Full version Hero Honda: Is It Honda That Made It A Hero?

Hero Honda: Is It Honda That Made It A Hero?

This print version free essay Hero Honda: Is It Honda That Made It A Hero?.

Category: Miscellaneous

Autor: reviewessays 15 May 2011

Words: 6870 | Pages: 28

1. Executive Summary

Hero Honda Motors (India) Ltd. is the World's biggest manufacturer of motorcycles (by quantity). Starting as a bicycle company, it set up a 50/50 joint venture, set up in 1984 with Honda Japan, to manufacture and sell motorcycles in India. Honda brought in the technological know-how, and Hero the India presence, and the local manufacturing ability.

Hero Honda Motors captured the market for motorcycles in India, by offering an affordable 4-stroke, 100 CC motorcycle, that was extremely fuel efficient.

They also established dealerships al over the country В– even rural areas В– . The strategy of Hero Honda Motors was to capture the market by offering a superior product at an affordable price, with excellent customer service. (Right cost)

The strategy has been successful to date and Hero Honda Motors (India) Ltd. is the dominant market leader with over 50% of market share, ahead of closest competitors Bajaj (Kawasaki JV) and TVS-Suzuki.

Recently new challenges have come up: in 1999, Honda has set up a 100% owned subsidiary, which produces scooters, and represents a direct competitive threat.

New entrants have entered the market, offering cheap motorcycles from China.

The market is showing signs of maturing, with a reduction in business growth.

The company's response is a defend and fortify strategy: Hero has renewed the technology JV with Honda, and have widened their offering a wider share of products.

They have integrated vertically, reducing cost drivers in the value chain.

At the same toiken, they have increased service levels, customer loyalty programs, and have started addressing niche-markets ("Just 4her")

The next step for the company, is to retain and expand shareholder value by either expanding to new geographical areas and/or diversify in new businesses.

2. Company Background

Hero Honda Motors (India) Ltd. is the World's biggest manufacturer of motorcycles (by quantity).

Hero Honda Motors (India) Ltd is a 50/50 joint venture, set up in 1984 between the Hero group of India and Honda Japan.

It has been the world's biggest manufacturer of 2-wheeled motorized vehicles since 2001, when it produced 1.3 million motorbikes in a single year.

Hero Honda's Splendor model is the world's largest selling motorcycle.

Splendor

В© http://www.herogroup.com/images/honda_splendor.jpg

At this moment, Hero Honda has set up over 2400 customer touch points, comprising a mix of dealers, service centers across rural and urban India. Today, Hero Honda is an amalgam of winning networks and relationships with internal and external stakeholders, including Investors, Dealers, Vendors and Employees. These relationships have helped the company hold on to the mantle of World No.1 for years in succession.

The company has 2 plants. One in Dharuhera and the other in Gurgaon, both in Haryana, in the north of India. Hero Honda Motors (India) Ltd. specializes in dual use motorcycles that are low powered but very fuel efficient.

Current models offered by Hero Honda Motors (India) Limited:

Products Model

Two-Wheelers Achiever CBZ* CD100SS CD DAWN

CD Deluxe Glamour Karizma Passion Plus*

Pleasure Splendor+* Super Splendor*

*Major model

2.1. The Hero Group

Hero Honda Motors (India) Ltd. started in the 1940's as hero Ltd., a family owned business, manufacturing bicycle components. The Munjal family, owners of the group, turned the company into the world's largest bicycle manufacturer today. (It overtook Huffy, the US. Manufacturer in volume in 1986).

Dr.Brijmohan Lall Munjal В– Chairman Hero Group

The Munjals roll their own steel, make free-wheel and other critical bicycle components and have diversified into different ventures like product design and motorcycle manufacturing.

The Hero Group philosophy is: "To provide excellent transportation to the common man at easily affordable prices and to provide total satisfaction in all its spheres of activity".

The Hero group vision is to build long lasting relationships with everyone (customers, workers, dealers and vendors).

"Hero", is the brand name used by the Munjal brothers in the year 1956 with the flagship company Hero Cycles.

2.2. The Hero-Honda Joint Venture

In the year 1984, Mr. Brijmohan Lall Munjal, the Chairman and Managing Director of Hero Honda Motors (HHM), headed an alliance between the Munjal family and Honda Motor Company Ltd. (HMC).

Although not the first choice of partner, (Hero sought a partnership with Bajaj Auto, Firodia Group and Kinetic Engineering Ltd. First) it was a successful choice: The alliance became one of the most successful joint ventures in India. Honda provided the engineering and technical know how, and Hero provided an extensive presence in the local (Indian) market.

The J.V was renegotiated and extended until 2004 in 1994-1995.

This round of discussions was less smooth since Hero felt that the technical design support of Honda was waning.

