Hero Honda Case Study: Is it 'Honda' that makes it a 'hero? | Hero Motocorp | Honda Bikes
Summary
TLDRThe video script delves into the strategic alliance between Honda Motor Company and Hero Group, forming Hero Honda, the world's largest bicycle manufacturer's foray into India's motorized two-wheeler market. Initially successful, tensions arose over technology transfer and competition as Honda planned its own subsidiary. The case study explores the joint venture's evolution, contract negotiations, and the impact of Honda's independent market entry on Hero Honda's future, amidst growing competition and market liberalization in India.
Takeaways
- 🤝 The case study revolves around a joint venture between Honda Motor Company of Japan and the Indian Hero Group, which is the largest manufacturer of bicycles in the world.
- 🚗 Honda entered into a 50-50 alliance with Hero to manufacture motorcycles for the Indian market, with Honda taking on product design and technology transfer, while Hero managed manufacturing and marketing.
- 📉 Tensions arose during the contract renewal period when Hero felt that Honda was slowing down technology transfers, leading to a 30% plummet in Hero Honda Motors' stock upon Honda's announcement of setting up a subsidiary in India.
- 🔄 The joint venture agreement was extended for another 10 years after negotiations, but the relationship was strained by Honda's plans to enter the motorcycle market independently in 2004.
- 🏁 The initial joint venture agreement was signed in June 1984, with both partners contributing equally to the equity and sharing responsibilities in different areas of the business.
- 💼 Honda provided technical know-how and future R&D efforts, while Hero contributed local talent for managing operations beyond engineering and quality support.
- 💰 Hero Honda Motors became a public company listed on the Bombay Stock Exchange, with a 13-member board overseeing the company's governance.
- 🔄 The 1995 contract renegotiation resulted in more favorable terms for Hero Honda, including significantly reduced royalty payments to Honda and a more timely transfer of technology.
- 🛠️ Hero Honda undertook significant expansion of its distribution network and product launches to stay competitive, relying heavily on Honda's R&D support for new product introductions.
- 📈 Intense competition emerged in the late 90s, with foreign joint ventures maturing and cheap Chinese imports posing a threat to the domestic two-wheeler industry.
- 🛑 Honda's decision to dissolve the Kinetic Honda Limited venture and its plans to enter the scooter market independently caused alarm for Hero, as it threatened their market share.
Q & A
What was the primary focus of the case study presented in the video?
-The case study focuses on the joint venture between Honda Motor Company of Japan and the Hero Group of India, specifically examining the dynamics of their partnership in the motorcycle manufacturing industry for the Indian market.
Who are the two main partners in the joint venture discussed in the video?
-The two main partners in the joint venture are Honda Motor Company of Japan and the Hero Group, an Indian conglomerate.
What was the initial agreement between Honda and Hero regarding their roles in the joint venture?
-Honda was responsible for product design and technology transfer, while Hero was in charge of manufacturing and marketing.
When did the first signs of tension between Honda and Hero appear in the joint venture?
-The first signs of tension appeared in August 1999 when Honda announced the setting up of a subsidiary in India to manufacture scooters and motorcycles.
How did the market liberalization in India affect the joint venture between Honda and Hero?
-The market liberalization in India led to increased competition and forced Honda to consider entering the motorcycle market on its own, which threatened the survival of Hero.
What were the key terms renegotiated in the 1995 contract renewal between Honda and Hero?
-The key terms renegotiated included a significant reduction in royalty payments from Hero to Honda, more attractive terms for future model licenses, and a faster transfer of technology.
What was the impact of Honda's announcement to set up a subsidiary on Hero Honda Motors' stock price?
-Hero Honda Motors' stock plummeted by 30% on the day of Honda's announcement, indicating investor concerns about the company's future performance.
How did Hero Honda Motors respond to the increased competition from other motorcycle manufacturers in India?
-Hero Honda Motors became more aggressive in terms of marketing, launching new products every two years, and expanding its distribution network.
What concessions did Honda agree to when the joint venture agreement was renegotiated?
