Study of Corporate Strategies of Japanese Automaker in Europe Case of Honda

¶ … Corporate Strategies of Japanese Automaker in Europe: Case of Honda

Success in the auto industry depends in part upon the ability of automakers to build a superior product that functions efficiently and economically. Traditionally Japanese automakers have been associated with this success and efficiency in the world of auto manufacturing. Honda, one well-known competitor, is particularly well-known for its drive to set itself apart from other automakers in corporate strategy and in the fight to design quality products.

Auto Manufacturing Overview: Spotlight Honda

Studies of Japanese automaker strategies suggest that the success of Japanese car sales and corporate strategies in times of old can be attributed in part to the quality, workmanship and low operating costs of Japanese vehicles (Dardis & Soberon-Ferrer, 1994; Chapman, et. al, 1995). Japanese automakers have long been known for producing quality and highly desired vehicles. Honda is the seventh largest auto maker (Dardis & Soberon-Ferrer, 1994; Taylor, 2002).

They have successfully expanded into many markets including the U.S. market, where the Japanese automaker realizes an astounding 56% of its profits. Recent moves to expand into Europe however, have been considered bad, even labeled as failure. Though a reputable company, the Japanese automaker which established corporate headquarters for European affairs in the UK has been slow to adopt consumer preferences in Europe, including a desire for more diesel models (Shameen & Mustuko, 2001). Honda lags far behind other automakers such as Toyota and GM in this respect.

Honda has traditionally been characterized as an independent thinking risk taking corporation with a will and mind of its own; it often fails to follow the patterns established by other automakers, as is evidenced by its operations in Europe (Shameen & Mustuko, 2001; Dardis & Soberon-Ferrer, 1994; Taylor, 2002).

Need for More Descriptive and Exploratory Studies

Researchers in the past have focused their attentions heavily on product design, manufacturing processes and Japanese strategic management (Lincoln, 1992; Dardis & Soberon-Ferrer, 1994; Hanssens & Johansson, 1991; Chapman et. al, 1995). Other studies have concentrated on Japanese expansion into the U.S. market, and many have touched upon Japanese expansion in the European market, but only to the extent that they have acknowledged Japan's failure in the European market thus far, rather than explore the reasons for this supposed 'failure' (Dardis & Soberon-Ferrer, 1994; Chapman et. al, 1995).

There are a limited number of studies that have specifically examined the purchase and production of imported automobiles in Europe, and of those that do exist are dated (Dardis & Soberon-Ferrer, 1994). Additionally, virtually no studies have compared Honda's corporate strategy in Europe directly with other automakers strategies in Europe in an effort to ascertain whether or not changes are required to ensure the future profitability of the company in the European market. A majority of studies that have been conducted related to individual companies have focused on giants including Toyota and GM rather than Honda. This study will aim to fill a void in the research with regard to these studies by providing a case study analysis of Honda and Japanese corporate strategy in the European market specifically.

Research Problem

The aim of this study is to investigate the corporate strategies of Honda corporation, a self proclaimed 'independent thinker' in the world of auto making in order to determine whether or not strategic change is necessary in order to enhance productivity and sales in the European market in the future.

Specifically, studies show that though Honda corporation is the seventh largest automaker, and is doing quite well in foreign markets such as the U.S. (where sales account for 56% of profits) efforts to expand into Europe have failed at best. Honda seems to be falling behind its competitors in the European industry. Much research has focused on defining Japanese strategies and defining success, but few studies have actually examined Honda Corporation's future in Europe and evaluated whether or not specific changes are necessary to promote increased sales and profits in this market.

Goals of Study

The intent of this study will be to provide a descriptive exploratory case examination of Japanese automaker Honda with regard to operations in Europe. Primarily the researcher will attempt to engage in exploratory and descriptive analysis that results in conclusive evidence and theoretical conjecture regarding the potential future success of Honda Corporation and similar auto manufacturers, based on evidence reaped from the study.

In conjunction with this, the researcher will set out to answer the following questions:

What is Honda's corporate strategy in Europe?

Will the strategy employed by Honda in the past work in the present specifically in Europe?

What changes are required if any in corporate strategy to ensure continual success for Honda corporation?

How does Honda's strategy compare with that of other auto manufacturers?

Can Honda survive with a majority of business coming from U.S. alone?

