Honda: Business Environment and Strategic Management - Essay Example

? Honda: Business Environment and Strategic Management April 13, Contents Introduction 3 Analysis of the current business environment affecting the industry 4 Analysis of the company’s strategic capabilities 5 Value chain Analysis 5 Dynamic Capabilities View (DCV) 8 Challenges and weaknesses 9 Main opportunities and strengths 9 Evaluation of possible future strategies for the company 10 Conclusion 11 References 12 Appendix 1: PESTLE Analysis 15 Appendix 2: SWOT Analysis 18 Appendice 3 Five force analysis 20 Introduction Honda is mostly known for its affordable and environmentally friendly vehicles; in addition, it is also one of the leading manufacturers of motor vehicles globally. Its strong market foundation can be traced back to 1946 when the world’s first motor cycle was created by Honda’s founder Soichiro Honda. By 1947 when the company was incorporated, they produced even better bikes such as the 1949 steel-framed, front- and rear-suspended D-Type, which could attain a speed of 50mph, in the 50s they made the Cub, a Vespa which became the first Honda product to be sold in the United States (Richardson, 2012). After 1960, the company focused on production of cars and it hit the market with the Civic which was an eco-friendly and economic vehicle once again winning the hearts of American drivers, it went on to make the accord which became the most popular vehicle in the United States. Honda has since then diversified its products and today it is also involved in the manufacture of solar cells, Aircraft through its subsidiary company Honda Aircraft, power generators among other products. However its main business is the production of vehicles, it is the largest manufacturer of motorcycles in Japan and it ranked 3rd car company in the world after Toyota and ford motors. Today, Hondas leading market is in North America where their revenues were highest compered to its other global markets (Parker, 2001). It is the second most popular Asian car brand in the United States after Toyota and is set to grow even bigger being the only vehicle with a fuel cell engine certified for US where the standards are highest in the world (Trade.govermnets.com, 2010). Its main competitors both in America and globally are Toyota and ford which have larger supply and distributor networks. In the last fiscal year, the companies’ profits Quadrupled showing a strong recovery after the earthquakes in Japan; it is predicting an even bigger profit in the next fiscal years with projections of up to 7.7 billion USD. Analysis of the current business environment affecting the industry In the cause of the last few years, recession and the subsequent by economic uncertainty has resulted in a serious decline in the motor vehicle industry, the sales of motor vehicles fell to the lowest point since the 70s. While Japanese firms like Toyota and Honda are still major players in the market, in the last few years they have suffered severe setbacks, which American and Korean firms exploited to increase their competitive advantage in the industry. Toyota for instance lost much of its competitive advantage by yielding too much ground base on its bottom line and lost the confidence of many of its customers. Japan, which is the mother country of Toyota and Honda, was also hit by a double calamity in the Japan earth quake and the tsunami, the two firms suffered major losses and setbacks in production and distribution as a result (Newman, 2013). The shortage that ensued drove American customers away from the Japanese manufactures to other suppliers in America Europe and other parts of Asia such as Korea and India. Toyota’s earnings went down by 2.3 percent and Honda lost 1.6 percent in earnings for the year 2011. Unfortunately for European auto makers, they were not able to benefit much from Japans misfortune since Europe was also embroiled in a crisis of its own albeit it an economic one, European Union countries were in the worst recession ever and the financial crisis almost crippled the manufacturing industry. Thus, only the American firms were poised to capitalize on Japans problems and they did a good job of it, for the first time, since 2002 general motors picked market shares and other firms such as Chrysler Group also increased their production and market shares. Analysis of the company’s strategic capabilities Value chain Analysis One of the main competitors against Honda in North America is Toyota motors, in spite of past setbacks (which Honda shared); Toyota seems intent on bouncing back to the top of the Auto Market. In terms of quality, Honda is still very highly ranked in terms of reliability (Honda CR-V Review, 2012) it is also leading in the production of hybrids which has helped it develop a reputation as one of the greenest vehicle manufacturers