Regional Supplier Networks and Competitive Advantage – Case Studies of Honda and Vietnamese Motorcycle Companies –

1. Regional Supplier Networks and Competitive Advantage–Case Studies of Honda and Vietnamese Motorcycle Companies – (Draft) Pham Truong Hoang Graduate School of Information and Environment Sciences – Yokohama National University JVEC Workshop – 11/22/2003

2. Background and Motive for Study • Japanese style supplier system’s competitive advantage • Japanese direct investment in Vietnam • Vietnam condition- near China, in ASEAN • Vietnamese motorcycle industry in recent years

3. Contents • Introduction • Key concepts and frameworks • Review of Motorcycle industry in Vietnam and East-Asian region • Regional supplier system – Case of Honda Vietnam Company • Product architecture and component’s supplier system – Cases of Honda and Vietnamese motorcycle companies • Conclusion

4. 1. Key Concepts and Frameworks (1) Supplier system • Production cost & transaction cost: • Production cost: cost of input • Transaction cost: cost to sustain “asset specific”– (1)search cost, (2)contracting cost, (3)monitoring cost, (4)enforcement cost

5. (2) Business architecture Product architecture • Product architecture: function-component’s scheme • Interface: components’ connection rule • Closed vs. Opened • Closed: rule of interface designed by one firm • Opened: interface is standardized in the industry • Modular vs. Integral • Modular: one-to-one mapping • Integral: complex mapping (non one-to-one)

6. High performance, competitive Transferable to other countries Exploiting transaction cost economy Features: Long-term relation Specialization Pyramid structure Inside competition Group integration R&D concentration Information exchange (3)Japanese style supplier system

7. (4) Performance of supplier system • Short-term: • Cost: low input cost • Delivery: fast and accurate (JIT) • Long-term • Quality: stable in physical feature • Flexibility: fast in self-changing • Design: fast in R&D

8. 2. Review of Motorcycle Industryin Vietnam and in East Asian region • Motorcycle industry in Vietnam  Development, Consumer market, Competitors, Domestic suppliers • Motorcycle industry in East Asian region  Overviews, Chinese motorcycle industry, Thailand’s motorcycle industry

9. Motorcycle industry in Vietnam Source: Ministry of Police quoted by NEU-JICA project 2002

10. Consumer market • Rapid development: • Income increased • Price reduced • Striking development of low price segment • Largest segment: low price market Source: Department of Statistics and author’s investigation

11. Competitors, Market share, suppliers • 7 foreign invested, 45 domestic assemblers • Market share: fluctuating • Suppliers- more than 550 classified in three kinds: • In Japanese keiretsu ones • Widely supplying foreign invested ones • Domestic ones Source: Ministry of Police and author’s investigation

12. Vietnamese Motorcycle Market’s Segments and Positioning in 2002 $ 6,000 @ $ 4,000 Spacy Piaggo Force $ 3,000 Dream II Jupiter ($1600) Sirius ($1400) Future $1660 Viva ($1500) Best ($1300) $ 1,300 Supper Dream ($1330) Magic,star $1250 $1,000 Angel $850 Sanda$850 $700 Chinese parts product($500) Dream Model Wave Alpha ($730) Wave Model Dream Model Traditional Fashion Model Chinese parts product ($500) Source: Author’s editing based on expert’s measures and market data

13. Chinese motorcycle industry Striking development: Price cutting “Copy and ameliorate” strategy Modularization Motorcycle industry in East Asian region Source: Honda's "World motorcycle facts and Figures 2001"

14. From 1960s Market share: Japanese makers-98% Honda-70% Localization: 100% Closed-integral business architecture Thailand’s motorcycle industry Source: Honda's "World motorcycle facts and Figures 2001"

15. Summary • Vietnamese motorcycle industry: • Striking development • Increasing competition • Low price segment enlargement • Chinese component’s role • East-Asian regional motorcycle industry • Striking development • Chinese motorcycle industry modularization • Low price of components

16. Hypothesis (1) • Change in Vietnamese market • Decline of Honda in Vietnam before 2002 • Development and modularization in regional motorcycle industry • Transferability of Japanese style suppliers system • Advantage of Japanese style supplier system (1) Honda in Vietnam enlarged its supplier system to regional supplier network (2) Change of suppliers is in some components

