Management 315: International Management, Professor In Hyeock Lee Loyola University Chicago Spring 2013 This case study analyzes Honda's overall performance as a multinational enterprise using the company's revenue data, 4 distances, firm specific advantages, country specific advantages, foreign direct investment, and much more.

1. Case Presentation 1.1
HONDA
Group 4
Matthew Cruz, Brooke Feery,
Jacob Hostetler, Daniela Nicula, Manh Duc Tran

2. Who is Honda?
Honda Motor Company, Ltd is a Japanese
public multinational corporation primarily
known as a manufacturer of automobiles and
motorcycles.

4. Honda at a Glance
Is Honda a MNE? YES!
• Industry: Automotive Forbes Lists
• Founded: 1948
• Country: Japan #59 Global 500
• CEO: Takanobu Ito #19 Most Powerful
• Website: Brands
world.honda.com #44 in Sales
• Employees: 179,000 #77 in Profit
• 2012 Sales: $96.7 trillion #178 in Assets
• Headquarters:
Minato, Tokyo, Japan #93 in Market value

5. The Honda Portfolio
Subsidiaries:
• Many subsidiaries are companies that manufacture specific
components (i.e. Honda Lock Manufacturing).
• These companies manufacture transmission parts, motorcycle
exhaust components, electronic safety systems, solar cells, brake
discs, etc.
Affiliates:
• Multiple companies’ supply components go into Honda products
(i.e. Keihin Corporation, Masuda Manufacturing).
• These companies make automobile body parts, fuel systems, air
conditioning systems, injection-molded plastic parts, etc.
• Most affiliates and subsidiaries are Japanese (single diamond).
• For example, Honda is starting to install Krell stereo systems on
Acura vehicles.

6. Total Revenue
(by Region)
Japan
12.3% 18.9%
North
18.1% America
Europe
6.4% Asia
43.3%
Other
Honda is Bi-Regional (37% Asia, 43% North America)

7. Case Study Questions
1. What was Honda's distinct resource base that provided
internationally transferable FSAs?
2. Which value-added activities in which foreign locations permitted
Honda to exploit and augment to the fullest its distinct resource
base?
3. What were the expected costs and difficulties Honda faced when
transferring this distinct resource base?
4. What specific resource recombination was required so as to make
the proposed international value-added activities successful?
5. Did Honda have the required resource recombination capability
in-house?
6. What were the costs and benefits of using complementary
resources of external actors to fill resource gaps?
7. What were the main bounded rationality and bounded reliability
problems Honda faced when extending the geographic scope of
the firm's activities the changed linkages with outside
stakeholders and the changes in its internal functioning?

8. Honda and the Four Distances
Cultural
• Honda hired American workers for their passion, not for
their knowledge of motorcycle manufacturing.
• Honda sent American workers to Japan to learn about
Honda’s manufacturing processes, and sent some
Japanese workers to the US to instill Honda’s philosophy
into the plant.
Administrative
• US government passed the Clean Air Act imposing
stricter requirements on tailpipe emissions.
• Honda feared that if demand rose for their fuel efficient
cars, the US would impose export restrictions.

9. Honda and the Four Distances
Geographic
• Honda had to search for a long time before finding the proper
place to being manufacturing – Marysville, Ohio.
• Only a few suppliers agreed to follow Honda and build their
own plants in the US.
Economic
• The rising price of the yen against the dollar in the 1970s
made continued exporting problematic.
• The Oil Crisis of 1973 caused the price of Honda’s exports to
increase while causing consumer demand for more fuel-
efficient cars to increase as well.
Honda’s approach to bridging the Four Distances in the 1970s
classifies it as an International Projector.

10. International Expansion
• Honda is striving to be the world's leader in
environmental and energy technologies through its
product development, production, and other
activities.
• By 2014 North American capacity will hit 1.92 million
vehicles annually.
• The automaker is targeting a stronger position in
mini-vehicle and compact vehicle segments to
reinforce business operations in Japan.
• Honda plans to terminate 800 jobs at its South
Marston plant in England due to sagging demand for
its vehicles in Europe.

