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According to Miller, Vandome & McBrewster (2010), strategy is the a broad, future-oriented plan of an organization, that involves incorporating the activities of the organization, as well as, exploiting and distributing its scarce resources within its environment so as to maximize the attainment of its objectives. Strategy is like an organizational roadmap; it defines the general mission, vision, and the direction of the organization. It shows the awareness of an organization of how to compete when, against whom, for what, and where. An organizational strategy not only offers a framework for making managerial decisions, but also sets the direction on how the company will grow and expand. Strategy is formulated when speedy changes happen within the organizational environment. Several steps are involved in strategy formulation. They include; defining an organization’s objectives, evaluation of the organizational environment, setting quantitative targets, performance analysis, and choice of strategy (Miller, Vandome & McBrewster 2010). It is important for managers to realize that strategy formulations do not give immediate results; it takes some time to see the benefits. Strategic management is the analysis of the strategic goals and objectives and internal and external environment of a company, after which strategic decisions are made by the managers of the company, and required actions taken to execute the strategies to create and maintain competitive advantage (Thompson & Strickland 2003).
Background Information of Honda Motor Co. Ltd.
Honda Motor Co. Ltd. was established in 1948 in Japan, and since then, it has grown rapidly to become the leading manufacturing corporation in the field of automobiles, motorcycles, and power products globally. It is currently the major engine producer in the whole world as well as the market leader in motorcycles (Berger 2011). As at 2007, the company is operating in 29 countries worldwide, with 120 manufacturing facilities, and about 167, 231 employees (Myers 2009). Honda’s mission is to sustain a global viewpoint, with the commitment of providing the highest quality products at a reasonable price for global customer satisfaction. Its vision is to attempt to be the company that the society needs, by creating new value, as well as through globalization, and commitment for the future.
Honda is committed to maintaining its market shares in developed countries. However, it also has plans of expanding its network to emerging markets such as India. Considering the global shift towards small-sized cars, with smaller engines, as well as the rising environmental awareness, Honda plans to introduce a small car, Honda Brio to the Indian market. The car will be reasonably priced to gain numerous customers. According to Honda Siel Car’s vice president, the car will cater for the needs of both urban nucleus families as well as larger families in small towns. In addition, Honda also has plans of tapping the immense potential in tier-1 and tier-2 cities, so as to be at par with its competitors such as Hyundai i20, Ford Figo, and Maruti Swift, and to increase its flattening sales. Honda has commenced talks with regional and government-owned banks (e.g. the Cooperative Bank) to provide structured funding for its cars (Montgomery & Porter 2011).
Honda’s Competitive advantage
Competitive advantage refers to the advantage that a company has over its competitors, which is gained by providing the consumers with greater value through better services, or lower prices. Competitive advantage allows a firm to attract more customers and/or make more sales than its competitors (Miller, Vandome & McBrewster 2010). Honda enjoys numerous advantages on the automotive market making it the leading choice for a number of buyers. For instance, the consistent ranking of its products as high quality by the Consumer Reports is a confirmation of the customers’ satisfaction with their products. In addition, the company has also been praised for manufacturing high-fuel efficient models that have been very economical amidst the current economic crisis that is associated with high gas prices, and high cost of living. Besides, Honda products are sold at reasonable prices and considering the high quality, the customers get good value for their money (Hitt, Ireland & Hoskisson 2010).
SWOT Analysis for Honda
Honda has several strengths. First is the good reputation that it has as a result of providing its customers with high quality, durable and reliable products. As a result, its customers have been satisfied with its products, giving it a very strong brand name. According to Holdener (2009), Honda enjoys a high market leadership, i.e. it has 56% of market shares in motorcycles. The cost of maintaining its products is low, and their spare parts are easily available. Considering the high quality of Hondas’ products, its prices are considered reasonable, enabling customers to get value for their money.
