Assignment 2 External and Internal Environment– Honda Motor Co
Choose an industry you have not yet written about in this course, and one publicly traded corporation within that industry. Research the company on its own Website, the public filings on the Securities and Exchange Commission EDGAR database (http://www.sec.gov/edgar.shtml), in the University’s online databases, and any other sources you can find. The annual report will often provide insights that can help address some of these questions.
Write an eight to ten (8-10) page paper in which you:
1- Choose the two (2) segments of the general environment that would rank highest in their influence on the corporation you chose. Assess how these segments affect the corporation you chose and the industry in which it operates.
2- Considering the five (5) forces of competition, choose the two (2) that you estimate are the most significant for the corporation you chose. Evaluate how well the company has addressed these two (2) forces in the recent past.
3- With the same two (2) forces in mind, predict what the company might do to improve its ability to address these forces in the near future.
4- Assess the external threats affecting this corporation and the opportunities available to the corporation. Give your opinions on how the corporation should deal with the most serious threat and the greatest opportunity. Justify your answer.
5- Give your opinion on the corporation’s greatest strengths and most significant weaknesses.
Choose the strategy or tactic the corporation should select to take maximum advantage of its strengths, and the strategy or tactic the corporation should select to fix its most significant weakness. Justify your choices.
6- Determine the company’s resources, capabilities, and core competencies.
7- Analyze the company’s value chain to determine where they can create using the resources, capabilities, and core competencies discussed above.
8- Use at least three (3) quality references. NOTE: Wikipedia and other Websites do not qualify as academic resources.
Choose the two (2) segments of the general environment that would rank highest in their influence on the corporation you chose. Assess how these segments affect the corporation you chose and the industry in which it operates
Honda Motor Co. is a Japanese public multinational dealing in automobiles, motorcycles and power equipment.
The general environment means elements of the society affect industries and the firms that operate within those industries. The Company cannot directly control these elements. The general environment is consists of the following segments: demographic, economic, political/ legal, sociocultural, technological and global segments.
The demographic segment denotes the characteristics of population in an area, district, and country in the world. It includes factors such as age, income, education etc. These data are used to understand the trend and pattern of consumer behavior.
The economic segment refers to the nature and direction of the economy in which a company competes or may compete. Important characteristics include inflation and interest rates, trade deficits / surpluses, budget deficits / surpluses, individual and business savings and investment rates, and gross domestic product.
The political/ legal segment refers how firms and other organizations to influence government and how governmental entities in turn influence them.
The sociocultural segment is concerned with the social attitudes and cultural values of different societies.
The technological segment is made up of the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, or materials.
The global segment includes new global markets and existing ones that are changing and important international political events. This segment recognizes that firms now compete in a competitive landscape where both competitors and customers are global, due in part to the rapid diffusion of both information and technology.
For Honda Motor Company economic and global environment is highly risky:
Raw material procurement: Honda is purchasing raw materials and other parts from outside suppliers which are beyond their control. Any increase in raw material price will affect production and cost of product also.
Interest rate: Honda is using hedging policies to reduce interest cost. These instruments include foreign currency forward contracts; currency swaps agreements and currency option contracts. Any default by counterparties might have an adverse effect on Honda.
Honda is operating all over world. Regulations regarding vehicle emission level, fuel economy, noise safety are extensive within the automobile industries and power product industries. Due to globalization, many countries are changing their policies very frequently which are affecting company’s operations.
Impact on industry:
Prices of automobile are increasing due to inflation. Automobile industry is the basis industry of the economy. The major external factor is oil dependency which influences price elasticity. Some other factors which affect the price elasticity are as follows:
Government Taxed on manufacturer
Buying capacity of peoples
Commercial use of automobile
Regulations regarding vehicle emission level, fuel economy, noise safety are extensive within the automobile industries and power product industries. Due to globalization, many countries are changing their policy very frequently which is affected automobile industry.
Material components are 73% of production cost, so Honda always tried to have close integration with suppliers. Hence, when procuring components it is very important to control tightly and reduce the logistical cost. Moreover, diminution of inventory will be an added benefit so that working capital requirements will be less. JIT manufacturing philosophy is being adopted by the company, and it demands close coordination among manufacturing units, vendors and ancillary units.