Specifically, this study will employ use of descriptive analysis and a survey questionnaire to gather consumer opinions regarding Honda Corporation and to ascertain whether or not the company is likely to succeed or not in the European market in the near future. A literature review will be conducted examining previous research with regard to Japanese corporate strategy, in order to assess its past effectiveness. In addition the literature review will attempt to compare automaker Honda with several other primary auto manufacturers including Toyoda and GM.

From the literature gathered and the results of the survey questions, the researcher will formulate a hypothesis related to Honda's corporate strategy in Europe. The hypothesis will involve examination of the potential future success of Honda in Europe, and will make assumptions as to whether the company will fail or succeed in its endeavors based on close examination of historical practices, economic trends and consumer preferences.

During the examination the researcher intends to uncover the following:

Identify the major corporate strategies used by Honda Corporation, specifically those or any that are targeted toward the European market

Identify major corporate strategies used by competitors that have been successful in the same market

Analyze and synthesize the best practices or strategies used among all auto manufacturers

Develop a prediction and theory regarding Honda's future success in the European market

Develop and identify key principles for building a successful paradigm in corporate strategy with regard to auto manufacturing within the European market

These goals will be addressed through the exploratory process which will require analyzing and synthesizing material reaped from the literature review and surveys/interviews with consumers and auto manufacturers. The literature review will provide an overview of the literature currently available on corporate auto manufacturing strategies, emphasizing those used by Japanese auto manufacturers, particularly Honda. The purpose of the review will be to help identify past strategies that have been used successfully and unsuccessfully. The focus will then move to analysis, and the results of the survey will be combined with the results of the survey to provide concrete conclusions.

PRELIMINARY LITERATURE REVIEW

The intent of the literature review will be to provide a broad overview of auto manufacturing strategies used in varying markets, with eventual concentration on the European market. Any literature directly related to Honda in particular will be examined.

Background: Japanese Auto Manufacturing

According to one research study of the Japanese auto manufacturing process the following is true: "the most significant development in the automobile industry has been the growth and global expansion of Japanese auto producers" (Chapman et. al, 1995: p1). Automakers in Japan have grown into "transnational giants" competing in the U.S. And in European firms; statistics reveal that in the 20-year time span from 1970 to 1990 alone Japanese production of automobiles tripled (Chapman et. al, 1995, p.1; Law, 1990, p.16).

Japan carries with it a reputation of creating "trouble-free vehicles" that are smaller, fuel efficient and economical (Chapman, et. al, 1995). During the union of the European market in 1993, Japanese auto producers established many facilities in Europe, though most were confined to the U.K. during that time (Chapman, et. al, 1995). In the mid 1990s Honda and Isuzu both entered into joint ventures with Rover and GM (Jones and North, 1991; Chapman et. al, 1995).

The Japanese production system has been characterized as flexible, focusing on "lean production" which is why many automakers are interested in gleaning as much information as possible about Japanese strategic management practices (Womack, et. al, 1990). The Japanese production system does not focus on traditional mass production methods, but rather uses a "system of flexible production that is numerically controlled, reprogrammable machines capable of adapting movements to many different tasks" (Chapman et. al, 1995). In addition, worker in Japan are managed and trained in a flexible manner, learning to perform many different jobs instead of specializing in simply one (Chapman et. al, 1995). Production is usually organized in such a manner that 'just in time' delivery or assembly is available, which 'reduces the need for large inventories and floor space to accommodate it" (Chapman, et. al, 1995, p. 2).

Japanese Strategic System

Among the benefits of the Japanese strategic system that have been identified include: quality control, defect-free production and employee responsibility (Chapman, et. al, 1995, p. 2). Corporate strategies operate by maintaining ongoing relationships with suppliers and open communication throughout the design, development and production process; assembly line workers are also involved as part of corporate strategy, and learn to be responsible for delivering only superior quality products to the finish line (Chapman, et. al, 1995, p.2).

Japanese style alliances" and strategies have also been heralded as "a critical source of competitive advantage for large Japanese assemblers" (Dyer, et. al, 2002: p.717, Nishiguchi, 1994). Studies suggest that Japanese strategies which include cooperative supplier-assembler relationships outperform other automakers in other countries by "developing relation-specific knowledge, investing in relation-specific assets, and minimizing transaction costs" (Dyer, et. al, 2002: p. 717; Nishiguchi, 1994). Japanese corporate strategies include building exclusive ties with suppliers to enhance the nature of operations in general. According to one study, a supplier working with a single customer such as Japanese automaker Honda will find cooperation easier, and will not have to worry about "knowledge spillovers with competitors" (Dyer, et. al, 2002: p. 717).