2.3. Post 2004

In the year 1999 HMC announced the establishment of a 100% subsidiary, Honda Motorcycle & Scooter India (HMSI). This announcement caused the HHM stock price to decrease by 30 percent that same day.

The Munjal family had to come up with some new strategic decisions as, HMSI and other foreign new entry companies (amongs others Joint Ventures with Suzuki and Kawasaki) were causing increased intensity of rivalry for HHM.

3. Industry and Competitive Analysis

3.1. What are the industry's dominant economic features?

3.1.1. Industry and Competitive Analysis. An overview

The current market size for motorized vehicles in India is estimated at 200 million units.

The industry of two wheelers ( i.e. motorcycles, scooters and mopeds) in India is the dominant industry for personal motorized transportation, in term of volume:

In India it represents 77% of the total automobile market.

Worldwide, India is the second largest producer of motorized two-wheelers, after China.

(India produced approx. 4.3 million units in 2003, China approx. 12.1 million units. Number three is Japan with approx. 2.3 million units) .

The first producers of motorized two wheelers started in the 1950's and concentrated on the production of Italian model inspired scooters: i.e. Lambretta and Vespa.

The motorcycle manufacturing industry in India originated with Automobile Products of India (API) which manufactured scooters.

API manufactured the LambrettaВ™ . Bajaj Auto Ltd. Quickly surpassed API and remained the main scooter manufacturer В– until today -, through its association with Piaggio of Italy (manufacturer of VespaВ™ ).

The license raj that existed between the1940s to1980s in India, did not allow foreign companies to enter the market and imports were tightly controlled. This regulatory maze, before the economic liberalization, made business easier for local players to have a seller's market.

Customers in India were forced to wait 12 years to buy a scooter from Bajaj.

The CEO of Bajaj commented that he did not need a marketing department, only a dispatch department. By the year 1990, Bajaj had a waiting list that was twenty-six times its annual output for scooters.

The motorcycle segment had the same long wait times with three manufacturers; Royal Enfield, Ideal Jawa, and Escorts.

Royal Enfield made a 350cc Bullet with the only four-stroke engine at that time and took the higher end of the market.

Ideal Jawa and Escorts took the middle and lower end of the market respectively.

In the 1980's , the market rules changed and minority Joint Ventures with ovberseas companies became possible. Hero Honda, TVS Suzuki, Bajaj Kawasaki and Kinetic Honda were added to the market scene.

The industry produced more models, different styles, and there was competition on prices. The Japanese new technologies increase product reliability and overall quality.

3.1.2. Market Size and Growth rate

The Society of Indian Automobile manufacturers provides the following sales statistics: for motorized two wheelers in India

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Category

Scooters 908,268 825,648 886,295 922,428 909,051 940,673

Motorcycles 2,887,194 3,647,493 4,170,445 4,964,753 5,810,599 6,553,664

Mopeds 408,263 338,985 307,509 322,584 332,741 355,870

Electric Two Wheelers - - - - - 7,341

Total Two Wheelers 4,203,725 4,812,126 5,364,249 6,209,765 7,052,391 7,857,548

Automobile Domestic Sales Trends in number of vehicles

The graph shows an annual growth in volume between 11 and 16% annually.

Segmental Growth of the Indian Two Wheeler Industry (FY1995-2004)

This allows us to conclude that the motorcycle industry is reaching maturity stage in India. Ten years ago the industry grew over 25% annually.

Now, annual growth in volume is declining, hovering around 13%, while the growth in other motorized vehicles, especially automobiles, is growing and is expected to reach 22% in 2007.

3.1.3. Scope of competitive Rivalry - Rivals

In the mid-1980s, the Indian government regulations changed and permitted foreign companies to enter the Indian market through minority joint ventures.

The two-wheeler market changed with four Indo-Japanese joint ventures:

Hero Honda, TVS Suzuki, Bajaj Kawasaki and Kinetic Honda.

The entry of these Japanese companies changed the Indian market dynamics from the supply side to the demand side.

Shares of Two-Wheeler Manufacturers in Industry Sales (FY2000-9MFY2005)

3.1.4. Buyers needs and requirements

Two wheelers remain the transportation mode of choice for the Indian consumer.

Buyer need is mainly driven by fuel economy and reliability. Buyers need also shifting towards features as the income level is increasing in the middle class segment.

3.1.5. Pace of technological change/Product Innovation.

Advancing technology plays an important role in the battle for market share.

The fuel efficiency which first gave Hero Honda an edge in the nineties, was soon matched by the competition, and e.g. TVS-Suzuki leveraged in the nineties on its design and engineering skills to produce a motorcycle that managed to grab market share from Hero Honda.

New technology that drives better engineering design and more fuel economy plays a major role to capture market. Hero Honda often bought services from external consultants to improve its production process and technology

3.1.6. Vertical Integration.

Hero Honda is more vertically integrated than some of its competitors, giving the company and edge.

