The Firm: Honda Motors Ltd.
ABOUT HONDA
Honda Motor Co., Ltd., operates under the basic principles of “Respect for the Individual” and “The Three Joys”-commonly expressed as The Joy of Buying, The Joy of Selling and The Joy of Creating. Respect for the Individual” reflects our desire to respect the unique character and ability of each individual person, trusting each other as equal partners in order to do our best in every situation. Honda Motor Ltd., has remained on the leading edge by creating new value by providing products of the highest quality at a reasonable price, for worldwide customer satisfaction. The Company has grown to become the world’s largest motorcycle manufacturer and one of the leading automakers. Honda develops, manufactures and markets a wide variety of products ranging from small general-purpose engines and scooters to specialty sports cars, to earn the Company an outstanding reputation from customers worldwide.
OVERVIEW
A business does not function in a vacuum. It has to act and react to what happens outside the factory and office walls. These factors that happen outside the business are known as external factors or influences. Markets are changing all the time. It does depend on the type of product the business produces, however a business needs to react or lose customers. Though a business does not want competition from other businesses, inevitably most will face a degree of competition. The business also needs to be aware of their social responsibilities. These are the way they act towards the different parts of society that they come into contact with. A business converts inputs into outputs in order to make a profit. However, the business does not exist in a vacuum, it exists within an external environment consisting of the actions of other players who are outside the business. Competitors’ actions affect the ability of the business to make profits, because competitors will continually seek to gain an advantage over each other, by differentiating their product and service, and by seeking to provide better value for money. The economic system is the organization of the economy to allocate scarce resources. The economy tends to go through periods of faster and slower growth. Businesses prosper when the economy is booming and living standards are rising.
Monetary activity is based around earning, spending, saving and borrowing. Money has been likened to the oil that lubricates the wheels of commerce. Monetary activity involves businesses in a web of relationships involving financial institutions (e.g. banks and building societies), creditors, debtors, customers and suppliers. A key monetary influence for business is the interest rate. Higher interest rates increase business costs and act as a break on spending in the economy. The political/legal system creates the rules and frameworks within which business operates. Government policy supports and encourages some business activities e.g. enterprise, while discouraging others e.g. the creation of pollution. The environmental system is the natural system in which life takes place. Increasingly businesses have become aware of the relationship between their economic activities.
THE HONDA STRUCTURE: (as of April 1, 2006)
SOURCE: Honda Organization Structure (2006)
Honda has introduced an operating officer system, aimed at strengthening both the execution of business operations at the regional and local levels and the supervision by the Board of Directors. The term of office of each director is limited to one year, and the amount of remuneration payable to them is determined according to a standard that reflects their performance in the Company. Our goal in doing this is to maximize the flexibility with which our directors respond to changes in the operating environment. With respect to business execution, Honda has established a system for operating its organizational units that reflects its fundamental corporate philosophy. For example, separate headquarters have been set up for each region, business and function and a general manager from the Board of Directors or an operating officer has been assigned to each headquarters and main division. In addition, the Management Council deliberates important matters concerning management, and regional operating councils deliberate important matters concerning management of their respective regions. Honda’s basic policy emphasizes the appropriate disclosure of company information, such as by disclosing financial results on a quarterly basis and timely and accurately giving public notice of and disclosing its management strategies. Honda will continue raising its level of transparency in the future.
Management Organization of the Company’s Corporate Governance for Decision-Making, Execution, Supervision and Others
SOURCE: (2006)
The Board of Directors consists of 20 directors, including two outside directors, and determines important items that are related to business execution or that are designated by law and supervises business execution. In June 2005, the Company introduced an operating officer system aiming at strengthening its business execution and improving flexibility in decision-making at the Board of Directors. The Company also plans to increase the number of outside directors to strengthen the supervisory functions of the Board of Directors.
HONDA’S CONDUCT GUIDELINE
Guided by Honda Philosophy, Honda has expanded its business globally based on the pursuit of new dreams and the determination to make them come true. Through these efforts, we have shared a “joy” and established a trust with customers and society around the world. In order to further advance our global business in each region, every Honda associate in various countries around the world needs to share a common value at Honda and become even more self-reliant. The “Honda Conduct Guideline” represents the important values that have guided our actions to date. With each one of us sharing these values, we will be able to further gain the trust of our customers and society, helping Honda strengthen our position as “a company that society will want to exist.”
Dreams inspire Honda to create innovative products that enhance mobility and benefit society. To meet the particular needs of customers in different regions around the world, they base their sales networks, research and development centers and manufacturing facilities in each region.
HONDA’S INDICATORS OF ITS PERFORMACE
Creating advanced new technologies and products
Through leading-edge research and development, Honda continuously creates original technology that opens up new possibilities in mobility. Honda is always tackling new challenges for the current and future benefit of individuals, society and the environment.
