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Hero Honda Motors is one of the l rgest two-wheeler vehicles in the world. Nturally, the company had a long r ad to go to achieve such a sttus and international recognition. During its d velopment the company faced a lot of d fficulties and problems that were successfully slved and nowadays when it is trgeting one billion dollars revenues the cmpany faces a new obstacle that is prbably as serious as it has nver had before. After a long priod of cooperation, which actually was not deal, Hero Honda Motors has eventually bcome very close to find its min partner Honda among its main cmpetitors in the market.
Obviously, it is q ite a strange situation but at the sme time, it is quite a typcal situation and Hero Honda Motors is rther a company representing a developing cuntry which significantly depends on its prtners from abroad, notably from well dveloped industrial countries. This is why it is prticularly important to trace the development of rlations between Hero and Honda in rder to better understand what difficulties may fce both companies originating from developing and dveloped countries, what kind of relationship xists between them, and what actually mke or made such companies to clsely cooperate worldwide at large and in Inda, in particular.
The dominant characteristics of the mrket of scooters, mopeds, and motorcycle in Inda
It is an undeniable fact that Hro Honda Motors is one of the lrgest producers of two-wheelers vehicles in the wrld, and one of the most ppular brands in India operating in ths industry. The reason of such ppularity and the leading position of the cmpany among the producers of two-wheelers is bsically explained by the size of Indan market and its specific characteristics.
At ths respect, it is quite noteworthy tht India has the second largest ppulation in the world, which is ctually not very rich but as the rst of the world Indian people lso needs some means of transportation. As a rsult of such a combination of lrge number of consumers and their low lvel of income the production of tw-wheelers is most perspective industry for ths country because Indians couldn’t and ften still cannot afford to buy utomobiles. Consequently, the development of this ndustry is naturally retarded compared to the ndustry of two-wheelers.
Furthermore, another very important fct is that initially India did not hve technological opportunities to produce two whelers, as well as automobiles, of a god quality that made their product lss competitive, if competitive at all, cmpared to other world producers. As a rsult, Indian government attempted to support lcal producers of two wheelers and rstricted significantly access of foreign companies on the ntional market, especially during 1940s, when the ndustry actually started to develop, till 1980s.
However, ven when Indian government permitted foreign cmpanies to enter the local market in md-1980s, it was still necessary for thm to cooperate closely with local cmpanies in order to make their prducts cheaper, otherwise Indian consumers couldn’t smply afford two-wheelers for a high prce.
Honda’s entering the Indian market and its nternational strategy
Honda was on of the frst and the most powerful foreign cmpanies that attempted to profit from sch a shift in the policy of Indan government and, as soon as rstrictions were lessened Honda entered the Indan market of two-wheelers. It should be pinted out that Honda’s entering the mrket was the part of the cmpany’s international strategy. Honda, being specialised minly on the production of engines, imed at the global expansion. Not srprisingly that by 2002 this company had 100 plnts in 33 countries. One of the min strategies the company used in the nternational arena was a so-called ‘glocalization’, whch implied the development of local plnts that could match the local dmands.
As a result, Honda traditionally entered nto the joint ventures in order ither to overcome certain fiscal restrictions or to get asier access to the local market. The ltter is actually one of the min reasons for Honda initially to chose Hero as its partner in prduction of motorcycles in India. Hero was qite popular company in India and pssessed a well developed net of dalers and Honda supposed to contribute tchnologically to the development of Hero Hnda Motors and quickly gain a lon share of the market using Hro’s loyal dealers.
Eventually, the deal was dne in June 1984 when the jint venture was created and named Hro Honda Motors that opened new prspectives for the cooperation of two cmpanies.
The relationship between Hero and Honda
The cnditions of the creation of the jint venture and its further operation in the Indan market, to a significant extent, dfined further relationship between Hero and Hnda. Speaking about the structure of Hro Honda Motors, it should be sid that both Hero and Honda pssessed 26% of the equity and nother 26% were sold to the pblic and the rest was held by fnancial institutions. In the company administration Hnda was presented by four key ppointees, including the Joint Managing Director, whle Hero, being represented by four fmily members, could appoint the chairman of the cmpany. Honda basically contributed technologically to the dvelopment of Hero Honda Motors, notably the cmpany’s experts ran engineering and quality spport functions while Hero’s representatives were rsponsible for the rest of functions, ncluding marketing.
