Strategic management is the analysis of the strategic goals and objectives, and the internal and external environment of a company, after which strategic decisions are made by the managers of the company, and required actions taken to execute the strategies to create and maintain competitive advantage (Thompson & Strickland 2003).
Background information of Honda Motor Co. Ltd.
Honda Motor Co. Ltd. was established in 1948 in Japan, and since then, it has grown rapidly to become the leading manufacturing corporation in the field of automobiles, motorcycles, and power products globally. It is currently the major engine producer in the whole world, as well as, the market leader in motorcycles (Berger 2011). As at 2007, the company is operating in 29 countries worldwide, with 120 manufacturing facilities, and about 167, 231 employees (Myers 2009). The company operates under the fundamental principles of “Respect for the Individual" and "The Three Joys"(normally referred to as The Joy of Buying, The Joy of Selling, and The Joy of Creating). Honda’s principle of "Respect for the Individual" is a reflection of their wish to show respect to every worker’s ability, and unique character, as well as their trust for one another, that helps them to work together to overcome any challenge. “The Three Joys”, expresses their desire and belief that their customers will experience joy in dealing with the company or its products (Brown 1998). The joy of buying, causes Honda‘s workers to do their best in order to surpass the expectation of the customers. The joy of selling, stresses on relating well with Honda’s customers. The joy of producing, on the other hand, emphasizes on producing quality products that satisfy the customers.
Honda has maintained its market position, as the leading global manufacturer of automobiles, through creation of new value, and provision of the high quality products, at reasonable prices that satisfies its customers. Through its high quality, wide range of products, the company has created an exceptional reputation among its customers globally (Frank 2003). Also, continuous research and development, and innovation have enabled the company to produce quality products, giving it, a competitive advantage over its competitors, and consequently leading to its success.
Honda enjoys numerous advantages in the automotive market, making it the leading choice for a number of buyers. For instance, the consistent ranking of its products as high quality, by the Consumer Reports, is a confirmation of the customers’ satisfaction with their products. In addition, the company has also been praised for manufacturing high-fuel efficient models that have been very economical, amidst the current economic crisis that is associated with high gas prices, and high cost of living. Besides, Honda products are sold at reasonable prices, and considering the high quality, the customers get good value for their money (Hitt, Ireland & Hoskisson 2010).
SWOT Analysis for Honda
a) A strong brand name.
b) Good reputation.
c) High market leadership – Honda enjoys 56% market shares in motorcycles (Holdener 2009).
d) Easily available spare parts.
e) Low cost of maintenance.
f) Product durability and reliability.
g) High quality- ISO- Certified.
h) Strong asset position and increased yearly profits.
a) Reasonable costs of original parts.
a) Flourishing promotional campaigns through the television and Newspaper, contributing to the widespread viewership, the company enjoys.
a) Teamwork between management and workers
b) Committed, loyal, and motivated workers.
c) Technological and executive skills.
d) Diligent, knowledgeable, and qualified staff.
e) Performance-based job evaluation, which gives motivation to staff to work even harder (Kew & Stredwick 2005).
f) A reward system for workers.
a) Customer loyalty.
b) Discrimination-free work environment i.e. a single dress code that discourages discrimination.
c) Friendly work environment.
a) An after-sales service that is below the customer’s expectation.
b) Reactive, rather than proactive approach to various issues affecting the company.
c) The prices of Honda products are higher than the existing market price, and this lead to customers opting for substitute products (Miller, Vandome & McBrewster 2010).
d) Low investment in technological machinery.
e) Bikes that do not have safety measures installed on them to prevent snatching dilemma.
a) Growing market for motorcycles.
b) Customers’ realization of the importance of quality.
c) High demand for bikes.
a) The undergoing global financial crisis, has reduced customer spending, thus affecting Honda’s sales (Montgomery & Porter 2011).
b) Competitors producing new products with lower prices, in comparison to price of Honda products.
c) Increasing rate of bike snatching, and theft i.e. between January and May 2007, about 2500 bikes were stolen in the U.S (Sadler & Craig 2008).
Porter’s Five Forces Analysis of Honda
The threat of substitute products
This refers to the existence of substitute products, which increases the inclination of consumers to change to alternatives, as a response to changes in price, quality etc. This implies that when Honda competitors manufacture high quality products with relatively lower prices than Honda, it can lead to customers preferring to buy the substitutes. For instance, in the line of sport motorbikes, the close replacement for F4 of Honda is the R6 of Yamaha. By producing a low-cost R6 motorbike, Yamaha will be able to win over Honda’s customers (Thompson & Strickland 2001).
The threat of the entry of new competitors.
In any market, the existence of many competitors to a business or company tends to reduce its profit below, the maximum level. For instance, the stiff competition between Honda and Ford Motor Co., in the American market, makes it difficult for Honda to get maximum profits. This is also owed to the fact that the US policy tend to protect domestic companies. In addition, Honda also has to use money to market and promote itself, being that it is in a foreign land (US), and that reduces its profitability.
