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Contents
1. Introduction
2. The dominant characteristics of the market of mopeds, scooters,
and motorcycles in India
3. Honda’s entering the Indian market and its international
strategy
4. The relationship between Hero and Honda
5. Hero’s challenges as a result of the relationship
with foreign partners
6. Obstacle and Objectives of Hero
7. Conclusion: Recommendations as for the further development
8. Bibliography
Introduction
Hero Honda Motors is one of the largest two-wheeler vehicles
in the world. Naturally, the company had a long road to go
to achieve such a status and international recognition. During
its development the company faced a lot of difficulties and
problems that were successfully solved and nowadays when it
is targeting one billion dollars revenues the company faces
a new obstacle that is probably as serious as it has never
had before. After a long period of cooperation, which actually
was not ideal, Hero Honda Motors has eventually become very
close to find its main partner Honda among its main competitors
in the market.
Obviously, it is quite a strange situation but at the same
time, it is quite a typical situation and Hero Honda Motors
is rather a company representing a developing country which
significantly depends on its partners from abroad, notably
from well developed industrial countries. This is why it is
particularly important to trace the development of relations
between Hero and Honda in order to better understand what
difficulties may face both companies originating from developing
and developed countries, what kind of relationship exists
between them, and what actually make or made such companies
to closely cooperate worldwide at large and in India, in particular.
The dominant characteristics of the market of scooters, mopeds,
and motorcycle in India
It is an undeniable fact that Hero Honda Motors is one of
the largest producers of two-wheelers vehicles in the world,
and one of the most popular brands in India operating in this
industry. The reason of such popularity and the leading position
of the company among the producers of two-wheelers is basically
explained by the size of Indian market and its specific characteristics.
At this respect, it is quite noteworthy that India has the
second largest population in the world, which is actually
not very rich but as the rest of the world Indian people also
needs some means of transportation. As a result of such a
combination of large number of consumers and their low level
of income the production of two-wheelers is most perspective
industry for this country because Indians couldn’t and
often still cannot afford to buy automobiles. Consequently,
the development of this industry is naturally retarded compared
to the industry of two-wheelers.
Furthermore, another very important fact is that initially
India did not have technological opportunities to produce
two wheelers, as well as automobiles, of a good quality that
made their product less competitive, if competitive at all,
compared to other world producers. As a result, Indian government
attempted to support local producers of two wheelers and restricted
significantly access of foreign companies on the national
market, especially during 1940s, when the industry actually
started to develop, till 1980s.
However, even when Indian government permitted foreign companies
to enter the local market in mid-1980s, it was still necessary
for them to cooperate closely with local companies in order
to make their products cheaper, otherwise Indian consumers
couldn’t simply afford two-wheelers for a high price.
Honda’s entering the Indian market and its international
strategy
Honda was on of the first and the most powerful foreign companies
that attempted to profit from such a shift in the policy of
Indian government and, as soon as restrictions were lessened
Honda entered the Indian market of two-wheelers. It should
be pointed out that Honda’s entering the market was
the part of the company’s international strategy. Honda,
being specialised mainly on the production of engines, aimed
at the global expansion. Not surprisingly that by 2002 this
company had 100 plants in 33 countries. One of the main strategies
the company used in the international arena was a so-called
‘glocalization’, which implied the development
of local plants that could match the local demands.
As a result, Honda traditionally entered into the joint ventures
in order either to overcome certain fiscal restrictions or
to get easier access to the local market. The latter is actually
one of the main reasons for Honda initially to choose Hero
as its partner in production of motorcycles in India. Hero
was quite popular company in India and possessed a well developed
net of dealers and Honda supposed to contribute technologically
to the development of Hero Honda Motors and quickly gain a
lion share of the market using Hero’s loyal dealers.
Eventually, the deal was done in June 1984 when the joint
venture was created and named Hero Honda Motors that opened
new perspectives for the cooperation of two companies.
