COMSATS Institute of Information Technology, Islamabad

A REPORT ON STRATEGIC ANALYSIS OF HONDA

SUBMITTED BY:

FAIZAN MUNAWAR BILAL SHAUKAT UMER RAZA FAHAD NASEEM AQIB RAZA

SP10-MBA-037 SP10-MBA-029 SP10-MBA-150 SP10-MBA-035 SP1-MBA-020

SUBMITTED TO: SIR TALAT MEHMOOD KAYANI

DEPARTMENT OF MANAGEMENT SCIENCES

TABLE OF CONTENTS

1. EXECUTIVE SUMMARY 2. INTRODUCTION.................... 2.1. 2.2. 2.3. 2.4. 2.5. 2.6. 2.7. 2.8. Cars. The civic.. 1980s.. 1990s 21st century Vision. Mission statement. Organizational structure..

3. LIMITATIONS OF THE STUDY 4. STRATEGIC ANALYSIS 4.1. Porters model. 4.1.1. Threat of new entrants. 4.1.2. Rivalry among existing firms 4.1.3. Threat of substitute products and sevices. 4.1.4. Bargaining power of buyers 4.1.5. Bargaining power of suppliers. 4.2. Swot analysis 4.2.1. Strengths.. 4.2.2. Weaknesses.

4.2.3. Opportunities.. 4.2.4. Threats 4.3. Pest analysis. 4.3.1. Political factors. 4.3.2. Economical factors 4.3.3. Social factors 4.3.4. Technological factors.. 4.4. BCG matrix. 5. Recommendations 6. Conclusion..

1. EXECUTIVE SUMMARY
This report is about the strategic analysis of HONDA Company. One of the largest automobile manufacturing companies in the world .First it has been told about the history of the Company that how the company evolved .As Honda has a great reputation in its industry so it faces extensive competition so we have used Porter five forces model to analyze the competition of Honda with other companies, SWOT analysis to measure its internal strengths and weaknesses and external opportunities and threats. We have also used PEST analysis to study its external environment and BCG matrix to measure the companys growth.

2. INTRODUCTION
Japanese mechanic Soichiro Honda started Honda Motor Company in 1948. World War II had restricted Japan's gas supplies and so, unable to drive a car, Honda attached a small engine to his bicycle. Honda established the Honda Technical Research Institute to produce two-stroke motorcycle engines, then raised capital and created the Honda Cub. By 1963 the Honda Motor Company was the world's largest motorcycle manufacturer.

2.1. Cars
In 1955, Japan's government announced a project to produce a car for the people. Between 1957 and 1958 Honda Motor Company hired additional engineers and created the sporty S360 and S500 and the T360 pickup. Honda unveiled all three in June 1962 but the S360 was never produced. Honda released the T360 in June 1963 and the S500 four months later. Honda realized early on that it could design different cars for different countries and their needs. In 1970 it exported its first car to the United States, the N600. However, it was the Civic that established Honda as a serious car manufacturer.

2.2. The Civic

The first Civics were produced in 1973. They were compact, fuel-efficient (40 mpg) and still had room for four passengers. Over the years Honda refined and reinvented the Civic numerous times, even creating versions that used alternative fuels. In 1998, the Honda Civic GX became the only natural gas vehicle available in the USA, and in 2003, the first hybrid Civic launched.

2.3. 1980s

Honda's reputation for reliability and innovation grew. Starting in 1981, Honda began manufacturing the subcompact Honda City for Asia. It is still in production as of 2009. The Accord was first sold in the USA in 1982 and by 1989 was named America's most popular car. Honda also created the Prelude and the Acura for the luxury market.

2.4. 1990s
In 1995, the Honda S2000 was first shown and was launched four years later to celebrate Honda's 50th birthday. In 1994 Honda released the Passport SUV and its first minivan, the Odyssey. Two years later the Honda CR-V, a small SUV based on the Honda Civic, came out.

2.5. 21st Century

In 2000, Honda introduced the Insight, the first hybrid car in the United States (it beat the Toyota Prius by a month). It boasted 70 mpg. In 2003 Honda released the Pilot, a fullsize SUV to replace the Passport, the compact SUV Honda Element and the Ridgeline, Honda's first American-market pickup. The subcompact Honda Fit was introduced to the Asian market in 2001, along with the Mobilio, Mobilio Spike and Airwave. In 2009, Honda produced the first mass-market hydrogen fuel cell hybrid, the FCX Clarity, for Japan. As the Honda Motor Company grows, it continues to innovate and make progress in engineering and fuel efficiency. Honda has claimed that by 2013 it may be massproducing fuel-cell vehicles.

2.6. Vision statement

"Quality in all jobs: learn, think, analyze, evaluate and improve. Reliable products: on time, with excellence and consistency. Better communication: listen, ask and speak up."

2.7. Mission statement

Maintaining a global viewpoint, we are dedicated to supplying products of the highest quality, yet at a reasonable price for worldwide customer satisfaction.

2.8. Organizational structure

3. LIMITATIONS OF THE STUDY

The biggest limitation in the study was the time limitation as the work was more than the time allotted. The data collection method was not easy as the work required in study demanded much mental effort than the collection of data through secondary sources. As we are at the end of our semester so we have to work on other project along with this one. Overall it was a knowledge enhancing activity.

