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Honda Company Analysis Report


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The document contains a detailed analysis of Company Honda. It explains the products, marketing strategy, demand forecasting, SWOT analysis and growth and future prospectus of the company.

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Honda Company Analysis Report

  1. 1. A Company Analysis Report Of Honda Managerial Economics Project
  2. 2. Business Summary Honda Motor Co. Ltd. together with its subsidiaries, engages in the development, manufacture, and distribution of motorcycles, automobiles, and power products primarily in North America, Europe, and Asia. Its motorcycle line consists of business and commuter models, as well as sports models, including trial and motor- cross racing; all-terrain vehicles; personalwatercrafts; and multi utility vehicles. The company also produces various automobile products, including passenger cars, minivans, and multi-wagons, sport utility vehicles, and mini cars; and power products comprising tillers, portable generators, general-purpose engines, grass cutters, outboard marine engines, water pumps, snow throwers, power carriers, power sprayers, lawn mowers and lawn tractors, home-use cogeneration units, thin film solar cells home use, and public and industrial uses. In addition, it sells spare parts and provides after sales services are through retail dealers, as well as involves in retail lending, leasing to customers, and otherfinancial services, suchas wholesale financing to dealers. The company was founded in 1946 and is based in Tokyo, Japan. Introduction Honda Motor Co., Ltd. is a Japanese public multinational conglomerate corporation primarily known as a manufacturer of automobiles, aircraft, motorcycles, and power equipment. Hondahas been the world's largest motorcycle manufacturer since 1959, as well as the world's largest manufacturer of internal combustionengines measured by volume, producing more than 14 million internal combustion engines each year. Honda became the second-largest Japanese automobile manufacturer in 2001. Honda was the eighth largest automobile manufacturer in the world behind Toyota, Volkswagen Group, Hyundai Motor Group, General Motors, Ford, Nissan, and Fiat Chrysler Automobiles in 2015. Honda was the first Japanese automobile manufacturer to release a dedicated luxury brand, Acura, in 1986. Aside from their core automobile and motorcycle businesses, Honda also manufactures garden equipment, marine engines, personal watercraft and power generators, and other products. Since 1986, Honda has been involved with artificial intelligence/robotics research and released their ASIMO robot in 2000. They have also ventured into aerospacewith the establishment ofGE Honda Aero Engines in 2004 and the Honda HA-420 Honda Jet, which began productionin 2012. Honda has three joint-ventures in China (Honda China, Dongfeng Honda, and Guangqi Honda). In 2013, Honda invested about 5.7% (US$6.8 billion) ofits revenues in research and development. Also in 2013, Honda became the first Japanese automaker to be a net
  3. 3. exporter from the United States, exporting 108,705 Honda and Acura models, while importing only 88,357. History Throughout his life, Honda's founder, Soichiro Honda, had an interest in automobiles. He worked as a mechanic at the Art Shokai garage, where he tuned cars and entered them in races. In 1937, with financing from his acquaintance Kato Shichirō, Honda founded Tōkai Seiki (Eastern Sea Precision Machine Company) to make piston rings working out of the Art Shokai garage. After initial failures, Tōkai Seiki won a contractto supply piston rings to Toyota, but lost the contract due to the poor quality of their products. After attending engineering school without graduating, and visiting factories around Japan to better understand Toyota's quality controlprocesses, by1941 Honda was able to mass-producepiston rings acceptable to Toyota, using an automated process that could employ even unskilled wartime laborers. Tōkai Seiki was placed under control of the Ministry of Commerce and Industry (called the Ministry of Munitions after 1943) at the start of World War II, and Soichiro Honda was demoted from president to senior managing director after Toyota took a 40% stake in the company. Honda also aided the war effort by assisting other companies in automating the production of military aircraft propellers. The relationships Honda cultivated with personnel at Toyota, Nakajima Aircraft Company and the Imperial Japanese Navy would be instrumental in the postwar period. A US B-29 bomber attack destroyed Tōkai Seiki's Yamashita plant in 1944, and the Itawa plant collapsed in the 13 January 1945 Mikawa earthquake, and Soichiro Honda sold the salvageable remains ofthe company to Toyotaafter the war for ¥450,000, and used the proceeds to found the Honda Technical Research Institute in October 1946. With a staff of 12 men working in a 16 m2 (170 sq ft) shack, they built and sold improvised motorized bicycles, using a supply of 500 two-stroke 50 cc Tohatsuwar surplus radio generator engines. When the engines ran out, Honda began building their own copyof the Tohatsuengine, and supplying these to customers to attach to their bicycles. This was the Honda A-Type, nicknamed the Bata Bata for the sound the engine made. In 1949, the Honda Technical Research Institute was liquidated for ¥1,000,000, or about US$5,000 today; these funds were used to incorporate Honda Motor Co., Ltd. At about the same time Honda hired engineer Kihachiro Kawashima, and Takeo Fujisawa who provided indispensable business and marketing expertise to complement Soichiro Honda's technical bent. The close
  4. 4. partnership between Soichiro Honda and Fujisawa lasted until they stepped down together in October 1973. The first complete motorcycle, with boththe frame and engine made byHonda, was the 1949 D-Type, the first Honda to go by the name Dream. Honda Motor Company grew in a short time to become the world's largest manufacturer of motorcycles by 1964. The first productionautomobile from Honda was the T360 mini pick-up truck, which went on sale in August 1963. Powered by a small 356-cc straight-4 gasoline engine, it was classified under the cheaper Kei car tax bracket. The first productioncar from Honda was the S500 sports car, which followed the T360 into productionin October 1963. Its chain-driven rear wheels pointed to Honda's motorcycle origins. Over the next few decades, Honda worked to expand its productline and expanded operations and exports to numerous countries around the world. In 1986, Honda introduced the successfulAcura brand to the American market in an attempt to gain ground in the luxury vehicle market. The year 1991 saw the introduction of the Honda NSX supercar, the first all-aluminum monocoquevehicle that incorporated a mid-engine V6 with variable-valve timing. CEO Tadashi Kume was succeeded by Nobuhiko Kawamoto in 1990. Kawamoto was selected over Shoichiro Irimajiri, who oversaw the successfulestablishment of Honda of America Manufacturing, Inc. in Marysville, Ohio. Both Kawamoto and Irimajiri shared a friendly rivalry within Honda, and Irimajiri would resign in 1992 due to health issues. Following the death of Soichiro Honda and the departure of Irimajiri, Honda found itself quickly being outpaced in productdevelopment by other Japanese automakers and was caught off-guard by the truck and sport utility vehicle boom of the 1990s, all which took a toll on the profitability of the company. Japanese media reported in 1992 and 1993 that Honda was at serious risk of an unwanted and hostile takeover by Mitsubishi Motors, who at the time was a larger automaker by volume and flush with profits from their successful Pajero and Diamante. Kawamoto acted quickly to change Honda's corporate culture, rushing through market-driven productdevelopment that resulted in recreational vehicles such as the first generation Odyssey and the CR-V, and a refocusing away from some of the numerous sedans and coupes that were popular with Honda's engineers but not with the buying public. The most shocking change to Honda came when Kawamoto ended Honda's successful participation in Formula One after the 1992 season, citing costs in light of the takeover threat from Mitsubishi as well as the desire to create a more environmentally-friendly company image.