globally. Toyota Prius for example account for over 50 percent of all hybrids cars purchased worldwide, Toyotas main strategic advantage, lies in their human resource management and supply chains especially in America; they have also manufactured a phenomenal range of cars. Thus, they can service virtually every imaginable need of a potential customer starting from eco-friendly hybrids to powerful off-road vehicles like the land cruisers. As aforementioned, American consumers are now demanding vehicles that are not only cheaper but also more fuel efficient, green, so to speak (Rizzoni and Peng, 2013). While Honda has made monumental steps toward meeting this demand, they are running into serious competition in regard to controlling the green vehicle market in the USA. While Honda and Toyota were buried under the problems resulting from the Japanese twin nurture disasters, Hyundai and sister company Kia from South Korea were rolling out new models (Newman, 2013). As a result, despite the fact that Honda is above Hyundai in sales and production, Hyundai is posing a real threat to the formers superiority. Hyundai is borrowing from the vehicle designs which were the preserve of Toyota and Honda and improving them so that consumers will want to buy them for their functional and aesthetic value. Traditionally, when Honda made a green car, they did not give much attention to details such as comfort and style since they assumed the consumer in need of an energy efficient car was only interested in it for the “greenness”. Hyundai has however taken a different approach, it is making vehicles that are just as eco-friendly or more eco-friendly than Hondas and going a step further, it makes them desirable to any customer not just the climate conscious ones (Rosen and Dunport, 2012). In other words, and environmentally conscious customer may have bought a Honda because they felt they had to, however in Hyundai case they buy the car because they think it is not only just fuel efficient but comfortable, affordable and stylish. That said, the competition in the auto market is both a challenge and opportunity, in the American and global market, it is a threat because some of their firms stand to lose their competitive edge if they do not march up to the competition and they may lose market share ultimately resulting in losses. Nevertheless, it is through competition that firms are able to improve and differentiate their products as well as maintain the best quality for the sake of their customers (Booz and Hamilton, 1999). The fact that the global economy is on a recovery plane means that almost all firms will benefit and this means more profits and growth in the industry, increased economic growth means more people will afford to buy vehicle and thus companies just need to strategically place themselves to supply the emerging markets. The emergence of new technologies has created potential opportunities for manufactures to direct their production process in the right direction, the fact that several companies have already ventured into the hybrid market means other firms can learn and develop the existing technologies so as to increase their effectiveness, in the same way Hyundai is capitalizing and developing on Toyotas and Hondas techno. Another challenge that has been facing the vehicle manufacturing firms for decades is the dilemma that is posed by environmental effects of their products (Parker, Koshiba and Rutherford, 2001). While taking cognizance of the fact that energy efficient vehicles are better for the environment, it is notable that their demand on the global market is still not big enough to warrant significant shifts in that direction, at least on a global scale. Hybrids are often difficult to maintain and repair especially when they are sold outside America and many clients will not opt for them. Thus the manufactures have to contend with the fact that the majority of the vehicles they produce (non-fuel efficient) keep degrading the environment through exhaust and high energy consumption (Parker, 2001). At the same time, it is projected that the future will bring about a battle to control the value in the automobile industry; there will be a shift to new propulsion systems especially those using electricity (Motavalli, 2012). Consequently, there is a possibility that if the existing manufactures do not capitalize on such technology in posterity pole positions in the Auto manufacturing industry may be taken over by new firms. To get to where it is has taken a lot of innovation, dedication and most importantly of all brilliant strategy which has enabled it to grow expand past its home country and make a significant impact in on the American and global arena. It is unequivocal that despite not being on top of its field, Honda has a substantial combative advantage over other firms in several