-Honda agreed to delay its entry into the motorcycle segment until 2004, form a four-person committee with two members from Hero to examine new motorcycle releases, and offer Hero an opportunity to share in the equity as a minority holder in Honda Motor Scooters India.
What was the significance of the 2004 revalidation of the joint venture agreement between Honda and Hero?
-The 2004 revalidation was significant as it was the year when Honda planned to enter the motorcycle market in India, potentially affecting the future of the joint venture with Hero.
How did the lifting of import restrictions in India in 2001 impact the domestic two-wheeler industry?
-The lifting of import restrictions led to an influx of cheap Chinese imports, which made domestic two-wheelers seem expensive in comparison, threatening the domestic industry, especially in the mid and low price segments.
Outlines
🤝 Joint Venture Formation and Challenges
The first paragraph outlines the formation of a joint venture between Honda Motor Company of Japan and the Indian Hero Group, focusing on the motorcycle market in India. Initially successful, the partnership faced challenges during the contract renewal period due to perceived slow technology transfer by Honda. This led to a 10-year extension after negotiations. However, Honda's announcement of setting up a subsidiary to manufacture scooters and its plans to enter the motorcycle market in 2004 created a rift, posing a significant threat to Hero's survival. The paragraph also touches on the initial market conditions and the strategic moves made by both companies.
📈 Negotiations and Strategic Alliances
The second paragraph delves into the negotiations between Honda and Hero, leading to the establishment of Hero Honda Motors Limited in 1984. It details the initial agreement terms, including technical know-how transfer and royalty payments. The paragraph also highlights the internal dynamics within the Hero Group and the strategic decisions made by both partners. The 1995 renegotiation of the joint venture agreement is discussed, along with the new terms that favored Hero Honda Motors, including reduced royalty fees and a more aggressive product launch strategy.
🚀 Market Expansion and Competitive Threats
The third paragraph discusses the aggressive marketing and product launch strategy of Hero Honda Motors in response to competition from Bajaj and TVS Suzuki. It also covers the expansion of the company's distribution network and the challenges posed by cheap Chinese imports after import restrictions were lifted in India in 2001. The paragraph further explains Honda's decision to dissolve its venture with Kinetic Engineering and its plans to enter the scooter market independently, which raised concerns for Hero Honda Motors.
🔄 Future Outlook and Honda's Independent Move
The fourth paragraph provides insights into the future outlook of the joint venture and Honda's independent strategic moves. It includes Honda's plans to set up Honda Motor Scooters India Limited and its intention to enter the motorcycle market in 2004, coinciding with the next revalidation of the joint venture agreement. The paragraph details the concessions negotiated by Hero Honda Motors from Honda, including a delay in Honda's entry into the motorcycle segment, a joint committee to review new motorcycle releases, and an opportunity for Hero Honda to share equity in Honda Motor Scooters India. It concludes with statements from Honda executives hinting at a continued partnership post-2004, despite their independent expansion plans.
Mindmap
Keywords
💡Joint Venture
💡Technology Transfer
💡Manufacturing
💡Marketing
💡Contract Renewal
💡Subsidiary
💡Predatory Moves
💡Stock Plunge
💡Liberalization
💡R&D Support
💡Market Segmentation
💡Competition
💡Import Restrictions
💡Equity Sharing
Highlights
Hero Honda is the largest manufacturer of bicycles in the world and had ventured into the motorized two-wheeler market.
Honda Motor Company of Japan entered a 50-50 joint venture with Hero Group to manufacture motorcycles for the Indian market.
Hero was responsible for manufacturing and marketing, while Honda took on product design and technology transfer.
The joint venture faced challenges during the contract renewal period due to perceived slow technology transfer from Honda.
Honda's announcement of setting up a subsidiary in India to manufacture scooters and motorcycles threatened Hero's market position.
Hero Honda's stock value plummeted by 30% following Honda's announcement of its subsidiary.
Honda initially considered Bajaj Auto and the Ferrodia Group for joint ventures before choosing Hero.
