Principles of management

Hero Honda: a joint venture

Presented by: Sanchi gupta Ankita singh Brian dsouza Vaibhav deshpande Shrikant darne

Kelkar Education Trust's V.G.Vaze College of Arts, Science and Commerce, Mithagar Road, Mulund(East), Mumbai

The initial steps and stages

We look over our shoulders, we see the past. We use it to make a better present and a beautiful tomorrow, as tomorrow isnt just another day; its another chance for us to better ourselves and to excel. Hero Cycles is a product of this philosophy. The philosophy that instils commitment, team work and foresight. Heros colossal journey started before independence. The four Munjal brothers, hailing from a small town called Kamalia, now in Pakistan, are the men who are behind the mission. Brotherhood apart, what knit the men together was the wealth of will, integrity, ambition & determination. In the year 1944, they decided to start a business of bicycle spare parts in Amritsar. It is modest beginning and the next 3 years saw the business grow rapidly. But the dark clouds of partition eclipsed their plans of the future. With renewed vigour and optimism, the operational base was shifted to Ludhiana. By 1956, the brothers had began manufacturing key components of bicycles and as a logical way forward, began to assemble the entire cycle at their manufacturing plant in Ludhiana. In the early days, the plant had a capacity for 25 cycles per day. Over the next few years, the Bicycle Unit started growing in stature and size, attracting skilled engineers, technocrats, administrators and entrepreneurs. From a modest beginning of mere 639 bicycles in the year 1956, Hero Cycles products over 18500 cycles a day today, the highest in global reckoning. With the 48% share of the Indian market, this volume has catapulted Hero in the Guinness Books of World Records in 1986 and edge over global players is being maintained since then. A tiny acorn which now has become a mighty Oak. From cycle to two-wheelers were a natural step and the Hero Group came into being. The Hero Group, today, is a vast conglomerate of companies, either in

the form of collaborations, joint ventures or fully owned subsidiaries, with more than Rs. 10000 Crore turnover annually. Hero Group, besides being the worlds largest manufacturers of bicycles, motorcycles and chains to this date, has diversified into newer segments like Information Technology, IT Enabled Services and Financial Services.

Honda Motor Company, Ltd is a Japanese multinational corporation primarily known as a manufacturer of automobiles and motorcycles. Honda has been the world's largest motorcycle manufacturer since 1959, as well as the world's largest manufacturer of internal combustion engines measured by volume, producing more than 14 million internal combustion engines each year. Honda surpassed Nissan in 2001 to become the secondlargest Japanese automobile manufacturer. As of August 2008, Honda surpassed Chrysler as the fourth largest automobile manufacturer in the United States. Honda is the sixth largest automobile manufacturer in the world. 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, amongst others. Since 1986, Honda has been involved with artificial intelligence/robotics research and released their ASIMO robot in 2000. They have also ventured into aerospace with the establishment of GE Honda Aero Engines in 2004 and the Honda HA-420 Honda Jet, scheduled to be released in 2011. Honda spends about 5% of its revenues into R&D. Honda is headquartered in Minato, Tokyo, Japan. Their shares trade on the Tokyo Stock Exchange and the New York Stock Exchange, as well as exchanges in Osaka, Nagoya, Sapporo, Kyoto, Fukuoka, London, Paris and Switzerland. American Honda Motor Company is based in Torrance, California. Honda Canada Inc. is headquartered in the Scarborough district of Toronto, Ontario, and is building new corporate headquarters in Markham, Ontario, scheduled to relocate in 2008; their manufacturing division, Honda of Canada Manufacturing, is based in Alliston, Ontario. Honda has also created joint ventures around the world, such as Honda Siel Cars and Hero Honda Motorcycles in India, Guangzhou Honda and Dongfeng Honda in China, and Honda Atlas in Pakistan.

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 Hondas 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 Hondas strategy and the reasons for their success.

Reasons why and got ready for joint venture

Its engineering capability

Relevance and salience of HERO brand. Distribution network. Commitment to Quality. Know-how and experience in handling large volume production and distribution. Tight focus on financial and raw material processes. Cordial Industrial Relations.