11. Honda’s Performance as a MNE

12. Degree of Multinationality
Licensing – Honda licenses its technology to other
companies in different countries (i.e. India) and
engages in international joint ventures.
Export – Honda is a net exporter, exporting more
American–built vehicles than it imports from Japan.
Honda exports 11 models accounting for over 100,000
units shipped to more than 40 countries.
Local Packaging / Assembly – Honda has 57 factories
worldwide, 49 outside of Japan and 12 plants in North
America .
FDI – Honda establishes relationships with suppliers in
host countries.

13. Firm Specific Advantages
Tangible Resources
• 57 factories in all regions
• 8 R&D facilities worldwide
• Many additional facilities
Human Resources
• Honda’s management style
• Honda selected employees based on the passion for
their work rather than their experience
• Japanese/American employees visited one another’s
countries

14. Firm Specific Advantages (cont’d)
Intangible Resources
• Manufacturing process
• Brand reputation: practical, reliable, high-quality products
• Immense experience with internal combustion engines
• Partnerships with many affiliates who manufacture parts
for motorcycles, cars, and other products
• More than 17,600 patents in Japan and 25,300 patents
abroad as well as 29,400 patents pending worldwide.
• Supply chain management
• Green initiatives such as reducing PVC use and fuel
efficient car and motorcycle engines

15. Firm Specific Advantages (cont’d)
Subsidiary Specific Advantages
• Subsidiary HAM in case study had connections to
Ford that Honda was able to leverage
• Over 25,000 patents in foreign markets
• Decentralized manufacturing allowed Honda to
overcome the Earthquake and Tsunami in 2011
that disrupted Japanese manufacturing

16. Country Specific Advantages
• The 1970 Clean Air Act passed by US Congress
opened up an opportunity for Honda to bring
fuel efficient cars into America.
• European Union fuel costs are high and
environmental restrictions are very severe on
products with internal combustion engines.
The mix of strong CSAs and strong FSAs places
Honda in the 3rd Quadrant of the FSA-CSA Matrix

17. Competitive Advantage
Single Diamond

18. Foreign Direct Investment
Efficiency-seeking:
Honda has mainly taken advantage of low-wage
countries like Indonesia, Vietnam, Thailand and
India
Market-seeking:
Honda Motor of Japan is going to expand its
operations into India
Strategic Asset -seeking:
8 R&D facilities worldwide

19. Recombination Patterns
Type III
• Internationally transferrable FSAs are developed at
home but in order to exploit them in host
countries, location-bound knowledge must be added.
• Honda recombined its FSAs such as its manufacturing
process to better cater to international consumers.
• Honda manufactures automobiles targeted specifically
towards the host country’s consumers.
• Honda’s extensive knowledge and experience with
internal combustion engines is easily applied to many
diverse markets.

20. Recombination Patterns
Type VIII
• Honda also features characteristics of this pattern.
• Affiliates of the MNE located in various countries
develop FSAs together, contributing knowledge
upstream and downstream.
• Honda R&D and other facilities worldwide
cooperate to create new technologies that can be
applied to innovative products in multiple host
countries.

21. Summary
• Bi-Regional MNE (NAFTA • FSAs are Primarily
and Asia) Transferrable
• Activity Level: • Single Diamond
Licensing, Export, Assem Framework
bly, FDI • FSA-CSA Matrix:
• International Quadrant 3
Performance: Stage 3 • FDI Types:
• Revenues are declining Market, Efficiency, &
• MNE Archetype: Strategic Asset Seeking
International Projector • Recombination Patterns:
3&8

22. Works Cited
• http://world.honda.com/group/Manufacturing/index.html
• http://world.honda.com/group/manufacturing-facilities
• http://www.consumerreports.org/content/cro/en/cars/best-
car-brands-consumer-perception-consumer-reports.html
• http://www.interbrand.com/en/best-global-
brands/2012/Best-Global-Brands-2012-Brand-View.aspx
• http://www.wikinvest.com/stock/Honda_Motor_Company_(H
MC)/Patents_Licenses
• http://world.honda.com/investors/library/annual_report/201
2/honda2012ar-Cover-03.pdf