Strategic Position of Honda Motor Company - Assignment Example

Honda: Company Analysis What factors contributed to Honda changing its strategic position? Honda Motor Company, Ltd is Japan based public multinational corporation that primarily engages in the production of automobiles and motorcycles. Honda has been the most dominant firm in the world’s motorcycle manufacturing industry since 1959. In addition, Honda has been the world’s largest producer of internal combustion engines since the beginning of its international process. The company has also business interests in other segments including marine engines, power generators, and garden equipment. While analyzing the corporate history of the Honda Motor Company, it seems that the company had been following a “glocalisation” strategy since mid 1980s in order to internationalise its business segments giving more focus on local markets. However, the company has recently brought a strategic change in its global market operations, according to which the Honda sets up its own wholly owned subsidiaries across the globe. To illustrate, referring to Aylward (2003), Honda established its wholly owned subsidiary in India in 1999 under the name Honda Motorcycle & Scooter India and announced plans on cancelling the joint venture with its Indian partner Hero. This strategic change is supported by the performance comparison framework, which tells that stockholders expect more revenues as time goes by (Lecture note). In addition, the company has abandoned its traditional manufacturing policies, and adapted to a new manufacturing policy called ‘Lean manufacturing system’ by the end of the 20th century. The lean manufacturing strategy would produce maximum level of output with minimum level of inventory. Also, this strategy would avoid production waste. Strategic change approaches illustrate that a change process involves three phases including strategic planning, project management, and operationalistion. PESTLE analysis Evidently, a number of factors have contributed to the Honda’s strategic change. PESTLE analysis on automotive industry is necessary to demonstrate the factors led to the strategic change. Today, governments worldwide encourage foreign direct investments as it is one of the best measures to promote economic growth. This trend is particularly seen in emerging economies like India and China. Since Honda is a globally recognised company and a potential employment provider, governments tend to welcome the organisation on the belief that Honda can add value to the nation’s industrial and economic status. In addition, since globalisation has eliminated cross border trade barriers, organisations enjoy easy access to foreign markets. At this juncture, the Honda management thinks that the strategic change would provide them with more operating freedom and innovation capabilities. While analysing the global economic spectrum, it is clear that the global financial crisis 2008-09 has seriously affected the global economy (except Asian countries). Since majority of the Honda’s global partners were affected by this crisis, the firm believes that individual market operations would provide them with increased profitability. Obviously, the process of economic globalisation also increased the opportunities for multinational companies to grow individually in foreign markets. Indian and Chinese market trends indicate that there is a demand turn towards cheap energy sources due to the growing oil prices. Currently Honda has fuel efficient hybrid technology which has also persuaded the company to change its strategic position. Referring to Ansoff’s growth matrix, the proposed strategic change would assist the company to introduce new products and services in existing and new market segments (Lecture note). Today, people prefer feature-loyal vehicles to brand-loyal vehicles. Price and mileage have also become paramount in the automotive industry. Traditionally, Honda vehicles, especially motorcycles are well known for high mileage and resale value. On the strength of its powerful technological base, Honda can effectively meet customer needs without any external assistance from a local provider. Moreover, Honda has accurately identified customer pulse in different foreign markets with the help of its joint venture operations. Technologically, Honda has competitive advantages over its competitors. As discussed earlier, the company’s strength in hybrid technology would assist the firm to dominate the future automotive market. Other technologically improved features including higher mileage and powerful engines may also help Honda to get closer to foreign customers. Finally, Honda’s current corporate strategy is potential enough to meet legal and environmental policies of countries worldwide. The organisation maintains a set of well developed corporate social responsibility policies which would contribute to its rapid economic growth. In addition, the firm has taken several initiatives to reduce greenhouse gas emissions and other ways of environmental pollution. In short, the current automotive industry offers all favourable situations for Honda to compete in the global market. Naturally, Honda may be forced to trim down its cost of production while operating individually in foreign market segments. However, the company believes that this operational requirement can be best met through its lean manufacturing system. Porter’s five forces model Evidently, the degree of competitive rivalry is high in automotive industry. However, the improved hybrid technology assists the company to successfully confront with its competitors and thereby obtain an edge in the global market. As Verma (2011) points out, even while adapting to its new strategic position, the company tries to maintain a good relationship with its former business partners. For instance, Honda offers technical assistance to its Indian joint venture partner Hero even after their separation. Since automotive customers are not yet fully convinced about the potentiality of hybrid vehicles, new providers hesitate to enter the industry. This situation relieves the company from the threat of new entrants. Furthermore, the organisation can take advantages of the situation by making further innovations in this field. In addition, threat of substitutes is comparatively low in the automotive industry. Since people generally do not purchase cars or motorbikes in bulk quantities, they do not have any bargaining power in the automotive industry. Likewise, there are a large number of potential suppliers in the automotive industry, and hence supplier power is also low. In short, referring to this competitive market environment, Honda management thinks that individual operation may assist the company to generate more volume of revenues and thereby profitability. Lichtenstein and Dade (2007) consider value creation as the primary management task; and according to the authors, improved leadership strategies can add value to shareholder interests. Through this strategic change, the organisation is trying to contribute to its shareholder values. Wealth maximisation is the primary objective of any organisation and therefore an increase in profitability would assist Honda to contribute to the interests of its diverse stakeholders. Undoubtedly, Honda’s desire for operational independence is another factor that persuaded the company management to change its strategic position. 