A case study of suppliers conducted by Dyer, Madhok & Nobeoka (2002) showed that suppliers who sell more to Honda and less to other companies including Toyota "tend to make higher profits" (Dyer, et. al, 2002: p. 717). Further, the researchers conclude that most automobile experts would agree that Honda is a firm "that focuses on a product differentiation strategy, as opposed to a low-cost strategy; to the greatest extend among the seven Japanese assemblers" (Kajihara & Takagi, 1994; Dyer, Madhok & Nobeoka, 2002: p. 717). Honda is recognized as one of the leading automakers "in developing supplier capabilities" (Dyer, et. al, 2002: p. 717; MacDuffie and Helper, 1997; Dyer & Nobeoka, 2000).

Hanssens and Johansson (1991) suggested that many Japanese companies, particularly Honda and Sony, when operating overseas "employ product and marketing strategies that are almost identical" (p. 503). In particular these companies have set the pace with a 'follow-the-leader' type of pattern where most automobiles are crafted to follow similar size classes among other features (Hanssens & Johansson, 1991: p. 503). The standardized technology used by many Japanese firms according to this research suggest a lack of strong differentiation, and also result in exhibition of excessive 'rivalry characteristics" which are considered a negative rather than a positive benefit (Hanssens & Johansson, 1991).

Honda: An Analysis of Practices and Comparisons

Honda Motor isn't doing as well as Toyota in Europe. In fact, according to Peter Schmidt, an industry consultant with Automotive Industry in Warwick England, "Some of the Japanese automakers in Europe look like losers" in part because they are struggling to make a product in what are considered a difficult market (BA, 2002, p. 37). Honda and Toyota both lost money in the UK in particular when the euro fell against the pound (BA, 2002, p. 37). However many attribute this loss to location, suggesting that the addition of plants in other European countries may prove promising (BA, 2002, p. 37).

Why study Honda? In a recent article in Fortune magazine, Honda was described as holding on fiercely to the 'do it alone" strategy, a strategy which has worked for the organization since 1948 (Taylor, 2002, n.p.). Honda is the world's seventh largest automaker. It holds 15% of the market in Japan, gains 2/3 of its operating profits from North America and leads the industry in mileage and emission ratings (Taylor, 2002, n.p.). Honda also has many limitations, including a limited product line that investors see as inevitably slowing its growth potential (Taylor, 2002). The company tends to ignore important diversity issues including global strategy, product concept and "sustainable resources" (Taylor, 2002). President Hiroyuki Yoshino of Honda states that the company has designed a unique corporate strategy that allows them "to go in a different direction...we don't like to follow others" (Taylor, 2002).

In the past Honda focused on a limited production line targeting a few, "lucrative niche segments...with an emphasis on performance and reliability" (Shameen & Mutsuko, 2001). Honda has done well, up until 1999 sales were doubling and profits continually tripled. Four of the top 10 bestsellers in Japan are Honda made vehicles (Shameen & Mutsuko, 2001). Yet many question whether Honda's corporate strategies will work in the future. Some believe so, suggesting that the market presence of the automaker is strong enough to last (Shameen & Mustuko, 2001).

Honda's European strategy has been defined as "a mess" and many consider the decision to base European production in the U.K. A bad move (Shameen & Mustuko, 2001). Honda has been slow to incorporate production of diesel cares, vastly popular in Europe. This last June Honda rolled out a subcompact European modeled car the Fit, but this is two years later than they should have considered moving according to some (Shameen & Mutsuko, 2001). At present more than 56% of sales come from the U.S. which may be contributing to the slow changes seen in Europe. Many believe that Honda should become fewer dependants on the U.S. And work to diversify their strategy more however (Shammen & Mutsuko, 2001).

Specifically Honda employs a strategy of incremental production where supply is always slightly less than demand; Honda also starts up new models faster than other auto makers by "keeping production line changes simple" (Taylor, 2002). It reprograms manufacturing equipment rather than installing new equipment. Honda also operates with speed and deliberateness. To prevent layoffs it often waits several years before moving into new industry segments, which according to some has hurt Honda in Europe, "where it was slow to respond to customer demand for diesel-powered cars and where it has been losing money for the past three years" (Taylor, 2002).