  5. 5. Later, 1995 gave rise to the Honda Aircraft Company with the goal of producing jet aircraft under Honda's name. On 23 February 2015, Honda announced that CEO and President Takanobu Ito would step down and be replaced by Takahiro Hachigo by June; additional retirements by senior managers and directors were expected. Corporate Profile and Divisions Honda is headquartered in Minato, Tokyo, Japan. Their shares trade on the Tokyo StockExchange and the New York StockExchange, as well as exchanges in Osaka, Nagoya, Sapporo, Kyoto, Fukuoka, London, Paris and Switzerland. The company has assembly plants around the globe. These plants are located in China, the United States, Pakistan, Canada, England, Japan, Belgium, Brazil, México, New Zealand, Malaysia, Indonesia, India, Philippines, Thailand, Vietnam, Turkey, Taiwan, Perú and Argentina. As of July 2010, 89 percent of Honda and Acura vehicles sold in the United States were built in North American plants, up
  6. 6. from 82.2 percent a year earlier. This shields profits from the yen's advance to a 15- year high against the dollar.[23] American Honda Motor Company is based in Torrance, California. Honda Racing Corporation (HRC) is Honda's motorcycle racing division. Honda Canada Inc. is headquartered in Markham, Ontario,[25] their manufacturing division, Honda of Canada Manufacturing, is based in Alliston, Ontario. Honda has also created joint ventures around the world, suchas Honda Siel Cars and Hero Honda Motorcycles in India,[26] Guangzhou Honda and Dongfeng Honda in China, Boon Siew Honda in Malaysia and Honda Atlas in Pakistan. Following the Japanese earthquake and tsunami in March 2011 Honda announced plans to halve productionat its UK plants.[27] The decision was made to put staff at the Swindon plant on a 2-day week until the end of May as the manufacturer struggled to source supplies from Japan. It's thought around 22,500 cars were produced during this period. Leadership Name Period Soichiro Honda 1948-1973 Kiyoshi Kawashima 1973-1983 Tadashi Kume 1983-1990 Nobuhiko Kawamotu 1990-1998 Hiroyuki Yoshino 1998-2003 Takeo Fukui 2003-2009 Takanobu Ito 2009-2015 Takahiro Hachingo 2015-Present
  7. 7. Products  Automobiles Honda's global lineup consists of the Fit, Civic, Accord, Insight, CR-V, and Odyssey. An early proponent of developing vehicles to cater to different needs and markets worldwide, Honda's lineup varies by country and may feature vehicles exclusive to that region. A few examples are the latest Acura TL luxury sedan and the Ridgeline, Honda's first light-duty uni-body pickup truck. Both were engineered primarily in North America and are exclusively produced and sold there. The Civic is a line of compactcars developed and manufactured by Honda. In North America, the Civic is the second-longest continuously running nameplate from a Japanese manufacturer; only its perennial rival, the Toyota Corolla, introduced in 1968, has been in productionlonger. The Civic, along with the Accord and Prelude, comprised Honda's vehicles sold in North America until the 1990s, when the model lineup was expanded. Having gone through several generational changes, the Civic has become larger and more upmarket, and it currently slots between the Fit and Accord. Honda increased global production in September 2008 to meet demand for small cars in the U.S. and emerging markets. The company is shuffling U.S. productionto keep factories busy and boost car output, while building fewer minivans and sport utility vehicles as light trucksales fall. Honda produces Civic hybrid, a hybrid electric vehicle that competes with the Toyota Prius, and also produces the Insight and CR-Z. Its first entrance into the pickup segment, the light duty Ridgeline, won Truck ofthe Year from Motor Trend magazine in 2006. Also in 2006, the redesigned Civic won Car of the Year from the magazine, giving Honda a rare double win of Motor Trend honors. It is reported that Honda plans to increase hybrid sales in Japan to more than 20% of its total sales in fiscal year 2011, from 14.8% in previous year. Five of United States Environmental Protection Agency's top ten most fuel-efficient cars from 1984 to 2010 comes from Honda, more than any other automakers. The five models are: 2000-2006 Honda Insight (53 mpg-US/4.4 L/100 km; 64 mpg- imp combined), 1986-1987 Honda Civic Coupe HF (46 mpg-US/5.1 L/100 km; 55 mpg-imp combined), 1994-1995 Honda Civic hatchback VX (43 mpg- US/5.5 L/100 km; 52 mpg-imp mpg combined), 2006- Honda Civic Hybrid
  8. 8. (42 mpg-US/5.6 L/100 km; 50 mpg-imp combined), and 2010- Honda Insight (41 mpg-US/5.7 L/100 km; 49 mpg-imp combined). The ACEEE has also rated the Civic GX as the greenest car in America for seven consecutive years.  Motorcycles Honda is the largest motorcycle manufacturer in Japan and has been since it started production in 1955. At its peak in 1982, Honda manufactured almost 3 million motorcycles annually. By 2006 this figure had reduced to around 550,000 but was still higher than its three domestic competitors. During the 1960s, when it was a small manufacturer, Honda broke out of the Japanese motorcycle market and began exporting to the U.S. Taking Honda’s story as an archetype of the smaller manufacturer entering a new market already occupied by highly dominant competitors, the story of their market entry, and their subsequent huge success in the U.S. and around the world, has been the subject of some academic controversy. Competing explanations have been advanced to explain Honda’s strategy and the reasons for their success. The first of these explanations was put forward when, in 1975, Boston Consulting Group (BCG) was commissioned by the UK government to write a report explaining why and how the British motorcycle industry had been out-competed by its Japanese competitors. The report concluded that the Japanese firms, including Honda, had sought a very high scale of production (they had made a large number of motorbikes) in order to benefit from economies of scale and learning curve effects. It blamed the decline of the British motorcycle industry on the failure of British managers to invest enough in their businesses to profit from economies of scale and scope.
