Strategic 20205. This is relatively important as it

Strategic Analysis of
Honda in the Car Manufacturing Industry

Introduction

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Honda is a multinational
company established in Hamamatsu, Japan in October 1946 by Sochiro Honda. 1 It
specialises in the production of aircraft, motorcycles, and more prominently
automobiles. It 8th biggest car manufacturer in the world behind, 7
places behind the next Japanese company, Toyota2 The
company has many branches around the world including over 300 subsidiaries and
affiliates3
accommodating 208,399 employees4.
It is one of the main competitors in the Japanese cars market alongside Toyota,
Nissan, Honda & Suzuki.

With the rise of
globalisation in the 21st century, multinational companies wish who
transfer operations abroad, regularly have to adjust to certain language/cultural
barriers that often limit management. (SB1 Honda is aiming to
make English the official language of the company by 20205. This is relatively important as it offers the firm an
international platform to maximise its global appeal. English is rapidly
becoming the minimum requirement in the global marketplace.

External Environment of
Retail Automobile Industry

Honda primarily operates
in the automobile industry. The industry reported 0.3 % growth in 20166.
Despite a marginal increase in 2016, the market is still recovering from poor
economic performance between 2014-15. 
The unfavourable economic conditions came to halt in 2016 as confidence
amongst general consumers grew with changing the upward direction of the
economy. This also explains how CAGR (compound annual
growth rate) has improved despite showing as a negative 1.1 %. This pales in comparison with their
Asia-Pacific counterparts as China & Taiwan’s new cars industry grew by
10.7% & 6.2% respectively.

For better explaining the competiveness of the car industry to Honda,
Porter’s 5 Forces framework was chosen, as it has detailed and concise
indicators to efficiently explain the challenges car manufactures in Japan have
to go through.

 

Porter 5 Analysis of Retail Automobile Industry

New Entrants

It is fairy difficult for new entrants to enter market as established
brands have the capital and reputation to keep newcomers out. Of those who do
succeed are usually established foreign conglomerates who have the necessary
financial power to remain competitive whilst being disadvantaged by various legislative/geographic factors.  Moreover, new entrants will have to incur
high fixed costs associated with the design and manufacture of new cars which
makes economies of scale extremely difficult to achieve.

In growing expectation for high technology features in newer editions of
automobiles, it is challenging for newcomers as development followed by
implementation of these newer high-tech advancements in vehicles is very costly
and time consuming. Customer expectations usually entail user-friendliness
followed by competitive prices, something that local newcomers in the car
industry will find highly difficult to offer. Hence new entrants in the automobile industry hardly enter hence
Honda should feel little concern from any threat coming from local entities.

However, with the
increasing usage Electric vehicles, this has given new start-ups a new outlet
to compete7 as
companies stubbornly dependant on petrol-fuelled vehicles will increasingly
find it difficult to compete in the market unless alterations are made.

To conclude,
the threat of new entrants is low.

 

Threat of Substitutes

Threats usually come from alternative means of transport followed by
third-party entities. Also the threat of substitutes may be argued that it is
increasingly difficult for automobile companies to sell fuel-powered vehicles
as the environmental initiative continues to be mainstream theme. Coupled by
the fact that Japanese consumers purchased approximately 15,000 electrics
vehicles in the 2015-16 period8.
This will be strong
indication to Honda, that changing the bulk of their production line into electric
cars market should be future target.  Although in 2007, the Japanese firm have
displayed awareness over said issue, as they were the first automobile company  to mass produce fuel-celled vehicles9.
This made their production line more environmentally-friendly, competitive and cognizant
to changing societal attitudes on climate change.

As with public transport, the unstable petrol prices will part of
consumer decision-making with regards purchasing a car. Moreover, proximity
should be considered as purchasing a car may be unsuitable for one’s commute,
especially if the distance to get to the selected destination can be done via
highly cost-effective alternatives like walking for instance.

Hence the
threat of substitutes to Honda is quite high.

 

Buyer Power

There is very extensive selection of Cars in Japan to choose from.
However, even for price-sensitive consumers, low cost-switching occurs rather
sparingly hence buyer power is weaker.

Disposable income alongside consumer confidence is key determinant to buyers’
power in the market. Due to a recession at the end of 201410,
soon followed by another in 201511
has done little to soothe consumer insecurity which can also explain the 5.4 %
fall in demand for car in 2015/16 fiscal year12.
 However, with increasing consumer confidence in 2016, this would
explain how the decline of new car registrations has come to a hopeful end with
a reported 1.5 % decrease at the end of 2015 as opposed to the 9.3% decrease
the year before 13.

Fuel prices has seen drops in the 2015-16 period with oil import costs
dropping to $54.2 per barrel in 2015 followed by $41.29 per barrel in 201614
, at a reduced price burden from fuel hence consumers can consider purchasing
more expensive vehicles which will strengthen buyer power.

Buyer power is influenced
by several factors which are outside Honda’s control making it weaker against
customer pressures. However, with recent economic events affecting consumer
freedom, this has caused a substantial decline in demand of new automobiles
which is showing signs of recovery. However as of yet,
buyer power stands to be a moderate level.

 

 

Supplier Power

Products that are car companies seek often are in the metal industry. On
top of that, certain high quality car makers are keen on luxurious/technological
advanced products to help differentiate itself from its competitors. Suppliers
have often many buyer requirements to meet before any form of negotiations can
end successfully. This often leads to weaker supplier power. Although, if the
supplier can develop strong relations with any prospective buyer, this can
position themselves in a strong supplier’s position.

 However, with limited differentiation on raw products, this may
limit supplier power to certain degree 15.

