Hero Honda Motors Limited in Asia - Case Study Example

?Introduction The case provided is about the Hero Honda Motors Limited which is actually a merger of two companies in India, one of which is Hero Cycles of India and Honda Motors of Japan. The joint venture was formed in 1984 when India had started to liberalize when it comes to imports and foreign direct investment. The company positioned its products as fuel efficient and reliable which actually are the aspects most in-demand in India since people in the country want fuel efficiency to minimize their costs, and durability to bear the rough and bumpy roads of rural as well as in urban India (InfiBeam). The success of Hero Honda has been prominent to such an extent that in the Indian market, when the general public is referring to the two wheeler industry, the first name that comes on top is the Hero Honda Motors Limited. The company has managed to secure the top spot in India when it comes to volumes in the two wheeler industry and the second spot in the world in the same category. Background As mentioned above, the Hero Honda company formed as a result of a joint venture of the Hero Group of India, owned by the Munjal family, and Honda Motors of Japan. The company started with each of the two co-owners possessing 26% of the company with the rest owned by the public and financial institutions. The arrangement to form the joint venture was initially on a 10 year period till 1994 and Honda Motors was supposed to provide the technology and technical expertise while Hero Cycles was responsible to bring in local talent for the company management including the marketing, human resources and finance managers. A period of uncertainty followed in this joint venture when Hero Honda began to lose its market share due to the fact that the Honda research and development department was too slow to introduce new products for the Indian market. Therefore, they initially missed out on the boom in the two wheeler industry from the year 1993 to 1996 but soon recovered as the clauses of contract of Hero Honda were renegotiated and the research and development was given priority. Since then, Hero Honda has been on a constant rise and quickly managed to beat its competitors to become the producer with the highest market share in the industry. Issues As India began to liberalize and foreign direct investment was allowed into the nation, the foreign investors could view the huge population as a major motivator to invest. Soon, the emergence of Hero Honda, Bajaj, TVS, and Yamaha made this industry a very dynamic one where every company was competing against themselves to be the market leader. In the case of Hero Honda however, it was much more complex than its competitors. The competitors including Bajaj and TVS were giving Hero Honda a tough time in the domestic as well as in the international market. Bajaj and TVS had also formed joint ventures of their own and therefore they were not far behind Hero Honda on technological grounds. Along with this, the Indian market prefers to buy a two wheeler at a low price given that it is usually the lower and the middle financial class, who cannot afford to buy cars, that buys the two wheelers. This encouraged the importers to introduce the China-made motorbikes in India which were priced at a much lower level than its Indian counterparts. This made it necessary for the Hero Honda marketing department to position the brand as such to make it the preferred option for the Indian buyer. Unfortunately for Hero Honda, the company had to face not only the external competition but also internal due to poor cooperation between the partner firms. The Honda Motors’ Research and Development department was not located in India and they had little Indian customer insights. This meant that the R & D department was unable to respond to the changing Indian two wheeler market as fast as other competitors were. Along with this, when Honda decided to open its subsidiary firm on its own to produce scooters in India, it was also felt that they may also decide to part ways with Hero group and start producing motorcycles on their own. This meant that soon, Hero group was about to face another potential competitor which was Honda itself. This lowered the confidence of the investors in Hero Honda and the company lost 30% of its stock value in the early 2000’s. Strategies Adopted Phase 1: 1984-1994 These were the first years of the formulation of the joint venture between Hero Cycles and Honda Motors. Hero group had the reputation of having a very well established dealership network in the past and its supply chain was a distinctive advantage over its competitors. During the first few years, Hero Honda introduced the motorcycle with the first four-stroke engine in India. The bike was named as CD-100 because it was a 100cc model and promised superior fuel efficiency which was claimed to be up to 80 kilometers per liter. Hero had the experience to be aware of the Indian consumer insights and they knew that marketing fuel efficiency will make the product successful. Hero Honda conducted a mass market campaign and its superior supply chain and dealership network was able to support this by making the motorcycle available for sale in all the desired regions of India. The management decided that their business strategy should be about market diversification and labeled their marketing campaign as “fill it, shut it, forget it”. Phase 2: 1994-1999 After the success of CD-100, the company thought that it needed to move into advanced biking experience and had to offer more features. This was the time when Bajaj and TVS had introduced their new range of motorcycles which were stylish and offered a lot more features. Therefore, after the terms of the joint venture were renegotiated in 1994, Hero Honda launched Splendor which was much more stylish; performance enabled and offered lot more features. The bike was no longer targeted towards the fuel efficiency desiring market and it had an appeal to the youth of India as well since the new motorcycle could offer much more speed and thrill than its predecessors. Sensing the excitement of the Indian youth regarding their new Splendor, the tagline of the company was changed to “Desh ki Dhadkan” which means the heartbeat of the nation. This marketing campaign was once again very successful and it created a sense of ownership of the nation in the perceptions of the Indian youth which comprised of most of the