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    The Honda Effect Case Study Essay

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    Introduction Honda is a Japan based company and is the world’s largest manufacturer of motorcycles as well as the world’s manufacturer of motor vehicles, producing more than 14 million internal motor vehicles each year. The Honda Motor Company was founded by Soichiro Honda in 1948. In 1959, he opened the American Honda Motor Company, so he could fulfil his dream of building a high performance motorcycle and marketing it globally. The discussion below briefly emphasises on the strategy used by Honda to gain entry into the US motorcycle market.

    The key differences between the two accounts of Honda’s entry into the US motorcycle market The two accounts of how Honda entered into US motorcycle market differ in numerous ways. There are two approaches to strategies were used by Honda to enter the US market, the Boston Consulting Group (BCG) report clearly shows a deliberate approach to Honda’s strategy in entering the US motorcycle market, while the report Documented by Richard Pascale shows a clearly defined emergent strategy (Mintzberg et al. 2003:152-165). -The deliberate approach which was emphasised by BCG enabled the Japanese manufactures to succeed in many ways.

    The BCG report showed that the success of the Japanese manufactures began with the growth of their own domestic market. The high production for domestic demand led Honda to experience economies of scale proportion as the cost of producing motorcycles declined with the level of output. This allowed Honda to achieve a highly competitive cost position which they used to enter into the US market. The Japanese manufactures believed that high volumes per model provide the potential for high productivity. They also believe in putting capital back into production and making use of highly automated techniques.

    Thus, their marketing strategies are directed towards developing these high volumes, hence the careful attention that we have observed them giving to growth and market share. The BCG asserted that the motorcycles available before Honda penetrated in the US market were designed and marketed toward a limited group of people such as the police, army, etc. (Mintzberg et al. 2003:152-165). However, because Honda had a policy of selling, they marketed their product toward the everyday members of the public, rather than the typical confirmed motorcyclists.

    The bike designed for this target market was a small, lightweight bike that sold less than its leading competitors, which were Harley-Davidson of the USA and Triumph and Norton of UK. Another distinguished characteristic that helped Honda become the leading competitor in its field was the addition of staff members. Honda’s willingness to hire more employees shows how strongly they valued innovation, as they had about 700 engineer and design members, whereas its competitors staffed only about 100 employees. Besides the increased level of hiring, Honda also implemented other strategies such as the developing region by region.

    Over a period of years they relocated from the west coast of America to the east coast. Along with expanding their market, they also began to focus more on their advertising. A huge investment was spent in on their advertising theme “you meet the nicest people on a Honda”. This theme in particular disassociated Honda motorcycles from other stereotype motorcycles that had a rowdy image. Richard Pascale (1996) however, disagrees with the BCG report. He emphasises on how Honda used the emergent approach to strategise on entering the US motorcycle market.

    His report suggests that Honda’s entry in the US market was much smoother and it is what led to their instant success. Pascale (1996) argues that Honda entered the US market at the end of the motorcycle trade season showing their inability to carry out research in the new market. Pascale (1996) also criticizes the assumption that Honda was superior to other competitors in productivity. He states that Honda was successful in Japan with productivity but evidence suggests that the company was not superior, due to the lack of funding from the ministry of finance and the tight budget they had.

    In regards to the BCG reporting that Honda had a deliberate strategy of disassociating themselves from their competitors’ rowdy motorcycle image by following the “nicest people” advertising policy, Pascale (1996) asserts that it was not an intentional move. Instead, it was a result of the director of sales persuading management that this was the best course. The BCG report found that Honda penetrated into the US market with small lightweight motorbikes. Pascale (1996) however, argues that the idea of designing lightweight motorbikes at low cost was not one of inspiration but one of desperation.

    He argues that the intended strategy was one of promoting the larger motorbikes because Honda felt that due to Americans preferring large items, they would be more likely to buy a larger bike. The larger motorbikes intended were unreliable, which led to the promotion of the smaller motorbikes. Overall, Pascale (1996) gives the impression that it was through an incidental sequence of events that led to Honda gaining a strong hold in the US market. This was mainly through the unexpected discovery of a large untapped target market while at the same time trying to retain the interest of the current market.

    Pascale (1996) also believes that an element of luck also helped Honda follow an emerging strategy. Restrictions placed on the funds by the government for the US venture forced Honda to take an alternate route. If they had all the funds necessary, they may well have gone through the normal distribution channels. The extent to which Honda’s apparent strategy was deliberate and/or emergent In order to determine whether the company was following a specific model when entering the US market or not, it is crucial to consider the theoretical side of Honda’s strategy.

    According to Andrew’s model, there are two stages to corporate strategy, formulation and implementation. Formulation involved looking at the market, competitors and resources and formulating a corporate strategy which would be implemented throughout each process of the organisational structure. This is how BCG viewed Honda, as a corporation, who had looked at the market, formulated a strategy to cope with the environment and pressure of competing in the market and implemented it. Overall, this would make all Honda’s plans and activities deliberate.

    Pascale (1996) however, viewed Honda as having an emergent approach. This approach shows a realised strategy made up from an intended strategy, together with an emergent strategy, which is not planned but emerges in relations to activities within the environment. Pascale (1996) seemed to think that in Honda’s case, the company’s strategy was emergent and less was actually an intended strategy. By analysing both accounts, it is evident to state that Honda did not just follow one specific strategy, but rather followed a combination of both deliberate and emergent strategies together.

    Key lessons to be learned from any comparison of the two quite different accounts of the same strategic decision Both accounts have identified numerous key lessons, the following below are a few of them: A company should be able to move ideas from top to bottom and back again, meaning from senior managers to lower managers, as this provides more participation and support from all employees (Johnson, Scholes & Whittington 2008). This is one of the abilities of the Honda organisation that was most valued. Advertising to the right target market is also a key lesson to be learned.

    Doing research on the competitors will help give an advantage and select the right advertising campaign that will capture the target market or segment intended (Johnson, Scholes & Whittington 2008) . Innovation is vital to every company. Mr Honda showed his innovative ability by producing better motorcycle engines, and the hiring of additional employees portrayed how strongly they valued innovation, which gradually paid off, leading to success. Companies should do a thorough research and know how to utilize their market position (Johnson, Scholes & Whittington 2008).

    In the case of Honda, strengths in design advantages and production methods meant they were able to increase sales in Japan even though at the time there was no organisation within the company. The importance of a company’s culture is also emphasised. Culture has also played a huge role at Honda. This was tested when Mr. Honda sent two executives to the U. S with no strategy other than to see if they could sell something. Studying the culture in the US market and determining what role Honda could play in the same market has benefited the company, and led to its success.

    Conclusion From the above discussion, it is relevant to view Honda as being a company dedicated to being a low cost producer, utilizing its dominant position in Japan to penetrate into the US market, redefining that market by putting up its nicest people image and exploiting its comparative advantage using aggressive advertising and pricing (Mintzberg et al. 2003:152-165). After all, the weaknesses in an organisation can become irrelevant if the strategy is strong and there is a good leadership, and in Honda’s case, the strategy was strong, thanks to Mr.

    Honda’s good leadership skills and determination that led to the company’s success. BIBLIOGRAPHY Johnson, G. , Scholes, K. , & Whittington, R. (2008). Exploring Corporate Strategy: Text & Cases. 8th edition. England: Pearson Education Limited. Mintzberg, H. , & Quinn, J. B. , (1991). The Strategy Process. New York: Prentice Hall. Pascale, Mintzberg, Lampel, Quinn, Ghoshal, (2003). The strategy Process: Concepts, Contexts, Case. , 4th edition. Prentice Hall.

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