- Considering the five (5) forces of competition, choose the two (2) that you estimate are the most significant for the corporation you chose. Evaluate how well the company has addressed these two (2) forces in the recent past.
- Porter’s Five Forces Model of Competitive Analysis suggests:
- Threats of new entrants
- Bargaining power of customers
- Bargaining power of suppliers
- Rivalry among existing firms
- Threats from substitutes
- Threats of new entrants:
- New entrants are always a powerful source of competition. The new capacity and product range they bring in throw up new competitive pressure. New entrants also place a limit on prices and affect the profitability of existing players.
- Bargaining power of customers:
- This is another force that influences the competitive condition of the industry. The bargaining power of the buyers influences not only the prices that the producer can charge but also costs and investments of the producer because powerful buyers usually bargain for better services which involve costs and investment on the part of the producer.
- Bargaining power of suppliers:
- Often, suppliers’ are considerable bargaining power over companies. If Supplier is limited in number, they have more bargaining power. The bargaining power of suppliers determines the cost of raw material and other inputs of the industry.
- Rivalry among existing firms:
- The competitors influence prices as well as cost, production facility, product development and sales force.
- Threats from substitutes:
- Substitute’s products are a latent source of competition. This product is offering a price advantage and or performance improvement to the customer and increase competition in the industry.
- For Honda Motor Company, Bargaining power of customers and bargaining power of suppliers are important:
- Bargaining power of customers:
- In business, Honda has to make good relationship with customers. It is working on global levels. Customers want good product at reasonable price and good quality. There are number of competitors of Honda. In Vietnam 2007, Honda introduced Air Blade Scooter with sport and fashion model and most fuel efficient engine technology. Honda supplies does meet customers requirement and it takes customer one to two months waiting time. Suzuki has utilized this advantage and introduced new model- Hayate Scooter with same functions and lower price. Customer can take their product immediately. As a result, many customers change of their mind, therefore the market share of Honda to shrink.
- Bargaining power of suppliers:
- Honda purchases raw materials and components from different external suppliers. Honda has ability to obtain these supplies in an efficient and cost-effective manner. Some of which are not within Honda‘s control, these factors include the ability to provide a continued source of supply and ability to compete with other company in obtaining the supplies. If Honda loss a key supplier, it may affect the capacity and increase the cost.
- There are number of key suppliers which is supplying to Honda and other car manufacturer. In this case, if other manufacturer willing to pay higher price than Honda, it will affect either capacity or cost of the Honda products.
- With the same two (2) forces in mind, predict what the company might do to improve its ability to address these forces in the near future.
- Honda is a very renowned name in automobile industry. They can deals with these forces in the following ways:
- Bargaining power of customers:
- Honda can reduce bargaining power of customers through high quality and fuel efficient vehicles at best price. They can provide low fuel consumption engine technologies and extra safety features. Now customer is going for appearance of the product. So, Honda has a provide a vehicle with good appearance, low fuel consumption and extra safety features to avoid competition in the industry. The CVCC engine attempts to reduce emission of the pollution and with less fuel used while a VTEC engine was fuel economy with more power.
- Bargaining power of suppliers:
Honda is reply on few suppliers for raw material and components. They are working with suppliers for cost reduction and other value engineering activities, so that they can procure material at less cost.
- Recently, Honda is doing these improvement through supplier’s club in which various suppliers are the members of the club. They organized meeting on monthly basis and take suggestion from different suppliers for reducing cost and process improvement. From these initiatives every supplier gives best results and cost is also controlled.
- Assess the external threats affecting this corporation and the opportunities available to the corporation. Give your opinions on how the corporation should deal with the most serious threat and the greatest opportunity. Justify your answer.
- Threats affecting Honda Corporation:
- Intense competition:
- The Company is facing huge competition in the industry. New small entrants are also affecting the market while producing electric vehicles or alternative fuel engines. Big companies are becoming more competitive through restructuring. Therefore, Honda is suffering from competition from big and small companies.
