Strategic Analysis ofHonda in the Car Manufacturing Industry IntroductionHonda is a multinationalcompany established in Hamamatsu, Japan in October 1946 by Sochiro Honda. It specialises in the production of aircraft,motorcycles, and more prominently automobiles. It 8th biggest carmanufacturer in the world behind, 7 places behind the next Japanese company,Toyota The company has many branches around the world including over 300subsidiaries and affiliates accommodating 208,399 employees.
It is one of themain competitors in the Japanese cars market alongside Toyota, Nissan, Honda& Suzuki. With the rise ofglobalisation in the 21st century, multinational companies wish whotransfer operations abroad, regularly have to adjust to certain language/culturalbarriers that often limit management. (SB1 Honda is aiming tomake English the official language of the company by 2020. This is relatively important as it offers the firm aninternational platform to maximise its global appeal. English is rapidlybecoming the minimum requirement in the global marketplace.
External Environment ofRetail Automobile IndustryHonda primarily operatesin the automobile industry. The industry reported 0.3 % growth in 2016. Despitea marginal increase in 2016, the market is still recovering from poor economicperformance between 2014-15. Theunfavourable economic conditions came to halt in 2016 as confidence amongstgeneral 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 theirAsia-Pacific counterparts as China & Taiwan’s new cars industry grew by10.
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 conciseindicators to efficiently explain the challenges car manufactures in Japan haveto go through. Porter 5 Analysis of Retail Automobile IndustryNew EntrantsIt is fairy difficult for new entrants to enter market as establishedbrands have the capital and reputation to keep newcomers out. Of those who dosucceed are usually established foreign conglomerates who have the necessaryfinancial power to remain competitive whilst being disadvantaged by various legislative/geographic factors.
Moreover, new entrants will have to incurhigh fixed costs associated with the design and manufacture of new cars whichmakes economies of scale extremely difficult to achieve. In growing expectation for high technology features in newer editions ofautomobiles, it is challenging for newcomers as development followed byimplementation of these newer high-tech advancements in vehicles is very costlyand time consuming. Customer expectations usually entail user-friendlinessfollowed by competitive prices, something that local newcomers in the carindustry will find highly difficult to offer. Hence new entrants in the automobile industry hardly enter henceHonda should feel little concern from any threat coming from local entities.However, with theincreasing usage Electric vehicles, this has given new start-ups a new outletto compete as companies stubbornly dependant on petrol-fuelled vehicles willincreasingly find it difficult to compete in the market unless alterations aremade.To conclude,the threat of new entrants is low. Threat of SubstitutesThreats usually come from alternative means of transport followed bythird-party entities. Also the threat of substitutes may be argued that it isincreasingly difficult for automobile companies to sell fuel-powered vehiclesas the environmental initiative continues to be mainstream theme.
Coupled bythe fact that Japanese consumers purchased approximately 15,000 electricsvehicles in the 2015-16 period. This will be strong indication to Honda, that changing the bulk of their production lineinto electric cars market should be future target. Although in 2007, the Japanese firm havedisplayed awareness over said issue, as they were the first automobile company to mass produce fuel-celled vehicles. This madetheir production line more environmentally-friendly, competitive and cognizant tochanging societal attitudes on climate change. As with public transport, the unstable petrol prices will part ofconsumer decision-making with regards purchasing a car. Moreover, proximityshould 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 viahighly cost-effective alternatives like walking for instance.
Hence thethreat 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 rathersparingly 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 2014, soon followed byanother in 2015 has done little to soothe consumer insecurity which can alsoexplain the 5.4 % fall in demand for car in 2015/16 fiscal year.
However, with increasing consumer confidence in 2016, this wouldexplain how the decline of new car registrations has come to a hopeful end witha reported 1.5 % decrease at the end of 2015 as opposed to the 9.3% decreasethe year before .
Fuel prices has seen drops in the 2015-16 period with oil import costsdropping to $54.2 per barrel in 2015 followed by $41.29 per barrel in 2016 , ata reduced price burden from fuel hence consumers can consider purchasing moreexpensive vehicles which will strengthen buyer power.
Buyer power is influencedby several factors which are outside Honda’s control making it weaker againstcustomer pressures. However, with recent economic events affecting consumerfreedom, this has caused a substantial decline in demand of new automobileswhich is showing signs of recovery. However as of yet,buyer power stands to be a moderate level. Supplier PowerProducts that are car companies seek often are in the metal industry. Ontop of that, certain high quality car makers are keen on luxurious/technologicaladvanced products to help differentiate itself from its competitors. Suppliershave often many buyer requirements to meet before any form of negotiations canend successfully.
This often leads to weaker supplier power. Although, if thesupplier can develop strong relations with any prospective buyer, this canposition themselves in a strong supplier’s position. However, with limited differentiation on raw products, this maylimit supplier power to certain degree . Degree of competitionAs the market for cars is in oligopolistic competition, there are smallnumber of car companies who dominate the industry. Toyota has the lion sharewith 36.
9%, which is followed Honda & Suzuki 17.1 % and 15% respectively .It is a fairly consolidated industry, as firms who wish to grow do so inorganicallythrough mergers & acquisitions.Moreover, competitors in the Japanese market have showed relativeambivalence, to the environmental initiative which is rapidly becoming theforefront of modern day politics. This may weaken competition as there areconcerns could fall behind more environmentally friendly competitors. Internal Analysis of HondaFor the internal study of workings in Honda, Value chain analysis is theframework of choice to better explain the company’s Value Chain Analysis of HondaInbound 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 suppliers. With English becoming a more prominent language within the company, it is likely to strengthen relationships in Anglophone countries.Operations-Honda has a setup of 89 factory plants spread across 33 countriesOutbound Logistics –