Introduction
The international market is considered being in hypercompetition ( 1995) mode and its rate is increasing as technology and industry concentration is intensified. Due to this, this paper presents how the Global Honda established itself as one of the most known brands in the automobile industry despite high degree of technology and concentration in auto-making. The contents includes organizational background (1-2), methods of entry/ development of global markets (2-4), evaluation of such methods (4-5), other useful methods (5), the importance of spread and concentration (6), the implications of entry-development combination (6-7) and conclusion with major findings (7). Most of the research data came from Honda’s website while analysis was supported by books and journals. Please see attachment and bibliography (8-9).
Organizational Background
In 2004, Honda reached 20 million customers worldwide with core business lines on motorcycles, automobiles and power equipments. With the adoption of 6-region global structure, internal strengths will be widespread phenomena for the firm. This competitive advantage will stimulate external demands due to cost-effectiveness from speed, flexibility and efficiency in the value chain activities. The six regions that will be included in the program are Japan (Headquarters), North America, South America, Europe/Middle East/Africa, Asia/Oceania and China ( 2006).
The environmental-friendly known brand also planned to make its manufacturing, distribution and research mobile due to the six region program. The improved integration will combine expertise of local associates into global spectrum that will hasten improvement of technology. The launch of “Green Factory” not only makes Honda “green” in its products but on manufacturing as well. A global strategy suited to create value-added components and brand loyalty to customers. In addition to this, safety is also an ingredient in its produced with the commitment of “Safety for Everyone” scheme ( 2006).
In aggregate, Honda is there not only to produce quality products but also affordable, safe and environment-sensitive ones. This makes the brand competitive in both private, industrial and public utilities’ needs. Due to this, the firm had always aspire to be approached by the society as a “must” brand to exist ( 2006).
The Regional Offices/ Entry and Development Methods
Honda-Europe is responsible for the European, Middle East and African markets and other business activities. The region also has research facilities while the major offices in the region have the capability to make major market decisions including coordinating function within the region. In 2004, report included sales rose at 17.6% year-on-year or to 250,000 units (European), introduction of region exclusive five-door hatchback called “Civic Concept”, motorcycles and Jazz from Asian/ China plants will be distributed in the region, and Africa/ Middle east will be exported by high-quality in affordable prices scoters from China ( 2006).
Further, Asian/ Oceana reports included the joint-ventures between Honda and Indonesian and Indian firms were seen as the biggest manufacturers of motorcycles in Honda’s global operations at 3 million and 3.1 million units annually. This will support the 7 million sales of motorcycles in the region. These operations were coupled with research facilities. In Vietnam, the firm was granted a license to produce automobiles while Korean sales subsidiary was also established. It also utilized the benefits of AFTA scheme specifically for Malaysian, Indonesian, Thailand and Philippine markets. Exporting activities not only finished products but also parts and engines are increasing in Thailand and Philippines respectively ( 2006).
The company established American Honda Motors as its overseas subsidiary in 1959 and continuously intensifies the plant’s capability particularly in Georgia. It has invested 0 million this year and increased its number of associates to 440. The additional invested is specifically intended to improve the production of transmission and engine ( 2006). The earliest expansion in the North American region, the million Acura Design Center in California (just adjacent in the currently established research center in Los Angeles) aims to new concepts for the Acura products of Honda in the region ( 2006).
In addition, the subsidiary also donated a 2006 Honda Ridgeline pickup to the . The latter organization is a non-profit one responsible to preserve the extinction of white seabass by raising and disposing fingerlings in the Pacific Ocean as long as they are fully matured. Honda, being tagged as the greenest automaker in the world had continually sharing its success to related industries in order to maintain global familiarity of environmental concern of its engine as reflected by its extended actions ( 2006).
The headquarters in Japan was aided by global expansion of the company to six regions in the world. This enabled the local manufacturer to serve the need of the customers for unique but flexible (cost-effective) products/ services due to economic difficulty experiencing by the country. Global resources are coordinated in Japan that makes production efficient while raw materials remained vast. In return, the subsidiaries in other countries are helped by the headquarters in identifying product and production technologies and distribution coordination for smooth flow of global operations ( 2006).
Some of the product innovations that ultimately held local market are the introduction of flagship luxury sedan, supplying fuel cell vehicle to private companies for sub-freezing temperatures and innovation of fuel economy/ low emission motorcycle engines below government regulation levels. Production technologies become mobile wherein the developed technology within the regional and local research facilities was transferred to a specific plant that has high requirement for such technology. This is seen in the ATV model transfer from the US to Kumamoto Factory, casting and machining of diesel engine form engineering plant to Suzuka Plant, among others ( 2006).
In India, the joint venture was initiated in 1995 that gave rise to Honda Siel Cars India Ltd. (HSCI) and a new plant. The rationale behind the plant construction was to increase the production of the successful car passenger models: namely, City ZX, Accord and CR-V in the country. The establishment will also maximize the potential of international certifications of the Indian venture which can easily tap global markets ( 2006).
Evaluation
The expansion activities of Honda can be considered as optimal strategies with greatest amount of risks ( 1995). Optimal because economies of scale, scope and cost-efficiencies are eminent although huge investments post risks. The examples above shows how the headquarters wittingly aspired to control or at least affect its global operations by using strategic alliances and/or establishing wholly owned subsidiaries. This enabled them to inject the core concepts (strategic plans) of long-run direction like environmental and safety advocacy which in turn result for the spread of research and development facilities worldwide. Not only that, the firm have also created a dynamic and spontaneous flow of resources within inter-country and intra-country locations which makes its production, distribution and sales efficient.