Indian population. Phase 3: 1999-2009 With the uncertainty continuing to threat the existence of Hero Honda thanks to the decision made by Honda to start the production of scooters on its own in India, Hero Honda had to ensure that they marketed their brand as such that it would make it immune to any competition. Therefore, Hero Honda adopted aggressive marketing as their business strategy in order to counter the current competition of Bajaj and TVS and potential competition of Honda in the future. At this time they thought that in order to make their brand as sustainable, they had to ensure that they catered to all the markets in India and therefore, they decided to invest in product development catering to the numerous target markets and this marked the beginning of market diversification as their business strategy. This proved to be a step which was very useful in the future as in the year 2009, Hero group and Honda Motors decided to part ways and the Hero Honda Motor Company became the Hero Motor Corp. Due to these couple of strategies, Hero Motor Corp. has been successful in maintaining its position as the leading company in India in the two wheeler industry (Sharma & Philip, 2010). SWOT Analysis Strengths When the joint venture of Hero Honda was formulated, the major advantage that the company had over their competitors was that Honda had a reputation of being technologically advanced worldwide while the Hero group had the experience of operating in the Indian market and they were well aware of the customer’s needs and wants. Hero group also had an established and renowned supply chain network and dealership network. This meant that their products would be in the market for sale in less time and were much more accessible as compared to their competitors. Since the Hero group was well aware of the mentality of the Indian consumer, the Hero Honda was able to successfully design a marketing campaign that touched the hearts of the Indian population and was a huge success in creating sales as well as the brand image (Bike Dekho). Along with this, the partners in the joint venture were well reputed in their respective fields of operation and had an established brand name which they strived to build upon rather than creating a new one. This therefore synchronized their business strategy and the company had a much clearer objective. Weaknesses Although the joint venture of Hero Honda had contractual obligations until the end of the contract term, it is seen from examples from the past that partnerships are successfully operated when the partners have a balance of power and one is not dependent on the other. This was not the case in Hero Honda because Hero was completely dependent upon the Honda Motors for the research and development and product innovation. Honda Motor Company had the power over product development and this was not good the joint venture as well as the Hero group. On the other hand, the Honda Motors was completely dependent upon Hero Cycles for the insights to the Indian markets. In addition, the research and development department was not located in India. This meant that the product innovation process was slow because India would usually not be on top of their priority lists and therefore Hero Honda had to wait for its turn. Also, the research and development department was unaware of the mentality of the Indian consumers and therefore the product proposals would usually be more suited to the worldwide market rather than the Indian market. Opportunities The production costs of Hero Honda were lower as compared to those in other countries due to cheaper labor. As a result, Hero Honda had the opportunity to export these motorcycles to other parts of the world where the population is usually poor such as the Caribbean and Central America. Within the country, India has a huge population which is more than 1 billion currently. This means that the Hero Honda could offer it products to a large number of people of who were bike riders. Since the roads are poor and the traffic situation in India is also not much better, people prefer to travel on two wheelers which takes a lot less space than a car. Also with time, the concept of women empowerment is gaining popularity in India and more women are now commuting to work and other places. This presents Hero Honda with the opportunity to target these women and gain more market share. Threats Since the technology of Hero Honda was provided by Honda Motors, it is bound to have a technological edge over the Hero group at least in the near future. This means that after the Honda Motors separated from Hero Honda in 2009, Honda Motors could market their products as being more technologically advanced than the Hero Motor Corp motorcycles and this can result in Honda Motors taking the market share away from the Hero group. Also, Bajaj has once again emerged as a strong competitor with its new range of motorcycles and this can also result in the loss of market share of Hero Motor Corp. Along with this, the uncertainty towards the long term future of Hero Honda is affecting the company in the financial markets with share prices taking a nosedive of 30%. Conclusion The aim previously set by Hero Honda to achieve annual revenues of more than $1 billion in the fiscal year 2002-2003 was hampered by the uncertainty towards the long term future of the company and the refusal of Honda Motors to commit to the cause in the future (WardsAuto). However, since the current contract of this joint venture will expire in the year 2004, Hero Honda still has a couple of years to try to achieve this aim. Given the status of Hero Honda as the market leader in the two wheeler industry in India, the company can capitalize on it and use aggressive marketing to achieve this aim. Bibliography Bike Dekho. (n.d.). Hero Honda Bikes in India. Retrieved from Bike Dekho: http://www.bikedekho.com/hero-honda.html InfiBeam. (n.d.). Hero Honda Bikes and Scooters. Retrieved from InfiBeam: http://www.infibeam.com/bikes/make/herohonda.html Sharma, S., & Philip, S. (2010, December 16). Hero Buys Honda's $1.9 Billion Stake in India Motorbike Maker on Exports. Retrieved from Bloomberg: http://www.bloomberg.com/news/2010-12-16/hero-group-to-buy-honda-s-26-stake-in-their-hero-honda-venture-in-india.html WardsAuto. (n.d.). India Hero Honda 02/03 sales cross 50 bln rupees-BSE. Retrieved from WardsAuto: http://wardsauto.com/india-hero-honda-0203-sales-cross-50-bln-rupees-bse Read More