aspects of the business. Competitive advantage can be loosely defined and the attainment of a larger gap between a firma and the competition, between the value customers see in a firms products and the cost of providing the same products (Pietersen, 2013). Ultimately, competitive advantage results from offering greater value to ones customers than the competition, however this is in form of objective measurable results not abstract subjective. To achieve this advantage over its competition, Honda has utilized a variety of techniques, for example, during the American recession, General motors, one of the main competitors in North America declined considerably. Honda took advantage of the slump in GM’s productivity and launched highly efficient and fuel efficient cars which consistently outshone GM’s struggling brands in virtually all aspects. Honda instituted the lowest cost in the American manufacturing scene and promoted its brand a peal in a time when the automobile industry was declining in the United States. Honda also gains competitive advantage by setting targets that are geared toward a direct competition with the bigger brands in the industry. Nevertheless, to compete with the dominate players, it ensures that its resources are single minded leveraged with the intention of achieving the set target, it has thus built a reputation for being aggressive and creative so as to ensure it maximizes production and quality and minimizes inputs. Dynamic Capabilities View (DCV) Dynamic capability refers to a company’s ability to integrate, build and reconfigure the internal and external competences to comply with today’s fast changing business. The main strengths that Honda has capitalized on to get its competitive advantage include its capacity for innovation (Meyer and Wit, 2010). The firm is able to create value through expansion of sales and investing heavily in research and development of its products. That way Honda is able to come up with new models of eco-friendly cheap cars which attract the new breed of climate counsels customers especially in America. It has a remarkable reputation as a high quality of building high quality cars and this is evident in the many old Honda models that can be seen on the streets attesting to the reliability of their products, as result it has often been highly ranked by consumer reports. In addition due to its fuel efficiency it not only attracts environment conscious consumers but also come hardy especially during fuel shortages or when and in view of the steadily rising global fuel prices. Diversity is another of Hondas main strengths, it has expanded its operations to also include, power generators and it has a subsidiary company Honda aircraft developing jet engines, in addition their production process geographically diverse. Therefore, in order to save on shipping and duty costs, Honda prefers to build plants right where the market is, that way they will be near the customers, asses their needs and because of the economics of delocalization, it will afford to make their products cheaper. Challenges and weaknesses Nonetheless Honda faces several challenges that can be considered its main weakness, for instance, owing to its endeavour to produce high quality and fuel efficient car, Honda’s cost structure is often higher than that of its competitors. As a result they may not be able to flood the market with as many vehicles as their peer companies Toyota, and GM both which can manufacture different in-house brands for many markets owning to their economies of scale. Another internal weakness facing the firm is the labour policies has put in place which make retirement and post-retirement benefits expensive for the firm often taking much of their expenses. Main opportunities and strengths The firm however has several opportunities that it can exploit to give itself comparative advantage in the future, they already have a significant niche in the hybrid car market as well as favourable reputation. Since the demand, ergo market for these cars is expanding rapidly, if Honda capitalizes on this they stand to reap enormous gains. There however exist significant threats in the industry both internally and externally, the competition by upcoming firms such as Hyundai poses a threat to Hondas market share in the hybrid vehicles. In addition despite the recovery, the threat of another economic meltdown is an ever present danger and this would likely have negative consequences on the firm considering its massive long-term investments. Honda is second largest Asian car manufacture in the United States and without doubt one of the biggest and most respected brands in the industry worldwide albeit closely followed by China (Tang, 2009). It has displayed great potential for growth by effectively competing with some of the biggest brands such as Toyota and general