  9. 9. The second explanation was offered in 1984 by Richard Pascale, who had interviewed the Honda executives responsible for the firm’s entry into the U.S. market. As opposed to the tightly focused strategy of low costand high scale that BCG accredited to Honda, Pascale found that their entry into the U.S. market was a story of “miscalculation, serendipity, and organizational learning” – in other words, Honda’s success was due to the adaptability and hard work of its staff, rather than any long term strategy. For example, Honda’s initial plan on entering the U.S. was to compete in large motorcycles, around 300 cc. It was only when the team found that the scooters they were using to get themselves around their U.S. base of San Francisco attracted positive interest from consumers that they came up with the idea of selling the Super Cub. The most recent schoolof thought on Honda’s strategy was put forward by Gary Hamel and C. K. Prahalad in 1989. Creating the conceptofcorecompetencies with Honda as an example, they argued that Honda’s success was due to its focus on leadership in the technology of internal combustion engines. For example, the high power-to-weight ratio engines Honda produced for its racing bikes provided technology and expertise which was transferable into mopeds. Honda's entry into the U.S. motorcycle market during the 1960s is used as a case study for teaching introductory strategy at business schools worldwide. Motorsports Honda has been active in motorsports, like Motorcycle Grand Prix, Superbike racing and others.  Automobiles Honda entered Formula One as a constructorfor the first time in the 1964 season at the German Grand Prix with Ronnie Bucknum at the wheel. 1965 saw the addition of Richie Ginther to the team, who scored Honda's first point at the Belgian Grand Prix, and Honda's first win at the Mexican Grand Prix. 1967 saw their next win at the Italian Grand Prix with John Surtees as their driver. In 1968, Jo Schlesser was killed in a Honda RA302 at the French Grand Prix. This racing tragedy, coupled with their commercial difficulties selling automobiles in the United States, prompted Honda to withdraw from all international motorsport that year.
  10. 10. After a learning year in 1965, Honda-powered Brabhams dominated the 1966 French Formula Two championship in the hands of Jack Brabhamand Denny Hulme. As there was no European Championship that season, this was the top F2 championship that year. In the early 1980s Honda returned to F2, supplying engines to Ron Tauranac's Ralt team. Tauranac had designed the Brabham cars for their earlier involvement. They were again extremely successful. In a related exercise, John Judd's Engine Developments Company produced a turbo "Brabham-Honda" engine for use in IndyCar racing. It won only one race, in 1988 for Bobby Rahal at Pocono. Hondareturned to Formula One in 1983, initially with another Formula Two partner, the Spirit team, before switching abruptly to Williams in 1984. In the late 1980s and early 1990s, Honda powered cars won six consecutive Formula One Constructors Championships. WilliamsF1 won the crown in 1986 and 1987. Honda switched allegiance again in 1988. New partners Team McLaren won the title in 1988, 1989, 1990 and 1991. Honda withdrew from Formula One at the end of 1992, although the related Mugen-Honda company maintained a presence up to the end of 1999, winning four races with Ligier and Jordan Grand Prix. Honda debuted in the CART IndyCar World Series as a works supplier in 1994. The engines were far from competitive at first, but after development, the company powered six consecutive drivers’ championships. In 2003, Honda transferred its effort to the rival IRL IndyCar Series. In 2004, Honda-powered cars overwhelmingly dominated the IndyCar Series, winning 14 of 16 IndyCar races,
  11. 11. including the Indianapolis 500, and claimed the IndyCar Series Manufacturers' Championship, Drivers' Championship and Rookie of the Year titles. In 2006, Honda became the sole engine supplier for the IndyCar Series, including the Indianapolis 500. In the 2006 Indianapolis 500, for the first time in Indianapolis 500 history, the race was run without a single engine problem. During 1998, Honda considered returning to Formula One with their own team. The project was aborted after the death of its technical director, Harvey Postlethwaite. Honda instead came back as an official engine supplier to British American Racing (BAR) and Jordan Grand Prix. Honda bought a stake in the BAR team in 2004 before buying the team outright at the end of 2005, becoming a constructorfor the first time since the 1960s. Honda won the 2006 Hungarian Grand Prix with driver Jenson Button. It was announced on 5 December 2008, that Honda would be exiting Formula One with immediate effect due to the 2008 global economic crisis. The team was sold to former team principal Ross Brawn, renamed Brawn GP and subsequently Mercedes GP. Honda became an official works team in the British Touring Car Championship in 2010.  Motorcycles Honda Racing Corporation (HRC) was formed in 1982. The company combines participation in motorcycle races throughout the world with the development ofhigh potential racing machines. Its racing activities are an important source for the creation of leading edge technologies used in the development of Honda motorcycles. HRC also contributes to the advancement of motorcycle sports through a range of activities that include sales of productionracing motorcycles, supportfor satellite teams, and rider education programs. Soichiro Honda, being a race driver himself, could not stay out of international motorsport. In 1959, Honda entered five motorcycles into the Isle of Man TT race, the most prestigious motorcycle race in the world. While always having powerful engines, it took until 1961 for Honda to tune their chassis well enough to allow Mike Hailwood to claim their first Grand Prix victories in the 125 and 250 cc classes. Hailwood would later pick up their first Senior TT wins in 1966 and 1967. Honda's race bikes were known for their "sleek & stylish design" and exotic engine configurations, such as the 5-cylinder, 22,000 rpm, and 125 cc bike and their 6-cylinder 250 cc and 297 cc bikes. In 1979, Honda returned to Grand Prix motorcycle racing with the monocoque- framed, four-stroke NR500. The FIM rules limited engines to four cylinders, so the
  12. 12. NR500 featured non-circular, 'race-track', cylinders, each with 8 valves and two connecting rods, in order to provide sufficient valve area to compete with the dominant two-stroke racers. Unfortunately, it seemed Honda tried to accomplish too much at one time and the experiment failed. For the 1982 season, Honda debuted their first two-stroke race bike, the NS500 and in 1983, Honda won their first 500 cc Grand Prix World Championship with Freddie Spencer. Since then, Honda has becomea dominant marque in motorcycle Grand Prix racing, winning a plethora of top level titles with riders such as Mick Doohan and Valentino Rossi. .In motocross,Hondahas claimed six motocross world championships. In the World Enduro Championship, Honda has captured six titles, most recently with Stefan Merriman in 2003 and with Mika Ahola in 2007 and 2008. In observed trials, Honda has claimed three world championships with Belgian rider Eddy Lejeune.