The relationship between Hero and Honda
The conditions of the creation of the joint venture and its
further operation in the Indian market, to a significant extent,
defined further relationship between Hero and Honda. Speaking
about the structure of Hero Honda Motors, it should be said
that both Hero and Honda possessed 26% of the equity and another
26% were sold to the public and the rest was held by financial
institutions. In the company administration Honda was presented
by four key appointees, including the Joint Managing Director,
while Hero, being represented by four family members, could
appoint the chairman of the company. Honda basically contributed
technologically to the development of Hero Honda Motors, notably
the company’s experts ran engineering and quality support
functions while Hero’s representatives were responsible
for the rest of functions, including marketing.
The development of Hero Honda Motors may be considered quite
successful and the company showed a constant growth of production
and sales. As a result, the joint venture agreement was renegotiated
and extended until 2004. This new agreement was even more
profitable for Hero. For instance, its royalty payments decreased
form 4% to 0.5%. After the renegotiation the growth continued.
For instance, between 1997-2001 Hero Honda Motors showed the
growth for 18 consecutive quarters.
However, in 2000s the relations between the companies has
started to deteriorate dramatically despite positive results
of their cooperation, basically because Honda got to be less
and less interested in the cooperation with Hero who had nothing
but use Honda’s old technology without real perspectives
for modernization.
Hero’s challenges as a result of its cooperation with
foreign partners
The recent problems Hero faced is the result of its high level
of dependence on foreign technologies, notably that of Honda.
Actually, Hero’s problems are typical for companies
from developing countries. In the case of Hero Honda motors
the situation was deteriorated because representatives of
Honda controlled engineering and technological process. Moreover,
Honda supplied engines the main components of the Hero Honda
Motors’ two-wheelers but, as soon as Honda actually
lost its interests in the venture joint and get prepared to
launch a new 100% subsidiary Honda Motorcycle and Scooter
India, a direct competitor of Hero Honda Motors, the latter
lost the last chances to get more or less advanced and contemporary
engines and technologies for their two-wheelers.
As a result, the company gradually becomes technologically
backward and unable to lead a normal competition in the market
that puts under a threat the further existence of Hero Honda
Motors.
Obstacles and objectives of Hero
In addition to the problems with the main technological supplier,
i.e. Honda, Hero faced another very serious problem that retarded
the company’s development and that actually was the
direct consequences of the Honda’s unwillingness to
modernize production in Hero Honda Motors. This problem was
the company’s competitors that grew in power and gain
larger share of Indian markets because of the use of more
advanced technologies and more attractive prices. The latter
concerns in particular Chinese companies and import of two-wheelers
from China. In fact, Chinese two-wheelers are significantly
cheaper than those produced in India.
By the way, Chinese expansion in the Indian market is, to
a significant extent, the result of liberalization of international
trade and Indian international policy, which opened the local
market for foreign companies.
Moreover, Indian companies are also very serious competitors
for Hero, which production gets more and more out of date,
while the competitors implement new technologies, even though
often they are also up brought from abroad. As a result, Hero
gradually loses its share of the market.
In such a situation, the company’s strategy of ‘Operation
One Billion’ becomes practically an attainable goal.
Consequently, the objectives of the company have to be much
more pragmatic and one of the main goals will be to sustain
its positions in the market and prevent the company from degradation
or even a complete ruin.
Conclusion: Recommendations as for the further development
Obviously, taking into consideration the current situation
and the nearest perspectives, it will be very difficult for
Hero to achieve the basic goals, which have been just mentioned
above. Nonetheless, it is possible to achieve positive results.
This can be done primarily through the modernization of the
production. Naturally it would be easier to continue the cooperation
with Honda, but such cooperation seems to be quite doubtful.
This is why it is possible to recommend to find a new supplier
of engines and contemporary technologies that could make the
Hero’s two-wheelers competitive and not expansive that
are traditional characteristics of the company’s product.
It is necessary to do in possibly shorter terms and as soon
as possible because nowadays the company still has a widely
spread net of dealers and it remains to be quite a popular
brand but if the time is lost Hero will have to build up practically
a new company, a new brand.
Bibliography:
1. http://www.herohonda.com/web/index.htm
2. http://www.indiainfoline.com
3. www.securities.com
4. http://www.expressindia.com/ie/daily/19980823/23550444.html
5. http://www.businessworldindia.com/archive/7Jan99/corpo3(1420).html
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