motors and its recovery after the Japanese earthquake speaks volumes about it resilience as a company (Funaru, 2010). Evaluation of possible future strategies for the company The key strategic issues form the above analysis are the need for value creation through gaining a competitive advantage over other firms, fuel efficient and eco-friendly vehicles, effective strategies to deal with the competition and protect the market holding and increase its relevance (Simpson, n.d). Taking a TEST framework, one could consider the Technological Economic, Social cultural and political/legal implications. In 2012, the set in motion a plan to inject a $98 million in it Anna plant in Ohio where engine parts are manufactured, was done in the wake of a $120 million investment in the production of continuously variable transmissions (CTV) in the same state (Lietzke, 2013). These will facilitate the manufacture of high-tech pulley parts and make headway in the achievement of Honda’s Erath dreams technology line up. These expansions and investments are a crucial part of their corporate social responsibility; new CTV plant for instance is projected to create over 150 jobs. Using technology to provide better quality and environmental friendly products is the best strategy for Honda to follow, what makes it such a viable option is that it not only takes care of the present but the future as well (Huhn, Harris and Snyder, 2013). Developing energy efficient cars and coming up with FCEV will enable Honda be a future oriented firm it will not only make better vehicles but also stands to earn more money and possible take up the pole position in the global car industry. As aforementioned, one of the major challenges facing the industry is the potential for outsiders to come in with electric technology (for example) and take over from the current firms. For any firm that does not make effort to keep up with the times and prepare for the future consumer and car, this is a very real threat, Honda is however should taking steps to ensure that what that time comes it will be the dominant one. Conclusion It is unequivocal that the same ingenious innovative base on which Honda initially built the company is still very present in the firm today; it has proven itself capable of surviving and competing with bigger companies like Toyota and GM. While Honda is not among the prime companies, it is way ahead of its time and it will very likely soon tower above all others in the industry. That is because it has strategically placed itself in a place very firms few dare or imagine go the future. References “Honda CR-V Review”. (2013) U.S. News. Retrieved from http://usnews.rankingsandreviews.com/cars-trucks/Honda_CR-V/ “Motor Vehicles Industry Assessment”. (2010). Trade.govermnets.com. Retrieved from http://www.trade.gov/mas/manufacturing/oaai/build/groups/public/@tg_oaai/documents/webcontent/tg_oaai_003754.pdf Accavitti, M. (2013). “Understanding Our New Business Strategies”. Honda In America; News and Views. Retrieved from http://www.hondainamerica.com/news/environmental-technology Booz, A and Hamilton, J. (1999). “Challenges Facing the Global Automotive Industry”. Consumer and Engineered Products. Retrieved from http://www.boozallen.com/media/file/Challeng.pdf Funaru, M. (2010). “Toyota’s Business Strategies In International Markets”. University of Brasov Faculty of Economics and Business Administration. Retrieved from http://feaa.ucv.ro/annals/v3_2010/0038v3-004.pdf Hirsch, J. (2012). Auto sales set November records at Honda, Hyundai, Nissan and BMW. Los Angeles Times. Retrieved from http://articles.latimes.com/2012/dec/03/autos/la-fi-hy-november-auto-sales-strong-20121203 Huhn, L.B., Harris, K.W., and Snyder, D. (2013). The coming of intelligent green vehicles. The Futurist, 47(1), 39-44. Lietzke, R. (2013). “Honda to Invest $98 Million in Anna Engine Plant for Production of Advanced Transmission Components”. Honda In America; News and Views. Retrieved from http://www.hondainamerica.com/news/honda-invest-98-million-anna-engine-plant-production-advanced-transmission-components Motavalli, J. (2012). The road ahead for gasoline-free cars. The Futurist, 46(2), 6-7. Newman, R. (2013) Toyota's Back in the Fast Lane US NEWS T& World Report. Retrieved from http://www.usnews.com/news/blogs/rick-newman/2013/02/06/toyotas-back-in-the-fast-lane Office of Transportation and Machinery U.S. Department of Commerce. (2011). On the Road: U.S. Automotive Parts Industry Annual Assessment. Retrieved from http://www.trade.gov/mas/manufacturing/oaai/build/groups/public/@tg_oaai/documents/webcontent/tg_oaai_003660.pdf Parker, P. (2001). Environmental initiatives among Japanese automakers: New technology, EMS, recycling and lifecycle approaches. Environments, 29(3), 91-113. Parker, P., Koshiba, T., & Rutherford, T. (2001). Global, local or hybrid? evidence