Terms of deal
Honda agreed to provide tech. know-how to HHM and setting up manufacturing facilities. This included the future R & D efforts. Honda agreed for a lump sum fee of $500,000 & 4% royalty on SP. Both Partners held 26% of the equity with other 26% sold to the public and the rest held to financial institutions.

Hero Honda Motors Limited is the World's single largest two-wheeler motorcycle company. Honda Motor Company of Japan and the Hero Group entered a joint venture to setup Hero Honda Motors Limited in 1984. The joint venture between India's Hero Group and Honda Motor Company, Japan has not only created the world's single largest two wheeler company but also one of the most successful joint ventures worldwide. During the 80s, Hero Honda became the first company in India to prove that it was possible to drive a vehicle without polluting the roads. The company introduced new generation motorcycles that set industry benchmarks for fuel thrift and low emission. A legendary 'Fill it - Shut it - Forget it' campaign captured the imagination of commuters across India, and Hero Honda sold millions of bikes purely on the commitment of increased mileage. Over 20 million Hero Honda two wheelers tread Indian roads today. These are almost as many as the number of people in Finland, Ireland and Sweden put together. Hero Honda has consistently grown at double digits since inception; and today, every second motorcycle sold in the country is a Hero Honda. Every 30 seconds, someone in India buys Hero Honda's top -selling motorcycle Splendor. This festive season, the company sold half a million two wheelers in a single montha feat unparalleled in global automotive history. Hero Honda became the first company in the country to introduce four-stroke motorcycles and set the standards for fuel efficiency, pollution control and quality. It has an excellent distribution and service network spread throughout the country. Hero Honda bikes currently roll out from its three globally benchmarked manufacturing facilities. Two of these are based at Dharuhera and Gurgaon in Haryana and the third state of the art manufacturing facility was inaugurated

at Haridwar, Uttrakhand in April this year. These plants together are capable of producing out 4.4 million units per year. Having reached an unassailable pole position in the Indian two wheeler market, Hero Honda is constantly working towards consolidating its position in the market place. The company believes that changing demographic profile of India, increasing urbanization and the empowerment of rural India will add millions of new families to the economic mainstream. This would provide the growth ballast that would sustain Hero Honda in the years to come. As Brijmohan Lal Munjal, the Chairman, Hero Honda Motors points out, 'We pioneered India's motorcycle industry, and it's our responsibility now to take the industry to the next level. We'll do all it takes to reach there.''

Product range since inception

1985 - CD 100 1989 SLEEK 1991 CD 100 SS 1994 SPLENDER 1997 STREET 1999 CBZ 2001 - JOY, PASSION 2002 DAWN, AMBITION BAM (ZK, HS, VR, MK,) 2003 CD DAWN, SPLENDER+, PASSION+, KARIZMA 2004 AMBITION 135, CBZ (N) 2005 SUPER SPLENDER, CD DELUX, GLAMOUR, ACHIVER 2005 IST SCCOTER PLEASURE 2007 SPLENDER NXG, CD DELUXE (N) 2009 Passion pro, hunk 2010- KARIZMA ZMR

Important milestones
1984 Hero Honda Motors Ltd. Incorporated 1985 First motorcycle 'CD 100' rolled out 1987 100,000th motorcycle produced 1989 New motorcycle model - 'Sleek' introduced 1991 New motorcycle model - 'CD 100 SS' introduced 500,000th motorcycle produced 1992 Raman Munjal Vidya Mandir inaugurated - A School in the memory of founder Managing Director, Mr. Raman Kant Munjal 1994 New motorcycle model - 'Splendor' introduced 1,000,000th motorcycle produced 1997 New motorcycle model - 'Street' introduced Hero Honda's 2nd manufacturing plant at Gurgaon inaugurated 1998 2,000,000th motorcycle produced 1999 New motorcycle model - 'CBZ' introduced Environment Management System of Dharuhera Plant certified with ISO-14001 by DNV Holland Raman Munjal Memorial Hospital inaugurated - A Hospital in the memory of founder Managing Director, Mr. Raman Kant Munjal 2000 4,000,000th motorcycle produced Environment Management System of Gurgaon Plant certified ISO-14001 by DNV Holland Splendor declared 'World No. 1' - largest selling single two-wheeler model Hero Honda Passport Programme' - CRM Programme launched 2001 New motorcycle model - 'Passion' introduced One million production in one single year New motorcycle model - 'Joy' introduced 5,000,000th motorcycle produced

