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

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 Ð'- even rural areas Ð'- . 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

Ð'© 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 Ð'- 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