Research and Development for the future
Honda is constantly involved in the research and development of technology that will benefit people in the future. These technologies range from new materials and new sources of energy, including mass-produced solar panels, to new power trains that maximize joy while minimizing environmental impact. They also include advances in biotechnology, such as Honda’s work in decoding the rice genome for application in various fields. Honda is studying human anatomy and physiology, as well, in its efforts to produce innovative products that enhance safety in various ways.
ASIMO lends a hand
In 1986, Honda began conducting original research and development toward the creation of biped humanoid robots that will serve society in harmony with humans. The latest ASIMO, introduced in 2005, employs new posture control technology that allows it to run and move in concert with a human partner. Able to carry objects, it can also handle various reception and delivery tasks. ASIMO continues to evolve and will soon acquire the abilities to turn around and run 6km/h, making it an even better partner for humans.
Reaching for the skies
One of Honda’s earliest dreams was the development of jet planes. In pursuit of this dream, Honda recently established Honda Aero Inc. and developed a compact jet engine that has passed the experimental stages. The manufacture and procurement of components for this jet engine will be handled by a joint venture between Honda and General Electric.
Next-generation power trains
Honda’s Automobile R&D Center (Tochigi) in Japan includes research facilities dedicated to the development of next-generation power trains. Here, Honda engineers are developing new means of propulsion that may one day contribute to human mobility.
Financial Data
SOURCE: (2006)
On April 26, 2006, the Board of Directors declared a two-for-one stock split of the Company’s common stock. All shareholders of record on June 30, 2006 will receive one additional share of common stock for each share on July 1, 2006. Information pertaining to shares and earnings per share has not been restated in the accompanying consolidated financial statements and notes to the consolidated financial statements to reflect this split. This information will be presented effective after the stock split is made.
Consistent quality worldwide
Honda is a global company with manufacturing operations and sales networks all over the world. Furthermore, our products are enjoyed by people in numerous countries. This global success is built upon the renowned quality of Honda’s products and made possible by the passion and dedication of Honda associates everywhere. Wherever you are, you can always count on the quality of Honda products.
Localizing production to meet local needs
Honda began manufacturing motorcycles in Belgium in 1963. In 1982, Honda became the first Japanese automaker to produce passenger cars in the U.S. Since then, Honda has established independent local operations around the world for research, development, marketing and production. Through the introduction of Honda’s flexible manufacturing system, Honda continues reducing the time and resources necessary to launch new models into production and improving the efficiency of manufacturing operations that meet regional needs. Moreover, the grouping of production processes into cohesive units has improved the working environment, raised product quality, and further accelerated production. In the future, Honda plans to further localize the production of engines and key components for automobiles, motorcycles, and power products, while simultaneously raising quality and efficiency and accelerating our response to the dramatically changing world.
Inspiring their customers
By creating products and services that highlight the core values that make Honda unique, we would like to provide our customers with joy and excitement beyond their expectations. Honda will continue to create such inspiring experiences for our customers by offering mobility that is always ahead of the times. In this way, Honda products will be loved and enjoyed by customers of all generations.
Expanding New Values for customers worldwide
The ultimate goal of Honda’s sales activities worldwide is to satisfy our customers so that they will continue to come back for more Honda quality products. That’s why they put heartfelt effort into our services, responding to changing values and increasingly sophisticated needs. They’re always working to improve the quality of our customer relations providing friendly and attentive sales, responsive service support, thorough maintenance and repairs so customer satisfaction constantly grows. Honda also continues to develop sales and service systems best suited to community needs. In that way, “life with a Honda” brings new joy to people and places worldwide. Starting in Japan in 2006, Honda will unify our multiple car-dealership channels into a single Honda sales channel seeking to strengthen the Honda brand, enhance customer satisfaction and help ensure lifetime customer loyalty.
PROOF IN THE MARKET OF HONDA’S OUTPUT
Operating Data
SOURCE: (2006)
SOURCE:(2006)
Preparing for the Future
As for the global economy, the U.S. and Asian economies are expected to grow steadily, and Japan and Europe are also expected to maintain their moderate economic recovery. However, the global environment in which Honda’s management operates still lacks transparency because of global political and economic uncertainty, fluctuations in oil and raw material prices, and currency movements. It is under these circumstances that Honda will strengthen its corporate structure quickly and flexibly to meet the requirements of our customers and society and the changes in its business environment. Also, in order to improve the competitiveness of its products, Honda will endeavor to enhance its R&D, production and sales ability. Furthermore, Honda will continue striving to earn even more trust and understanding from society through Companywide activities. Along with efforts to develop even more effective safety and environmental technologies, Honda will enhance the creativity in its advanced technology and products, and will create and swiftly introduce new value-added products that meet specific needs in various markets around the world. Honda will also continue efforts in the research of future technologies, including the advancement of advanced humanoid robots and compact business jets and their engines.