2002 New motorcycle model - 'Dawn' introduced new motorcycle model 'Ambition' introduced Appointed Virender Sehwag, Mohammad Kaif, Yuvraj Singh, Harbhajan Singh and Zaheer Khan as Brand Ambassadors. 2003 Becomes the first Indian Company to cross the cumulative 7 million sales mark Splendor has emerged as the World's largest selling model for the third calendar year in a row (2000, 2001, 2002)New motorcycle model 'CD Dawn' introducedNew motorcycle model - 'Splendor +' introducedNew motorcycle model - 'Passion Plus' introducedNew motorcycle model 'Karizma' introduced 2004 New motorcycle model - 'Ambition 135' introduced Hero Honda became the World No. 1 Company for the third consecutive year. Crossed sales of over 2 million units in a single year, a global record. Splendor World's largest selling motorcycle crossed the 5 million markNew motorcycle model - 'CBZ*' introducedJoint Technical Agreement renewed Total sales crossed a record of 10 million motorcycles 2005 Hero Honda is the World No. 1 for the 4th year in a rowNew motorcycle model - 'Super Splendor' introducedNew motorcycle model 'CD Deluxe' introducedNew motorcycle model - 'Glamour' introducedNew motorcycle model - 'Achiever' introducedFirst Scooter model from Hero Honda - 'Pleasure' introduced 2006 Hero Honda is the World No. 1 for the 5th year in a row

Competitors

Bajaj Auto is a major Indian vehicle manufacturer started by Jamnalal Bajaj from Rajasthan in the 1930s. It is based in Pune, Maharashtra, with plants in Chakan (Pune), Waluj (near Aurangabad) and Pantnagar in Uttaranchal. The oldest plant at Akurdi (Pune) now houses the R&D centre Ahead. Bajaj Auto makes and exports automobiles scooters, motorcycles and the auto rickshaw. The Forbes Global 2000 list for the year 2005 ranked Bajaj Auto at 1,946.It features at 1639 in forbes 2011 list. Over the last decade, the company has successfully changed its image from a scooter manufacturer to a two wheeler manufacturer. Its product range encompasses scooterettes, scooters and motorcycles. Its real growth in numbers has come in the last four years after successful introduction of a few models in the motorcycle segment. The company is headed by Rahul Bajaj who is worth more than US$1.5 billion.] Bajaj Auto came into existence on 29 November 1945 as M/s Bachraj Trading Corporation Private Limited. It started off by selling imported two- and threewheelers in India. In 1959, it obtained license from the Government of India to manufacture two- and three-wheelers and it went public in 1960. In 1970, it rolled out its 100,000th vehicle. In 1977, it managed to produce and sell 100,000 vehicles in a single financial year. In 1985, it started producing at Waluj near Aurangabad. In 1986, it managed to produce and sell 500,000 vehicles in a single financial year. In 1995, it rolled out its ten millionth vehicles and produced and sold one million vehicles in a year. According to the authors of Globality: Competing with Everyone from Everywhere for Everything, Bajaj has grown operations in 50 countries by creating a line of value-for-money bikes targeted to the different preferences of entry-level buyers.