2. How is Honda achieving this change? As we discussed earlier, the lean manufacturing system is greatly assisting the organisation to achieve the planned strategic change. In the opinion of Saxena (2009, pp.514-515), the lean manufacturing system involves several advantages including lower lead time, better quality, higher productivity, fewer order processing errors, less paper work, less staff requirements, improved customer services, reduced operating costs, and wider market coverage. The company also focuses on product differentiation policies. According to Porter’s generic strategies, product differentiation strategy would provide the firm with great market scope (Lecture note). In addition, Honda’s management pays specific attention to product quality and customer services in order to maintain its competency in various market segments. To illustrate, a report published in Huff Post (Kageyama , 2011) reflects that the company has recalled 304,000 vehicles globally for air bag defects during 2009. Earlier, this defect had caused a number of accidents, including two deaths in the United States in 2009 (ibid). In 2011, the company planned to recall a total of 2.3 million vehicles from United States, Canada, and China due to their automatic transmission issues. It directly indicates that the company is always concerned about its product quality and user safety. Similarly, the company is vigilant in responding to changing market trends on time. The organisation gives specific focus on customer preferences and specifications. Honda invests nearly 5% of its revenues in research and development as the company strongly believes that innovativeness is the key factor driving its market growth. In addition, the firm has a responsive service support wing that assists Honda to provide royal service experience to its customers. The company has also slightly restructured its operational strategy so as to cop up with the new strategic change. Referring to CSR Report (2008), the organisation has six administrative regions around the world and they are responsible for developing and executing businesses based on its fundamental corporate philosophy. Honda always fosters independence of local management as the company considers this strategy is essential to get closer to local needs. Effectively risk management and high level of transparency also assist the company to pursue the planned strategic change. Recent reports show that the firm offers extensive price cuts in emerging markets like India with intent to attract low income groups to automotive industry. For the same purpose, the company has planned to launch cheap and small cars in India. Finally, the company gives increased focus on corporate social responsibility programs because nowadays corporate responsibility is considered to be an integral part of the business management. Such programs have assisted the organisation to obtain external market support for their changed strategic position. To illustrate, “Honda has now set a target to reduce CO2 emissions from its global products by 30 percent by the end of 2020 compared to year 2000 levels.” (Honda, 2011). This move would bring great public support since high levels of CO2 emissions are growing to be a potential threat to environmental sustainability. The company has also invested huge amounts in educational sectors and other social welfare programs. In sum, Honda has changed its strategic position in order to operate independently in the global market. The organisation is pursuing this strategic change through product innovations, improved customer services, price cuts, social welfare programs, and a change in manufacturing system. Specifically, a strong management team along with product innovations have been assisting Honda to achieve market success. McKinsey 7S framework The 7S framework elements include strategy, structures, systems, shared values, style, staff, and skills. While analysing the Honda’s strategy, it seems that the company practices frequent product innovations to capture market concentration, and gain competitive advantages over rivals. The company is following matrix structure. Scholars opine that matrix organisations are highly flexible because this structure allows firms different dimensions to integrate together. The organisation gives focus on employee empowerment and fosters employee creativity. The Honda’s shared values greatly emphasise on product quality, customer satisfaction, and environmental sustainability. Honda Motor Company follows a situational leadership style and this model assists the company to easily adapt to market trend changes. The company has a potential staff group who are flexible enough to deal with diverse business environments. Creativity is the most noticeable skill of Honda’s employees and this strength offers a range of future market opportunities to the company. Hence, the 7S framework analysis indicates that Honda has a lot of potential strengths to go on with the proposed change. In other words, the company’s current status greatly contributes to achieving its planned strategic change. Value chain analysis Inbound logistics: Honda receives raw materials from numerous external suppliers. The greater supplier power assists Honda to obtain uninterrupted flow of raw materials economically. It seems that the company receive materials from small and independent suppliers with intent to reduce costs and to ensure quality. Operations: As discussed earlier, the company has recently adopted a lean manufacturing system to promote its production efficacy. Outbound logistics: The centralization strategy aids the company to ensure that goods and services are efficiently and timely reaching buyers. Marketing and sales: Traditionally, Honda follows advertising strategy as part of product promotion. Service: Honda maintains a responsive customer service department that maintains product performance. The value chain analysis also suggests that the company’s value chain activities are efficient and are capable of achieving the proposed strategic change. Conclusions and recommendations In total, Honda Motor Company has planned to change its strategic position in order to improve its corporate status and capitalise on emerging global market opportunities. PESTLE analysis and Porter’s five forces model pointed out the various factors contributed to the proposed change whereas McKinsey 7S and value chain frameworks indicate how the company is achieving the change. Dramatic growth of other automotive companies like Toyota, Ford, and Chevrolet is identified to be the major threat to the Honda Motor Company. It is advisable for the company to focus more on hybrid vehicles as their demand is expected to grow in future. In addition, Honda must try to reduce its CO2 emissions to a more acceptable level. Finally, the company has to maintain its product innovativeness because modern people are extremely sensitive to product features. References Aylward, MM., 2003. From Honda to Hero- The motorcycle industry in India, pp. 1-4. CSR Report 2008., 2008. Corporate Governance, pp. 77-80, [Online] Available at: [Accessed 24 March 20112]. Honda., 2011. Honda announces global CO2 emissions reduction targets including 30 percent reduction for products, News & Views, [Online] Available at: [Accessed 24 March 2012]. Kageyama, Y., 2011. Honda recalls 304,000 vehicles worldwide for air-bag problem, Huff Post: Business, [Online] Available at: [Accessed 24 March 2012]. Lichtenstein, S & Dade, P., 2007. The shareholder value chain: Values, vision and shareholder value creation, Journal of General Management, 33(1), pp. 15-31. Saxena, JP., 2009. Production and Operations Management, New Delhi: Tata McGraw-Hill. Verma, R., 2011. Riding solo, India Business Law Journal,pp. 35-38, [Online] Available at: [Accessed 24 March 2012]. Read More