Business Strategy and Environment Analysis of Honda - Essay Example

? Honda Environment Analysis Table of Contents Table of Contents 2 PESTEL Analysis 3 Porter’s 5 Force Analysis 4 SWOT Analysis 5 VRIN Analysis 5 Value Chain Analysis 6 References 8 References 14 PESTEL Analysis Pestle analysis is a strategic management tool which is used to evaluate the external business environment of a country (Botten, 2007; Graham, 2008; Smith and Raspin, 2011). The case study highlights the operation of Honda in the Japanese market; hence a thorough analysis of the external business environment of Japan in the context of Automobile industry will be carried out. Political Factors: - Japan is a constitutional monarchy and follows a parliamentary government (Cubbage and Brooks, 2012). The country has high political stability. However, the government has imposed certain trade regulations. For example, there is a strict restriction on the import and export of raw materials used for automobile manufacturing. Economical Factors: - The economic factors play an important role in the success of an industry. The economy of Japan is said to be highly stable and the country is currently witnessing an economic boom. The current GDP of the country is $5.984 trillion and the per capita income is $36,200 (CIA, 2013). The figures clearly reflect the robust nature of the economy of the country. The strong economy of the country is a positive indication of further growth of Honda in Japan. Social Factors: - The total population of the country as of 2012 is 127,368,088 (CIA, 2013). The major religion of the country is Shintoism which nearly accounts for 83.9 %, while Buddhism and Christianity accounts 7.14% and 2 % respectively. The major language is Japanese. The literacy rate is 99 %. In addition studies suggest that people of Japan are extremely passionate about cars. Hence the societal factors of Japan are extremely favourable for Honda’s business. Technological Factors: - Technology is a crucial factor for every business. The importance is more when it comes to the automotive industry. Honda depends heavily on technology to manufacture its products and market its products. In addition, technology is playing a critical role in the research and development function of the company. However, the favourable factor is that Japan is a technologically developed country and offers a strong technical infrastructure for the companies doing business in Japan. Environmental Factors: - With increasing awareness of environmental sustainability, car manufacturers are forced to come up with products which are eco friendly. Moreover, due to global warming, the Japanese government has imposed several restrictions on the use of petroleum products. This is why Honda has come up with eco friendly cars such as Honda Hybrid. Japan has a different weather pattern and climate, which can negatively affect the engines. Hence, the weather of Japan can be a possible threat to the company. Legal Factors: - There are strict regulations imposed by the Japanese government on the automobile industry. Most of them are related to the safety of passengers, and welfare of the employees. In addition, there are some restrictions with import and export products to USA. Porter’s 5 Force Analysis Porter’s 5 forces model is another strategic management tool used to analyze the attractiveness of an industry. In this context of the study, Honda belongs to the automobile industry of Japan; hence the automobile industry of Japan will be evaluated. The analysis is presented below: - Force Density Properties Bargaining Power of Buyers High The principal reason behind this is the availability of a large number of car manufacturer and marketer in Japan Bargaining Power of Suppliers Low Suppliers of raw materials of the automobile industry are in large numbers. However, there are certain accessories which can be imported from some other parts of the world but due to stringent trade regulations; companies are bound to dependent on local suppliers. Threat of New Entrants Low The initial investment required to set up an automobile business is very high. In addition, there are several formalities needs to be fulfilled for getting the license of doing automobile business. Threat of Substitutes High The substitute of a car can be public buses, trains, metro rail, and cycles to some extent. The costs associated for availing these substitutes are also less Existing Rivalry High With the presence of established players such as Toyota, Lexus, Nissan and Suzuki the competition is intense (Steele and Iliinsky, 2010). SWOT Analysis The SWOT analysis of Honda is presented below: - Strength The biggest strength of the company lies in its strong brand name and rich history. The company offers a wide range of products and services. In addition, some of its products are eco-friendly, which allows the company to showcase their responsibility towards the environment. Honda has a worldwide presence. Integrated design can also be cited as one of the major strengths of the company. Weaknesses The operating cost of the company is comparatively higher than its rivals. The company only targets upper middle class and higher class, which prohibits them to earn value from lower middle