Individual Case Study Analysis - Essay Example

? The Honda Effect Executive Summary The profound aim of this respective report is merelyto analyze market entry strategy of Honda in USA and issues that management of the company faced while launching in the new region. The American subsidiary of Honda was established in 1959 in which aim of the company was to target public instead of focusing on the motorcyclists. The founder of the company Sochiro Honda and partner Takeo Fujisawa were determined to make Honda amongst the top companies around the world. The founder of Honda was very innovative, whereas Fujisawa was an optimistic man who took many decisions related to marketing and financials of the company. The inventory was not encouraging for Honda to enter in the market, as US manufacturers used to sell their motorcycles on consignment and retailers used to provide consumer finance. The Honda motorcycles were leaking oil from engines and clutch of the bikes were not functioning properly. This created huge problems for the company, as reputation of Honda was at stake. The Uppsala model is best suited for Honda because the company was internally very strong in Japanese market therefore; it had liberty to start their operations in the US. The internationalization process model is based on establishing chains in which two variables of internationalization are involved that include change variable and state variable. Supercub 50CC motorcycle was a serious success in Japan, but Honda initially aimed to promote its heavy motorcycles in the US, because the company did not wanted to ruin its reputation in US. The “Nicest People Campaign” of the company became very successful in US market, and it increased sales of Honda dramatically. Honda should have performed complete market research before entering in US region, as the whole operations of the company was dependent on the report of only two executive’s of the company. Introduction The rationale selected for this report is to assess the market entry strategy of Honda in USA and issues that management of the company faced, while launching in the new region. The American subsidiary of Honda was established in 1959 in which aim of the company was to target public, instead of focusing on the motorcyclists. After the success of Honda motorcycles in Japan, the owner of the company and his partner decided to enter in US market, but dynamics of that market was entirely different from Japanese market. For this purpose, a team of Honda executives was send to US in order to understand market dynamics and making suitable strategy for the company. The obstacles and problems that these executives faced in US, and measures taken to overcome these obstacles are presented in this report with help of past theories and models. Further, this report provides recommendations that can be help Honda to make effective decision making in the future. Transformational Leadership Theory The founder of the company Sochiro Honda and partner Takeo Fujisawa were determined to make Honda amongst the top companies around the world. The founder of Honda was very innovative whereas Fujisawa was an optimistic man who took many decisions related to marketing and financials of the company. Sochiro Honda focused was to make inventions that can become trademark in the industry, but Fujisawa forced him to give concentration on commercial aspect of the business. Both these leaders of Honda were role model for the employees of the company as they were able to motivate their employees for extracting maximum output from them (ManagementStudyGuide). Moreover, executives of Honda were motivated by these two leaders to take strategic decisions for the company in US, as rewards were given to the executives after accomplishing positive results in US market. Issues in US Market Fewer Dealers: The number of dealers in US market was extremely low and there were only 3000 dealers for the whole motorcycle industry of America. More than 50% of those dealers were not willing to open their business in weekdays and they used to work only in weekends and nights. Poor Service of Dealers: The inventory was not encouraging for Honda to enter in the market as US manufacturers used to sell their motorcycles on consignment and retailers used to provide consumer finance. In addition, after-sales service provided to the customers was very miserable, and they were not able to solve issues in the motorcycles. Trend of Automobile: The people of US were willing to travel through cars therefore; trend of motorcycle was not growing underlying the comparison with other regions. It should be noted that Most of the motorcycles were imported from Europe that accounted for 10% of the import market. Strict Monetary Control: The policies of Japanese government were very strict for making heavy investments in other region therefore, company had to start with less start-up cost. The funds allocated for the equipments were not sufficient, and it was difficult for the company to maintain inventory of the parts. Faults in Motorcycle: The Honda motorcycles were leaking oil from engines and clutch of the bikes were not functioning properly. This created huge problems for the company as reputation of Honda was at stake. The cash reserve was not sufficient, but company sent defected parts to Japan in order to solve this problem. No Promotion of SuperCub Motorcycles: The management of Honda promoted heavy motorcycles at the initial stage of entering in US market. They thought that 50CC motorcycles were not suitable for US market and image of Honda can be damaged by launching small motorcycles. The Uppsala Model This model is useful for the companies when they are willing to invest in a particular country or region, because of their experience and expertise. The model helps companies to focus on developing countries in which there is a chance of expansion as there is more opportunity in developed countries as compared to non-developed countries. The customers in developed regions are willing to buy products or service of the new company therefore, it is essential to invest in the new regions. The Uppsala model also clarifies that companies should only aim to enter in the overseas market of developed countries when they are financial and strategically strong in their own region. This model is best suited for Honda because the company was internally very strong in Japanese market therefore it had liberty to start their operations in US. Moreover, Honda had lot of experience and expertise in Japan and it was not complex for the organization to target US market for selling their motorcycles. The Internationalization Process Model The internationalization process model is based on establishing chains in which two variables of internationalization are involved that include change variable and state variable. The change variable is related to change activities of the organizations in overseas market and their obligations towards expansion, while the state variable is related to the experience of the organization in foreign market. This internationalization model is a continuous model where both change and state aspect influences each other (Andersson and Wang). Source: (Johnson and Vahlne) Honda change variable was related to their different marketing strategy, which they aimed for US market. Supercub 50CC motorcycle was a serious success in Japan, but Honda initially aimed