The HONDA phenomenon

1. The HONDA phenomenon Presented by Group 7 Mukundhan J.V.D.Prasad Nitin Rawat C.Amritha

2. BACKGROUND • 1946:Postwar, Soichiro Honda, set up the Honda Technical Research Institute to service Japans need for transport by retrofitting bicycles with engines (mopeds) • 1948Founded Honda Motor Co., Ltd. • 1949:With help, developed 2-stroke,D-type, 3hp engine that enjoyed brief popularity • Late 1949:Competitors leapfrogged to quieter 4 stroke forcing Honda to take on a partner, Takeo Fujisawa. • 1951:Develops breakthrough superior 4 stroke, improving demand • 1958: 50cc Supercub, auto clutch, 3-speed transmission, auto starter • 1959:Collection of semi-independent activities with no standardized procedures or drawings. Significant participant in industry(23% mkt share)

3. 1960:Sets up automated plant with 30,000 unit per month capacity. In the US establishes a base of 40 dealers • By 1961: Developed superior motorcycle design, winning Isle of Man manufacturers prize. • 1963:Theme developed- ““U Meet The Nicest People On A Honda” • Late 1963: Automobiles introduced into product line • 1964: Ceases to ship on a consignment basis and adopts cash on delivery mechanism • Late 1972:Both Fujisawa and Honda retire as a mark of letting younger men take their lead • 1981: Held 41% of market share of Motorcycle Production in Japan

4. Japan, post WW II • All large cities destroyed, the industries and the transportation networks were severely damaged. • Theoccupation of Japan by the Allied Powers started in August 1945 and ended in April 1952, the entire operation being carried out by the US. • The empire of Japan collapsed leading to formation of a democratic constitution of Japan. During the postwar period, Japan became an economic power state. This period is characterized by the US-Japan Alliance such as the United States Forces Japan. • The occupation ended with the San-Francisco peace treaty signing in 1952. Japan's Self Defence Force was established in 1954. • Japans economy flourished post the Korean War. The economic growth resulted in a quick rise of the living standards, changes in society and the stabilization of thee government • Japan's relations to the Soviet Union were normalized in 1956, the ones to China in 1972.

5. How it started.. • 1960-80  Strategic reversal in world motorcycle industry • Japanese introduction into the market began with HMC • Japan’s post world war devastation • Honda Technical Research Institute set up in 1946reflecting technology based strategy • Japanese manufacturers invested in one design and milked. • Honda departed • Offered a multi-product line • Leader in product innovation • Exploitation of economies of scale production

6. An example.. • In 1958,Honda identified a market segment  small, unintimidating m’cycle for small delivery businesses • They designed a product specifically for this application • The 50cc bike was an explosive success! • Unit sales reached 6000/month in less that 6 months from introduction • Honda gambled, invested in a highly automated plant (10 times excess capacity than demand at time of construction!)

7. International expansion • In ‘59, HMC entered the American market. • Foreign producers relied on distributors. Honda established American Honda Motor Company and pushed their lightweight bikes • Advertising represented a concentrated effort to overcome the unsavory image of motorcyclists  ‘You meet the nicest people on a Honda’ • The strategy was phenomenally successful. US sales rose from $500,000 in ‘60 to $77 million in ’65 • Expansion of the m’cycle market in the early ‘60s benefited the British & American producers as well • ‘Basically, we do not believe in the lightweight market’

8. Meanwhile, Japanese producers continued to grow in other export countries • In ‘65, domestic sales fell to 59% from 98% in ’59 while production volume had increased almost fivefold from 285,000 to 1.4 million units • By the mid 70’s, Japanese producers had come to dominate a market shared by European and American markets 20 years earlier

9. Glimpses of strategic innovations • Used its productivity-based cost advantage & RnD capability to introduce new models at competitive prices • Throughput of only 18 months • ‘Cold storage’ of designs • Since ’60, Honda consistently outspent its competitors in advertising • Established largest dealership network ; Honda had been willing to take short term losses to build up adequate SnD network

10. Honda’s ‘marketing philosophy’ • Huge emphasis on market share and sales volume, rather than short-term profitability • First question asked to a prospective dealer  level of his market share in his local area • Some of the policies of the ‘philosophy’ : • Constant product upgradation; threat/opportunity • Prices set at levels to achieve target market share • Effective marketing systems where serious competition • Plans & objectives look to long-term payoff • As a result, average AGR of big 4 was 15-25%

11. Selling/Distribution systems • Includes all the activities of the marketing companies in each national market • Sales rep at the dealer level • Warranty and service support • Dealer support • Advertising and promotion • Market planning and control • Manufacturers’ products and SnD system influence sales both directly(retail) and proximately(dealer network)

12. Squashing a myth.. • The Japanese are ‘dumping’ their products in the US market  ‘74 • Prices in the US are so much higher than those of the same products in Japan • Premiums are very high even after allowing for the duty, freight and packing in shipping bikes • Plenty of scope for them to be even more competitive in the future

13. Japanese price performance • The top 4 Japanese companies had high overall market share, so they dominated the pricing of the industry • Upon analysing the experience curves based on price performance, we find : • Slope of 88%  <50 cc bikes • Slope of 81%  50-125cc bikes • Slope of 78%  125-250cc bikes

14. Cost performance • Implications of the downward trends in prices was due to experience-based cost reductions • Most of the Japanese players also forayed into other markets (cars, etc) and were ‘subsidising’ their losses there from the bike industry

15. Conclusions/Summary • Failure to achieve favourable cost position – including significant cost reductions over time  vulnerability • High rates of growth and production levels resulted in superior productivity and market share • Value added per employee – 4 times more than western competitors • Emphasis on market share nailed it!

16. Thankyou

17. Proposed questions • 1.Compare and contrast the two descriptions of Honda Corporation’s start-up, early growth, and entry into the U.S. motorcycle market. How does each case explain Honda’s success? • 2. What concept of strategy is implied in each case? • 3. What do these cases tell us about the job of the general manager? • 4. Question for Crystallizing Analysis • 1.a What is the explanation for Honda’s success in the U.S. market according to the (A) case? • 1.b What is the explanation for Honda’s success according to the B-case? • Optional follow-on question after each of the above question: • -What is the concept of strategy in the (A or B) case? • -Who developed the strategy?

18. Which case is correct in a factual sense? Which one is more convincing? Why? • 6. What is the value of the (A) case to managers? • Optional follow-on question: • -When could the analysis in the (A) case have made? • -When had Honda won the battle? • -when is the type of analysis in the (A) case useful? • 7. What is the value of stories like those told in the (B) case? Is Honda’s history anything more than idiosyncratic events? • Follow on questions? • Was the success all luck? • What was the role played by Honda and Fujisawa? • 8. If you had been in charge of Honda’s entry into the U.S., would you have done anything differently? Could you have improved the performance in any way? How? • 9. If you had to choose a phrase word or image to describe these two cases, what would it be?