Management 315: International Management, Professor In Hyeock Lee
Loyola University Chicago Spring 2013
This case study analyzes Honda's overall performance as a multinational enterprise using the company's revenue data, 4 distances, firm specific advantages, country specific advantages, foreign direct investment, and much more.
Case Presentation 1.1 HONDA Group 4 Matthew Cruz, Brooke Feery,Jacob Hostetler, Daniela Nicula, Manh Duc Tran
Who is Honda?Honda Motor Company, Ltd is a Japanesepublic multinational corporation primarilyknown as a manufacturer of automobiles andmotorcycles.
Honda at a Glance Is Honda a MNE? YES!• Industry: Automotive Forbes Lists• Founded: 1948• Country: Japan #59 Global 500• CEO: Takanobu Ito #19 Most Powerful• Website: Brands world.honda.com #44 in Sales• Employees: 179,000 #77 in Profit• 2012 Sales: $96.7 trillion #178 in Assets• Headquarters: Minato, Tokyo, Japan #93 in Market value
The Honda PortfolioSubsidiaries:• Many subsidiaries are companies that manufacture specific components (i.e. Honda Lock Manufacturing).• These companies manufacture transmission parts, motorcycle exhaust components, electronic safety systems, solar cells, brake discs, etc.Affiliates:• Multiple companies’ supply components go into Honda products (i.e. Keihin Corporation, Masuda Manufacturing).• These companies make automobile body parts, fuel systems, air conditioning systems, injection-molded plastic parts, etc.• Most affiliates and subsidiaries are Japanese (single diamond).• For example, Honda is starting to install Krell stereo systems on Acura vehicles.
Total Revenue (by Region) Japan 12.3% 18.9% North 18.1% America Europe 6.4% Asia 43.3% OtherHonda is Bi-Regional (37% Asia, 43% North America)
Case Study Questions1. What was Hondas distinct resource base that provided internationally transferable FSAs?2. Which value-added activities in which foreign locations permitted Honda to exploit and augment to the fullest its distinct resource base?3. What were the expected costs and difficulties Honda faced when transferring this distinct resource base?4. What specific resource recombination was required so as to make the proposed international value-added activities successful?5. Did Honda have the required resource recombination capability in-house?6. What were the costs and benefits of using complementary resources of external actors to fill resource gaps?7. What were the main bounded rationality and bounded reliability problems Honda faced when extending the geographic scope of the firms activities the changed linkages with outside stakeholders and the changes in its internal functioning?
Honda and the Four Distances Cultural• Honda hired American workers for their passion, not for their knowledge of motorcycle manufacturing.• Honda sent American workers to Japan to learn about Honda’s manufacturing processes, and sent some Japanese workers to the US to instill Honda’s philosophy into the plant. Administrative• US government passed the Clean Air Act imposing stricter requirements on tailpipe emissions.• Honda feared that if demand rose for their fuel efficient cars, the US would impose export restrictions.
Honda and the Four Distances Geographic• Honda had to search for a long time before finding the proper place to being manufacturing – Marysville, Ohio.• Only a few suppliers agreed to follow Honda and build their own plants in the US. Economic• The rising price of the yen against the dollar in the 1970s made continued exporting problematic.• The Oil Crisis of 1973 caused the price of Honda’s exports to increase while causing consumer demand for more fuel- efficient cars to increase as well.Honda’s approach to bridging the Four Distances in the 1970s classifies it as an International Projector.
International Expansion• Honda is striving to be the worlds leader in environmental and energy technologies through its product development, production, and other activities.• By 2014 North American capacity will hit 1.92 million vehicles annually.• The automaker is targeting a stronger position in mini-vehicle and compact vehicle segments to reinforce business operations in Japan.• Honda plans to terminate 800 jobs at its South Marston plant in England due to sagging demand for its vehicles in Europe.
Degree of MultinationalityLicensing – Honda licenses its technology to othercompanies in different countries (i.e. India) andengages in international joint ventures.Export – Honda is a net exporter, exporting moreAmerican–built vehicles than it imports from Japan.Honda exports 11 models accounting for over 100,000units shipped to more than 40 countries.Local Packaging / Assembly – Honda has 57 factoriesworldwide, 49 outside of Japan and 12 plants in NorthAmerica .FDI – Honda establishes relationships with suppliers inhost countries.
Firm Specific Advantages Tangible Resources• 57 factories in all regions• 8 R&D facilities worldwide• Many additional facilities Human Resources• Honda’s management style• Honda selected employees based on the passion for their work rather than their experience• Japanese/American employees visited one another’s countries
Firm Specific Advantages (cont’d) Intangible Resources• Manufacturing process• Brand reputation: practical, reliable, high-quality products• Immense experience with internal combustion engines• Partnerships with many affiliates who manufacture parts for motorcycles, cars, and other products• More than 17,600 patents in Japan and 25,300 patents abroad as well as 29,400 patents pending worldwide.• Supply chain management• Green initiatives such as reducing PVC use and fuel efficient car and motorcycle engines
Firm Specific Advantages (cont’d) Subsidiary Specific Advantages• Subsidiary HAM in case study had connections to Ford that Honda was able to leverage• Over 25,000 patents in foreign markets• Decentralized manufacturing allowed Honda to overcome the Earthquake and Tsunami in 2011 that disrupted Japanese manufacturing
Country Specific Advantages• The 1970 Clean Air Act passed by US Congress opened up an opportunity for Honda to bring fuel efficient cars into America.• European Union fuel costs are high and environmental restrictions are very severe on products with internal combustion engines.The mix of strong CSAs and strong FSAs placesHonda in the 3rd Quadrant of the FSA-CSA Matrix
Foreign Direct InvestmentEfficiency-seeking: Honda has mainly taken advantage of low-wage countries like Indonesia, Vietnam, Thailand and IndiaMarket-seeking: Honda Motor of Japan is going to expand its operations into IndiaStrategic Asset -seeking: 8 R&D facilities worldwide
Recombination Patterns Type III• Internationally transferrable FSAs are developed at home but in order to exploit them in host countries, location-bound knowledge must be added.• Honda recombined its FSAs such as its manufacturing process to better cater to international consumers.• Honda manufactures automobiles targeted specifically towards the host country’s consumers.• Honda’s extensive knowledge and experience with internal combustion engines is easily applied to many diverse markets.
Recombination Patterns Type VIII• Honda also features characteristics of this pattern.• Affiliates of the MNE located in various countries develop FSAs together, contributing knowledge upstream and downstream.• Honda R&D and other facilities worldwide cooperate to create new technologies that can be applied to innovative products in multiple host countries.
Summary• Bi-Regional MNE (NAFTA • FSAs are Primarily and Asia) Transferrable• Activity Level: • Single Diamond Licensing, Export, Assem Framework bly, FDI • FSA-CSA Matrix:• International Quadrant 3 Performance: Stage 3 • FDI Types:• Revenues are declining Market, Efficiency, &• MNE Archetype: Strategic Asset Seeking International Projector • Recombination Patterns: 3&8