Yamaha Motor Company Limited Yamaha Hatsudki, is a Japanese motorized vehicle-producing company. Yamaha Motor is part of Yamaha Corporation and its headquarter is located in Iwata, Shizuoka. Along with expanding Yamaha Corporation into the world's biggest piano maker, then Yamaha CEO Genichi Kawakami took Yamaha into the field of motorized vehicles on July 1, 1955. The company's intensive research into metal alloys for use in acoustic pianos had given Yamaha wide knowledge of the making of lightweight, yet sturdy and reliable metal constructions. This knowledge was easily applied to the making of metal frames and motor parts for motorcycles. Yamaha Motor produces motorcycles, all-terrain vehicles, and boats, marine engines including outboards, automobile engines, personal watercraft and snowmobiles. The Yamaha corporate logo is composed of three tuning forks placed on top of each other in a triangular pattern. In 2000, Toyota and Yamaha Corporation made a capital alliance in which Toyota paid Yamaha Corporation 10.5 billion yen for a 5 per cent share in Yamaha Motor Company while Yamaha and Yamaha Motor each bought 500,000 shares of Toyota stock in return. Yamaha Motor Company was founded by Torakusu Yamaha. In Japanese Yamaha means "mountain leaf".

TVS Motor Company is the third largest two-wheeler manufacturer in India and is among the world's top ten. It is the flagship company of the parent TVS Group employing over 40,000 people with an estimated 15 million customers. It manufactures motorcycles, scooters, mopeds and auto rickshaws. It is India's only two-wheeler company to have won the Deming Prize awarded for commitment to quality control, received in 2002. TVS Motor traces its origins back to the entrepreneurial spirit of Trichur Venkagaruswamy Sundaram Iyengar who gave up lucrative careers in the Indian Railways and in banking to set up his own business. He began with Madurai's first bus service in 1912 and founded T.V.Sundaram Iyengar and Sons Limited, a company that consolidated its presence in the transportation business with a large fleet of trucks and buses under the name of Southern Roadways Limited. When he died in 1955 his sons took the company ahead with several forays in the automobile sector, including finance, insurance, and manufacture of two-wheelers, tyres and components. The group has managed to run 33 companies that account for a combined turnover of nearly $3 billion. Over the years TVS Motor has grown to be the largest in the group, both in terms of size and turnover, with four states of the art manufacturing plants in Hosur, Mysore and Nalagarh in India and Karawang in Indonesia. TVS Motor is credited with many innovations in the Indian automobile industry, notable among them being the introduction of India's first two-seater moped, the TVS 50cc. The company became the leader in its category of sub 100 cc mopeds, having sold 7 million units. It also introduced the TVS Scooty, which is India's second largest brand in the scooterette segment. The TVS Jive launched in November 2009 became India's first clutch-free motorbike aimed at a stressfree rider experience while the unisex scooter Wego is targeted at urban couples, featuring body-balance technology for easier handling.

Advertisements
Advertisement, local events sponsorship and promotions and inviting a prominent personality for the inaugural or first like delivery function would contribute effectively in generating a wider local interest and attention. Hero Hondas latest DKD commercial its two brand starring its Ambassador and Indias heart throbs, Hritik Roshan and priyanka chopra, truly reflects the multi fact roles that todays new generation plays. The commercial reflecting the charisma and vibrancy of these two stars, takes Desh Ki Dhadkan to dazzling new heights. It is young, colourful and vibrant and represents the icons of contemporary times. And it will go a long way in strengthening the leadership status of the product by the mile. The new commercial is powerful film repeat with an impressive storyline. The effort to pack the story, drama and impact in just 60 seconds was phenomenal challenge itself. The idea was born itself. The idea was born out of the very essence of Hero and Stars. Keeping in mind would cause on the drama and impact it would cause on the audience. It is a commercial packed with action where todays heart throbs, Hritik roshan and Priyanka Chopra, are seen tackling new roles. The story being in a field adjoining a hill with Hritik and priyanka on Hero Honda bikes and Pleasure respectively.Both Sameer and Aditya win lifetime opportunity act with Hritik and Priyanka, thetwo star heartthrobs of millions in India and all four will be seen in action in the new commercial DKD.