  13. 13. Marketing Honda's official slogan is "The Power ofDreams". They have never used this slogan to sell their products. Mr. Honda's belief is that well-built products will sell themselves. In 2003, Honda released its Cog advertisement in the UK and on the Internet. To make the ad, the engineers at Honda constructed a Rube Goldberg Machine made entirely out ofcar parts from a Europe Domestic Market HondaAccord (uponwhich the USDM Acura TSX is based). To the chagrin of the engineers at Honda, all the parts were taken from two of only six hand-assembled pre-productionmodels ofthe Accord. The advertisement depicted a single cog which sets off a chain of events that ends with the Honda Accord moving and Garrison Keillor speaking the tagline, "Isn't it nice when things just... work?" It took 606 takes to get it perfect.[71] In 2004, they produced the Grrr advert, usually immediately followed by a shortened version of the 2005 Impossible Dream advert. A post 2005 style Honda dealership in Moncton, Canada In December 2005, Honda released The Impossible Dream a two-minute panoramic advertisement filmed in New Zealand, Japan and Argentina which illustrates the founder's dream to build performance vehicles. While singing the song "Impossible Dream", a man reaches for his racing helmet, leaves his trailer on a minibike, then rides a succession of vintage Honda vehicles: a motorcycle, then a car, then a powerboat, then goes over a waterfall only to reappear piloting a hot air balloon, with Garrison Keillor saying "I couldn't have put it better myself" as the song ends. The song is from the 1960s musical Man Of La Mancha, sung by Andy Williams.
  14. 14. In 2006, Honda released its Choir advertisement, for the UK and the internet. This featured a 60-person choir who sang the car noises as film of the Honda Civic are shown. For the last several years in the United States, during model close-out sales for the current year before the start of the new model year, Honda's advertising has featured an animated character known simply as Mr. Opportunity, voiced by Rob Paulsen. The casual looking man talks about various deals offered by Honda and ends with the phrase "I'm Mr. Opportunity, and I'm knocking'", followed by him "knocking" on the television screen or "thumping" the speaker at the end of radio ads. Also, commercials for Honda's international hatchback, the Jazz, are parodies of well- known pop culture images such as Tetris and Thomas The Tank Engine. In late 2006, Honda released an ad with ASIMO exploring a museum, looking at the exhibits with almost child-like wonderment (spreading out its arms in the aerospace exhibit, waving hello to an astronaut suit that resembles him, etc.), while Garrison Keillor ruminates onprogress. Itconcludes with the tagline: "Moreforwards please". Honda also sponsored ITV's coverage of Formula One in the UK for 2007. However they had announced that they would not continue in 2008 due to the sponsorship price requested by ITV being too high. In May 2007, focuses on their strengths in racing and the use of the Red H badge — a symbol of what is termed as "Hondamentalism". The campaign highlights the lengths that Honda engineers go to in orderto get the mostout of an engine, whether it is for bikes, cars, powerboats — even lawnmowers. Honda released its Hondamentalism campaign. In the TV spot, Garrison Keillor says, "An engineer once said to build something great is like swimming in honey", while Honda engineers in white suits walk and run towards a great light, battling strong winds and flying debris, holding on to anything that will keep them from being blown away. Finally one of the engineers walks towards a red light, his hand outstretched. A web address is shown for the Hondamentalism website. The digital campaign aims to show how visitors to the site share many of the Hondamentalist characteristics. At the beginning of 2008, Honda released - the Problem Playground. The advert outlines Honda's environmental responsibility, demonstrating a hybrid engine, more efficient solar panels and the FCX Clarity, a hydrogen powered car. The 90 second advert features large scale puzzles, involving Rubik's cubes, large shapes and a 3- dimensional puzzle. On 29 May 2008, Honda, in partnership with Channel 4, broadcast a live advertisement. It showed skydivers jumping from an aeroplane over Spain and forming the letters H, O, N, D and A in mid-air. This live advertisement is generally agreed to bethe first of its kind onBritish television. The advert lasted three minutes.
  15. 15. The next flight of one ofthe two planes involved resulted in a fatal crash as the plane broke apart in mid-air.[72] In 2009, American Honda released the Dream the Impossible documentary series, a collection of5-8 minute web vignettes that focus on the core philosophies of Honda. Current short films include Failure: The Secret to Success, Kick out the Ladder and Mobility 2088. They feature Honda employees as well as Danica Patrick, Christopher Guest, Ben Bova, Chee Pearlman, Joe Johnston and Orson Scott Card. The film series plays at Sports In Australia, Honda advertised heavily during most motor racing telecasts, and was the official sponsor of the 2006 FIA Formula 1 telecast on broadcaster channel "Ten". In fact, it was the only manufacturer involved in the 2006 Indy Racing League season. In a series of adverts promoting the history of Honda's racing heritage, Honda claimed it "built" cars that won 72 Formula 1 Grand Prix. Skeptics have accused Honda of interpreting its racing history rather liberally, saying that virtually all of the 72 victories were achieved by Honda powered (engine) machines, whereas the cars themselves were designed and built by Lotus F1, Williams F1, and McLaren F1 teams, respectively. However, former and current staff of the McLaren F1 team have reiterated that Honda contributed more than just engines and provided various chassis, tooling, and aerodynamic parts as well as funding. Ayrton Senna, arguably the greatest F1 driver of all time, repeatedly stated that Honda probably played the most significant role in his three world championships. He had immense respect for founder, Soichiro Honda, and had a good relationship with Nobuhiko Kawamoto, the chairman of Honda at that time. Senna once called Honda "the greatest company in the world". As part of its marketing campaign, Honda is an official partner and sponsor of the National Hockey League, the Anaheim Ducks of the NHL, and the arena named after it: Honda Center. Honda also sponsorsTheHonda Classic golf tournament and is a sponsor of Major League Soccer. The "Honda Player of the Year" award is presented in United States soccer. The "Honda Sports Award" is given to the best female athlete in each oftwelve college sports inthe United States. One ofthe twelve Honda Sports Award winners is chosen to receive theHonda -Broderick Cup, as "Collegiate Woman Athlete of the Year."
