The American Honda Motor Company was established as a subsidiary by
Honda in 1959. During the 1960's the type of motorcycles brought by
Americans underwent a major change. Motorcycle registrations increased
by over 800,000 in five years from 1960. In the early 60's the major
competitors were Haley - Davidson of U.S.A, BSA, Triumph and Norton of
the UK and Motto - Guzzi of Italy. Harley-Davidson had the largest
market share with sales in 1959 totalling a 6.6 million dollars. Many of
the motorcycles produced were large and bulky and this led to the image
of the motorcycle rider as being one who wore a leather jacket and went
out to cause trouble.
The Boston Consulting Group ( BCG ) report was initiated by the British
government to study the decline in British motorcycle companies around
the world, especially in the USA where sales had dropped from 49% in
1959 to 9% in 1973.
The two key factors the report identified was the
market share loss and profitability declines an the scale economy
disadvantages in technology, distribution, and manufacturing.
The BCG report showed that success of the Japanese manufacturers started
with the growth of their own domestic markets. The high production for
domestic demand led to Honda experiencing economies of scale as the cost
of producing motorbikes declined with the level of output. This provided
Honda to achieve a highly competitive cost position which they used to
penetrate into the US market. " The basic philosophy of the Japanese
manufacture is that high volumes per model provide the potential for
high productivity as a result of using capital intensive and highly
automated techniques. Their marketing strategies are therefore directed
towards developing these high model volumes, hence the careful
attention that we have observed them giving to growth and market
share." (BCG p.59 ).
The report goes on to show how Honda built up engineering competencies
through the innovation of Mr Honda. The company also moved away from
other companies who relied upon distributors to sell their bikes when
the company set up its headquarters in the west coast of America. The
BCG found that the motorcycles available before Honda entered the market
were for limited group of people such as the police, army etc. But Honda
had a "policy of selling, not primarily to confirmed motorcyclists but
rather to members of the general public who had never before given a
second thought to a motorcycle"( SP p.116 ). The small, lightweight
Honda Supercub sold at under 250 dollars compared to the bigger American
or British machines which were retailing at around 1000 to 1500 dollars.
In 1960 Honda's research team comprised of around 700 designer and
engineer staff compared to the 100 or so employed by their competitors
showing the value which the company placed on innovation. Production per
man-year was 159 units in 1962, a figure not reached by Harley-Davidson
Honda was following a strategy of developing region by region. Over a
period of four to five years they moved from the west coast of America
to the east coast. The report showed the emphasis which Honda paid to
advertising when the company spent heavily on the advertising theme "
you meet the nicest people on a Honda" thereby disassociating themselves
from the rowdy, hell's angels type of people.
Essentially the BCG is portraying Honda as a firm dedicated to being a
low cost producer, utilising its dominant position in Japan to force
entry into the U.S market, redefining that market by putting up the
nicest people image and exploiting its comparative advantage via
aggressive advertising and pricing.
Pascale tends to disagree on many points of the BCG report. The report
suggests that there was a smooth entry into the U.S market which led to
an instant success. Pascale argues that Honda entered the American
market at the end of the motorcycle trade season showing their impotence
to carry out research in the new market. As they entered the market at
the wrong time sales were not as good as they should have been and any
success was not going to be instantaneous. Pascale also criticises the
assumption that Honda was superior to other competitors in productivity.
He says that Honda was successful in Japan with productivity but
circumstances indicate that the company was not superior. The lack of
funding from the ministry of finance and the ploughing back of profits
into inventory meant they had a tight budget to follow.
The BCG report shows that Honda had a smooth policy of developing region
by region, moving from the west to the east. Pascale response is that
this is partly true but reminds that Hondas advertising was still in Los
Angeles in 1963, four years after setting up their subsidiary.
The report to the British government showed that Honda had a deliberate
strategy of disassociating themselves from the hells angels type of
people by following the nicest people advertisement policy.
Pascale shows that this was not an intentional move since there were
disputes within the company with the director of sales eventually
persuading to management against their better judgement. The BCG report
found Honda pushed into the U.S market with small lightweight
motorbikes. However Pascale says this is again not true. He argues the
intended strategy was one of promoting the larger 250cc and 350cc as
Honda felt that this was what the market wanted since Americans liked
all things large. The bikes were unreliable which led to the promotion
of the supercubs. These bikes salvaged the reputation of the company. An
idea which hardly came from an inspired idea but one of desperation.
Overall Pascale gives the impression that it was through an incidental
sequence of events which led to Honda gaining a strong hold in the U.S
market, mainly through the unexpected discovery of a large untapped
segment of the market while at the same time trying to retain the
interest of the current market.
The criticism made by Pascale can be further analysed by looking at the
strengths of the Honda company.
The strengths of Honda start with the roles which the founders played.
Honda was an inventive genius with a large ego and a volatile
temperament. His main concerns were not about the profitability of the
company or its products, but rather to show his innovative ability by
producing better engines. Fujisawa on the other hand thought about the
financial section of the company and how to market the ideas. He often
challenged Honda to come up with better engines. By specialising in
their own abilities the two of them were able to pool together resources
and function effectively as a team.
Another strength was the way the company utilised its market position.
Strengths in design advantages and production methods meant they were
able to increases sales in Japan even though there was no organisation
within the company. Once there was a large enough demand for its
products, mainly the supercub, Honda both in Japan and in America, moved
from a sale on consignment basis to one that required cash on delivery.
This seemed a very risky decision to make at the time but within three
years they had changed the pattern within the motorcycle industry by
shifting the power relationship from the dealer to the manufacturer.
Mr Honda had cultivated a "success against all odds" culture into the
company. This was tested when he sent two executives to the U.S with no
strategy other than to see if they could sell something.
The weaknesses within an organisation can become irrelevant if the
strategy is strong and there is good leadership.
An element of luck also helped Honda follow an emerging strategy.
Restrictions placed on funds by the government for the U.S venture
forced Honda to take an alternative route. If they had all the funds
necessary they may well have gone through the normal distribution
Honda entered the us market right at the end of the motorcycle trade
season. When leaking oil and clutch problems occurred on their bikes it
did not affect Honda as hard as it would have had they entered in the
beginning of the season. Also people noticing the Supercubs led the
company to produce a bike which was not at first supported by senior
The success of Honda was not the result of senior management coming up
with all the answers. In fact senior executives in most Japanese
manufacturing companies do not take their strategic positions too
seriously. Salesman, cleaners and those working on the manufacturing
floor all contribute to the company is run and thereby influence its
strategic position. It is this ability of an organisation to move ideas
from the tom to the bottom and back again in continuos dialogue that the
company values the greatest.
As a conclusion it is necessary to consider the theoretical side of
Hondas strategy and see whether the company was in fact following a
model. The first model is the Andrew's model. Andrew came up with the
idea that there were 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 model was also supported by Porter. This is how the BCG saw Honda,
as a corporation, who had looked at the market, formulated a strategy to
cope with the environment and competition pressures and implemented it,
making all Hondas plans and activities deliberate.
The second model known as the emergent strategy portrays a different
image to the Andrews model and shows how Pascale viewed Honda. The model
shows a realised strategy made up from a an intended strategy together
with an emergent strategy which is not planned but emerges in relation
to activities within the environment. Pascale seemed to think that in
Hondas case a substantial proportion or the companies corporate
strategy was emergent and less was actually intended strategy.
The actual strategy followed by Honda is likely to be a combination of
Minzburg, H. & Quinn, J.B. ( 1991), The strategy Process. Prentice hall.