to promote its heavy motorcycles in the US, because the company did not wanted to ruin its reputation in US. The commitment of the company to launch in US market was extremely high, but there was lack of funds to make grand promotions in US. The company had experience of foreign expansion, but situation in US was different from other countries, and executives of the company initially did not recognize market dynamics of the US. After launching in US market, Honda did not succeeded at the initial stage but with passage of time and gaining experience of the market, company promoted Supercub motorcycle, which became major success in the US market as well. Strong Decisions of Honda’s Management The decisions of expanding in the US market was very appropriate for Honda as the company is responsible for bringing revolution in US motorcycle industry. The launch of light weighted Honda 50CC Supercub was the best decision of the management, because this motorcycle not only captured major Japanese motorcycle market, but also gained lot of popularity in the US market. The decision of selling 50CC Supercub from the sporting goods stores was another good decision of the management, because these stores were able to sell Supercub in less time as compared to other dealers. The “Nicest People Campaign” of the company became very successful in US market and it increased sales of Honda dramatically. This campaign focused on medium leisure-class customers that were not targeted by any other competitor, and this was the reason that nearly every one out of two motorcycles sold was Honda. Weak Decisions of Honda’s Management The management of the company was not able to recognize that small motorcycles can become successful in US market, and they can capture a major market share at the initial stage by launching Supercub motorcycle in US. The founder of the company was only focusing on innovation and bringing new technology. He was not able to recognize the fact that commercial aspect was important for the company and without properly targeting different class of people; Honda cannot succeed in any local or foreign market. The perception of Honda executives regarding auto industry of US was not right, as they perceived that American people were car oriented and they were not interested in motorcycles. The Bounded Rationality Model Simon (1977) presented bounded rationality model in which rational behavior of the managers was explained. According to Simon, “human rational behavior is shaped by a scissors whose two blades are the structure of task environments and the computational capabilities of the actor (Simon 7).” He also stated that manager does not always have complete information regarding any particular task but at times there is no stress on selecting the best choice while making any decision for the organization. There is always an alternate for any problem and managers do evaluate and consider different alternates while making decisions for the organization. Two factors are characterized by bounded rationality in which one is “satisfying” and other is “searching”. When the alternate solution is satisfied for the managers, then the process of searching is completed (Turpin and Marais). The management of Honda had different options in US and when their heavy motorcycles did not gained popularity, they launched small 50CC Supercub motorcycle. Moreover, management had two options for selecting marketing campaign for the company in US. The “Nicest People Campaign” selected by the management increased overall sales of the company. The Garbage Can Model Cohen, March and Olsen (1972) presented this model where they stated that there are multiple people and objectives in different environments. This Garbage Can model explains that decisions in the organizations are anarchic, as they are not in accordance with the political views. The garbage is removed after the decision has been made (Turpin and Marais). In case of Honda, founder of the company only wanted to focus on innovation. Moreover, the founder is not ordaining and looking forward to check the commercial aspect of Honda. After the influence from his partner, the founder decided to launch new motorcycle in the Japanese market. Conclusion The US operations of Honda was launched in 1959 in which company targeted general public of US to buy light weighted 50CC motorcycle named Supercub. This motorcycle was not only successful in Japan, but it gained a huge popularity in the US market as well. Sochiro Honda and his partner Takeo Fujisawa were transformational leaders of the company, and they made innovations for the company. There were many issues for Honda in US market, as few dealers were working properly. Moreover, the heavy motorcycles of Honda were facing different issues regarding oil leakages and clutch failures. The cash reserve of Honda in US region was also low because of Japanese government policies. The Uppsala model explains that companies should only aim to enter in the overseas market of developing country when they are financial and strategically strong in their own region. The international process model, the bounded rationality model and garbage can model addresses different situations of Honda in US market, issues that the company faced and decisions taken by the management to overcome the hurdles. Recommendations Following are the recommendations that Honda should have applied for making their operations more organized and successful in the US market: Honda could have performed complete market research before entering in US region, as whole operations of the company was dependent on the report of only two executive’s. A full team of executives and financial analysts could have been send to US so they could evaluate complete dynamics of the US market. The company could have focused on innovation at the initial stage of their launch in US, because if they would have introduced Supercub motorcycle at the initial stage of their operations, then market share of Honda would have been much improved and company did not had to face huge issues that they faced in US. The quality control department could have been made in US instead of transferring motorcycle parts in Japan. This could save the cost of transferring and other expenses that company incurred after launching in the US. Honda should have made their own distribution centers in US, where customers could have been encouraged to buy their motorcycles instead of dealers or retailers. This strategy could have eliminated the profits of dealers and retailers, and the overall profitability of Honda could have been increased with this strategy. Works Cited Andersson, Rebecka and Jennie Wang. The internationalization process of Chinese MNCs. Research Report. Gothenberg: University of Gothenberg, 2011. Cohen M D, March J G and Olsen J P. A garbage can model of organizational choice, Basil Blackwell, Oxford, (1972). Johnson, Jan and Jan-Erik Vahlne. "The Internationalization Process of the Firm: A Model of Knowledge Development and Increasing Foreign Market Commitments." Journal of International Business Studies 8.1 (1977): 23-32. ManagementStudyGuide. "Transformational Leadership Theory." 2012. http://www.interactionassociates.com. 12 August 2012 . Simon H A. The new science of management decision, 2nd Edition, Prentice Turpin, S M and M A Marais. "Decision-making: Theory and practice." ORiON 20.2 (2004): 143-160. Read More