- Decreasing fuel prices:
- Decline of fuel prices are also negative impact Honda because company is focusing on hydrogen fuel, hybrid and flexible fuel engine cars, which are not so attractive to consumers when fuel prices are low.
- Rising raw material prices:
- The main raw material is used in vehicle and motor cycle is metals. Rising metal cost is increase overall production cost of vehicles.
- Natural disasters:
- Honda has manufacturing facilities in Japan, Thailand, China and Malaysia. These countries affected from natural disasters which will hampered Honda’s production volume.
- Strong yen:
- Honda earns most of its profits outside Japan and appreciating yen poses a great threat to Honda’s profits.
- Opportunities of Honda Corporation:
- Increasing fuel prices:
- Honda’s is making fuel efficient vehicles with flexible, hybrid and hydrogen engines will pay off due to increasing fuel prices.
- Positive outlook for global motorcycle industry:
- Motorcycle is continuously increasing and is expected to grow by at least 6% to 2016. Honda is the world leading producer and seller of the motorcycle having more than 29% share. Rowing demand of motorcycle is a great opportunity to expand and growth of sales.
- Growth through acquisitions:
- Honda could greatly benefit from strategic partnerships or acquisitions of smaller competitors. The business would add new brands to its portfolio, achieve greater economies of scale and would benefit from synergies between different firms.
- Give your opinion on the corporation’s greatest strengths and most significant weaknesses.
- Choose the strategy or tactic the corporation should select to take maximum advantage of its strengths, and the strategy or tactic the corporation should select to fix its most significant weakness. Justify your choices.
- Strengths of Honda Motor Co.:
- Customer satisfaction and quality
- High R & D like Hybrid Technology
- Market share leadership
- Strong brand quality
- Unique products
- Weaknesses of Honda Motor Co.:
- Weak position in European market
- Reputation being underpowered
- Pricing and new products strategy is to be used by Honda to improve its strength because it will improve product portfolio and competition. If we see Honda vehicles, it is the best luxurious and comfortable vehicles. Now Honda is working on cost of the vehicles also. They are reducing cost of raw material through new value engineering initiatives. This will make Honda’s position strengthen in automobile industry.
- To improve weak position in European market, Honda has to manufacture cost competitive vehicles. Previously, Honda was not manufacturing diesel vehicles. But in 2013, they had launched Honda City in diesel version. Therefore, the company sale is drastically increasing. Honda has to work for improve their reputation through marketing strategy.
- Determine the company’s resources, capabilities, and core competencies.
- Core competencies are the combination of knowledge and technical capacities to allow a business to stand in a competitive market place.
- The Japanese automotive giant, Honda Motor Company’s core competencies are:
- Designing, developing and building engines
- Entry in new and different market from motorcycles to automobiles
- The Company is believing in top to down strategy approach
- Using computer aided control system to monitor product quality performance. The system depends on operator know how, statistical sampling techniques, modern machinery and softwarr.
- Analyze the company’s value chain to determine where they can create using the resources, capabilities, and core competencies discussed above.
- Value Chain Analysis:
- Primary activities:
- Inbound logistics:
Honda is the company which is using JIT (Just in Time) system. To ensure the high efficiency and low inventory production, Hero Honda uses high degree of automation and pursues lean manufacturing, with the usual benefits of increased cash flow, reduced cash & operating cycles and hence improved working capital conditions.
Honda is filling its demand in various countries though exporting the products. The effort is to provide for minimum waiting period or rather filling regions as per demand forecasts and market trends.
Marketing and Sales:
Years ago “ Fill it, Shut it, Forget it” campaign was started by marketing department of Hero Honda to pitch for better fuel efficiency and hence lower owning cost. To attract new customers, retain previous customers and reliability of its products the marketing department of Hero Honda strived constantly. It came up with Honda passport program to ensure the loyalty of customers
Honda is the best service provider in after sales services. In addition to providing better quality service and trouble-free availability of spare parts, company also paid attention to tidiness and other aesthetics of service stations and added facilities like air conditioned waiting rooms, coffee shops etc
Honda Annual Report, 2013http://world.honda.com/investors/library/annual_report/2013/honda2013ar-all-e.pdf
Business Policy, March 2012