Rivalry among existing competitors
The main rival competitors to Honda are, Toyota Motor Corp., General Motors and Ford Motor Co (Sadler & Craig 2008). Any strategic change undertaken by any of these competitors has a significant effect on performance of Honda. Through research and development, improvement, as well as innovation, these companies have been able to compete effectively in the automobile industry. For example, when one company manufactures and releases a new model into the market, the other companies also, produce similar products to create competition. Honda’s famous model, Accord released in 1976, has been in stiff competition with its rival, Toyota Camry, since it was introduced (Shook 1988). By improving its technological development, innovation, as well as research, Honda will be able to gain competitive advantage over its competitors.
The bargaining power of customers
A good relationship with the customers is vital for the success of any business. Honda being a global company with numerous competitors, it is important that it relates well with its customers, lest they are swayed by the competitors. It is important to note that the bargaining power of customers not only depends on the brand name of a product, but also on its price and quality. For instance, the short supply of Honda’s Air Blade Scooter, introduced in the Vietnam market in 2007, led to its rival, Suzuki, taking advantage of the situation to produce Hayate Scooter, with similar functions as the Air Blade Scooter, but with an amazingly reduced price (23% lower than Honda’s) (Sadler & Craig 2008). As a result, customers who were waiting for more orders from Honda ended up buying the new model from Suzuki, because of its low cost, and that affected the market share of Honda.
The bargaining power of suppliers
Honda has reliable major suppliers who supply the company with raw materials that are used to manufacture its products. The good relationship the company has maintained with its suppliers over the years has made it possible for the suppliers to provide them with raw materials at reasonable prices. Examples of Honda’s suppliers include; Kikuchi Co. Ltd; Hirata Technical Co. Ltd; Marujun Co. Ltd etc. Kikuchi Co. Ltd is not only a supplier for Honda, but for Nissan as well (Nilsson & Rapp 2005). If Nissan decides to buy the raw materials from this supplier at a higher price, the supplier might not be willing to sell at a lesser price to Honda; that implies that Honda has to part with an additional amount of money, beyond the originally planned amount. As a result, it will produce more expensive products than its competitors, which might affect its sales.
Honda’s PEST analysis
PEST analysis refers to the analysis of the external factors that promote or hinder the success of a business i.e. the political, economic, social, and technological factors (Sadler & Craig 2008). As in the case of Honda, the factors are as follows;
a) The proposal by the UK Government to limit the number of cars being sold within the UK. This has an effect on Honda’s sales, as it limits the number of vehicles they manufacture (Nelson, Moody & Mayo 2007).
b) The UK Government has been keen to attract investment from foreign companies. Honda took advantage of the opportunity and invested in England.
c) Global pressure from various governments to manufacture vehicles with clean emissions. Consequently, Honda has made huge investments in research and development in order to produce cars which have cleaner engines for example i-vtec.
a) Manufacturing and selling in Europe, has meant that Honda does not add the cost of any additional tariffs to their cars, and therefore, the cars are sold at a relatively cheaper cost, making them affordable to many people, thus increasing sales (Thompson & Strickland 2003).
b) The exchange rate from the Euro to Yen- The weakness of the Yen currency has made Honda vehicles to be sold expensively in the UK.
c) Increased incomes among some consumers have consequently increased their spending, which has enabled the company to sell more. Honda is coping with the rising demand of its products by producing newer models i.e. the Honda Civic, which is about to released this year.
d) Due to the current economic crisis, where the cost of fuel have escalated, Honda has been forced to produce cars that use consume less fuel, in order to remain competitive in the automobile market, for instance, the 1.4 Honda Jazz (Williams 2011).
a) Due to language barrier, Honda decided to establish its business in Swindon, England, because they preferred the English language.
b) The increased desire for personalized cars- Honda has responded by producing easily modified cars of different styles and tastes.
c) In response to the desire to have city cars, Honda has produced much smaller cars, which are also fuel- conserving, such as Honda Beat, and Honda Jazz.
d) Formula1 – Speed- This is a program by Honda meant for show-boating, as opposed to making profits. A huge percentage of its R&D budget is set aside for this course.
a) The use of technology has led to the adoption of machines rather than human labor, and that has enabled Honda to produce higher quality products, at a much faster pace.
b) In complying with safety requirements, Honda has developed cars which have safety features, which requires research and testing. As a result, its research and development budget has increased (Williams 2011).
c) The need for clever cars, which have Satellite Navigation systems, have meant that, Honda has to include the system in its latest models, which is an added cost.
In order for Honda to maintain it leading position in the automobile market globally, it has to remain innovative, and engage in extensive research, in order to be able to continue providing their customers with high quality products. In addition, they should also consider reducing its prices, to remain competitive.