17. Hypothesis (2) • Modularizing in Japanese automobile industry • Modularization in regional motorcycle industry • Modularization in components • Outsourcing and modularization’s relation • Dynamics of product architecture (3) Honda in Vietnam is modularizing partly and based on components (4) Modularization in Vietnamese motorcycle companies and product architecture is changing dynamically

18. 3. Regional supplier system in Honda Vietnam Company (HVN) Company background: • Joint-venture : Honda 70% • Establishment: 1997 • Capital: 104 million US$ • Location: Vinh phuc, 40 km from Hanoi • Products: Super Dream (1998), Future (1999), Wave Alpha (2002) • Labor: 2000 persons Source: Ministry of Police. Ministry of Trade

19. Launch: 2002 Price: 2002-730US$;2003-850 US$ Sales: 2002: 315.000 H1/2003: 158.000 (82% HVN’s sales) Successful development Low price Good design Good quality The role of supplier system Wave Alpha product Source: Ministry of Police, Ministry of trade and author’s investigation

20. Supplier system of Wave Alpha Supplier system of Super Dream Honda Vietnam Honda Vietnam Sundori Honda (China) Honda Asian (Thailand) Asian Honda (Thailand) First tier suppliers Second tier suppliers HVN supplier system- cross product analysis - Japanese traditional style supplier system New style supplier system of HVN Source: Author’s investigation

21. HVN supplier system changesand component classification • HVN supplier system’s change: (1) Increase domestic suppliers (2) Increase first tier: domestic ones, non-core parts (3) Shift to Chinese suppliers (4) Concentrate on price (5) Increase second and third-tier suppliers • Component’s classification: • Core components - Honda’s specific parts • Non-core components – Honda’s none-specific parts

22. Performance of new supplier system in HVN

23. (Cont.)

24. Performance in summary Source: Author’s investigation by interviews carried in July and August 2003

25. Supplier system of core-components • Honda keiretsu in East Asia: • Engine’s component: suppliers in Japan (and some parts from Thailand) • Transmission’s component: suppliers in East Asia Source: Author’s investigation by interviews carried in July and August 2003

26. Supplier system in HVN- from performance analysis - • New supplier system: • Supports short term performances: Cost,Delivery • Harms long-term performances: Quality, Flexibilities, Design • New supplier system for non-core components • Traditional supplier system for core components

27. Reasons for developing regional supplier system • Regional condition: • Chinese motorcycle industry and modularization • Vietnamese motorcycle industry: • High development • Market (low price segment) enlargement • Regional strategy of Honda • East Asia regional specialization • Institutional factors: • Policy of localization

28. Summary • Regional supplier network in HVN • Component’s characteristics based • Opened regional system for non-core parts • In keiretsu regional system for core parts • Focusing on cost and delivery, on short-term production cost • Reasons for new network: Industry’s condition,MNCs regional strategy, institutional factors (Hypotheses (1), (2) are supported)

29. 4. Product architecture and component’s supplier system – Cases of Honda and Vietnamese motorcycle companies- Case study of HVN • Flexible component’s supplier systems: • Core components: • In-the-keiretsu suppliers • Non-core components • Out-of-keiretsu Vietnamese suppliers • Out-of-keiretsu Chinese suppliers

30. In-the-system relation: Closed relation Integral system Supplier changing inside system Enlarging the system Product architecture Closed-integral Product architecture Integral Modular Closed Opened Cont. Hypothesis (3) is not supported

31. Cases of Vietnamese domestic companies • Company A • Increasing in-house production • Company B • Moving to closer relationship in system • Company C • Keeping open supplier system • Company D • Moving to component manufacturing

32. Entered market by wholly opened-modular Market-based relationship New changes: Increase close relation Apply in some parts with some suppliers Product architecture Integral Modular Closed Opened Cont. A B C Source: Author’s investigation by interviews carried in July and August 2003 Hypothesis (4) is supported

33. HVN sustains closed-integral architecture in larger and regional supplier network Vietnamese companies: Move to closer relation with more closed product architecture Sustain opened-modular architecture Dynamics in product architecture: Integral Modular Closed Opened 4.3.Summary- Dynamics of product architecture in Vietnam Motorcycle industry- HVN Vietnamese ones New architecture

34. 5. Conclusion & Discussion • Conclusion: • Regional supplier network in China-Asean region • Mixing and flexible component’s supplier systems • Dynamics of product architecture in components, companies • Discussion: • Change of Japanese style supplier system • Modularization and component’s supplier system • Flexibility of transaction cost & production cost