Kinetic Engineering Limited, part of the Ferrodia Group, had a significant market share in the Indian moped market.
The joint venture agreement between Honda and Hero was signed in June 1984, creating Hero Honda Motors Limited.
Hero Honda Motors became a public company listed on the Bombay Stock Exchange with a 13-member board.
The agreement included a review of terms and relevance in 1994, leading to renegotiated terms favorable to Hero.
Hero Honda Motors expanded its distribution network and launched new products to stay competitive.
Honda's dissolution of its venture with Kinetic Engineering left a void in its product suite in India.
The emergence of competition from Bajaj, TVS, and Suzuki intensified market pressures on Hero Honda.
Chinese imports posed a significant price competition threat to the Indian two-wheeler industry.
Honda's plans for a new company, Honda Motor Scooters India Limited, raised concerns for Hero's future.
Mr. Munjal, from Hero, sought assurances from Honda, including a delay in Honda's entry into the motorcycle segment.
Honda's CEO, Mr. Yoshino, and the President of Honda Motor Scooters India, Mr. Takiguchi, addressed concerns and outlined future collaboration plans.
The case study concludes with uncertainties regarding the future of the joint venture post-2004.
Transcripts
hi everyone
today i'm going to take you through the
case study of hero honda
this case focuses on a joint venture
between honda motor company of japan
and the hero group a conglomerate of
indian companies
held by the moon family hiro is the
largest
manufacturer of bicycles in the world
and
at that time had already dabbled in the
motorized two wheeler market with its
mopeds honda motor company entered into
a 50 50 alliance with hero
to manufacture motorcycle for the indian
market
it assumed product design and technology
transfer responsibilities
while hero was in charge of
manufacturing and marketing
the venture performed very well until
the contract renewal period
when hiro felt that honda motor company
was
slowing down its technology transfer the
agreement was
extended for another 10 years after
negotiations just as the relationship
appeared to get better honda motor
company
announced the setting up of a subsidiary
in india
to manufacture scooters it said that the
subsidiary would enter the motorcycle
market in 2004
this grew from a split between honda
and its indian partner in a venture that
was manufacturing scooters
having exited the venture honda motor
company wanted to go
it alone this caused serious concern for
hero
since honda motor company's entry into
the motorcycle market
would threaten its own survival
now before moving to this case study i
would request you to subscribe
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in order to get my recent
video updates also this video is enabled
with
english subtitles for your better
understanding
now let's move to the case study
the spectacular track record of the hero
company was being threatened
by the predatory moves made by its
japanese partner
honda motor company the first dark
clouds appeared on the horizon
in august 1999. honda motor company
joint venture partner announced that it
would be setting up
a hundred percent subsidiary on a
motorcycle
and scooter india to initially make
scooters
and later motorcycles as well
hero honda motors stock plummeted by 30
on the day of this announcement it was
apparent
that the investors were no longer
optimistic
about the hero company's ability to
continue
its sterling performance record
especially
in the face of competition from honda
given the impending liberalization of
india's market
honda motor company had come looking for
shooters
initial plans called for entry both into
the two wheelers market and the electric
generator market in india
honda motor company identified a short
list of indian companies that it felt
would make good partners topping the
list in the two-wheeler category was
bajaj otto a company that traced its
reputation
to the storied history of piaggio of
italy
and the chick yet egalitarian brand of
transportation it offered through its
series of vespas
when the first choice did not work out
for the honda motor company
it moved on to its second choice the
ferrodia group
an automotive product conglomerate based
in the prosperous western indian state
of maharashtra
kinetic engineering limited the group's