The Munjal family have steel companies that roll their own steel, own free-wheel and other critical components manufacturing facilities, and have diversified into different ventures like product design, which can add value to the motorcycle that they produce.

In comparison, Bajaj, a competitor and a J.V partner with Kawasaki, does not and had a problem to get rid of its image of a "screwdriver" company ( assembly only plant).

The industry s characterized by economic of scale in purchasing, manufacturing, advertising and other activities. Hero Honda's dominant market share (over 50%) has provided it with better leverage through economies of scale than rivals.

3.1.7. Product differentiation.

The Indian motorcycle, moped and scooter market is mature, and product differentiation has become fierce.

Although the "Splendor" model is still an integral part of the catalogue, it has already differentiated to Splendor + and Super Splendor.

Different models have been added, CD Dawn, CD Deluxe, the sporty segment "Karizma", "CBZ X-treme", "Glamour", "Glamour PGM F1", and also the scooter model "Passion Plus".

3.2. What kind of competitive forces is Hero Honda (India) Ltd. facing?.

3.2.1. Firms in other industries offering substitues products.

Interpreting the statistics of the SIAM, it is clear that the market position of the motorized two wheelers in general is being threatened by the supply of automobiles. When the market opened for motorcycles, opportunities for car manufacturers also expanded. Companies like General Motors, Daimler Chrysler, Hyundai,and Skoda, have set up Joint Ventures, and the market segment of small cars have increased over the last ten years.

Companies like Tata, and Maruti Suzuki offer small cars, which offer an affordable alternative for upwardly mobile middle class Indian families.

3.2.2. Rivalry among competing Sellers.

There is increased pressure from motorcycle competition:

When the market opened in the early eighties for foreign investors, other companies also found partners and entered the Indian market with motorcycles with a Japan made content. (TVS-Suzuki, Bajaj-Kwasaki, В…)

In the last decade, Chinese producers have entered the motorcycle scene and have found import partners.

3.2.3. Buyers.

The traditional customer of the Indian motorcycle has been the Indian household, affluent enough to own its own mode of transportation, but not wealthy enough to own a car.

Similarly the road conditions of India made the motorcycle the transportation method of choice for transportation of goods.

At present time, there is a shift in customers, as cars are being offered at a cheaper price.

Also the customer being offered a choice of competitive brands, is more demanding, and requests more features.

It is relatively easy for a motorcycle buyer to shift to another brand. Especially in India's urban areas.

3.2.4. Suppliers of Raw materials, Components or other Resource Inputs.

Hero Honda Motors (India) Ltd. Has responded to supplier bargaining power by diversification and vertical integration.

The Hero Group rolls its own steel, and makes components for the production of motorcycles.

At the same time, the group procures parts and components from companies with whom they have a strong connection (companies of relatives and close partners). Similar to a Japanese Keiretsu systems.

This allows greater security as well as flexibility.

3.2.5. Potential New Entrants.

There are barriers to enter the market, since import of motorcycles is restricted.

Similarly, the size of the Market, geographically posed a problem for new entrants to be present on the same scale as the existing players.

But the market is still growing with over 10% yearly, which makes the market attractive.

Local Indian importers, importing cheap(er) Chinese products are enetreing the market.

3.3. What factors are driving Industry change and what impact do they have for Hero Honda (India) Ltd. ?

The influence of the internet as driving force in the motorcycle industry in India is difficult fathom: India has an internet penetration rate of less than 4%, most of it in urban areas

Hero Honda uses internet as publicity tool, (as do most competitors).

Increasing globalization has made motorcycle manufacturers look beyond country borders. Competition is shifting from primarily a regional or national focus to an international or global focus.

Honda motor company of Japan, Hero Group both are thinking of expanding their business at global level.

Honda has established its own subsidiary in India. This type of step will certainly increase competition.

Other factors that are driving industry changes are growing buyer preference for differentiated product and government policy that has become less rigid to do business in this industry. These factors will boost more competition and more innovation to survive in the market.

Changes in the long term industry growth rate: The fact that the market is reaching maturity has its effect on how the players in the market behave. The battle for market share becomes fiercer.

Changes in government policies: The market is opening up, and foreign products enter the Indian market.

3.4. What market positions do rivals occupy В– who is strongly positioned and who is not?

HHM (India) Ltd.is the dominant market leader with a market share in volume which exceeds 50%.(2006 figures)

The closest competitors in these market segments that are currently addressed by HHM

(India) Ltd. are TVS-Suzuki, Bajaj Kawasaki (higher end of the market) and Yamaha.

