Qazi Faheem. September 10, 2017. Honda Company Analysis Report. Retrieved from:
Honda Motors Company is the Japan-based motorcycle, automobile, aircraft and engine manufacturer company. Because of its automobiles, Honda is growing exponentially as compared to its competitors over past years. Most of the buyers make Honda as a first preference while buying a vehicle. Honda has achieved its competitive advantage by raising the values of its products and the value of the brand among competitors. Honda's Marketing strategies help it consistently Dominate the Auto Industry.
Honda's president and Hondas's CEO Takanobo Itu has announced their business strategies which focus on financial growth and changing business environment. They also aimed at delivering a low-priced product with high quality with minimal CO2 emissions. They focused on 3 core areas in order to achieve the company success: environmental Technologies advancement, strengthening of manufacturing systems and capabilities strengthening of business operations in emerging nations. Takanobo Itu also conveyed a message to all Honda associates which emphasizes on providing good products to customers with speed, affordability and least CO2 emissions. Honda's focus on research and development allows Honda to incorporate some technological advancements and breakthroughs into the broader line. It's investment is relatively high in R&D as compared to its rivals. The brand equity of Honda is extremely valuable and a big source of gaining competitive advantage, as buyers are highly preferring these vehicles due to its value, the power of the brand and its quality. It causes Honda having best-in-class repetitive rates of purchasing (Hill, 2017).
Recently, General Motors and Honda, two leading automobile companies have collaborated to explore more and to work together on self-driving cars. In order to develop and release this vehicle worldwide these companies are going to do heavy economic investments.
Honda as a pioneer in automobile industry has not only grown in Asian markets but also in North America. Honda has also expanded in the field of power products apart from automobiles and motorcycles. Honda's revenue of 2017 was around 14000 Billion Yen. Its motorcycle sales exponentially increased in 2017.Honda is also pioneer in distribution network and extensive supply chain. They are also investing in marketing as well as research and development in order to produce innovative products. The recent collaboration of Honda and General Motors for exploring on self-driving cars is seen as another milestone to be achieved near future. The deal calls for Honda to provide engineering expertise and to extend cooperation between the pair in terms of technology that has enormous costs as well as risk but no market ready products. Honda executive Seiji Kuraishi said: "This investment is based on a shared vision and their (GM's and Cruise's) superior technologies in this area." Other automobile companies are also looking forward to similar tie-ups to help mitigate risk and cost. The GM-Honda have also declared that they will be working together to develop electric vehicles with hydron fuel cells and these vehicles are expected to come in the market in 2020. In June, Honda has also revealed that they are planning to buy advanced batteries from GM which would significantly reduce the price of future electric vehicles at both automakers after 2020.
To understand how Honda is dominating over its rivals its vital to understand and analyses the competitive strategy of Honda. Porter's 5 forces model plays an important role to achieve this.
The analysis of Honda's competitive strategy with respect to Porter's model is as following:
Bargaining power of suppliers: Honda has a distribution network and supply chain spread all across the globe. Honda has partnered many suppliers across the world in order to obtain good quality raw materials. Every Honda vehicle is consisting of 20 to 30 thousand parts. The bargaining power of Honda's suppliers is low because they are spread all over the globe and they do not have enough economic strength. Despite of big number of suppliers Honda has strong bargaining power because of its economic strength and size. Honda's brand name and trust, makes it more powerful as far as Bargaining power is concerned. Thus, the bargaining power of Honda's suppliers is low.
Bargaining power of buyers: In the 21st century the bargaining power of buyers is high. It has many reasons. The first reason of this is the buyers have all the information available at their fingertips before buying anything. Using various sources like internet, news or advertises they obtain all the required information to buy a product and evaluate it before making final decision of purchasing the product. Since the competition level has increased and buyers have wide range of options available before buying. Buyers also have several products available from low range cars to luxurious cars to choose an option from. Companies are also investing in product safety and marketing so as to attract buyers and make better cars. Several companies are competing to target the same customer which not only makes the buyers more valuable but also gives them more bargaining power against the brand. In this way, the bargaining power of the buyers is higher.
Threat of substitute products or services: The threat of substitute products for Honda is moderate. Apart from the vehicles by the other companies, there are various means of public transport that also act as substitutes for Honda automobiles. But, there are some parameters that bring down the threat of substitute products. These parameters include large product range, marketing capabilities, brand name or image, customer loyalty and trust. I this way, the overall threat of the substitute products is moderate.