Honda will establish efficient and flexible production systems and expand production capacity at its global production bases, with the aim of increasing its capability of supplying high-quality products. Honda will continue to make efforts to expand product lines through the innovative use of IT and to upgrade sales and service structure, in order to further satisfy its customers. Responding to increasing consumer demand, Honda will upgrade its quality control through enhancing the functions of and coordination among the development, purchasing, production, sales and service departments. Honda will develop safety technologies for accident prediction and prevention, technologies to reduce injuries to passengers and pedestrians from car accidents, and technologies for reducing aggressively, as well as expand its line-up of products incorporating such technologies. Honda intends to enhance its contribution to traffic safety in motorized societies, including Asian countries. Honda also intends to remain active in a variety of traffic safety programs, including advanced driving and motorcycling training schemes provided by local dealerships. Honda will step up its efforts to create better, clean, fuel-efficient engine technologies and to improve further the recyclables throughout its product lines. In addition to continuing to provide products incorporating Honda’s advanced safety and environmental technologies, Honda will continue striving to earn even more trust and understanding from society by, among other things, undertaking activities for corporate governance, compliance, and risk management and contributing to society.
Relating to Honda’s Industry
Honda conducts its operations in Japan and throughout the world, including North America, Europe and Asia. A continued economic slowdown, recession or sustained loss of consumer confidence in these markets, which may be caused by rising fuel prices or other factors, could trigger a decline in demand for automobiles, motorcycles and power products that may adversely affect Honda’s results of operations. Prices for automobiles, motorcycles and power products in certain markets may experience sharp changes over short periods of time. This volatility is caused by many factors, including increasingly fierce competition, short-term fluctuations in demand from underlying economic conditions, changes in import regulations, shortages of certain supplies, high material prices and sales incentives by Honda or other manufacturers or dealers. There can be no assurance that such price volatility will not continue or intensify or that price volatility will not occur in markets that to date have not experienced such volatility.
Overcapacity within the industry has increased and will likely continue to increase if the economic downturn continues in Honda’s major markets worldwide, leading to further increase price pressure. Price volatility in any or all of Honda’s markets could adversely affect Honda’s results of operations in a particular period. Honda has manufacturing operations throughout the world and exports products and components to various countries. Honda purchases materials and parts, and sells its products in foreign currencies. Therefore, currency fluctuations may affect Honda’s pricing of products sold and materials purchased AS currency fluctuations have an effect on Honda’s results of operations and financial condition, as well as Honda’s competitiveness, which will over time affect its results. Thus, regulations regarding vehicle emission levels, fuel economy, noise, safety and noxious substances, as well as levels of pollutants from production plants, are extensive within the automobile, motorcycle and power product industries. These regulations are subject to change and are often made more restrictive. The costs to comply with these regulations can be significant to Honda’s operations.
Honda’s financial services business offers customers various financing plans designed to increase the opportunity for sales of its products. However, customers can also obtain financing for the lease or purchase of Honda’s products through a variety of other sources that compete with its financing services, including commercial banks and finance and leasing companies. The financial services offered by us also involve risks relating to residual value, credit risk and cost of capital. Competition for customers and/or these risks that are specific to the financing business may affect Honda’s results of operations in the future. Honda purchases raw materials and certain components and parts, from numerous external suppliers, and relies on some key suppliers for some items and the raw materials it uses in the manufacture of its products. Honda’s ability to continue to obtain these supplies in an efficient and cost-effective manner is subject to a number of factors, some of which are not within Honda’s control. These factors include the ability of its suppliers to provide a continued source of supply and Honda’s ability to compete with other users in obtaining the supplies. Loss of a key supplier in particular may affect our production and increase our costs. Honda conducts its businesses worldwide and in several countries through joint ventures with local entities, in part due to the legal and other requirements of those countries.
These businesses are subject to various regulations, including the legal and other requirements of each country. If these regulations or the business conditions or policies of these local entities change, it may have an adverse affect on Honda’s business, financial condition or results of operations. Honda conducts its businesses worldwide, and its operations may variously be subject to wars, use of force by foreign countries, terrorism, multinational conflicts, natural disasters, epidemics, labor strikes and other events beyond its control which may delay or disrupt Honda’s local operations in the affected regions, including the purchase of raw materials and parts, the manufacture, sales and distribution of products and the provision of services as delays or disruptions in one region may in turn affect Honda’s global operations and Honda’s business, financial condition or results of operations may be adversely affected.
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Credit:ivythesis.typepad.com
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