A weighted rating system provide adequate information about why certain players perform better than others. Intuitively it is clearthat HHM (India) Ltd. is stronger than most on overall competitive strengths factors. (quality product performance, reputation, image, manufacturing capability, technological skills, dealer network, financial resources, customer service capabilities)

3.5. What strategic moves are the rivals likely to make?

Bajaj Motors next probable Strategy:

Increasing market share by new product innovation. Offering a product that is cheaper than Hero Honda's product in two wheeler motor industry.

Reaching more niche segments.

Yamaha (escorts Yamaha)

Increasing market share by reaching more niche segments: The Yamaha market segment is traditionally more high В–end than the other brands.

3.6. What are the key success factors for future competitive success?

Hero Honda Motors(India) Ltd. has the possibility to use economies of scale and/ capturing learning curve effects in the manufacturing of its motocrcycles.

It has a country wide network of dealers and distributors.

It has expanded its breadth of product line to remain competitive and meet customers's wishes.

Its' wide distributor and dealer network allows fast and accurate technical assistance. В– country wide - .

Its local production capacity allows it to produce and deliver with lower delivery lead times (no international transportation required)

Its' vertical integration, i.e. production capacity of components allow the company to capitalize on its supply chain management capabilities.

3.7. Does the outlook for the industry present an attractive opportunity?

The industry outlook is still attractive, although the industry will be see a shake-out shortly.

The industry growth is still over 10%, but the number of players in the market has increased.

All competitors are offeri ng products that are similar in features, and price differences have become less pronounced.

The key success factors that have kept Hero Honda the dominant market leader could prove crucial in the next years also.

4. Company Situational Analysis

4.1. How well is the company's present strategy working?

HHM (India) Ltd.'s sales are still very strong, and for the 5th consecutive year, they are the absolute leader in motorcycle sales volume in India.

Financials at a glance- http://www.herohonda.com/investors_pdf/financials_at_glance.pdf

4.2. What are the company's resource Strengths and Weaknesses, and its External Opprtunities and Threats?

4.2.1. (Internal) Strengths

The company has a distinctive competence in reaching the customer, and providing service in the Indian motorcycle market

It has very strong customer service capabilities

HHM has strong Supply Chain capabilities (own production of steel, components, В…)

HHM has a very strong brand name in the Indian market, with strong and positive brand recognition.

Technological Leadership: It still holds the alliance with Honda motors, allowing it to benefit from the Honda know how as well as the Honda brand name.

Strong financial position: As evident from the table company has a strong balance sheet.

Ratios FY00 FY01 FY02 FY03 FY04

RONW 20.0% 100.0% 100.0% 100.0% 100.0%

ROCE 37.8% 36.5% 58.5% 59.0% 55.5%

Debt Equity (x) 0.1 0.1 0.2 0.2 0.2

Interest coverage (x) 57.8 151.9 417.0 465.7 527.2

Dividend payout 0.9% 0.6% 0.4% 0.4% 0.3%

BVPS 111.1 30.5 33.8 42.5 57.0

The company has a strong cash flow position.

The company generated Rs 9 bn ( approx. from operation in FY04 and is virtually a debt free company.

4.2.2. (Internal) Weaknesses

The product line is limited. Rivals can capitalize on gaps in the product breadth of HHM.

HHM's motorcycle unit cost is high compared to (Chinese) rivals.

Hero's dependence on Honda for technological Know-how.

4.2.3. Opportunities

There is a possibility to enter in new Geographic markets

The market is open and the company is financially strong. HHM can consider acquiring a rival firm, and or set up a new venture. (substitute products, e.g. small cars)

The buyer needs and tastes are changing: Part of the consumers represent a more fashion conscious, more affluent part of Indian demographics, leaning toward more advanced, fashionable motorcycles. This is a market segnment that can be addressed by HHM.

4.2.4. Threats

Increasing intensity from competition. Other J.V. companies are also maturing in the market, and new entrants are entering the market with cheaper imports.

The market is reaching maturity.

There is the threat of substitute products, i.e. small cars (Tata, Maruti Suzuki)

HHM (India) Ltd. is still depending on Honda for its technological know-how.

4.3. Are Hero Honda (India) Ltd. Prices and costs competitive?

Hero Honda (India) Ltd.'s prices are similar to the prices, currently available in the market.

The company originally captured market-share by offering a superior product at an affordable price (best cost strategy).

Currently price pressures are there from a.o. Cheap Chinese importers.

The Costs are controlled as Hero Honda (India) Ltd. controls an important portion of the supply chain part of the total value chain.

They have integrated vertically to control costs.

4.4. Is the company competitively stronger (or weaker) than its key rivals?

HHM (India) Ltd. is the market leader in the motorcycle segment in India.

According to the sales figures released on its website, the company has a market share of over 50%, making it the biggest player in the Indian market.

4.5. What strategic issues and problems merit front burner managerial attention?

Hero Honda (India) Ltd.is the dominant market leader in India for motorcycles.