of adaptation among Japanese automobile plants in japan, the united states and Canada. Environments, 29(3), 15-34. Pietersen, W. (2013). “Defining Competitive Advantage: How much more value do you deliver than your competitors?” The European Business Review. Retrieved from http://www.europeanbusinessreview.com/?p=2355 Richardson, A. (2012). Lessons from Honda's Early Adaptive Strategy Harvard Business Review. Retrieved from http://blogs.hbr.org/cs/2011/02/lessons_from_hondas_early_adap.html Rizzoni, G., & Peng, H. (2013). Hybrid and electrified vehicles: THE ROLE OF DYNAMICS AND CONTROL. Mechanical Engineering, 135(3), S10-S17. Rosen, J and Dubord, K. (2012) State of the U.S. Motor Vehicle Industry: 2012 North America – U.S. ? Economics. Retrieved from http://www2.briefing.com/Marketing/includes/state-of-the-us-motor-vehicle-industry-2012.pdf Simpson, L. (n.d). “Competitive Advantages of Honda”. Ehow.com. Retrieved from http://www.ehow.com/list_5916489_competitive-advantages-honda.html Tang, R. (2009). “The Rise of China’s Auto Industry and Its Impact on the U.S. Motor Vehicle Industry”. Congressional Research Service. Retrieved from http://www.fas.org/sgp/crs/row/R40924.pdf The Economist. (2013). Car industry: Danger ahead. Retrieved from http://www.economist.com/node/17902719 Wit, B.D and Meyer, R. (2010) Strategy: Process, Content, Context. Stamford: Cengage Learning. Appendix 1: PESTLE Analysis Political and Legal Factors In July 2010, Honda lost a class suit and they were forced to compensate and reimburse consumers nationwide whose vehicles had been sold with faulty rear brake pads. They were also expected to Judge Margaret Morrow approved a settlement that provided cash reimbursements to eligible Class Members nationwide. They also had issues when in 2012 several of their customers sued them because of the faulty locks which posed a security threats to bot the cars and the owners. Honda was also had to compensate many of them and with these suits a lot of credibility was lost due to the ensuing negative publicity. Environmental Factors In addition, the America like any other country has a legal responsibility to ensure it does not exceed the set limit for greenhouse emissions, Honda plays a vital role in ensuring that as a firm it keeps not only the emission of the production process but even the those of the finished products at a minimum (Accavitti, 2013). As such it fulfils both its legal obligations and social ones since it protects the communities around the plants as well as the consumers; in addition, it sets the trend for other firms competing with it. The competition may be forced to apply more eco-friendly techniques production techniques and make environmental friendly vehicles because to Hondas initiative; as a result it will have played a monumental role in safeguarding the environment. There has been reduced petroleum deposits as a consequence of global warming, thus, petrol price are keep on rising, therefore, Honda introducing ego-friendly technology cars such as Honda Hybrid to protect global warming. Social factors Social factors include the demographic and cultural aspects of the external macro-environment, in America Honda still has to fight the perception of its being a foreign firm. American consumers tend to prefer in their local brands and would rather purchase the more American Chevys and Fords, this choices may not have much to do with the quality of products but simply the country of origin. As a result, Honda may not benefit entirely from the economic growth since while Americans may go for cheap Japanese cars in hard times, when they can afford to they will go for the more pricy homemade products, and these affects customer needs and the size of potential markets. Technological Factors Honda will require investing more in innovation and technology (Meyer and Wit, 2010), that way they can strengthen their hold on the Hybrid car niche, in addition with more technological development they can have better means of production which will ultimately bring down the cost of production. Technology will also help them further their agenda towards reduction of Co2 production by their vehicles in view of the fact that were the first car manufacture to set voluntarily co2 targets in 2006 (U.S. Department of Commerce, 2011). Such endeavours not only make its products safer and more efficient to sue but make the brand more appealing to consumers and organizations which champion reduction of greenhouse emissions by motor vehicles. Honda stands out as the first motor vehicle manufacture to produce a Fuel, Cell Electric Vehicle (FCEV) certified by U.S.EPA, and CARB in October 2002, it also plans to introduce a new all fuel cell vehicle into its Japan and American market by the year 2015. Evidently, Honda has stood out among its peers in working the hardest and smartest