team identifies the values, social behavior, standard of living and personality traits of the target group and tries to incorporate these observations into the product design, make sketches of the car, do prototyping and invite customers to test the product. Cars like civic and Accord have been developed by the Honda which is accepted worldwide.

Type of innovation
Honda believes in commercial innovation. Honda has set up regional R&D centers in North America, South America, Europe, Asia and china. These centers do changes in the product design from time to time to upgrade the product design and develop non core technologies. The main R&D center of Honda in Japan has core technology and retains all the patent & copyrights of the core technologies. But GHRD is the transformational innovation by Honda. GHRD not only develops non core technologies but it also develops its own core technologies and has copyrights over those core technologies.

Conclusion
1) Core technologies of Li Nian car are different from Honda cars. Li Nian has been made according to the needs of the Chinese customers. It is a customized product and hence its core technologies are customized according to Chinese markets. Honda cars are being sold all over the world. They are not meant for specific markets. Thus Hondas core technologies are standardized technologies. 2) Honda Japan could offer technical support to GHRD in different ways like helping GHRD in deciding research theme, helping in market research and understanding customers needs, providing tools & equipments, providing technical staff etc. Thus Honda Japan can provide all sort of support to GHRD expect providing core technologies because if it does so there would be no difference between GHRD and Honda Japan. 3) Neither Li Nian is superior or Honda cars. Since, Li Nian is made according to expectations of Chinese customers; they are more inclined to buy Li Nian rather than buying Honda cars. Thus as far as Chinese market is concern Li Nian is superior. But on the other hand, Honda car is meant for sale in worldwide. It is a standard product and not meant for specific markets. Thus as far as worldwide markets are concern Honda cars are superior. 4) If GHRD owns all the property rights for the core technologies it develops, the pay offs of Honda could be it could more deeply penetrate into Chinese markets through the joint venture, it could create its strong presence and give tougher competition to other major players in the china.