  16. 16. Marketing Strategies It has described acategory schemeconsisting ofthree general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage. These three generic strategies are defined along two dimensions: strategic scopeand strategic strength. Strategic scopeis a demand-side dimension and looks at the size and composition of the market you intend to target. Strategic strength is a supply- side dimension and looks at the strength or corecompetency ofthe firm. In particular he identified two competencies that he felt were most important: product differentiation and product cost (efficiency). He originally ranked each of the three dimensions (level of differentiation, relative product cost, and scope of target market) as either low, medium, or high, and juxtaposed them in a three dimensional matrix. That is, the category scheme was displayed as a 3 by 3 by 3 cubes. But most of the 27 combinations were not viable. In his 1980 classic Competitive Strategy: Techniques for Analyzing Industries and Competitors, Porter simplifies the scheme by reducing it down to the three best strategies. They are cost leadership, differentiation, and market segmentation (or focus). Market segmentation is narrow in scope while both cost leadership and differentiation are relatively broad in market scope. Empirical research on the profit impact of marketing strategy indicated that firms with a high market share were often quite profitable, but so were many firms with low market share. The least profitable firms were those with moderate market share.
  17. 17. This was sometimes referred to as the hole in the middle problem. Porter’s explanation of this is that firms with high market share were successfulbecausethey pursued a costleadership strategy and firms with low market share were successful because they used market segmentation to focus on a small but profitable market niche. Firms in the middle were less profitable because they did not have a viable generic strategy. Porter suggested combining multiple strategies is successful in only one case. Combining a market segmentation strategy with a product differentiation strategy was seen as an effective way of matching a firm’s productstrategy (supply side) to the characteristics of your target market segments (demand side). But combinations like cost leadership with product differentiation were seen as hard (but not impossible) to implement due to the potential for conflict between costminimization and the additional cost of value-added differentiation. Since that time, empirical research has indicated companies pursuing both differentiation and low-cost strategies may be more successful than companies pursuing only one strategy Some commentators have made a distinction between cost leadership, that is, low coststrategies, and best coststrategies. They claim that a low coststrategy is rarely able to provide a sustainable competitive advantage. In most cases firms end up in price wars. Instead, they claim a best cost strategy is preferred. This involves providing the best value for a relatively low price. Demand Forecasting Honda Motor lifted its full-year net profit forecastby 6 percent, betting that Chinese customers will keep buying its XR-V and Vezel SUVs and the popular Civic sedan after robust demand there boosted Asian sales sharply in the latest quarter. Japan's third-largest automaker by sales said on Monday it expects full-year net profit to hit 415 billion yen ($3.95 billion), compared to its previous forecast of 390 billion yen. Honda upgraded its global sales forecast to reflect strong demand in China, the world's biggest auto market and the company's second largest. It also expects cost cuts and lower quality-related costs to offset the impact of a stronger currency and lift its bottom-line this year, after taking a hit last year due to hefty provisions for costs to recall Takata air bag inflators. Strong demand in growing cities has pushed Honda's Chinese sales up 26 percent higher year-on-year to 872,000 in the first nine months of 2016, boosted by a near doubling in sales for the Civic, which underwent a model change this year.
  18. 18. This prompted it to lift the forecastfor group vehicle sales in Asia by 11 percent on the year to 1.915 million for the year ending in March 2017, after overall Asian sales rose 22 percent on the year in the second quarter. As a result, it sees global sales rising by5 percent from last year to 4.98 million cars. "We're seeing a positive impact from our new models. The Civic is doing very well in North America, China, and South America," Honda Executive Vice President Seiji Kuraishi told reporters at a briefing, adding that strong demand for the XR-V compact SUV crossover was also lifting Chinese sales. To keep up with rapidly growing demand for its sedans and SUVs in China, Honda is planning to build a new factory in the country with partner Dongfeng Motor, two people familiar with the matter told Reuters earlier this month. Honda sells roughly 40 percent of its global production in North America, but as growing demand in China drives Asian sales higher, the automaker expects sales in the two regions to be roughly the same this year. Despite the rosier profit outlook, Honda's new profit forecastremains lower than the average 482 billion yen profit expected by 21 analysts polled by Thomson Reuters, and Honda said that its conservative outlook was largely due to global uncertainties. "At the moment we see uncertainties related to the U.S. elections, Brexit and a weaker sterling, and in Asia, the outlook for Thailand after the death of the country's monarch," Kuraishi said. "Wehaven't seenthe impact ofthese factors yet, but we're taking a cautious approach to our forecasts." Honda operates a plant in Britain, producing around 140,000 vehicles per year, including the CR-V crossoverSUV and Civic sedan at its plant in Swindon. Half of its production is exported to the EU. Kuraishi said that the automaker had no plans at the moment to shift its production away from Britain, adding that it would consider factors including the value of sterling and the likely introduction of tariffs when deciding its future in the country. Honda is assuming an average rate of 103 yen to a dollar for the current year, against its earlier forecast of 105 yen. Production Forecast from 2012 to 2017 (in million units) This graph displays Honda's projected vehicle production between 2012 and 2017. Honda's vehicle production is forecast to increase from about 3.8 million units in
  19. 19. 2012 to about five million units by 2017. The company's compound annual growth rate (CAGR) is estimated to stand at 5.8 percent between 2012 and 2017. Honda is a brand ofthe Honda MotorCompany, amultinational corporationwith headquarters in Minato, Tokyo, Japan. Vision/Goals of Honda Honda Motor Company’s new CEO, Takahiro Hachigo, unveiled his future vision for the company. He highlighted two themes that the new ‘Team Honda’ will pursue: Advancement of the six-region global operation structure Continuous development of challenging products unique to Honda and delivering them to customers around the world To demonstrate the advancement of the six-region structure, operational functions of the global headquarters will be enhanced, to strongly promote mutually complimentary inter-regional relationships. Forexample, the all-new European produced Civic Type R will now be exported to Japan from this autumn and the
  20. 20. next generation Civic 5-door will be supplied from Europe to other regions. Whereas the next generation CR-V will be supplied from Canada to Europe. Furthermore, Honda will begin local production of the Honda Accord this month in Nigeria (with planned annual production capacity of 1,000 units.). This is the first time Honda will assemble automobiles in Africa. Hachigo stated that ‘Honda will continue to be firmly committed to the creation of ‘challenging products’ unique to Honda’. This renewed commitment will see Honda strive to begin sales in Japan of the next-generation successorto the FCX Clarity before the end of Honda’s current fiscal year (ending March 31, 2016). In addition, Honda will be evolving the next generation of mobility products to use electricity as a coretechnology. In the area of motorcycles, the CRF1000L, also known as the Africa Twin, is scheduled to be introduced to the European market at the end of 2015. This is the embodiment of a ‘challenging product’ that is unique to Honda. Honda has also been continuing its research and development of a Walking Assist Device which supports peoplewith weakened leg strength. Hachigo asserted that Honda is striving to commercialize this productbefore the end of this year. Finally, under Hachigo’s guidance, Honda will realize a 30 year-long dream by taking mobility to the skies through the first customer deliveries of Honda’s unique HF120 jet engine and the new light business aircraft, the Honda Jet, featuring its revolutionary over-the-wing jet engines. These Honda’s products have always been generated “at the spot.”Honda’s strength is that team/project members share one goal and take on challenges and attain high targets. Hachigo has stated that his role is to further strengthen this bottom-up environment where teams “at the spot”can take action based on their own initiatives. Hachigo concluded, ‘what drives me forwards with my fellow Honda associates is The Power of Dreams. Driven by The Power of Dreams, Team Honda will keep moving forward with the goal to share joys with customers all around the world’.