4. STRATEGIC ANALYSIS
We have used different tools for the strategic analysis of Honda. All of them are explained one by one below:

4.1. Porter model

Michael porter identified five forces that determine the intensity of competition among the companies in an industry. These five forces are: Threat of new entrants Rivalry among the existing firms Threat of substitute products and services Bargaining power of buyers Bargaining power of suppliers

4.1.1 THREAT OF NEW ENTRANTS

ECONOMIES OF SCALE: Scale in the production, marketing and sales in Honda is very high. PRODUCT DIFFERENTIATION: Honda has a high product differentiation through methods of production, advertising and promotion. CAPITAL REQUIREMENTS: There is high barrier of entry in automobile industry because of large capital requirement to start up a new company so it is difficult for a new company to enter and become a competitor of Honda. SWITCHING COSTS: Switching costs are high which result in high level of competition.

 ACCESS TO DISTRIBUTION CHANNELS:

Established companies in the

automobile industry such as Honda has very strong distribution channel which the new entrants cannot have. COST ADVANTAGES: Honda has low cost advantages which the new companies cannot have. GOVERNMENT POLICY: Governments have policies to restrict the import of car or on manufacturing of specific country brands to prevent their own manufacturers. For example, Pakistani govt. has restricted the import of Indian cars to prevent own manufacturers.

4.1.2 RIVALRY AMONG EXISTING FIRMS

The rivalry among the global automobile industry is very intense. The following points explain this fact. NUMBER OF COMPETITORS: Numbers of competitors of Honda are few and almost equal so they watch each other very closely to do a counter competitive move which determines the high level of intensity in the competition. RATE OF INDUSTRY GROWTH: Rate of industry growth determines the intensity of competition in an industry. Rate of growth of automobile industry is very healthy due to rapid development in technology and innovations. PRODUCT AND SERVICE CHARACTERISTICS: Honda has a very unique type of products and services which are very difficult for others to imitate. AMOUNT OF FIXED COSTS; Automobile companies cannot reduce their fixed costs which results in high competition of Honda with other companies. CAPACITY: Due to technological developments in the automobile industry, the unit costs have been reduced throughout the industry, which has increased the Hondas level of competition with others. HEIGHT OF EXIT BARRIERS: Height of exit barriers in this industry are very high because the capital invested too large to liquidate and too large for others to buy the business. DIVERSITY OF RIVALS: The rivals are not diverse because most of them do not have very different ideas to compete with each other

4.1.3 THREAT OF SUBSTITUTE PRODUCTS AND SERVICES

The threat of substitutes to automobile industry is very mild. Numerous other forms of transportation are available, but none offer convenience, utility and independence and the value afforded by automobiles. The switching costs associated with the use of any type of vehicle other than Honda may be very high. They can provide utility but not necessarily monetary benefit; in global urban areas other modes of transportation are preferred because the substitutes are available more easily. Also there are inherited social and cultural attitudes that prevent the people from owning the vehicles in some parts of the world. For example in Pakistan people prefer to buy Toyota rather than Honda. Mostly in underdeveloped and developing countries people prefer to use other modes of transportation because most of the people are middle class which do not have enough wealth to afford a car.

4.1.4 BARGAINING POWER OF BUYERS

In relationship between the automobile industry and its ultimate consumers, purchasers of finished vehicles, the power axis is slightly in the buyers favor. Consumers have the highest power in this relationship due to fairly standardized nature of automobile commodity and the low switching costs associated with selecting among the alternative brands. However, the automobile industry remains marginally powerful due to large customer to producer ratio.

4.1.5 BARGAINING POWER OF SUPPLIERS

In the relationship between automobile industry and its suppliers, the power axis is substantially in industrys favour. The industry is comprised of powerful buyer who are able to dictate their terms and conditions to their suppliers. There are number of specific characteristics that make the members of automobile industry powerful buyers: The sales are not largely dispersed. Automotive parts (e.g. oil, filters. Mufflers, belts etc) are standardized parts and are only to be used in automobiles. Backward integration can and does occur.

4.2SWOT ANALYSIS:

4.2.1 Strengths:
Innovation. Market share leadership in smart segment. Strong brand equity. Unique products. Production System that is refined over the years. High and powerful research and development R&D. Best market share leadership revolutionary engine technology. Popularity is termed as one of the best strength which results in betterment for the company.

4.2.2 Weakness:
Cost structure of Honda is high because of there quality preference. Apart from Nissan & Toyota, Honda requires privileged purchase deposit . Honda focus more on international deposits as compare to domestic deposits. Civic model is consider as one of the major weakness for Honda Company. Honda products are termed as inoffensive in terms of style and design. Prices for non-luxury vehicles are far high as compare to other manufacturers. In truck line, Honda Company is not offering strong products and proposals.