flagship
company manufactured the first moped in
india
hugely popular in the late 70s and the
early 80s
kinetic engineering limited had a 44
share of the indian muppet market
and about 15 percent of the entire
two-wheeler market in india
it seemed to hold much promise at that
time
and thus attracted the attention of a
honda motor company
kel and hmc entered into a 50 50 joint
venture
kinetic honda motors limited with the
express
objective of launching the line of
scooters in india
it was widely reported that kel was
offered a choice between scooters and
motorcycle
and they chose scooters based on a
prevailing trend
that favored scooters honda was already
close to signing on another partner
for its another venture in power product
and hence its bid for a motorcycle joint
venture
was all that was left in play
honda motor company came to the hero
group as the last
choice for its motorcycle venture the
market for motorcycle was not booming
in any sense of the term in the early
80s many indian consumers
still believed that motorcycles were
more
accident prone and less safe for
indian roads the market had been largely
carved among three indian firms with
various level
of old imported technology it was
against
this backdrop that the hero group sought
to throw
its hat into the ring as a means of
consolidating its position
in the two-wheeler market
the negotiations between honda motor
company and the hero group
had by all accounts gone quite smoothly
although there had been some lingering
resentment
that honda motor company had come to
hero as a
large resort mr bridge mohan
lal munjal had tried to maintain the
enthusiasm
among the members of the munjal family
emphasising
the benefits of the alliance they were
about to enter
the negotiations culminated in an
agreement
that was signed in the year june 1984
creating a joint venture firm called
hero honda motors limited
under agreed to provide technical
know-how
to hero honda and assist
in setting up manufacturing facilities
this
included providing the design
specifications and responsibility of
future r d efforts relating to the
product lines that the company would
offer for these services hiro honda
motors
agreed to pay honda a lump sum fee
of 5 lakh dollars and a 4 percent
royalty on the next x factory sale price
of the product
both partners held 26 percent of the
equity
with another 26 sold to the public and
the rest held by the financial
institutions
hero honda motors became a public
company
listed on the bombay stock exchange a
13-member board was formed
to oversee the governments of the
company
honda had four key appointees including
the joint managing director
a particularly powerful position in
indian companies
the hero group was represented by four
family members
and appointed the chairman of the
company honda brought
in its staff of technical experts to run
the engineering and quality support
functions
hero brought in local talent to manage
all other functions including marketing
finance and hr
a seven member top management team drawn
almost exclusively from local ranks
took charge of the daily operations of
the venture
both partners agreed to review the terms
and relevance of the agreement in
1994 when the current joint venture
arrangement would lapse time was short
and it was clear that hiro honda motors
would have
to act very quickly to build a foothold
in the motorcycle business
as 1994 rolled around the sentiments
among the munzel family were mixed
but largely negative some felt that
while hero
had plowed a lot into making hirohuna
motors a success
honda motor company had not contributed
there was a lack of
new product innovation and much
uncertainty surrounding the negotiations
at that time
even routine design changes were taking
too long
and hoda motor companies r d engineers
did not
appear cooperative at all the impending
negotiations
paralyzed hiro honda motors and it had
to sit on the sidelines
why the competitors like bajaj had
introduced
a new four-stroke engine for its
motorcycle line
and bajaj surprised the hirohunta motors
which had carefully nurtured
it was 1995 by the time the joint
venture agreement was
renegotiated and extended until 2004.
hirohonda motors was able to negotiate
far
more attractive terms from honda motor
company with respect to royalties
they were able to persuade hoda motor
company to accept
a paltry rupees 200 per vehicle in 1995.