  21. 21. Growth and Future Prospectus Key growth drivers for Honda Motors include demand for luxury cars in Japan and North America, growing demand for green vehicles, and improving penetration in the motorcycle market, especially in China, India and Indonesia. We believe the company's innovation in making fuel efficient, environmentally friendly and low costhybrid vehicles should increase its market share in this growing segment. The launch of new models in the entry level luxury automotive market is another driver which can fuel growth in Japan and North America. The motorcycle segment holds tremendous growth potential and with a high global market share, Honda is well poised to leverage its leading position and increase penetration in this segment, driving future growth. Innovation towards Low Cost Hybrid Vehicles in the U.S. In 2015 Honda launched the CRZ sports hybrid model, its Civic model fueled with natural gas, a hybrid Civic model and Accord Hybrid. All these models are priced at less than $30,000. These new launches are aimed at providing low costfuel efficient and environmentally friendly cars to the U.S. market, and we believe that this focus on green technology is Honda's way of competing in the auto industry. While Honda was the first company to commercially sell hybrid vehicles in the U.S., over the last decade its sales in this segment have been surpassed by Toyota. The global market for Hybrid Electric Vehicles is expected to grow at a moderate pace over the next few years, reaching nearly 4 million vehicles by 2023. The success ofHonda's models in this space should enable it to capture additional market share in this segment from Toyota, and we believe this segment will be the key growth driver for Honda Motors. Increase in Demand of Luxury Cars Japan accounts for nearly 15% of Honda's revenues and, given the demographic profile of the region, we believe sales in the luxury segment will drive the company's growth in this region. Similarly, in the U.S., the luxury car market is expected to grow by 10% in 2015 on falling oil prices. North America is the largest market for Honda in terms of revenues and its new launches in the entry level luxury cars segment will be its key sales drivers in the region. The company recorded an 11% increase in sales in North America in Q2 2015 which was mainly due to an increase in sales of HR-V model and compactSUVs. We believe that the
  22. 22. entry level luxury cars market will be a key driver of growth for Honda in the future. Retaining 40% Share In the Global Motorcycle Market We estimate the Motorcycles, ATVs and Water Motors division to accountfor nearly 17% of Honda's valuation. The company's market share in the global motorcycle market increased from nearly 30% in 2011 to approximately 40% in 2014, and we expect it to maintain this market share over our forecast period. According to research firm Freedonia, two wheeler sales are expected to grow 5.9% annually to reach 135.2 million unit sales by 2018, driven primarily by growth in China, India and Indonesia. Honda's penetration rate in India is 25% compared to 80% in Brazil, indicating the growth potential. We believe as the company expands into various countries and achieves higher penetration, this segment would see tremendous growth in the future. Future Business Strategy Honda president and chief executive officer Takanobu Ito has revealed the company's future business strategy, aimed at sustaining financial growth in the long term. IHS Global Insight Perspective Significance Honda president and chief executive officer Takanobu Ito has revealed the company's future business strategy. Implications The strategy includes Honda's plans for vehicle productionin its key markets, including Japan. There is also a focus on emerging markets and the launch of fuel- efficient and alternatively fuelled models aimed at reducing carbon dioxide emissions.
  23. 23. Outlook This latest business strategy highlights the automaker's ongoing commitment to ensuring long-term financial growth amid a changing business environment, tightening emission standards, and a shifting focus towards alternatively fueled vehicles. Honda president and chief executive officer (CEO) Takanobu Ito has announced the automaker's future business strategy, aimed at ensuring sustained growth in its financial performance amid the changing business environment. Ito revealed that in order to deliver low-priced quality products with reduced carbondioxide (CO2) emissions, the company needs to focus on three core areas: advancement of environmental technologies; the strengthening of manufacturing systems and capabilities; and the strengthening of business operations in emerging nations. He said that, "What I think is most important, and the message I conveyed strongly to all Honda associates, was to provide good products to our customers with speed, affordability and low CO2 emissions." Advancing Environmental Technologies  Honda will accelerate the widespread market introduction of integrated motor assist (IMA) hybrid technology by launching several small-sized models equipped with the IMA system in Japan before the end of 2011. The first of these will be a hybrid version of its Fit subcompactcar, which is scheduled to hit the market by the end of this year.  It will use an advanced, high-output, and compactlithium-ion (Li-ion) battery in its future hybrid models, starting with the next-generation Civic hybrid, production of which will begin before the end of this year.  It will launch a plug-in hybrid vehicle (PHV) and an electric vehicle (EV) by 2012, first in the United States and Japan, followed by other key markets over the next 10 years.  It will continue focusing on upgraded technologies to improve the fuel efficiency of gasoline (petrol) engines and will start renewing its engine and transmission line-up from 2012 in order to achieve improved fuel efficiency in its vehicles.  It is accelerating its efforts to develop a smaller diesel engine, and a model equipped with this engine will be introduced in Europe in 2012.