class. Opportunities The biggest opportunity of the company is to expand in the other countries Manufacturing fuel efficient and eco friendly cars. Threats Intense competition within the industry. Strict government policies. VRIN Analysis VRIN framework is a strategic analysis tool used to determine the resources which provide sustainable competitive advantage (Ward and Daniel, 2012). The case study revealed the capabilities of the company lies in Honda’s strong brand name, it’s R&D function and after sales service. The VRIN framework of Honda is represented below: - Capability Valuable Rare Imitable Non-substitutable Conclusion Brand name Yes No No No Competitive advantage R&D Yes Yes No No Sustainable Competitive advantage After sales services Yes No No No No Competitive advantage. The analysis clearly points out to the fact that the research and development function of the company is providing a competitive sustainable advantage to the company. Value Chain Analysis It is a technique by which identification and exploitation of external and internal linkages are done. The principal purpose of strengthening the strategic position of the firm (Hansen, Mowen and Guan, 2009). The value chain analysis of Honda is presented below: - Inbound logistics Honda acquires the raw materials from Japanese suppliers. However, some parts are also imported. The company has maintained close integration with the suppliers, ancillary units and vendors. The company has adopted just-in-time production system which has helped them to reduce transactional and logistical cost. Operations The company pursue lean manufacturing in order to increase the efficiency of production. In addition, just in time system and supply chain also help the company to increase its productivity. Outbound Logistics The company distributes its end products through delivery channels such as car dealers and stockers. The logistics department is however outsourced to third party vendors. Marketing and Sales The company has initiated several marketing campaigns such as advertisements, showroom display among many others. The company sells its products with the help of authorized distributors. After Sales Services Honda is known for its world class after-sales services. The company has a wide network of service centres across the country. In addition, it also ensures availability of spare parts. References Botten, N., 2007. CIMA official learning system management accounting business strategy. Burlington: Butterworth-Heinemann. CIA, 2013. East & Southeast Asia: Japan. [online] Available at: [Accessed 21 March 2013]. Cubbage, C. and Brooks, D. J., 2012. Corporate security in the Asia-pacific region: crisis, crime, fraud, and misconduct. Florida: CRC Press. Graham, T., 2008. CIMA official exam practice kit management accounting business strategy: 2008 edition. Oxford: Elsevier. Hansen, D. R., Mowen, M. M. and Guan, L., 2009. Cost management: Accounting & control. 6th ed. Connecticut: Cengage Learning. Smith, B. and Raspin, P., 2011. Creating market insight: how firms create value from market understanding. New Jersey: John Wiley & Sons. Steele, J. and Iliinsky, N., 2010. Beautiful visualization. California: O'Reilly Media, Inc. Ward, J., and Daniel, E., 2012. Benefits management: How to increase the business value of your IT projects. 2nd ed. New Jersey: John Wiley & Sons. Business Strategy Strategic Position and Strategic Purpose Strategic position is the way a company positions itself in the market place in order to fulfil its objectives and goals. In simple words, strategic position is a strategy by which a company compete with the rivals and serve customers. It has been observed that most of the business houses develop a well thought strategic position for them. In addition, the companies also take certain steps to communicate those strategies to its employees so that each member of the organization works towards a common goal. On the other hand strategic purpose defines the purpose of the existence of a business. It tries to address questions such as why the organization, and for whom it exists. There are different ways by which an organization expresses its strategic purpose. For example, it can be exhibited through statements of mission, vision objectives and values. Hence, from the above discussion it is obvious that both the strategic position and strategic purpose are two different elements but have high resemblance (Calder, 1995; McLaughlin, 2006). The strategic position as well as the strategic purpose of a company can be expressed with its mission, vision and value statements. Hence, through both the elements a company tries to portray its intentions to the stakeholders. Figure 1 – Strategic Position and Purpose (Source: Waed, 2012) Challenges and Solution In the last task, several analysis tools have been used to identify the market position of Honda. From the analysis it was identified that the company is facing some problems related to the political scenario. In the mid 90s there was huge political pressure on Honda. The US government at times has also banned the production of Honda cars in the USA. The pressure on the Japanese automobile giant further ignited when the American press joined the protest. There have been