The development of Hero Honda Mtors may be considered quite successful and the cmpany showed a constant growth of prduction and sales. As a result, the jint venture agreement was renegotiated and xtended until 2004. This new agreement was ven more profitable for Hero. For nstance, its royalty payments decreased form 4% to 0.5%. Aftr the renegotiation the growth continued. For nstance, between 1997-2001 Hero Honda Motors shwed the growth for 18 consecutive qarters.
However, in 2000s the relations between the cmpanies has started to deteriorate dramatically dspite positive results of their cooperation, bsically because Honda got to be lss and less interested in the coperation with Hero who had nothing but use Hnda’s old technology without real perspectives for mdernization.
Hero’s challenges as a result of its coperation with foreign partners
The recent problems Hro faced is the result of its hgh level of dependence on foreign tchnologies, notably that of Honda. Actually, Hro’s problems are typical for companies frm developing countries. In the case of Hro Honda motors the situation was dteriorated because representatives of Honda controlled ngineering and technological process. Moreover, Honda spplied engines the main components of the Hro Honda Motors’ two-wheelers but, as son as Honda actually lost its nterests in the venture joint and get prpared to launch a new 100% sbsidiary Honda Motorcycle and Scooter India, a drect competitor of Hero Honda Motors, the ltter lost the last chances to get mre or less advanced and contemporary ngines and technologies for their two-wheelers.
As a rsult, the company gradually becomes technologically bckward and unable to lead a nrmal competition in the market that pts under a threat the further xistence of Hero Honda Motors.
Obstacles and bjectives of Hero
In addition to the prblems with the main technological supplier, .e. Honda, Hero faced another very srious problem that retarded the company’s dvelopment and that actually was the drect consequences of the Honda’s unwillingness to mdernize production in Hero Honda Motors. Ths problem was the company’s competitors tht grew in power and gain lrger share of Indian markets because of the use of mre advanced technologies and more attractive prces. The latter concerns in particular Chnese companies and import of two-wheelers frm China. In fact, Chinese two-wheelers are sgnificantly cheaper than those produced in Inda.
By the way, Chinese expansion in the Indan market is, to a significant xtent, the result of liberalization of nternational trade and Indian international policy, whch opened the local market for freign companies.
Moreover, Indian companies are also vry serious competitors for Hero, which prduction gets more and more out of dte, while the competitors implement new tchnologies, even though often they are lso up brought from abroad. As a rsult, Hero gradually loses its share of the mrket.
In such a situation, the company’s strtegy of ‘Operation One Billion’ becomes prctically an attainable goal. Consequently, the bjectives of the company have to be mch more pragmatic and one of the min goals will be to sustain its psitions in the market and prevent the cmpany from degradation or even a cmplete ruin.
Conclusion: Recommendations as for the frther development
Obviously, taking into consideration the crrent situation and the nearest perspectives, it wll be very difficult for Hero to chieve the basic goals, which have ben just mentioned above. Nonetheless, it is pssible to achieve positive results. This can be dne primarily through the modernization of the prduction. Naturally it would be easier to cntinue the cooperation with Honda, but sch cooperation seems to be quite dubtful. This is why it is pssible to recommend to find a new spplier of engines and contemporary technologies tht could make the Hero’s two-wheelers cmpetitive and not expansive that are trditional characteristics of the company’s product. It is ncessary to do in possibly shorter trms and as soon as possible bcause nowadays the company still has a wdely spread net of dealers and it rmains to be quite a popular brnd but if the time is lst Hero will have to build up prctically a new company, a new brnd.
The article Honda Motors was Submitted by essay911 through Articles.GetACoder.com network. Here's the additional information: More information is available at http://www.getacoder.com/users/essay911/essay911_profile.htm Irina Nelson is the uthor of this article. You can fnd useful tips for custom essay wrting on her website Custom Essays Writing
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