  24. 24.  It will continue accelerating its efforts to develop hydrogen-powered fuel- cell vehicles (FCVs) and hydrogen refueling systems. Strengthening Manufacturing Systems and Capabilities  Honda's domestic facilities will focus on three key goals: firstly, upgrading production methodology in order to accommodate productionof small-to- medium-sized low-priced fuel-efficient models; secondly, efficient production of the products to be sold in Japan; and thirdly, strengthening the supportfunctions for Honda plants outside of Japan.  Honda will resume construction of its new factory in Yorii, Saitama Prefecture. It will build hybrid vehicles and fuel-efficient subcompact models at this facility when it becomes operational in 2013 (see Japan: 15 July 2010: Honda Abandons Plans to Build Minivehicle Plant in Japan, to Focus on Hybrid Vehicles Instead—Report).  In responseto the global shift towards smaller vehicles, Honda will begin production of minivehicles at its Suzuka factory in 2012. However, it has decided to stop construction of a new ¥50-billion (US$576-million) Minivehicle factory in Yokkaichi, Mie Prefecture.  Honda will accelerate its efforts to either increase localization rates or localize productionin emerging and strategically important markets. It will strengthen its cross-factory/cross-bordersupply system by increasing the flexibility of its manufacturing system. Strengthening Business in Emerging Markets  In order to remain competitive in emerging and high-growth markets, Honda will continue its efforts to localize vehicle production by increasing local sourcing of components.  Honda will launch its "new small car" in India in 2011 as scheduled, priced at under 500,000 rupees (US$10,618). It will also launch the same model in Thailand during 2011 as part of its Thai "eco-car" productionplans. The Thai-made model will also be exported to the Association of Southeast Asian Nations (ASEAN) countries.
  25. 25. Outlook and Implications This latest strategy highlights Honda's ongoing commitment to ensuring long-term financial growth amid the changing business environment, tightening emission standards, and a shifting focus towards alternatively fueled vehicles. It is also in line with many global automakers' efforts to promote the use of alternatively fueled vehicles, especially EVs, hybrid vehicles, and PHVs, in light of tightening emission standards in many major global markets. Despite being skeptical about future demand for EVs, Honda plans to sell such models in the United States and indeed unveiled a conceptversion of an EV, the EV-N, at the 2009 Tokyo Motor Show, which was intended to help it meet Californian emission standards. According to the state Air Resources Board, volume-selling automakers in California must sell about 60,000 units of PHVs and EVs in total between 2012 and 2014. Meanwhile, Honda's new PHV will be able to deliver fuel efficiency of almost 60 kilometers per liter (km/l), beating Toyota's planned plug-in version of the third-generation Prius, which will be able to achieve around 57 km/l under the JC08 Japanese test cycle2 standards. The automaker has been making efforts to restructure its domestic productionover the last several months in order to counter the higher exporting costs resulting from the strength of the Japanese yen against other major global currencies. As part of this, it will reportedly stop selling the Legand luxury sedan, Elysion multi-purpose vehicle (MPV), and the gasoline version of the Civic sedan in Japan, while it will continue selling only the hybrid version of the Civic in its domestic. In addition, Honda is aiming to reduce productioncosts while promoting the localization of automotive components in emerging markets in a bid to counter unfavorable currency translation effects. It is estimated that with every ¥1 appreciation in the yen against the U.S. dollar, Honda is likely to see a decline of almost ¥12 billion in operating profits. Honda produces its vehicles at 25 facilities in 16 countries and regions, with components sourced from some 2,200 facilities worldwide. The automaker reportedly procures each componentfrom eight different suppliers; it plans to reduce this to a maximum of four suppliers in emerging markets, including India, China, and Brazil. With this move, the automaker reportedly intends to save ¥100 billion in annual costs initially. This should help it price its vehicles competitively in its key markets.
  26. 26. Meanwhile, Honda has also been witnessing increasing demand for its fuel- efficient vehicles in key markets, including China and the United States. In an attempt to further capitalize on growing demand, Honda is increasing its investments in emerging markets, such as China, Thailand, and India. Honda is likely to further strengthen its presence in emerging Asian markets by taking advantage of a trade liberalization system established by the ASEAN to phase out an intra-regional tariff among member countries, after India reached an agreement in principle with the bloc on an economic partnership accord in 2008. SWOT Analysis Strengths  Competence in engine manufacturing - company’s core product.  Diversified productportfolio.  Dominance in motorcycle and engine industries leading to a high brand awareness.  Strong position in Asia’s motorcycle markets. Weakness  Dependence on North America to generate most of the revenue.  Low investments in research and development (R&D) leading to innovative products. Opportunities  Increasing government regulations.  Improving U.S. economy.  Timing and frequency of new model releases.  Low fuel prices are increasing the demand for pickup trucks and SUVs. Threats  Increased competition.  Rising Japanese Yen exchange rates.  Natural disasters.