In order to remain market leader, it needs to keep vigilant towards new entrants, esp. from China.

The market is maturing and reaching the shake-out stage. In the coming years, the market will move in a direction of consolidation.

The alliance with Honda remains a risk.

5. Strategic Task Analysis

5.1. Vision of Hero Honda Motors (India) Ltd.

Hero Honda's main vision is: "To provide excellent transportation to the common man at easily affordable prices and to provide total satisfaction in all its spheres of activity".

This has been explained by Hero stating that the Hero group wants to build long lasting relationships with everyone (customers, workers, dealers and vendors).

The Hero Group has a passion for setting higher standards and Engineering Satisfaction is the prime motivation, way of life and work culture of the Group.

5.2. Mission of Hero Honda Motors (India) Ltd.

Hero Honda's describes its mission saying that its mission is to strive for synergy between technology, systems and human resources, to produce products and services that meet the quality, performance and price aspirations of its customers. At the same time maintain the highest standards of ethics and social responsibilities.

5.3. HHM (India) Ltd. Strategy

When HHM started the motorcycle activities in the mid-eighties, the company was pursuing a "Best Cost Provider " Strategy.

They actively wanted to offer the best quality vehicle at the best possible price. They offered the CD-100 model in the market in 1985:

It set the standards for fuel efficiency (Cost Leadership) at 80 km/liter fuel, and the running cost of the vehicle was very low. They wanted to offer a motorcycle that was "best" : They offered a four stroke, 100 CC motorcycle, where the competition offered mostly 70 cc, two stroke versions .

By offering significantly better motorcycles at a (significantly) competitive price, HHM (India) Ltd. appealed to customers and the strategy proved successful.

The strategic intent of Hero Honda in the early years (and even today) is constantly striving for fuel efficiency and less emission.

In the 1980s, 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.

The synergy with Honda worked well:

The two partners, leaders in their respective domains, have been able to consistently draw on each other's strengths through their joint venture. The Hero Group's deep domain knowledge of the Indian market and its supplier network has meshed with Honda's mastery over four-stroke engine technology to create modern and fuel-efficient machines at affordable prices for India's 250-300 million strong middle class.

The current strategy that the company is following, is the strategy of the market leader: It is a fortify and defend strategy:

Moving to a broad differentiated strategy, HHM (India) Ltd. is raising the competitive ante via increased product offerings, increased sales efforts, and additional spending on advertising, higher levels of customer service.

e.g. the Karizma ad campaign,

Hero Honda relies on 3 R's-- Reach, Research and Reliability as its basic building blocks. Using feedback from the market, a fully-equipped R&D center has consistently created best practices in designing, testing and harmonization, besides placing strong emphasis on road safety and ride quality. This emphasis has helped Hero Honda build products that are ahead of their time.

Hero Honda was also one of India's first automotive companies to get close to the customer. Over the years, feedback has flowed back and forth seamlessly through a unique CRM program - the Hero Honda Passport Program which now has over 2.5 million members on its roster. The program has not only helped Hero Honda understand its customers and deliver value at different price points, but has also created a loyal community of brand ambassadors.

The company is introducing more models to reach the niches that its has not addressed, (e.g. the "Passion model of Scooters)

5.4. HHM (India) Ltd. Operational Strategy

Just-in-Time:

The Hero Group through the Hero Cycles Division was the first motorcycle company to introduce the concept of just-in-time inventory in India. The Group boasts of superb operational efficiencies. Every assembly line worker operates two machines simultaneously to save time and improve productivity.

The fact that most of the machines are either developed or fabricated in-house, has resulted in low inventory levels. In Hero Cycles Limited, the just-in-time inventory principle has been working since the beginning of production in the unit and is functional even till this date.

Ancillarisation

An integral part of the Group strategy of doing business differently was providing support to ancillary units. There are over 300 ancillary units today, whose production is dedicated to Hero's requirements and also a large number of other vendors, which include some of the better known companies in the automotive segment.

5.5. HHM (India) Ltd. Marketing Strategy

The Hero Group began with a simple philosophy: to provide excellent transportation to the common man, at a price he could easily afford. It is this spirit, which drives Hero even today; the dream of providing total satisfaction in all its spheres of activity. A thorough understanding of fast-changing consumer behavior, new market segments and product opportunities, and a marketing mix sensitive to changing customer needs, form the core of Hero's marketing strategy and philosophy.

Product: Hero Honda widened it's product range by entering new segments and launching new models in the existing categories as well as by introducing products based on new technology platforms as part of its growth strategy. This also supports the objective of Hero Honda to earn double-digit growth in volume sales and revenue.

Price:

The Hero Honda motorcycles are prized mid range, compared to the competing products.

The price range varies

Advertising & Promotion: Apart from concentrating on mainstream Splendor-- the world's largest selling bike-- and upscale CBZmotorcycles, Hero Honda has identified "soft areas'' like services and spares parts for the purpose of intense communication.