Brand endorsement
Hero Honda has roped in film actor Hrithik Roshan, Priyanka chopra, Mohammed Kaif, Harbhajan Singh, Zaheer Khan, Yuvraj Singh and Virender Sehwag as its brand ambassadors. Announcing the formation of the Hero Honda `Team Ambition', Mr. Pawan Munjal, said, "Indian Cricket and Hero Honda have both made the nation proud and helped the world recognize India's potential. The Team Ambition' has many similarities in personality with Hero Honda, such as`splendor of performance', `passion to excel' and `ambition to win. In their role as brand ambassadors, the `Team Ambition' starred in Hero Hondas new commercials. As part of the association, Hero Honda will also find prominence on the bats to be used by Yuvraj Singh and Zaheer Khan in the forthcoming cricket events. Sourav Ganguly, who has been associated with Hero Honda since 2000, said, Through Team Ambition, we are looking forward to communicate more

directly with over 6 million Hero Honda customers in India and the millions more added every year."Says Mr. Anil Dua, Senior Vice-President, Marketing and Sales, Hero Honda, "Hero Honda has been promoting cricket for over a decade now. Starting with the memorable Hero Cup in 1993, we have adequately benefited through the promotion of this national fervor. Cricket is one sport which binds our entire nation and is, perhaps, the largest platform in the world, enabling companies to communicate with millions of consumers in the shortest possible time."The `Team Ambition' would also provide coaching and guidance to the budding talent in the country and support cricket projects undertaken by Hero Honda in India and abroad, a company release said. Hero Honda will keep up its promotional activities with emphasis on cricket and entertainment. The company claims that its Desh Ki Dhadkan Campaign featuring brand ambassadors priyanka chopra and Hrithik Roshan has received a very good response and helped build the company's image. Last year, the company spent around 90 crore on advertising and marketing.

Sales promotion
A fundamental concern of any customer during the purchase of a double product is the quality and provision of efficient service. After all queries on product quality, performance, features and benefits have been satisfied, the customer invariably focuses on the service factor for the product as the end objectives is to ensure trouble free operation. In this respect servicing acquires paramount importance and Hero Hondas focus and emphasis on these key result area have been instrumental in establishing its superiority and technological edge in the market. The host of training programmes and relationship enchantment activity additionally backs the spates of servicing camp, organized throughout the country. The active support of servicing and co-operation rendered by the dealer in the form of logistics and infrastructure further aid in making such programmes highly meaningful and valuable. They are doing free check up camps reinforce customer trust. Service advisors collecting information from a customer about his satisfaction level after the servicing of their bike. For the promotion of products the Hero Honda dealer rally. Hero Honda is organizing so many events in sports, cultural programmes, film -festivals etc for the promotion of the product e.g. Hero Honda NKP salue Challenger Cricket Cup brings new talent to the force, MALTA Junior Tennis Tournament, Hero Honda socials Commitment rehabilitating children affected by violence, operational, Relief, donation for drought relief, Rota Trade Mela 2007, Road Show, Training programmers to enhance quality of service, free back up camps reinforce customers trust, ride safe programmes held for Delhi Traffic Police, Mobile Revolution in servicing etc.The powerful benefits of test rides, special promotions and communication drives to draw in the initial customers, preparation of accurate customer information forms to create a customers database, offer of finance facility and active steps to impart specific transiting at the dealers sales and services levels would be essential steps to achieving the brand and the company objectives.