The company enjoys flourishing promotional campaigns through the television and newspapers, contributing to the widespread viewership. In addition, Honda has diligent, knowledgeable, and qualified staff who are very committed, and loyal to the company. Also, the culture of teamwork that the company has developed with its workers has been the bedrock of its success. Honda also has a performance-based job evaluation and a reward system, which gives motivation to staff to work even harder (Kew & Stredwick 2005). Besides, the company enjoys a high level of customer loyalty due to its quality products. Its working environment is also very friendly, and free from discrimination i.e. they have a sing le dress coed.
Despite the several strengths that Honda has, it also has a number of weaknesses, which include a poor after-sales service that is below the customers’ expectations, reactive rather than proactive approach to various issues affecting the company; low investment in the technological machinery; as well as higher prices of its products than the existing market price, and this can lead to customers opting for substitute products (Miller, Vandome & McBrewster 2010).
The opportunities available in the market that Honda should take advantage on include; growing market for motorcycles, high demand for bikes, as well as, the customers’ realization of the importance of quality.
Honda has been faced with certain situations that are threatening its success, for instance, the 2007-2008 global financial crisis that has reduced customer spending, thus affecting Honda’s sales (Montgomery & Porter 2011). In addition, its competitors have also been producing new products at lower prices in comparison to the price of Honda products, thus increasing the willingness of its customers to buy cheaper products. According to Sadler & Craig (2008), there has been an increasing rate of bike snatching and theft for instance, between January and May 2007, about 2500 bikes were stolen in the U.S. This may reduce the number of customers willing to purchase bikes, for fear of being stolen.
Porter’s Five Forces Analysis of Honda
The threat of substitute products
This refers to the existence of substitute products, which increases the inclination of consumers to change to alternatives, as a response to changes in price, quality etc. The threat of substitution has an effect on the competitive environment of firms, thus influencing their profitability (Miller, Vandome & McBrewster 2010). This implies that when Honda competitors manufacture high quality products at relatively lower prices than Honda, so it can lead to customers preferring to buy the substitutes. For instance, in the line of sport motorbikes, the close replacement for F4 of Honda is R6 of Yamaha. By producing a low-cost R6 motorbike, Yamaha will be able to win over Honda’s customers (Thompson & Strickland 2001).
The threat of new entrants
The threat of new entrants refers to the threat that new competitors create to the already established competitors within an industry (Miller, Vandome & McBrewster 2010). A profitable industry is likely to attract numerous competitors. Low entry barriers make it easy for new entrants to enter in a given market, which is a threat to the existing competitors. However, new entrants would not be a threat to Honda, owing to its strong brand name, they will have to make their products vey unique in order to attract customers.
Intensity of Rivalry among existing competitors
This refers to the degree at which companies within an industry pressurize one another, to the extent that they limit each other’s potential of making profits. Fierce rivalry among existing competitors means that they are attempting to steal the market shares and profits of each other. This has an effect of lowering the profits of all the firms (Miller, Vandome & McBrewster 2010).
The main rival competitors to Honda are Toyota Motor Corp., General Motors and Ford Motor Co (Sadler & Craig 2008). Any strategic change undertaken by any of these competitors has a significant effect on the performance of Honda. Through research and development, improvement as well as innovation, these companies have been able to compete effectively in the automobile industry. For example, when one company manufactures and releases a new model into the market, the other companies also, produce similar products to create competition. Honda’s famous model, Accord released in 1976, has been in stiff competition with its rival, Toyota Camry, since it was introduced (Shook 1988). By improving its technological development, innovation as well as research, Honda will be able to gain a competitive advantage over its competitor
The bargaining power of customers
The bargaining power of customers refers to the pressure that customers put on businesses to provide them with better services, higher quality products, and lower prices. It has an effect on the seller’s competitive environment, and influences his or her profitability (Miller, Vandome & McBrewster 2010). For instance, the short supply of Honda’s Air Blade Scooter, introduced to the Vietnamese market in 2007, led to its rival, Suzuki, taking advantage of the situation to produce Hayate Scooter, with similar functions as the Air Blade Scooter, but with an amazingly reduced price (23% lower than Honda’s) (Sadler & Craig 2008). As a result, customers who were waiting for more orders from Honda ended up buying the new model from Suzuki, because of its low cost and that affected the market share of Honda.