to bring the dream of a fuel efficient and environmental friendly car to bear and in the process setting the pace for the competition. Economic factors The reduction in sales growth in the motor vehicle industry resulted in a radical change in the structure of the fundamentals behind the market, the prices of used cars the age of vehicles and the scrap page rates went out the historic levels of equilibrium. However, this coupled with the improvements in the post-recession economy portends that in the next few years, out sales may be set exponentially increase (The Economist, 2013). Therefore, in order to boost its economic powers, ergo profitably Honda has also increased its investments in the United States so as to capitalize on the gradually recovering economy that has enable more people to buy vehicles (Hirsch, 2012). Appendix 2: SWOT Analysis Economic factors The reduction in sales growth in the motor vehicle industry resulted in a radical change in the structure of the fundamentals behind the market, the prices of used cars the age of vehicles and the scrap page rates went out the historic levels of equilibrium. However, this coupled with the improvements in the post-recession economy portends that in the next few years, out sales may be set exponentially increase (The Economist, 2013). Therefore, in order to boost its economic powers, ergo profitably Honda has also increased its investments in the United States so as to capitalize on the gradually recovering economy that has enable more people to buy vehicles (Hirsch, 2012). Appendix 2: SWOT Analysis Strengths Weaknesses Honda is the sixth largest automobile manufacturer in the world selling cars in over a 100 countries Production System that is refined over the years along with High and powerful research and development R&D High brand equity and brand loyalty amongst customers Eco-friendly vehicles enhanced the brand image Cost structure of Honda is high as compare to other automobile manufacturers Caters to only the upper middle segment which limits the customer base Honda has to recall a few of their models for corrective measures which caused a lot of hue and cry Opportunities Threats Developing hybrid cars and fuel efficient cars for the future Tapping emerging markets across the world and building a global brand Fast growing automobile market Government policies for the automobile sector across the world Ever increasing fuel prices Intense competition from global automobile brands Appendice 3 Five force analysis Threat of new entries While Honda is quite dominant in the United States as a major car supplier, the threat of new entrants is preeminent in the form of fellow Asian car manufacture Hyundai. Traditionally, when Honda made a green car, they did not give much attention to details such as comfort and style since they assumed the consumer in need of an energy efficient car was only interested in it for the “greenness”. Hyundai has however taken a different approach, it is making vehicles that are just as eco-friendly or more eco-friendly than Hondas and going a step further, it makes them desirable to any customer not just the climate conscious ones (Rosen and Dunport, 2012). Availability of Substitutes Other solutions have been considered and practiced by consumers and this has negatively affected the Auto industry, one popular option has been the increased usage of public transport like buses by those who attribute the greenhouse problem to too many vehicles on the road. In addition, electric trains have been experimented with and in areas where such substitutes are in place, Honda and other Automakers are losing out. However firms like Hyundai are taking advantage of this and expanding their production to bigger vehicles such as buses which can be absorbed in the public transport system. Supplier bargain power The automobile supply business is quite fragmented and there are numerous firms with unique needs Honda for instance can have products from many suppliers but uses only a few. These suppliers on the other hand rely almost entirely on Honda to buy their products. Buyer power The auto industry has very many players and competition is often very severe and cut throat, as a result, Honda customers, especially in America have considerably high bargaining power since they can always move to Hyundai Toyota GMC or any of the many other available firms. Intensity of rivalry Some of the world leading car manufactures are competing with Honda and they have resources that are beyond the reach of the smaller Honda motors. Toyota and is set to grow even bigger being the only vehicle with a fuel cell engine certified for US where the standards are highest in the world (Trade.govermnets.com, 2010). Its main competitors both in America and globally are Toyota and ford which have larger supply and distributor networks. Read More