  27. 27. Strengths 1. Competence in engine manufacturing - company’s core product. All Honda’s businesses are built around the engines - its core product. The company’s first engines were built for motorcycles and power equipment, but were later produced forcars and marine vehicles. Honda is the world’s largest engine manufacturer, which produced over 27 million units of engines for automotive, motorcycle, marine, and power equipment products, in 2015. The company has lots of experience in manufacturing quality and well-performing engines. Its engines are praised for their durability, easiness to start, quietness, fuel efficiency and reliability. According to Reliability Index, Honda’s car engines are some the most reliable in the industry. Engines are the key to motor products and the company’s competencein manufacturing engines is a competitive advantage few rivals can match. 2. Diversified product portfolio Honda operates 4 different divisions: Motorcycle business (12.3% revenue) Automobile business (72.8% revenue) Power productand other business (2.3% revenue) Financial Services (12.6% revenue) Percentage of Sales Revenue by Business
  28. 28. Honda offers many products to consumers including engines, cars, motorcycles, jets, robots, generators, lawnmowers, water pumps, as well as many other power equipment products.While the cars generate the most revenue for Honda, its overall productportfolio is fairly diversified, when compared to Volkswagen, Toyota, General Motors, or Briggs and Stratton (in an engine industry). Honda's revenue breakdown by business segment. Honda earns 72.8% of its revenue through automotive business. 3. Dominance in motorcycle and engine industries leading to a high brand awareness Honda is a huge company dominating in most of the markets it operates in, including engines and motorcycles. The company is the leading manufacturer of small, general purposeengines for commercial, rental industry, and consumer applications.[5] Honda is also the leading global manufacturer of motorcycles having 22.1% of the total market share in the first half of 2016.[1] Company’s dominance in both of these markets have increased its brand recognition and reputation. According to Interbrand and Forbes, Hondais the 21st and 23rd most valuable brand in the world, worth US$22.1 billion and US$25.2 billion, respectively. Brand value is closely related to brand awareness and its reputation and only few other companies, such as Toyota, BMW and Mercedes-Benz, can compare with Honda in terms of a brand value. 4. Strong position in Asia’s motorcycle markets Motorcycle business generates 12.3% of total Honda’s sales and is the third largest revenue group for the company. The company has sold 17,592 units of motorcycles and all-terrain vehicles in 2016 alone and captured 22.1% of the world’s motorcycle market in the first half of 2016. Asia is the main geographic segment for Honda’s motorcycle business, where the company has sold 15.1 million units or over 88.7% of its total motorcycles, generating ¥1,107.6 billion in revenue. Asia-Pacific region, which includes such countries as China, India, Vietnam, Thailand, the Philippines, Malaysia, Indonesia, Australia and Japan, is the largest
  29. 29. motorcycle region in the world and Honda’s strong position in it is a powerful competitive advantage. Weaknesses 1. Dependence on North America to generate most of the revenue Honda depends on North America region, which mainly includes the U.S. and Canada, to generate 55.6% of the company’s total revenue. Percentage of Sales Revenue by Region Honda's revenue breakdown by geographic area. Honda earns 55.6% of its revenue in North America alone. Honda’s reliance on North America grew from 49.3% of the total sales in 2014 to 55.6% of the total sales in 2016. At the moment, North America is the main driver behind company’s growth where the motorcycle revenue grew 20% and the automobile revenue grew by 19%. Nonetheless, the U.S. and Canada are saturated markets and Honda will find it hard to maintain the same level of growth in these markets. The company is also becoming more vulnerable to overall negative changes in North America’s markets. 2. Low investments in research and development (R&D) leading to fewer innovative products Honda has spent US$5.4 billion for R&D in 2015. This amounted to 4.5% of the company’s total revenue.
  30. 30. Company 2015 R&D As a % of revenues 2014 R&D As a % of revenues Honda 5.4 4.5 5 4.5 Toyota 8.4 3.7 7.6 3.5 Volkswagen 14 6.9 14 7.1 General Motors 7.5 4.9 7.4 4.7 Comparisonof R&D expenditure – Honda and selected major competitors (in US$ billions) Low investments in R&D lead to fewer innovative products and significantly undermine the company’s abilities to compete in the future. The company should focus its US$5.4 billion R&D investments to certain areas (like Hyundai does), which would erase company’s low R&D budget disadvantage and would result in innovative products. Opportunities 1. Increasing government regulations Many governments around the world are committed to reducing the greenhouse gas emissions and are encouraging fuel efficiency initiatives. Such environmental initiatives may increase production costs forthe car manufacturers and these costs will be either passed to price sensitive consumers or will decrease the company’s profits. Honda may take advantage of this by introducing more car models running only Hydrogen fuel cells and bypassing all the government regulations associated with the greenhouse gas emissions. 2. Improving U.S. economy Signs of an improving economy and rising consumer confidence have been reflected in the strongest increase in new vehicle sales for more than a decade in the U.S. market. 17.5 million New units were sold in 2015, a 5.7% increase over 2014. Interest rates in the U.S. have been low for several years and are forecastto remain that way for the foreseeable future. In such economic conditions, Honda
  31. 31. has an opportunity to capture higher market share and increase sales in the U.S. automotive market. 3. Timing and frequency of new model releases The market share of the automotive companies is significantly impacted by the timing and frequency of new model releases. Historically, new models have tended to have major upgrades every 4 or 5 years with only minor modifications in between. However, due to the rising consumer expectations in relation to in-car technology and the competitive nature of the industry, there is an argument to release upgraded models more frequently. Honda is well-positioned to be able to do this. 4. Low fuel prices are increasing the demand for pickup trucks and SUVs Currently, fuel prices are the lowest in a decade. Such situation has encouraged consumers to buy big fuel-inefficient vehicles such as SUVs and pickup trucks. Traditionally, Honda’s main focus was on smaller cars like Honda Civic and sedans such as Honda Accord, but in the current situation, where fuel prices are low, the company has introduced its next generation pickup truck Ridgeline and redesigned its CR-V sportutility vehicle to meet the demand for the bigger vehicles. The trend of low fuel prices is likely to stay and Honda should introduce more models of pickup trucks and SUVs to take an advantage of the growing market for these vehicles and to increase company’s profitability. Threats 1. Increased competition Honda is faced with an ever increased competition from the traditional automotive companies, the new players and saturation of its main markets. In Asia, the company’s key motorcycle region, markets are nearly saturated. In 2016, Honda’s motorcycle revenue grew by only 5.4% in Asia, compared to 20.3% growth in
  32. 32. North America region. The company faces many new entrants in India and China, which offer similar quality motorcycles and scooters forlower price than Honda. Honda’s automotive business is also experiencing the slowing growth of the automotive markets and the increased competition from the new Chinese manufacturers. The company’s international rivals, such as Toyota, Ford, General Motors, Volkswagen and Hyundai, all have larger budgets and could use them to aggressively take market share from Honda. New companies, such as Tesla and even Google, which tries to build self-driving cars are also threatening the traditional automotive industry. The competition is further fueled by the fact that the global automotive production capacity far exceeds the demand. In 2015, there was an estimated global excess production capacity of 31 million units. 2. Rising Japanese Yen exchange rates More than 88% of Honda’s revenue come from international markets, which means that the company has to convert foreign currencies to Japanese Yen in order to calculate its revenues and send the profits back to Japan. Currency rates are volatile and the company’s profits and revenue highly depend on the fluctuating exchange rates. The company cannot control the currency exchange rates, therefore it is at risk, if Japanese Yen exchange rates would start to rise. In suchcase, the company’s profits would decrease significantly. The company itself identifies this as a key threat that will negatively affect the company over the next few years. 3. Natural disasters Honda has manufacturing facilities in Japan, Thailand, China and Indonesia. These countries, including others, are often subject to natural disasters that disrupt manufacturing processesand result in lower production volumes and profits.