Threat of new entrants: The threat of new entrants in the automobile industry is low as compared to other industries. The reason behind it is the barriers of entry and exit. For any company to start up in the automobile industry, it will have to invest a very large amount of money in the infrastructure, supply as well as distribution network. They will also have to do financial investment in technology as well as a highly skilled manpower. Moreover, any new comer can't grow significant overnight. A new comer will have to invest not only in marketing but also to build trust among its buyers before the name can grow into a well-known brand with wide range of customers. All these parameters prevent new players from entering the industry and thus keep the threat of new entrants minimized.
Rivalry among the existing competitors: The level of competitive rivalry in automobile industry among the existing brands is very high. Almost all automobile companies have large portfolios of their product even if they are not very large. They also invest large amount of money in research and development as well as in marketing Still, there are some factors that affect a company's competitive power. These parameters include large product range, product portfolio, technology, innovation, marketing capabilities, brand name or image, customer loyalty and trust. Honda is an innovative company whose motorcycles and cars are quite famous in the world market. Still, it has some strong rivals like Toyota, Volkswagen, Ford and Hyundai which makes the competition intensely tough. The Honda focuses and invests more on fuel efficient and low-priced cars with minimal CO2 emission and this will keep Honda competitive.
Concepts and Terminologies:
1.Substitute products: A substitute product is a product that can replace another product. According to consumer theory, substitute products normally contain same properties hence they are generally comparable with each other.
2.Bargaining power: It's the dominating capacity of one party over another in negotiation process. They can dominate on the basis of power, size, status or its influence.
3.Competitive power: It's the capability of company through which it dominates all its rivals. This includes superior profits and sells, reasonable costs, effective and quality products as compared to its competitors.
While analyzing the competitive strategy of a company its necessary to understand its processes and activities through which the firm creates competitive advantage and value and it can be done effectively using Porters value chain.
Porter's Value Chain Analysis of Honda Motors:
Value chain shows the processes right from getting component & raw materials until supplying the product to customer. For conducting a value chain analysis, the company is categorized into primary activities and support activities. Primary activities are related to production as well as the cost of providing the product to customer. Whereas support activities include maintenance and rise in the efficiency and effectiveness of the organization to increase the value of the product.
Inbound logistics: Honda purchases the raw materials from a number of suppliers and tries to get profit in term of quality and money. And then all components are assembled together manually and using automation along with some innovation in order to form creative and attractive final product. They also adopt the small batch production strategy to have some variety in final product.
Operations: Honda has come up with a small batch production strategy, in which same vehicles are assembled in batches, and then same tasks are executed for each batch, then components which are to be fitted into vehicles are sent in batches in assembly line. Honda also applies facelifts to its cars; the components are then replaced by others more developed to come up with a new product. Honda designs models considering the geographical dimension depend of different market segments.
Sales and Marketing: Honda has variety of models and products that customers can choose one of them and also it adopts a good production strategy that is related to sales and marketing. Honda focuses on implementing new innovations and technologies in their product which eventually attracts customer. The level of production of any model of vehicle depends on the customer demand and which is highly related to sales strategy.
Services: Honda is focusing on improvising their service support, responsiveness, maintenance and repair in order to build good relation with customers. Honda has also been trying to keep high level of transparency the customers.
Outbound logistics: Honda has been constantly trying hard to deliver their products in time and to increase the efficiency of finished product warehousing.
Administration and Management: Because of the decision-making process which is being done collectively by Honda's top executives it has become well known across the globe. To gain sustainable advantages Honda has also invested in research and development in order to improve quality and to explore and implement new technologies.
Human Resources: In order to encourage every employee Honda recognizes an individual for achievements and promote people on the basis of the merit.
Technology: In order to get competitive advantage Honda focuses on implementing new technologies and make more efficient cars. Recently they have collaborated with General Motors to work together on self-driving vehicles. They also have invested a lot in research and development. They are striving hard to create innovative and efficient cars with minimum CO2 emission.
Procurement: Honda purchases the raw materials from a number of suppliers and tries to get profit in term of quality and money. It also sometimes purchases components from different locations which might be located far in order get work done in cheap labor in different regions.
All Honda's businesses are built around engines and automobiles. The company has ample of experience in manufacturing and well-performing engines and automobiles. Honda's vehicles are well known for their quality, durability and effectiveness. Quality of vehicles, diversified portfolio and their brand name are competitive advantages for Honda and very few rivals can match to this.
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