4.2.3 Opportunities:
Due to increased interest from consumers into more fuel efficient and lower pollution cars, Honda can use it's strength in high R&D to develop these kind of cars to suit consumers needs. China being a neighbor to Japan and has cost innovation advantages to be exploited in its global strategy. Emerging market is one of the best opportunity for this company o Various models are there which caters the lower segment Fuel efficiency is now a days termed as one of the best opportunity which can results in the best productivity for the company Alliances are the best opportunities for Honda Company Honda can increase its production by focusing on sales and research They can gain more popularity by doing better research and development.

4.2.4 Threats:
One of the major threat is the economic slowdown. All the external changes for instance taxes, politics as well as government are the major threats for Honda Company. Another threat is the lower cost competitors. Price war is also consider as an important threat for this company. Oil prices are contributing a lot towards the loss of Honda company. Second movers are the major threat for Honda company.

Substitute products are the major threats for the Honda company.

4.3 PEST analysis on Honda

4.3.1 Political:
Political Trend How the Trend Helps or Hinders the Business Government of Pakistan are having good relations with Honda since 1992 when they started to assemble there cars. The Pakistani Government was keen to attract foreign firms to invest in to the Pakistan. Honda started assembling in Pakistan. Honda had pressures to produce cars with clean emission. This has meant Honda has had to invest heavily in R&D to produce cars with cleaner engines e.g. i-vtec. The Auto Industry Development Plan promised to help the various car assemblers operating in Pakistan .

4.3.2 Economic Trend:

Economical Trend How the Trend Helps or Hinders the Business Economic conditions are not good through out the world and as Pakistan is one of the developing countries so there urchasing power to buy a car is too low, thats why Honda is assembling cars according to there needs and at the cost which they can meet easily. Hondas main focus is on quality no matter what because they have a status throughout the world which they cant afford to lower down so there prices are a bit higher then other automobile companies working in Pakistan.

4.3.3 Social and Demographic Trend:

Social and Demographic Trends How the Trend Helps or Hinders the Business Language Barriers Honda were there and they preferred to deal in the English Language. Honda is making efforts to recycle materials and conserve resources and energy at every stage of our products life cycle from research, design, production and sales, to services and disposal. Honda is making efforts to minimize and find appropriate methods to dispose of waste and contaminants that are produced through the use of our products, and in every stage of life cycle of these products. As both a member of the company and society, each employee will focus on the importance of making efforts to preserve human health and the global environment, and will do his or her part to ensure that factory as a whole acts responsibly.

Honda is considering the influence that our corporate activities have on the regional environment and society, and Endeavour to improve the social standing of the company.

4.3.4

Technological trends:
Technological Trend How the Trend Helps or Hinders the Business

Specialisation through machinery Machines that specialise at one task ensures that the product is made much quicker and of a higher quality. Safety Requirements Because of Legal & Consumer pressure, car manufacturers have had to develop cars with significant safety features which Honda would have had to research and test. This would be at the expense of their R&D Department. This is significantly different from a decade ago when crash-testing dummies were used. Clever cars Cars have had to include Satellite Navigation systems etc as standard, Honda has had to catch this up in their newer models. Environmentally friendly cars Honda developed i-vtec, which is a follow on from their infamous vtec engines. The vi-tec engine provides fuel economy, ample torque and clean emissions.

BCG MATRIX OF HONDA:

BCG Growth share matrix:

Companies that are large enough to be organized into strategic business units face the challenge of allocating resources among those units. In the early 1970s the Boston consulting group developed a model for managing a portfolio of different business units. The BCG growth-share matrix displays the various business units on a graph of the market growth rate vs. Market share relatives to competitors.

Resources are allocated to business units according to where they are situated on the grid as follows:

Star
A business unit that has a large market share in a fast growing industry. Stars may generate cash, but because the market is growing rapidly they require investment to maintain their lead. If successful, a star will become a cash cow when its industry matures. AUTOMOBILES businesses stand in Stars business in Honda Company because of its good growth rate and high market share. This business is generating the maximum part of its company.

Cash Cow
A business unit that has a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be used to invest in other business units. MOTOR CYCLES business has high market share but its growth has decreased with the time because of tough competition. So it included in cash cow business category in Honda Company.

Question Mark (or Problem Child)

A business unit that has a small market share in a high growth market. These business units require resources to grow market share, but whether they will succeed and become stars is unknown. Followings are the vehicles that fall under question mark: Electric and alternative fuel vehicles. Robots. Air Crafts. Mountain Bikes. Motor Sports.

These are all business required maximum investment because these are having a good market growth rate. Honda Company trying to increased the production of these things from investing in this sector

Dog
Dogs have a low market share and a low growth rate and neither generates nor consumes a large amount of cash. However, dogs are cash traps because of the money tied upon a business that has little potential. Such businesses are Candidates for divestiture. Power Equipment production of Honda Company with passage of decreased due to less demand in market. So the company trying to closed down these things production because of low market share and low growth rate.

5 Recommendations:

Build Market Share: Make further investments (for example, to maintain Star status, or turn a Question Mark into a Star) Hold: Maintain the status quo (do nothing) Reduce the investment so that the cost of there competitors could met. Get rid of the Dogs, and use the capital to invest in Stars and some Question Marks. They should be aware of their threats. Keep focusing on there strengths and try to control there weaknesses.

Conclusion: