INTRODUCTION

COMPANY BACKGROUND

Honda Motor Company, Ltd. is a Japanese multinational corporation headquartered in

Japan. The company manufactures automobiles, motorcycles, trucks, scooters, robots,
jets and jet engines, ATV, water craft, electrical generators, marine engines, lawn and
garden equipment, and aeronautical and other mobile technologies. Honda's lines of
luxury cars are branded Acura in North America. More recently they have ventured into
mountain bikes. 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 Co. 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.

PROBLEM STATEMENT

The immense pressure to build future cars on the automobile industry has really
compelled the automakers to invest more in their R&D activities to build environmentally
friendly cars that would run without traditional fuel. Because of raise in fuel price and
increasing environmental awareness, consumers are deciding to purchase new generation
future cars or hybrid cars. In order to meet that demand, many of the automobile
companies have started investing huge amount of capital to meet the demand the need for
future cars. Honda as one of the market leader has also considered the fact and thus has
already introduced some models of hybrid future cars.

From the 1970s to the 1990s, Honda earned a reputation as the most technically
innovative and ecologically sensitive Japanese automaker. Honda introduced the first
hybrid to the American market. Unfortunately, its reputation for green tech leadership
took a big hit when the original Insight, an EV1ish tear-drop-shaped two-seater, was
totally eclipsed by Toyota’s Prius. Hybrid versions of the Civic and Accord did little to
stem Toyota’s PR gains. For 2010, Honda has introduced an all-new Insight hybrid. But
Toyota, one the Honda’s formidable competitor continued to dominate the green car
mindscape in the automobile industry. Moreover, although Honda took an early
leadership role on hybrids, unfortunately Honda hit a few bumps on the hybrid highway,
especially after discontinuing the Honda Accord Hybrid and Honda Insight in 2006. The
Accord Hybrid over-emphasized power instead of fuel economy, and the Insight was
impractical as a two-seater.

The success of the Toyota Prius, and relative failure of all other hybrids, suggested
that people didn’t want a hybrid that looked like any other car. Honda appears to have
learned this lesson—sort of. Although based on the Honda Fit, the new Insight looks like
no other Honda.

EXTERNAL ANALYSIS

MACRO ENVIRONMENT ANALYSIS

Economic Technological Socio-cultural Political-legal

• Investment in • Specialization • Language • Government

Europe (O) through Barriers (W) Intervention (T).
• High Inflation machinery • Increased • Pressure to
rate of foreign (S) desirability of produce cars with
country (T) • Safety Personalized Cars cleaner emissions
• Raise in Income requirements (T) (O). (T).
(O) • Clever Cars (O) • Desire for City cars
• Cost of Fuel (T). • Environmentally (O).
• friendly Cars (O)
• Formula 1 – Speed
(T).
 Economic

 Investing in Europe: Selling in Europe Manufacturing inside of Europe has

meant that they wouldn't have had to add the cost of extra tarriff to their cars.
 Exchange rate: Pound to Yen. The weakness of the yen makes Honda's cars
expensive in the UK.
 Rising incomes means that people have more to spend: Honda has kept up
with this by introducing newer models, especially the new Honda Civic which is
to go on sale this year.
 Cost of Fuel: Because of raise in oil price Honda has had to accommodate for the
market by introducing more economical cars such as the 1.4 Honda Jazz.

Technological

 Specialization through machinery: Machines that specialize at one task ensures

that the product is made much quicker and of a higher quality.
 Safety Requirements: Because of Legal & Consumer pressure, car
manufacturers have had to develop cars with significant safety features which
Honda would have had to research and test. This would be at the expense of their
R&D Department. This is significantly different from a decade ago when crash-
testing dummies were used.
 Clever cars: Cars have had to include Satellite Navigation systems etc as
standard; Honda has had to catch this up in their newer models.
 Environmentally friendly cars: Honda developed i-vtec, which is a follow on
from their infamous vtec engines. The vi-tec engine provides fuel economy,
ample torque and clean emissions.

Socio-cultural
  Language Barriers: Honda decided to set-up in Swindon because they preffered
to deal in the English Language.
 Increased desirability of Personalized Cars: Honda is a leading manufacturer
of cars which can be easily modified, stylistically and performance wise. This is
perhaps their USP.
 Desire for City cars: This has meant Honda has had to create smaller and
economic cars such as the Honda Jazz & Honda Beat.
 Formula 1 – Speed: This is an aspect of Honda which is mainly concerned with
show-boating rather than profit. Honda is one of the leading motorbike
manufacturers and has a huge R&D budget devoted to that cause.

Political Legal

 Government proposal to limit number of cars being sold in the USA & UK:
This would affect the sales of Honda as they couldn't manufacture at the level
they previously could have.
 Pressure to produce cars with cleaner emissions: This has meant Honda has
had to invest heavily in R&D to produce cars with cleaner engines e.g. i-vtec.

MICRO ENVIRONMENT ANALYSIS

Porter’s five forces analysis

Threat of New Entrants - Very Low

In order to enter the automotive market a huge amount of capital is required. In
addition, an entering firm would need to have a tremendous amount of tacit and explicit
knowledge to design and manufacture products.
Competitive Rivalry - Extremely High
Any competitor in this market is generally a global company with billions of dollars
in assets and can compete on any level that HONDA can. Furthermore, there is intense
competition on all fronts in the car market in general, not to mention the luxury car
market. Major manufacturers such as Toyota and Mitsubishi are pinching HONDA with
their luxury & sport segments (Lexus & Acura) in terms of quality product and
reliability.

Threat of Substitutes - Medium

Available substitutes include public transportation such as buses, trains, boats, and
aircraft. In addition, consumers can use other conventional means of transportation such
as bicycling or walking.

Power of Suppliers - Medium

Some suppliers are smaller and as such do not have that much power over the pricing
and distribution of their products. However, there are not that many small parts
manufacturers in this market and therefore, the majority of suppliers to major automotive
makers are medium to large businesses. As a result they have some flex in determining
product pricing, delivery, and distribution.

Power of Buyers - Medium

While buyers are individuals and are not grouped together, they still have an
immense amount of information available to them regarding the pricing and cost to
manufacture a HONDA Car. As a result, buyers do have some leverage in being able to
negotiate a purchasing price from HONDA.

Probable impact on corporation

 High Medium Low

High 1) Competitive pressure from

the four major branded
automobile company.
2) Increasing potential of
raising prices of raw materials.
3) Pressure for Environment
friendly Cars.
Medium 1) Health consciousness of 1) In order to 1)Higher
people. increase capacity, bargaining power
2) Higher tax requirement high amount of of off premise
capital is required. buyers
3) Government Deregulation. 2)
Investment and
Fixed Cost is high
so the Exit barrier is
high
Low
Probability of occurrence
EXTERNAL ENVIRONMENT ANALYSIS:

Opportunities:
 Increasing focus on fuel efficiency
 Increasing demand in underserved areas
 New manufacturing facilities
 Reputation of producing environment friendly cars

Threats:
 High price for raw materials
 Short-term demand fluctuations
 Market overcapacity
 Currency fluctuation
 Potential collapse of three large suppliers
 Tremendous competitive rivalry in car market

EXTERNAL ENVIRONMENT ANALYSIS SUMMARY (EFAS)

External Factors Weight Rating Weighted score
Opportunities
 1)New Manufacturing Facilities .10 5 .50
2)Technological Innovation .15 3 .45
3)Increased sales of new hybrid vehicles .15 3 .45
4)Increasing demand in underserved areas .05 5 .25
5) Having reputation of producing environment .05 4 .20
friendly cars.
Threats

1) Market overcapacity .10 5 .50

2) Short term demand fluctuations .05 3 .15
3) Raise in Fuel price .15 5 .75
4) Currency fluctuations .05 3 .15
5) Tremendous competitive rivalry in car .15 4 .60
market
Total 1.00

INTERNAL ANALYSIS

VALUE CHAIN ANALYSIS OF HONDA

PRIMARY ACTIVITIES:

 Inbound logistics:
Suppliers of Honda From early days, Honda tried to have close integration with
suppliers as vendor management is critical for its operation, for the simple fact that 73%
of production cost is due to material components. Thus, it is critical for Honda to ensure
tight control $ reduction of logistical cost and transaction cost when procuring
components. Additionally, reduction of inventory will be an added advantage/boon so
that working capital requirement will be less.
With these aims, Honda adopted ‘Just in Time’ (JIT) manufacturing philosophy
which demanded close coordination between manufacturing facilities and the vendors
and ancillary units. All these vendors will be connected to the main plant by conveyors to
prevent chances of time & material loss due to multiple handling. Efforts are afoot to
extend the JIT beyond shop floor, in the operational & strategic decisions of the vendors
as well like production planning, capacity expansion etc.
 Operation:
As described above, Honda is probably the only Japanese company to have truly
mastered the art of JIT manufacturing. Honda also follows Lean Manufacturing, use high
degree of automation levels (full automatic robotic operation in welding and some other
specific areas) to ensure high efficiency, low inventory production, with usual benefits
like increased cash flow, reduced cash & operating cycles and thus improved working
capital conditions. These fully equipped plants where these manufacturing concepts have
been applied during plant layout, design & commissioning phases are the unique tangible
assets that Honda Has. The productivity per employee is very high. Furthermore, the
concepts of lean manufacturing, JIT & Integrated Supply Chain have been applied from
the start in worldwide making it highly efficient.
Technological know-how, design improvements etc for Honda Car are provided by
Honda after the initial design requirements as espoused by customers and market trends
put in a structured form by Honda R&D team all over the world.

 Outbound Logistics:
Honda Follows three steps in its Honda feeds the demand in Japan and exports
thousands of Cars through its well established delivery channels from the Manufacturing
Plants worldwide. The effort is to provide for minimum waiting period or rather filling
the regions as per the demand and market trends.

 Marketing & Sales:

Marketing arm of Honda started the hedge successful ‘’Fill it, Shut it, Forget it’’
Campaign years ago to pitch for its better fuel efficiency and thus lower owning cost. It
has been a constant strive for Honda’s marketing effort (in advertisements, in
promotions) to focus the value for money and reliability of its products and thus
attracting new customers and retaining customers as well. To ensure customer loyalty,
Honda has come up with Honda Passport Program which gives special privileges to its
customers. Honda does not indulge in price wars in an effort to maintain the perception of
enduring quality among present & political customers.
 Service:
Honda has constituted one the best after sales service network in the car industry.
Apart from improving the quality of service and easy availability of spare parts, Honda
has also focused on cleanliness and other aesthetics of the service stations and added
amenities such as air-conditioned waiting area, internet browsing and shops etc, to ensure
the in house experience of the consumers at those ‘’customer touch points’’

INTERNAL ENVIRONMENT ANALYSIS

Strengths:
 Leader in individual product categories
 Global network
 Strong brand equity
 Engineering capacity
 Efficient production and lean process

Weaknesses:
 High R&D cost.
 Fluctuating economic & political conditions.
 Car plants represent a huge investment in expensive fixed costs.
 Movement in exchange rates.
INTERNAL FACTOR ANALYSIS SUMMARY (IFAS)
Weight Rating Weighted score
Internal Factors
Strengths

1) Well known & Trusted Brand name .12 5 .6

2) Market leadership .8 4 3.2
3) Better product/service quality .8 4 3.2
4) Design and introduction of new models .12 5 .6
5) Geographical diversification .10 3 .3
Weaknesses

1) High R&D Cost .15 5 .75

2) Not being able to charge lower prices than .10 5 .50
competitors
3) Fluctuating economic & political conditions .05 3 .15
4) Car plants represent a huge investment in .15 4 .60
expensive fixed costs
5) Movement in exchange rates .05 4 .20
Total 1.00

STRATEGIC FACTOR ANALYSIS SUMMARY

Strategic factors Weight Rating Weighted Short Intermediate Long
score

S1) Brand image .15 5 .75 X

S4) Design and .15 4 .60 X
Introduction of new
models
W1) High R&D cost .15 5 .75 X X
W5) Tremendously high .15 4 .60 X X
fixed cost
O2) Technological .15 5 .75 X
innovation
O3) Increased sales of new .15 5 .75 X
Hybrid vehicles
T3) Raise in Fuel price .15 5 .75 X
T5) Tremendous .15 4 .60 X
competitive rivalry in car
market
Total 1.00 4.9

TOWS MATRIX

Internal factors
(IFAS)
External
Factors (EFAS)
Opportunities (O)
O1) New Manufacturing
Facilities
O2) Technological
Innovation
O3) Increased sales of new
hybrid vehicles
O4) Increasing demand in
underserved areas
O5) Having reputation of
producing environment
friendly cars
Threats (T)
T1) Market overcapacity
T2) Short term demand
fluctuations
T3) Raise in Fuel price
T4) Tremendous competitive
rivalry in car market
RECOMMENDATIONS
As Honda moves forward us advice strategic focuses on these areas:
Strengths (S)
S1) Brand image
S2) Market leadership
S3) Better product/service
quality
S4) Design and introduction
of new models
SO Strategies
1) Honda should be more
technologically advanced to
sustain its strong brand
image.
2) Honda should keep
improving and designing
new generation cars such as
Hybrid and electric fuel
cars.
ST Strategies
1) Honda should develop
and sell fuel efficient
Hybrid cars to offset the loss
sales of traditional cars.
Weaknesses (W)
W1) High R&D Cost
W2) Not being able to
charge lower prices than
competitors
W3) Fluctuating economic
& political conditions
W4) Car plants represent a
huge investment in
expensive fixed costs
W5) Movement in
exchange rates
WO Strategies
1) Honda should
invest its profit from
increased sales in more
R&D.
WT Strategies
1) Honda can beat the
competitive market by
charging premium price for
its quality and service.
2) Honda can partially
avoid the fluctuating
exchange rates by
increasing the sales in the
domestic market.
 1. Continue heavily in R&D

2. Improve responsiveness of production systems to market conditions and demand.

3. Improve production flexibility.

4. Broaden sales distribution base beyond the North American and Japanese market.

 Asia
 Russia
 Europe

Conclusion

Honda is continuously trying to innovate new designs of hybrid cars and therefore,
investing in its R&D. Some of the future cars that Honda have produced are already in
the market, some are still in the development phase and yet to come to the market for the
final customers. The others competitors of Honda such as Toyota has already produced
new generation hybrid car which makes the industry more competitive for hybrid and
next generation cars. It clear that Honda hasn’t fallen that behind compared to its
competitors and is still in the track for producing next generation cars since Honda has
the right technological advantage and adequate resources to support the research &
development activities. But the company is back on track. Starting in 2009, Honda roars
back with the second-generation Honda Insight—a more practical four-door hybrid
vehicle aimed at great fuel economy and absolute affordability. The company is
following a well-defined fuel efficiency strategy: hybrids for small cars—and diesel
engines for larger vehicles. And the company continues to innovate.