licenses to manufacture future models
were dealt with a case-to-case basis
using a mix of lump sum payment and
royalties
by 1999 the proportion of royalty
payment to sales revenue
had declined considerably from a high of
four percent to about 0.5 percent
honda displayed new willingness to share
its r
d and product suits in a more timely
fashion
subsequent to the 1995 contract renewal
honda licensed hero honda motors to
manufacture
with the emergence of significant
competition
from similarly positioned offerings from
bajaj
and tvs suzuki hirohonda had become more
aggressive
in terms of its marketing with new
product launches
and market segmentation the company had
announced new product launches every two
year
to continue this effort this phenomenal
rate of new product
introduction was of course solely
dependent on hiro honda motor companies
and honda motor companies continuing its
r d support
since hero honda motor had not exploded
setting up
r d facilities in india hirohonda motor
had also undertaken
significant expansion of its
distribution network
street a model that was based on honda's
recent global hit
called the dream which had sold over 25
million
worldwide in addition to the reduced
royalties and fast track transfer of
technology
honda motor company agreed to increase
the extent of components
and sub assemblies purchased from heroes
supplier network
competition began to intensify in the
late 90s
as many of the foreign joint ventures in
the indian motorcycle industry
reached maturity players such as
kawasaki and yamaha
were helping their local companies mount
a credible assault on the hero honda
hero honda motors partner honda motor
company
was forced to dissolve kinetic honda
limited the venture which was set up
with kinetic engineering to manufacture
scooters
this left a void in honda motor
company's product suit
in india and it was poised to enter the
scooter market
on its own both of these development
were cause for a significant alarm
in addition to the domestic competition
another competitive threat took shape in
the form of
cheap chinese imports when import
restrictions were lifted
in india in the year 2001. a relatively
unknown
company named monto motors in rajasthan
was the first to
import semi-knock-down kits from one of
the top motorcycle manufacturers
in china a 72cc motorbike from china
would cost the customer rupees 27 000
on road at 125 cc would cost rs 33
000 and a 250 cc motorbike would cost
rupees 36 000. the indian muppets seemed
frightfully expensive in comparison
in the early 2002 a muppet cast
around rupees 22 000 a 100 cc motorbike
cost around rupees 45 000
and a 125 cc motorcycle would cost
around rupees 50 000.
the domestic two-wheeler industry was
bound to feel the pinch
especially in the mid and low price
segment of the motorcycle
scooter and moped segments
honda motor company having extricated
itself from the kinetic honda limited
venture
announced plans to set up a new company
honda motor scooters
india limited for the sole purpose of
manufacturing scooter for the indian
market
at that time it also announced that it
intended to
enter the motorcycle market in the year
2004.
obviously the very year when the hero
honda motor joint venture agreement
would come up for its next revalidation
this
announcement shocked the top brass at
hero group
mr munjal put on a brave face and
announced
that honda had made its plan publicly
only after hero signed off its plans
this led to further speculation
as to why mr munjal would give his
blessing
to a venture that would place the
destiny of hiro honda motors in peril
honda motor scooters india was indeed
a troubling development for the munjal
family and
its investors however mr munjal was
looking for the silver lining
in what was apparently a huge storm
cloud brewing
he announced that hero honda motors had
negotiated three
key concessions from honda first
honda agreed to delay entry into the
motorcycle segment
until 2004. it also agreed to form
a four-person committee with two members
from hirohonda motors to examine
any new motorcycle that it would release
post 2004
lastly it offered an opportunity to hero
honda motors
to share in the equity as a minority
holder
in honda motor scooters india
these assurances were followed by a
visit
by mr yoshino the ceo of honda from
japan
for the launch of honda's first scooter
in india
at the launch ceremony he addressed the
simmering problems
that were perceived by hiro honda motors
and its investors he observed by 2003
the two companies will together be
selling 25 percent
of the world's projected 7 million
market for two wheelers
the president and ceo of honda motor
scooters
india mr takiguchi painted
a similar scenario in his interview with
the leading news
magazine he said the discussion in 2004
will not be on whether to continue with
the joint venture
we will sit and discuss about the
products
which both the companies here honda and
honda motors should build on however
in the same breath he also observed
our strategy will be to offer
motorcycles
which keep up with the overall market
trend
in the post 2004 scenario it was
anybody's guess what that statement
really meant
honda was already bolstering
its dealership network and had plans to
set up over a hundred dealership by the
end of 2002
it was also spending rupees 1 billion to
set up a manufacturing plant
that would double honda motors existing
capacity
given the rate of growth of scooters
that was
in the four percent range it was
difficult to imagine
how honda would be able to use the
capacity
effectively without stepping onto
hirohonda motors turf
mr munchell seemed to be reassured about
the situation
however after mr yoshino's visit
he proclaimed his visit has made a lot
of difference to the outlook
at honda
thank you everyone for watching this
video
see you soon with another interesting
case studies
for more such case studies please visit
five minutes learning channel in youtube
and subscribe to five minutes
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