Further, the establishment of subsidiaries/ regional offices/ joint-plants made it possible for exports and licensing grants to be possible due to location advantages ( 2001). It translated into new-found markets, stronger political/ economic links and solidified capital/ investment capabilities. The last pinpoints the ability of the firm to reach not only the goods and labor market but also the financial market. Its stocks can be traded locally producing more financial strength to support future foreign direct investments (FDI).
Lastly, the sharing of resources both at raw materials and semi-finished products leads to additional cost reduction for the firm, at least to its consolidated financial costs. The mobility of machineries and other built-up technology from one location to the other also maximize the potential of a new found technology throughout global plants and offices. These have resulted to Honda’s risk-taking capability to build not only plants/ sales offices abroad but also research facilities. Benefits and incentives are far greater than the actual and potential (risks) costs of strategic alliances and FDI ( 1996).
In the market development side, the social contribution of the firm particularly on environmental issues is necessary to continuously remind the market that its objectives are in line on how it produces its products and conduct its operations. It has direct impact on brand recognition and loyalty ( 2003 pp. 418-438). People could easily identify Honda as their extension of social responsiveness, that is, it gives customers the feelings of attachment of being a responsible citizen by merely buying the company’s products.
Other Methods
Seeing that imitation or hostile take-over from local firms are possible from joint-ventures wherein local associates could transfer knowledge/ innovations to another competing firm or local producer, acquisition can be one of entry mode being undermined. Although such “leakage” would be prevented and quick access to market can be possible, the fact that only 20% of cross-border negotiations were successful compared to 40% domestic ones would be great barrier. However, due to international prestige of the brand including its unique product features and corporate values, such negotiations would tend to succeed provided that Honda has the money and depth to follow cross-border laws and cultures. With this, training and retention are deemed crucial to international success of subsidiaries ( 2003 pp. 260-261).
The Importance of Entry/ Development Concentration/ Spread to Markets
Just imagine when Honda would compete fiercely in the Middle East by establishing subsidiaries there. It will be faced with retaliation not only from Islamic automobile companies but crucially from the local government itself through higher tariffs/ fees. There are potential markets but the culture, industry barrier and incentives to trade are discouraging. Another is the scenario that the firm would do the same in Africa (perhaps, excluding South Africa). Political and industry would post little threat if not encouragement to establish subsidiary just like what it does in Europe, Asia and Americas. However, economic factors and the purchasing capabilities of inhabitants are off to investment. Here, concentration is critical to identify/ develop markets.
On the other hand, market spread is useful when implementing research-based activities. Innovation and research findings need not be strictly established in every subsidiary office ( 2002). Honda’s action to intensify R&D may not just suggest that it would try to personalize models in each country instead such strategy could be suitably suspected to maximize sharing of resources. The findings of one country can be applied to global operations since safety and environment issues are of general concerns. In such case, the firm had settled to invest heavily on R&D not to disqualify this claim but to prove its financial capability supported by joint-ventures. In this way, it can exhibit future gains from technology with shared risks between the local partners.
The Situation of Entry-Development Combination
For countries which have unattractive market like Middle East, Oceana and Africa, this situation would not be successful. It is costly and risky with minimal prospect of growth because of local factors (Oceana have very competitive automobile industry (2006)). When the firm would try to enter (say, export) and develop (say, alliance), the sharing of resources between regions (like Europe and Asia) would not be maximize since it will only be offset by the risk and cost of local operations through alliance. The excess of one region would not be shared for the shortage of the other while wastage of investments would result from declining demand from non-key markets.
On the other hand, this is applicable to Asia, China, Europe and North America. The initial deployment of regional offices in these places (either alliance or subsidiary) was followed by extensive investment in plant expansion and R&D. This is possible since these regions alone are self-sufficient to absorb demands while excess in production can be easily and efficiently transported to nearby export zones where demand are minimal but can cover the excess in production ( 2001 pp. 103-112).
Conclusion
The Global Honda utilizes a hybrid of exporting, licensing, strategic alliance and green filed ventures to be able to enter as well as develop markets within a certain region/ country. Such strategy makes the firm flexible and cost effective both at backward and forward markets. Only, it is suggested that rethinking to insert acquisitions is necessary to prevent patent leakage particularly on key sub-headquarters/ countries where possible competitive advantages from the joint-venture is substantial including its sustainability. Also, its hybrid strategy would be most effective when it is able to identify specific country features using PEST analysis. The critical finding is that market concentration is important on entry while development is on spread. Lastly, the entry-development combination should pass the specific country/ regional criteria of market attractiveness and resource sharing maximization before the conduct.
Attachments
Attachment 1: Global Market Entry: Choice of Entry Mode ( 2003 p. 258)
Type of Entry
Characteristics
Exporting
High cost, low control
Licensing
Low cost, low risk, little control, low returns
Strategic Alliances
Shared costs, shared resources, shared risks, problems of integration
Acquisition
Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations
New Wholly Owned Subsidiary
Complex, often costly, time consuming, high risk, maximum control, potential above-average returns
Bibliography
Credit:ivythesis.typepad.com
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