Promotions
For the purpose of publicity Hero Honda is always organizing different events, etc .and they are always inviting celebrities from film, sports, media, politics, etc. There are some of events and parties are as follows:-The Hero Honda stardust millennium Honours and BFJA awards for Bengali films. In a gesture that honours and salutes some of the finest talent in south Indian Cinema. Hero Honda also security sponsored the 20th Cinema Express Awards. The sponsorship of the womens World Cup in 1997 came next, and then the ICC Cricket World Cup 2004.Hero Honda, the largest two wheeler leader in Indian sponsored the 21st Cinema express Awards. Marketing Convention 2006. They are priyanka Chopra, Miss World, Lara Dutta Miss Universe, Diya Mirza Miss Asia Pacific, Sourav Ganguly Indian Cricket Captain, Daler Mehndi, Mr. Harsha Bhogle the famous cricket commentator etc. Dandiya programme at Kota and Banswara. In this Ms Sunita Rao, the popular singer entertains at the festivals at the Dandiya Programme. Thrill and the excitement at the Hero Honda Master Golf tournament. In this tournament Kapil Dev, virendra sehwag, Pronoy Roy, Milkha Singh and so many celebrities were present. Galaxy of stars adds to the glitter Surat rang 2008. Pinaz Masani, the famous gazhalsinger, Kavita Krishnamurthy the famous play back Singer, Shibani Kashyap the popsinger are the main highlight of this programme. Hero Honda sponsors 26th Cinema Express Awards and the main celebrities of this programme are evergreen Hero Devanand, Film Makers Hero Honda sponsor Army ordnance Corp Motor Cycle Expedition. Joy of buying At Hero Honda, we believe in providing the best of service, as reflected in our corporate We Care philosophy. An extension of this is the passport programme, popularly known as suhana Safar. This unique programme aims to build long-term relationship with customers.

The venture ends

A joint venture between the Hero Group and Honda Motor Company was established in 1984 as the Hero Honda Motors Limited at Dharuhera India. Hero is the brand name used by the Munjal brothers for their flagship company Hero Cycles Ltd. Munjal family and Honda group both own 26% stake in the Company. However the Hero Honda group splits the venture at the end of 2010. After the split the Munjal family will buy Honda Motors 26% stake for around $1 billion, or a little less than half the current value of the stake in the stock market. The Japanese auto maker will exit the JV through a series of off market transactions by giving the Munjal familythat currently holds 26% stake in the companyan additional 26%. Honda, which also has an independent fully owned two-wheeler subsidiaryHonda Motorcycle and Scooter India (HMSI) will exit Hero Honda at a discount and get over $1 billion for its stake. The discount was between 30% and 50% to the current value of Honda's stake. The Munjal family compensates Honda through high royalty payouts, which are nearly 6% of net sales. However, key financial institutions have objected to this move, saying that the deal could favour the Munjals but be detrimental to other shareholders.

After effects of the split-up

The positives Not much change in the near term for Hero Honda since it continues to get technical support from Honda and gets to use the brand name till 2014. Zero royalty payments after 2014. Royalty payment will start falling sooner than expected if the company will develop more models itself. Higher exports, as the company can now export to locations where Honda has a presence Hero Honda has three years to develop its R&D capabilitiesnot a very long time, but enough to come up with decent models at least in the entry-level segment from where it gets 70% of its sales. Even if Honda reserves its good models for Honda Motorcycle & Scooter India (HMSI), its wholly-owned subsidiary, Heros old Splendour and Passion models constitute 70% of its sales; all new bikes in the last few years add up to only 8% of its salesso this should not be a huge problem.

Some negatives although Honda needs to provide new models to Hero Honda under the new agreement, there is a possibility it will reserve all the good ones for HMSI. Hero will have to pay new model fees, which could be hefty. R&D spends for Hero Honda will riseBajaj spends about 1.5% of sales and TVS about 2% on this. Although it is not impossible that HH may come up with good models, since it is getting three years to develop them, historical evidence shows it has not been easy. Bajaj had many failures after its split with Kawasakilike Wind, Caliber, Discover 125CC, and XCD 125CC. HH has indicated that it will pay about 1.5%. Exports may not rise as fast as expected because it takes time to understand local markets and to build supply chains. Additionally, they cannot use the Honda name for exports. Branding will be a challenge. Advertising and selling expenses are likely to shoot up after the split. HMSI is likely to turn more aggressive in its plansits models and network expansion. Its models compete more with Bajaj Autos products and this could erode Bajajs market share. Hero Honda, too, might turn a bit more aggressive in the next 2-3 years to assure its dealers, vendors, and employees and this again could be a negative for Bajaj Auto. Hero Honda will turn more aggressive in the exports market, again a business area that was Bajaj Autos domain so far.