 

Degree of competition

As the market for cars is in oligopolistic competition, there are small
number of car companies who dominate the industry. Toyota has the lion share
with 36.9%, which is followed Honda & Suzuki 17.1 % and 15% respectively 16.
It is a fairly consolidated industry, as firms who wish to grow do so inorganically
through mergers & acquisitions.

Moreover, competitors in the Japanese market have showed relative
ambivalence17,
to the environmental initiative which is rapidly becoming the forefront of modern
day politics. This may weaken competition as there are concerns could fall
behind more environmentally friendly competitors.  

Internal Analysis of Honda

For the internal study of workings in Honda, Value chain analysis is the
framework of choice to better explain the company’s  

 

 

 

Value Chain Analysis of Honda

 

 

Inbound Logistics- Good supplier relationships have been hailed
as a key factor in Honda’s success. To meet the demand for cars in North &
Central America, the company has developed a network of 600 direct suppliers18.
With English becoming a more prominent language within the company19,
it is likely to strengthen relationships in Anglophone countries.

Operations-Honda has a setup of 89 factory plants spread across
33 countries20

Outbound Logistics –  

 

 

 

 

 

1 Successstory.com.
(n.d.). Honda Motor Story – History, Founder, Founded, CEO | Automobile
Companies | SuccessStory. online Available at:
https://successstory.com/companies/honda-motor-co-ltd Accessed 3 Jan. 2018.

 

2 Organisation Internationale
des Constructeurs d’Automobiles (2015). WORLD RANKING OF MANUFACTURERS.
WORLD MOTOR VEHICLE PRODUCTION OICA correspondents survey. online
Organisation Internationale des Constructeurs d’Automobiles. Available at:
http://www.oica.net/wp-content/uploads//ranking2015.pdf Accessed 3 Jan. 2018.

 

 

3 Marketline (2011). Honda Motor Case Study – The
Future of Hydrogen Fuel Cells in Cars. MarketLine Case Study. pp.1-20.

 

4
Forbes.com. (n.d.). Top
Multinational Performers – #161 Honda. online Available at: https://www.forbes.com/companies/honda-motor/
Accessed 3 Jan. 2018.

 

5 Japan Times (2015). Honda makes English official. online
Available at:
https://www.japantimes.co.jp/opinion/2015/07/18/editorials/honda-makes-english-official/#.Wk2Iffll-Uk
Accessed 4 Jan. 2018.

6 Marketline (2017). New Cars in
Japan. MarketLine Industry Profile. Marketline, pp.1-35.

 

7 Murai, S. (2017). While agile startups blaze a trail, Japan
remains ambivalent on electric vehicles. The Japan Times. online Available at:
https://www.japantimes.co.jp/news/2017/12/22/business/agile-startups-blaze-trail-japan-remains-ambivalent-electric-vehicles/#.Wk0oPPll-Uk
Accessed 3 Jan. 2018.

 

8  International Energy Agency (2017). Global EV Outlook.
online France: International Energy Agency, pp.50-51. Available at:
https://www.iea.org/publications/freepublications/publication/GlobalEVOutlook2017.pdf
Accessed 3 Jan. 2018.

 

9 Marketline (2011). The future of hydrogen fuel cells in cars. MarketLine Case
Study. Marketline, pp.1-20.

 

10 BBC News. (2014). Japan’s
economy falls into recession. online Available at:
http://www.bbc.co.uk/news/business-30077122 Accessed 3 Jan. 2018.

 

11 Yan, S. (2015). Japan’s
economy is back in recession…again. online CNNMoney. Available at:
http://money.cnn.com/2015/11/15/news/economy/japan-economy-recession/index.html
Accessed 3 Jan. 2018.

 

12 Reuters. (2015). Japan
automobile demand seen down 5.4 percent in FY2015/16: auto lobby. online
Available at:
https://www.reuters.com/article/us-autos-japan/japan-automobile-demand-seen-down-5-4-percent-in-fy2015-16-auto-lobby-idUSKBN0MF06L20150319
Accessed 3 Jan. 2018.

 

13 Bekker, H.
(2016). 2016 (Full Year) Japan: Best-Selling Car Manufacturers and
Brands. online Car Sales Statistics. Available at:

2016 (Full Year) Japan: Best-Selling Car Manufacturers and Brands


Accessed 3 Jan. 2018.

 

14 International Energy Agency
(2017). Monthly Oil Price Statistics. Statistics. online Paris,
p.6. Available at: https://www.iea.org/media/statistics/surveys/prices/mps.pdf
Accessed 3 Jan. 2018.

 

15 Marketline (2017). New Cars in
Japan. MarketLine Industry Profile. Marketline, pp.1-35.

 

16 Marketline (2017). New Cars in
Japan. MarketLine Industry Profile. Marketline, pp.1-35.

 

17 Murai, S. (2017). While agile startups blaze a trail, Japan
remains ambivalent on electric vehicles. The Japan Times. online Available at:
https://www.japantimes.co.jp/news/2017/12/22/business/agile-startups-blaze-trail-japan-remains-ambivalent-electric-vehicles/#.Wk0oPPll-Uk
Accessed 3 Jan. 2018.

 

18Moody, P. (2012). Supplier Relationships Key to Honda’s Healthy Profit Margins. online
IndustryWeek. Available at:
http://www.industryweek.com/blog/supplier-relationships-key-hondas-healthy-profit-margins
Accessed 3 Jan. 2018.

 

19  Japan Times
(2015). Honda makes English official. online Available at:
https://www.japantimes.co.jp/opinion/2015/07/18/editorials/honda-makes-english-official/#.Wk2Iffll-Uk
Accessed 4 Jan. 2018.

 

20 Honda Motor Co., Ltd..” Company Profiles for Students. Encyclopedia.com. (January 3,
2018). 

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