serious turbulences for the Japanese automobile manufacturing companies in the USA and the same also reflected in their overall sales volume. Apart from that, most of the European countries along with USA have restricted the import of Japanese car into their countries. Also the Japanese companies found difficulties in making investment in USA and Europe. In the meantime, there were also rapidly increasing retail competition and price cutting of automobile products in Japan. The export of cars from Japan to USA also dropped from 3.4 million to 1.7 million in the year 1992 in comparison to 1987 (Amick, 2005). The new strategy of Honda paid off to a large extent, as the company succeeded to make dramatic improvements in business process. The strategy of Honda to carry out joint production in USA played a crucial role in reforming the US market. In addition, the decision of the company to restructure their organization hierarchy was also a brave decision. In the mid 1990s, the scenario changed completely. Hence in simple words the company’s decision to commence international operation was also a major step towards the growth (Chary, 2009). Cost Differentiation Strategy of Honda The cost differentiation strategy is one of the generic strategies proposed by business houses to maintain and achieve competitive advantage over the competitors. There are generally three different generic strategies proposed by Porter. The strategies are segmentation strategy, cost leadership strategy and differentiation strategy (Hitt, Ireland and Hoskisson, 2010; Hill and Jones, 2009). A company pursuing either of differentiation or cost leadership strategy holds the opportunity to target broader market. On the other hand, companies pursuing segmentation strategy has limited market scope. However, there are large numbers of companies which employs a combination of both cost and differentiation strategy. Honda employs cost differentiation strategy to gain an upper hand over the rivals. The company manufactures a range of products which includes 4 wheelers, 2 wheelers, trucks and busses. Even within the aforementioned categories, the company has a number of variants. Moreover, the offerings of the company are also unique in terms of its design. However, the biggest advantage of the company is that it offers the products at a low price in comparison with the competitors. Hence, the company uses a mix of both cost leadership and differentiation strategy. It has not only allowed the company to remain productive, but has also allowed them to gain access to a mass customer segment. This benefit of this strategy also reflects in the company’s overall sales. Figure 2 – Market Share and Sales Figure Cash Generation (Market Share) Honda CBR Honda Civic Honda City Honda Sports Car ATV Power Equipments Motor Cycles Mountain Bikes Robots Solar Cell Honda Growth Share Matrix Sustainable Competitive Advantage of Honda Sustainable competitive advantage can be defined as the long term advantage which cannot be easily imitable by rivals. In addition, sustainable competitive advantage can also be defined as an advantage that a company has over its rivals for a longer period of time and competitors also find it difficult to surpass those advantages. There are several ways by which a company can gain competitive advantage and using porter’s generic strategies is one of them. In the similar way Honda has also achieved sustainable competitive advantage. Honda is one of the very few companies from the automobile sector, which has been able to gain sustainable competitive advantage in the market place. The most important factor towards Honda gaining sustainable competitive advantage was the company’s business strategy. Honda has always pursued a mix of differentiation and cost leadership strategy. According to Porter, businesses houses can gain sustainable competitive advantage by adapting to one of the three generic strategies (Kourdi, 2009). Similarly, the company has been able to gain sustainable competitive advantage by implementing a mix of cost leadership and differentiation strategy. With this strategy, Honda has been continuously making profit and thus attained sustainable competitive advantage. Although, these strategies are effective but at times it does not provide the desired result for every business. References Amick, B., 2005. Motocross America. Minnesota: MBI Publishing Company. Calder, K. E., 1995. Strategic Capitalism. New Jersey: Princeton University Press. Chary, S. N., 2009. Production & Operation Management. 4th ed. New York: McGraw-Hill Education. Hill, C. and Jones, G., 2009. Strategic Management Theory: An Integrated Approach. Connecticut: Cengage Learning. Hitt, M. A., Ireland, R. D. and Hoskisson, R. E., 2010. Strategic Management: Competitiveness and Globalisation, Concepts. Connecticut: Cengage Learning. Kourdi, J., 2009. Business strategy: A guide to taking your business forward. 2nd ed. New Jersey: John Wiley & Sons. McLaughlin, T. A., 2006. Nonprofit Strategic Positioning: Decide Where to Be, Plan What to Do. New Jersey: John Wiley & Sons. Waed, 2012. Strategic Positioning. [online] Available at: < http://www.waed.net/English/learn/Pages/Strategic-Positioning.aspx> [Accessed 01 April 2013]. Read More