Hero Honda also looks at social areas -- like civic issues, association with NGOs, contribution to greener causes-- for corporate communications.

The corporate campaign will be largely complemented by on-ground initiatives under the umbrella brand of ``We Care'', incorporating activities in the arena of community services, safety and services programmes, tree-plantations and environmental-friendly projects.

In line with Honda's worldwide, safety riding programme, Hero Honda takes the riding programme-- where trained personnel gives riding tips to bike owners-- to over 100 dealerships across 90 towns.

In sports promotion, Hero Honda sticks to Cricket and Golf. It sponsored one of the world cup cricket hosted by India and arrange Hero-Honda Masters Golf.

For the CBZ brand, Hero Honda runs commercials in youth channels like MTV; Discovery and Star Movies.

Place: Dealer Network:

The relationship of Hero Group with their dealers is unique in its closeness. The dealers are considered a part of the "Hero family".

HHM (India) Ltd. has a nation-wide dealer network comprising of over 5,000 outlets, and have a formidable distribution system in place.

Sales agents from Hero travels to all the corners of the country, visiting dealers and send back daily postcards with information on the stock position that day, turnover, fresh purchases, anticipated demand and also competitor action in the region. The manufacturing units have a separate department to handle dealer complaints and problems and the first response is always given in 24 hours.

Hero's dealers and support network was not just focused on high density urban centres, but also encompassed rural outlying regions that typically did not attract the attention of other manufacturers.

Hero Honda has taken its strategy one step further by opening exclusive women's outlets called `Just4her'.

People

Another Striking feature within the Hero Group is the commitment and dedication of its workers.

There is no organized labor union and family members of employees find ready employment within Hero. The philosophy with regard to labor management is "Hero is growing, grow with Hero." When it comes to workers' benefits, the Hero Group is known for providing facilities, further ahead of the industry norms. Long before other companies did so, Hero was giving its employees an uniform allowance, as well as House Rent Allowance (HRA) and Leave Travel Allowance (LTA). Extra benefits took the form of medical check-ups, not just for workers, but also for the immediate family members.

The identification of the Mujal family with the company also give evidence for the "Hero Family"

Peripheral Clues/Physical Evidence/Presentation

HHM (India) Ltd. profiles itself as a real Indian Icon company:

Its expansive dealer network, also in rural areas really bring "transportation to the masses"

The brand is strong, and the image that relates with it is favourable:

The company is responsible (It has an extensive CSR-program) and it takes good care of its employees as well as its customers.

And although it is the "Honda that makes it a hero" it is (and remains) a HERO Honda.

Partners

Hero has surrounded itself with strong partners.

The vertical integration it is pursuing and achieving is based, on strong partnerships. The factories that are supplying components are owned by close friends and relatives.

The partnership with Honda provides HHM (India) Ltd. with technical credibility.

6. Problem Analysis

What major/minor strategic,financial and operational problems is HHM (India) Ltd. facing?

Strategic Problems:

Strong competition

The market for motorcycles in India is maturing:

The strong competition from local companies and foreign Joint Ventures has increased the supply side of the market: Bajaj Auto (with Kawasaki) , TVS-Suzuki, Escorts-Yamaha, Kinetic Honda, and the numerous Chinese brand importers .

Hero Honda is not successful in the executive and premium segments and more importantly, does not show the zeal that TVS and Bajaj have in design and development of two wheelers or their indigenous capability.

It is not that Hero Honda has not tried, it did launch the CBZ (a nice looking bike IMHO) and the Karizma, but they were not so successful in the market.

Honda Competition

The Honda-Hero alliance, although one of the most successful joint ventures in India, is facing new challenges. In 1999 when HMC announced the establishment of a 100% subsidiary, Honda Motorcycle & Scooter India (HMSI).

This announcement caused the HHM stock price to decrease by 30 percent that same day, and the Munjal family has to come up with some new strategic decisions.

Another problem is Hero group's total dependency on technology on Honda for Technology. This poses a threat. Hero has to depend for the type of models of two wheelers on Honda.

Other competitors like Bajaj auto, TVS Suzuki have certain collaboration with foreign partners, they are not fully dependant on technology over foreign partners. TVS showed that it was world class with its hundred percent indigenous Fiero and its Victor and followed it up with the Apache. Bajaj, once known for its tilt and start scooters has morphed itself into the darling of the biking gang with its Pulsar and its variants. This company has redefined the biking segment with its machines.

Financial Problems

The Hero Group is financially strong, with little debt financing.

The Hero Group benefits from the Group Chairman's financial acumen and his grasp on technology, manufacturing and marketing. Group Company, Hero Cycles Limited has one of the highest labor productivity rates in the world. In Hero Honda Motors Ltd, the focus is on financial and raw material management and a low employee turnover.

