The process of Honda`s internationalisation

Table of contents

1. Introduction

2. Honda’s internationalization process
2.1 First steps of internationalization
2.2 Change of strategic approach
2.3 Change in manufacturing

3. Conclusion

References

1. Introduction

Honda Motor Co., including its subsidiaries, is a large, multi-national company that manufactures a range of products including automobiles, motorcycles and lawn mowers. The company was established in 1948 and has become one of the leading manufacturers in the world. There are 119 production facilities in 33 countries that supply Honda products to nearly every country in the world. The question arises how Honda was able to become one of the most successful car-manufacturers on a global scale.

An answer to this question will be given by showing Honda’s first steps and the change of its strategies in the process of internationalization on the example USA. Furthermore, Honda’s change in manufacturing will be discussed and afterwards, a conclusion will be given.

2. Honda’s internationalization process

2.1 First steps of internationalization

Honda’s internationalization began in 1959, when it founded the subsidiary “Honda Motor Co. Inc.” in the United States. Cars were built in Japan and then exported into the United States. Therefore, Honda Motor Co. Inc. was acting as an intermediary for Honda of Japan. In the beginning of its international operations, Honda had low commitment, because it wanted to avoid risk. Due to the fact that Honda was a late entrant in the automobile industry and therefore had difficulties in competing in Japan, Honda had to diversify its sources of sales (Daniels & Radebaugh, 2001). So, Honda pressed with its internationalization ahead and therefore it had to see the world as its market. In the late 1970s, Honda had to face new problems: The American government restricted imports of Japanese cars. Honda reacted on this situation by diversification of its production (Daniels & Radebaugh, 2001) and undertook an FDI and founded “Honda of America Manufacturing”, which started car production in 1981 with assembling of the Honda Accord. However, the parts for the cars were still manufactured in Japan, only the assembling took place in the United States. In this time, Honda pursued a global strategy: The same cars were sold around the world, so Honda was able to sell cars very cheaply due to economies of scale.

2.2 Change of strategic approach

However, in the mid 1980s, Honda realized that it had to adapt to local markets and started to change its marketing- and internationalization- strategy from a global approach to a multi- national approach. Honda named this “Glocalization” (http://world.honda.co m). In order to increase market share, Honda wanted to be able to serve its different customers with their different needs around the world with adjusted products. So, the management decided to divide the world into five different strategic regions: North America, Europe / Middle East / Africa, South America, Asia / Oceania and Japan. Furthermore, the subsidiaries in all strategic regions became more independent from the parent- company: They were responsible for their R&D, production, profits etc. Honda now had to restructure its production and R&D. During the mid 1980s, R&D subsidiaries were founded in all strategic regions, for example “Honda Research of America” in 1984. The problem was that developing and producing different cars for each strategic region was too expensive to sell the cars cheaply, because economies of scale were not achievable. With the purpose to achieve economies of scale and adapting to local markets at the same time, Honda developed a suitable strategy: The platform (the chassis, motor, basic car body, etc.) for the cars was developed in a common development-centre. Afterwards, these platforms were brought to the subsidiaries in all strategic regions and were modified for the different customers. For example, the Honda Civic was in the United States a little bit longer, had a different engine, was air- conditioned etc. in contrast to Europe or Japan. Development costs for the platforms were shared by all subsidiaries. So, Honda put itself into a position in which it had diversified products which were still similar, so it could serve different markets with adjusted products and could achieve economies of scale at the same time. The con- tinuous shifting from production in Japan to production overseas can be seen in Figure 1.

Figure 1: Development of the Japanese car production From: Business Week - Japan is back

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2.3 Change in manufacturing

This development of changed strategic approach goes hand-in-hand with Honda’s change in manufacturing. Honda started to change its way of manufacturing in the mid 1990s. The idea was to make the manufacturing process more flexible and to be able to react on different demands without having many cars in stock. This idea was put into action by adapting the “Lean Manufacturing System”, which was invented by Toyota.

“The basic idea is to make the manufacturing process as flexible as possible and run with synchronized processes and maximum value added¹ with minimum inventory” (Blakemore, 2001, From: J. S. Blakemore - Maximising Profit with Short Production Runs … Lean Systems Thinking p.2). There are several points that differ in the classical Ford Manufacturing System and in the Lean Manufacturing System (LMS). In the LMS, people do not work on manufacturing belts; they are working in units of people (manufacturing units). Furthermore, machines are shared by the manufacturing units. This makes the system very flexible, different car types can be produced with high efficiency at the same time and fewer machines are needed, because machines are shared by the manufacturing units (see figure 2). This high flexibility puts Honda into a position in which it can work in a pull system: Cars are not produced on forecast (which are not very reliable) and put in stock anymore. The cars are now produced on the basis how high the actual incoming orders from the retailers are (Blakemore, 2001).

Figure 2: The change from the Ford Manufacturing System to the Lean Manufacturing System

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3. Conclusion

Honda started its internationalization very early and achieved through steady adoption to international competition and changed operational environments, e.g. import restrictions in the USA, one of the most competitive positions in the car business.

Furthermore, Honda’s marketing strategy - building different, cheap cars for different markets - has contributed to the high demand for Honda’s cars. Even today, Honda shows through the adoption of the Lean Manufacturing System its adaptability. Moreover, Honda was able to achieve economies of scale and had diversified products at the same time. Thus, Honda will remain one of the greatest competitors in the car-in- dustry as a consequence of its brilliant marketing-strategy, its high efficient production and not least its adaptability.

References

[1]having the machines working with full capacity

Bélis-Bergouignan, M.-C., Bordenave, G., Lung, Y. (n.d). Global strategies in the automobile industry. France: Université d’Évry. Retrieved, November 19th, 2001, from the World Wide Web: www.univ-evry.fr/labos/gerpisa/actes/18/article3.html

Blakemore, J. (2001). Maximising Profit with Short Production Runs … Lean Systems Thinking. Sydney, Australia: Blakemore Consulting. Retrieved November 16, 2001, from the World Wide Web: http://www.blakemore.com.au/papers/R571-AGSEI- LM.pdf

Daniels, J. D., Radebaugh, L. H. (2001). International Business - Environments and Operations (9th ed.). Upper Saddle River, United States: Prentice-Hall.

Honda Motor Co., Ltd (2001). Honda worldwide site. Japan: Honda Motor. Retrieved, November 19th, 2001, from the World Wide Web: http://world.honda.com

Naughton, K., Borrus, A. (1997). Japanese cars spin their wheels on the continent. Business Week, October 13, 1997. United States: McGraw-Hill.

Updike, E., Armstrong, L., Kerwin, K., Naughton, K (1996). Japan is back (int’l edition) . Business Week, February 19, 1996. United States: McGraw-Hill.