The bargaining power of suppliers
The bargaining power of suppliers refers to the pressure that suppliers put on businesses, through lowering quality, lowering prices, and reducing the accessibility of their products (Miller, Vandome & McBrewster 2010). It affects the buyer’s competitive environment, and has an impact on the ability of the buyer to make profits.
Honda has reliable major suppliers who supply the company with raw materials that are used to manufacture its products. The good relationship the company maintained with its suppliers over the years has made it possible for the suppliers to provide them with raw materials at reasonable prices. Examples of Honda’s suppliers include; Kikuchi Co. Ltd; Hirata Technical Co. Ltd; Marujun Co. Ltd etc. Kikuchi Co. Ltd is not only a supplier for Honda, but for Nissan as well (Nilsson & Rapp 2005). If Nissan decides to buy the raw materials from this supplier at a higher price, the supplier might not be willing to sell them at the lesser price to Honda; that implies that Honda has to part with an additional amount of money, beyond the originally planned amount. As a result, it will produce more expensive products than its competitors, which might affect its sales.
Honda’s PEST analysis
PEST analysis refers to the analysis of the external factors that promote or hinder the success of a business i.e. the political, economic, social, and technological factors (Sadler & Craig 2008). As in the case of Honda, the factors are as follows:
On of the political factors affecting Honda is the proposal by the UK Government to limit the number of cars being sold within the UK. This has an effect on Honda’s sales, as it limits the number of vehicles they manufacture (Nelson, Moody & Mayo 2007). In addition, there is the global pressure from various governments to manufacture vehicles with clean emissions. Consequently, Honda has made huge investments in research and development in order to produce cars which have cleaner engines, for example i-vtec.
Economic factors that affect Honda include; the current economic crisis, which has seen the prices of fuel escalate significantly, hence a) Honda has been forced to produce cars that consume less fuel, in order to remain competitive on the automobile market, for instance, 1.4 Honda Jazz (Williams 2011). In addition, the high exchange rate from Euro to Yen is also affecting the company. The weakness of Yen has made Honda vehicles to be sold expensively in the UK. Increased incomes among some consumers have consequently increased their spending, which has enabled the company to sell more. Honda is coping with the rising demand for its products by producing newer models i.e. Honda Civic, which is about to be released this year.
Social factors affecting Honda include language barrier in England that forced Honda to establish its business in Swindon, England, where English is the preferred language. Also, the increased desire for personalized cars, has led to Honda producing easily modified cars of different styles and tastes to suit the various needs of its customers. In response to the desire to have city cars, Honda has produced much smaller cars, which are also fuel-conserving, such as Honda Beat and Honda Jazz.
The use of technology has led to the adoption of machines rather than human labor, and that has enabled Honda to produce higher quality products at a much faster pace. Also, the need for clever cars, which have Satellite Navigation systems, means that Honda has to include the system in its latest models, which is an added cost. Another technological factor is the need to comply with safety requirements, which has forced Honda to develop cars which have safety features that require research and testing. As a result, its research and development budget has increased (Williams 2011).
The strategy that is suitable for Honda should be to maintain its current product differentiation by continuing to produce quality products, as well as to adopt, a low cost strategy. By lowering its prices, Honda will be able to attract those customers that have opted to buy substitute products which are relatively cheaper, hence their profitability will increase.
In order for Honda to maintain its leading position on the automobile market globally, it has to maintain its current strategy of engaging in extensive research and innovation in order to be able to continue providing its customers with high quality products. Since people value quality products, this strategy has worked for Honda, and they should maintain it.