Operational Problems:

The size of the two plants of Hero Honda has become too limited.

To meet the growing demand Hero Honda is searching for a third plant besides plants at Dharuhera and Gurgaon in Haryana State.

7. Alternative Strategies

The biggest challenges that the company currently is facing is threefold:

One the one hand there is the paradox of having Honda Motor Company Japan Ltd. as a technical (joint Venture) partner in the group, as well as a direct competitor.

Although Hero and Honda have announced new models for the years to come, following the renewal of the Joint venture, Honda (HMSI) have announced to introduce 100 cc and 150 cc bikes in India by 2007-8, in direct competition with Hero Honda's current product range

It is clear that Hero has to develop a strategy to develop the technological competence, separate from Honda Motors Japan, and at the same token needs to defend its market share. (By-pass strategy?)

On the other hand there is the maturity of the motorcycle market:

The market is showing signs of saturation: Growth rates have decreased over the last ten years (from approx. 30% fifteen years ago to 12-14% growth in 2006-7. The market is occupied with numerous players, both J.V's and local companies.

Hero Honda has to look beyond the current market situation and gear up for developing new products, new markets and maybe alternative businesses.

This may create extra stress on the current resources, but will - in the long run В– create shareholder value.

Thirdly the dominance in the market is challenged by other players who want to erode HHM (India) Ltd.'s market share.

Hero Honda is well positioned to compete head-on.

8. Recommendations

The case was originally documented by Thunderbird, School of Global Management, in 2003.

One year later, the Joint Venture between Hero Group and Honda Motor Company was renegotiated.

The imminent threat from Honda has now been averted by the agreement signed in 2004 by Hero group and Honda to extend their joint venture for another ten years till 2014. In this period both the company will share the R&D output through the R&D facilities established in India by Honda. Both company agreed that the product should complement each other but a certain level of product cannibalization has to be accepted.

This, however does not remove the problem of having a partnership with a direct competitor.

A strong recommendation here would be to develop a strong R&D capability, independent from Honda Japan. This could be achieved by setting up an own R&D centre , and by head-hunting capable engineers from rival firms.

Or an alliance with a different partner might be bbeneficial. (e.g. Aprilia)

A strong recommendation for HHM (India) Ltd. for the motorized two wheeler segment is to continue the fortify and defend strategy.

Do what it currently is doing, only better.

Raise the barrier for new entrants in the market by increasing promotion and marketing spending.

Add more products to fill the product gaps (if any). Differentiate in terms of product offerings, continue to reduce the impact of the cost drivers.

Keep prices attractive

Keeping the network strong (and exclusive)

Another recommendation for HHM (India) Ltd. would be to look at new geographical markets , i.e. export.

HHM (India) Ltd.'s success is limited to India. There are various markets , esp. in other SAARC countries, ASEAN, etc.. in short the rural areas of S.E.Asia, where the KSF could prove to be useful.

At the same token Hero Group has decided to diversify in the market is related markets (scooters) .

The Hero Group has already diversified in a portefolio of ventures, both related and unrelated industries:

Technology Related Partnerships/ Alliances & Joint Ventures IT Related Alliances Product Engineering Related Alliances

Honda Motor Company of Japan Microsoft, Singapore PTC

Showa Corporation, Japan DynEd International Porsche Design

Honda Foundry Company Limited, Japan ACS, USA Target Design

Fein Tools, Switzerland Universal Cycles Plc, UK

Gujarat Industrial Investment Corporation EralMetall

Wean United, USA

Kawasaki Steel Corporation, Japan

National Bicycle, Japan

Aprilia, Italy

An additional recommendation could be to diversify into small cars, in order to address a growing market segment, which is related to its core-business.

A last recommendation would be to diversify into not related business, capitalizing on the Hero Brand name.

9. Implementation Plan

Immediate (Short term 1-5 years)

What: Hero Honda (India) Ltd. needs to capitalize on its current position and use its dominant position to generate revenue (Cash cow).

Who: Hero Honda (India) Ltd. В– All levels of the organisation

When: short term

How: leverage the KSF's currently in place.

Intermediate (Mid term 5-10 years)

If the shake-out continues, and Hero Honda remains the strong, cash-rich market leader, other players in the market will suffer. They may become attractive take-over targets for Hero Honda Group.

What: Takeover of weaker rivals

Who: Hero Group В– Top management

When: When the opportunity arises (expected in approx. 5 years)

How: continue fortify-and defend strategy, (and flex some muscle) , and strike when appropriate

At the same token Hero Honda should start investing in diversified businesses

What: diversify in new business (related-unrelated)

Who: Hero Group В– Top management

When: short-mid term

How: Strike strategic alliance with existing

Hero Honda should start investing in geographically different areas.

