Hero Honda Case Study: Is it 'Honda' that makes it a 'hero? | Hero Motocorp | Honda Bikes

Summary

The 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

00:00

🤝 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.

05:00

📈 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.

10:03

🚀 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.

15:04

🔄 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.

Keywords

💡Joint Venture

A joint venture is a business arrangement where two or more parties agree to pool their resources for the purpose of accomplishing a specific task or project. In the context of the video, the joint venture between Honda Motor Company of Japan and the Hero Group is the central focus, as they collaborate to manufacture motorcycles for the Indian market. This partnership is crucial to the case study as it highlights the dynamics of international business alliances and the challenges that can arise from them.

💡Technology Transfer

Technology transfer refers to the process of sharing or transferring technical knowledge from one party to another. In the video, Honda Motor Company is responsible for the product design and technology transfer to Hero, which is a critical aspect of their joint venture. The script mentions concerns from Hero that Honda was slowing down its technology transfer, which could impact the competitiveness of their products in the Indian market.

💡Manufacturing

Manufacturing is the process of converting raw materials into finished goods through industrial processes. In the script, Hero is in charge of manufacturing for the joint venture, which is a key aspect of their business operations. The manufacturing capabilities of Hero are highlighted as a strength in the partnership, especially in the context of the Indian market.

💡Marketing

Marketing is the activity of promoting and selling products or services. The script mentions that Hero is responsible for marketing the motorcycles produced by the joint venture. Effective marketing is essential for the success of the venture, as it helps to create awareness and drive sales of the motorcycles in the competitive Indian market.

💡Contract Renewal

Contract renewal is the process of extending or renegotiating the terms of a contract. The video discusses the contract renewal period between Honda and Hero, which becomes a pivotal moment in their partnership. The negotiations during this period are critical as they determine the future direction and terms of the joint venture.

💡Subsidiary

A subsidiary is a company that is owned or controlled by another company, known as the parent company. In the script, Honda Motor Company announces the setting up of a subsidiary in India to manufacture scooters, which is a significant development that affects the relationship with its joint venture partner, Hero. This move by Honda introduces competition and raises concerns for Hero.

💡Predatory Moves

Predatory moves refer to aggressive or competitive actions taken by one company against another, often with the intent to dominate or undermine the competitor. The video describes Honda's actions as predatory, particularly in the context of its plans to enter the motorcycle market in India, which threatens the survival of Hero.

💡Stock Plunge

A stock plunge refers to a significant and rapid decrease in the price of a company's stock. The script mentions that Hero Honda Motors' stock plummeted by 30% on the day of Honda's announcement to set up a subsidiary, indicating a loss of investor confidence in the company's future performance.

💡Liberalization

Liberalization in an economic context refers to the relaxation of regulations and restrictions, often in trade and markets. The video mentions the liberalization of India's market, which allowed for greater foreign investment and competition, including from Honda, and had implications for domestic companies like Hero.

💡R&D Support

R&D stands for research and development, which is the process of creating new products or improving existing ones through scientific research. The script discusses the importance of Honda's R&D support for the joint venture, as it is crucial for the continuous introduction of new products and maintaining a competitive edge in the market.

💡Market Segmentation

Market segmentation is the process of dividing a market into subgroups of consumers with similar needs or characteristics. The video mentions that Hero Honda Motors became more aggressive in terms of its marketing with new product launches and market segmentation, indicating a strategic approach to targeting different consumer groups within the motorcycle market.

💡Competition

Competition refers to the rivalry among businesses striving to achieve the same business objectives. The script highlights the intensifying competition in the Indian motorcycle industry, with players like Bajaj, TVS, and Suzuki posing significant challenges to Hero Honda Motors. The competition is further complicated by Honda's plans to enter the market independently.

💡Import Restrictions

Import restrictions are measures imposed by a government to limit the quantity or type of goods that can be imported into a country. The lifting of import restrictions in India in 2001, as mentioned in the script, allowed for the influx of cheap Chinese imports, which posed a new competitive threat to domestic manufacturers like Hero Honda Motors.

💡Equity Sharing

Equity sharing refers to the distribution of ownership stakes in a company. The script discusses Honda's offer to Hero Honda Motors to share in the equity as a minority holder in Honda Motor Scooters India, which represents a potential concession in the midst of competitive tensions between the two companies.

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

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