In the U.S. Honda also jumped to make light trucks later than most other car manufacturers.

Summary

Japanese auto manufacturers are well-known in the industry for creating vehicles that are efficient and high quality. Many Japanese manufacturers have prided themselves on their ability to incorporate modern manufacturing strategies and principles including JIT delivery and supply. Japanese auto manufacturers have also worked diligently toward cross training employees and providing equipment that is multi-functional, so production isn't limited by resource issues. Employees working in Japanese auto companies have reported getting involved with their companies and taking much personal pride in their work. All of these factors have contributed to Japanese auto manufacturing success in general, both in the Japanese market and abroad, particularly within the United States.

Honda has successfully implemented a corporate strategy which in years past has resulted in increased profits and notoriety the world over. The company prides itself on standing apart from other auto manufacturers. In fact, the company often uses its independence as a means of attracting attention. The manufacturer has faith that its company will do well in all markets, and traditionally has taken a conservative approach when growing into other potentially profitable markets. That said the company has also branched out into other countries, realizing an astounding 56% of its profits from business with the U.S. Though slow to move in some instances, for the most part evidence suggests that once moved the company does well.

Honda has however has been slow to realize success in the European market, and many researchers blame this lack of success on Honda's corporate strategy and fierce reliance on independent risk taking behavior rather than adoption of principles including diverse global strategy and greater attention to consumer preferences. Honda has been reluctant according to some of the research to adopt 'key principles' and strategies other auto manufacturers have adopted to ensure profitability in the European market. In fact the company has even engaged in many opportunities that are non-auto related in recent years.

There is some evidence that Honda is working toward crafting vehicles that will meet consumer's needs in Europe. The advent of the Fit automobile exemplifies this, though the car was slow to come to market. Historically, evidence suggests that Honda is often weary of entering new business markets, and does so with great care and a slow pace. This according to critics may have cost the corporation two years valuable success in Europe.

There are others who suggest that Honda has become over-reliant on profits in the U.S., and will continue to fail in Europe if they do not recognize a need to expand more aggressively and in a more consumer friendly manner in this market. Top executives within Honda however, seem to feel that the strategy being employed is one that has worked for many years past, and will continue to work in the future.

The preliminary literature review just touches the surface of more complicated issues that must be examined in a full dissertation study. Specifically, historical data and corporate principles must be compared with insight gathered through interviews and surveys conducted of consumers within the European market. The extent to which corporate strategies are influencing consumer buying patterns in the European market specifically has yet to be determined.

METHODOLOGY

This study will be exploratory in nature, aiming to describe the characteristics of the events that are taking place to shape Honda's future. Borg, P. Gall, and D. Gall (1993) suggest that a descriptive and exploratory study can be used in combination with survey research to closely examine the opinions, preferences and ideas of persons examined and situations explored in order to develop concrete hypothesis (Borg, P. Gall & D. Gall, 1993). A survey will be used to examine the opinions of consumers particularly those in Europe. Survey methodology will enable the researcher to examine the opinions of a broad selection of people.

Uniform data can be collected in a survey situation provided the same questions are asked of all survey participants (Wolfe, 1988).

From the questionnaire the researcher intends to gather the following:

Data regarding consumer preferences in the European market

Data regarding consumer opinions of auto maker Honda's practices

For the data to be valid the researcher will assume that the sample selected will represent the population as a whole as much as possible, as it would be impossible to study a large enough representative sample with the time constraints this type of study provides (Borg, P. Gall & D. Gall, 1993). To assist the researcher in acquiring as much information as possible that is non-bias, the research conducted will be random and participants will be allowed to provide information anonymously.

Qualitative research methods are appropriate for this study, because they allow examination and in depth analysis through interviews, observations and descriptive analysis, which are the primary methods employed in this dissertation to examine and collect data, and translate that data into an interpretive result with regard to the future outlook of Honda Corporation. A purely experimental study is not feasible in this situation, because the study will focus primarily on past practices in an attempt to predict future outcomes. The study will be developed as a case study of Honda Corporation with emphasis on European practices and strategic principles.