What: diversify in new geographic areas

Who: Hero Honda Group В– (Top) management

When: short-mid term

How: Look for, and sign with potential alliance partners overseas. В– set up franchise dealerships across borders, В…

Long-Range (> 10 years)

What: Renegotiate in 2014, the Hero Honda Joint Venture.

Who: Hero Honda Group В– (Top) management

When: in 2014

How: being prepared, В…

10. Contingency Plan

Plan B:

If the long term plans, i.e. geographical expansion, does not work out, the Hero Group could always fall back on the local market.

The group is well established in the local market place and has a strong image and brand recognition.

They have dealerships all over the country, and the company is cash rich.

They have the resources to "dodge" rivals and shift to a new business model or market niche, where the pressure to globalize is less present.

The company could diversify to related business, e.g. CNG-car - , bus manufacturing and sales, car servicing, etcВ…

Or non related business, and still use the brand recognition to enter the markets.

(e.g. similar to SingerВ©)

Plan C

If the market drops substantially, and all of the new ventures fail, there is always the option of retrenchment /divestiture.

The company can sell off assets, and/or merge with a rival in the market to retain its position.

11. Appendix 1

Honda Motor renews partnership with Hero В— Model Committee to help minimise cannibalisation

Mr Pawan Kumar Munjal, MD, Hero Honda Motors, exchanging documents with Mr S. Toshida, MD & COO for Regional Operations (Asia & Oceania), Honda Motor Co. Ltd., after signing an agreement in the presence of Mr. Brijmohan Lall Munjal, Chairman, Hero Honda Motors Ltd, in the Capital on Wednesday. В— Kamal Narang

New Delhi, June 2

HERO Honda and Honda Motor Corporation today announced the extension of their technical collaboration agreement for another ten years.

The extension will allow Hero Honda to introduce new models of motorcycles and boost sales. The two companies have also agreed on all the new products that Hero Honda will sell in India by 2008.

According to Mr S.Toshida, Managing Director and Chief Operating Officer for Regional Operations (Asia and Oceania), Honda Motor Corporation, "Honda would continue to provide Hero Honda with the latest and most advanced engine technology, with full technical support and assistance for new product introductions and for any other area of our joint operations."

He added that Honda, which owns 26 per cent of Hero Honda, is not considering an alteration of its stake in the joint venture.

However, market watchers point out that while the renewal of the agreement is a positive development for Hero Honda, the company's sales may get cannibalised with the Honda subsidiary in India, Honda Motorcycles and Scooters India (HMSI), set to foray into motorcycles this year.

HMSI is planning to launch a motorcycle in the 100 cc to 150 cc range this year.

"HMSI is scheduled to launch bikes by October. With the current level of competitiveness, both the companies together may be able to garner a market share of 50 per cent in the Indian two wheelers market. But market share is not the purpose," Mr Toshida said.

Meanwhile, when asked whether HMSI's entry in segments in which Hero Honda is present would have an impact on sales, Mr Pawan Kant Munjal, Managing Director of Hero Honda said that there "will be some cannibalisation, but both companies will try to expand the market".

He further added that a joint Model Committee, comprising members from both the companies, had been put in place to decide on the models that will be launched by each company to minimise cannibalisation.

Hero Honda today also announced its intention to foray into the scooters segment "very soon" with technical support from Honda. "We will launch a scooter very soon and Honda will be providing us with the technology support," Mr Munjal said.

Interestingly, another Hero Group company, Hero Motors, has aggressive plans for the scooter market, for which it has tied up with the Italy-based Aprilia.

Hero Honda and Honda Motor Corporation are also exploring opportunities to sign an export-oriented agreement, which would enable Hero Honda to export bikes for the European markets.

Source: http://www.thehindubusinessline.com/2004/06/03/stories/2004060302750100.htm

12. Appendix 2

››› INDIA

IN - 1,129,667,528 population - Area: 3,166,944 sq km

Capital City: New Delhi - GNI p.c.US$ 620 ('04), per World Bank

40,000,000 Internet users as of Nov/06, 3.5% penetration, per IWS.

http://www.internetworldstats.com/asia.htm

13. Bibliography

13.1. Publications:

Thompson Arthur A. Jr., Strickland A.J. , Gamble John E., Crafting and Executing Strategy, The Quest for Competitive Advantage, Tata McGraw-Hill Publishing Company Ltd. 14th ed. 2005

13.2. Internet sources:

http://www.siamindia.com/

http://en.wikipedia.org/wiki/Hero_Honda

http://www.herogroup.com/

http://www.herohonda.com

http://world.honda.com/news/2004/c041210.html

http://www.thunderbird.edu/about_thunderbird/case_series/2003/_03-0012.htm

http://www.thehindubusinessline.com/2004/06/03/stories/2004060302750100.htm

http://www.internetworldstats.com/asia.htm