Global Corporate Strategy

PGBM16

University of Sunderland

Gokhan Saglam

129074768

TABLE OF CONTENT

1 ABSTRACT...................................................................................................1

2 INTRODUCTION.........................................................................................1

3 “Global integration and local responsiveness”...........................................1

3.1 Reasons of pressures for global activities.................................................................1

3.2 Localization of Product Design.................................................................................2

3.3 Localization of Products and Component Sourcing...............................................2

3.4 Localization of management.....................................................................................3

3.5 Localization of Research and Development.............................................................3

4 Reconciling dichotomies: a method for innovative thinking.....................3

4.1 “Low cost and product differentiation”...................................................................3

4.2 ‘Vertical integration and market relationships’......................................................4

5 Managing Strategic Challenges...................................................................5

6 CONCLUSION..............................................................................................6

7 LIST OF REFERENCES.............................................................................7

1 ABSTRACT

This report is divided three parts. Firstly reasons about `pressures for global integration of activities` and `pressures for local responsiveness` among Honda through automobile industry by considering supply chain has critically analysed and interpreted based on findings. In addition, the strategy of Honda for coping globalization and its pressures which is `globalization through localization` has demonstrated. Secondly, reconciling dichotomies about innovative strategic thinking of Honda has critically evaluated by considering `vertical integration and market relationship` and `low-cost and product differentiation` strategies. Lastly, the reason of choosing Honda from the view point of customer has critically analysed by regarding `product related core competencies` and `process related dynamic capabilities` then argument which is about recognising core competencies of Honda has linked to notion of analysing and accepting them as a whole.

2 INTRODUCTION

Honda has established in 1948 in Japan. In addition Honda has acquired fame of being world`s first Japanese company because of producing vehicles in Europe and manufacturing automobiles in North America and the other reputation of Honda about leading motor industry companies around the world in terms of mechanical technology and supply chain strategies. In 1980s Honda had become one of the world`s top ten producers. Moreover, in 1990s Honda was manufacturing 46 percent of products in outside of Japan and was exporting 77 percent of its sales. Approximately Honda`s 20 percent of global sales was in Japan and the remain sales were in overseas markets in 2012 (world.honda.com, 2013). In addition, one-third of global production of Honda was manufactured in domestic manufacture and remain was produced in overseas manufactures of Honda (world.honda.com, 2013). Honda is still in top ten of automobile makers list (parts.olathetoyota.com, 2012).

3 “Global integration and local responsiveness”

3.1 Reasons of pressures for global activities

The automobile industry struggling with major problems such deceleration in market growth, the increased importance of satisfying customers and to be able to cope international complexity in terms of development, innovation, supply chain. Automobile industry pressure companies into globalisation due to global competitors; high level of investment into R&D, production, product development, marketing require to sell high level of units; to do economic of scale by purchasing and producing due to low level of profit margin; global brand name that is expected by customer; finding new resources and low cost labour to cut selling prices (Lynch, 2006). Also, Honda has been coping with this points of being globally company by emphasizing `internationalization through localization` (Hideo, 1986). In this approach it is aimed that the company adopt its product, production manufactures and management strategies based on local region where company is being performed.

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3.2 Localization of Product Design

Automobile industry include Honda was producing same car for all or minimum many countries until early 90s that car was called `world product`. Honda`s Accord model was admired by North America market that the model introduced to U.S market due to internationalization strategy (Cox, 1997). Consequently, Accord was redesigned based on American market tastes and same model introduced world market but the model was not admired in Japanese market (Cox, 1997). The other issue happened in Europe market sales of Honda due to less product development for Europe car models. However, Honda scoped with this situation by regarding other European car models and adopting its models to them (Cox, 1997). It pointed out that Honda started to produce cars based on market demand by redesigning size, body and interior design and changing some unseen parts. In addition, during creating `global local car` Honda focus on producing some specific components as same as possible such “engine and transmission, engine compartments, basic shape and some expensive components” (Cox, 1997 p.71) to able to share them.

3.3 Localization of Products and Component Sourcing

Globalisation strategy could be affected by depreciation of host country`s money or appreciation of home country`s money that company`s import costs of parts increase. However positive effect of being localised provide to the company keep abreast of country such as fuel prices and in response to able to change strategy like producing diesel autos. In India fluctuation of exchange rates and increased fuel prices caused to change globalization strategy for Honda and diesel parts has been started to localised 90% (Ramanathan, 2013).

Honda adopt its system for localisation by building up factory where products has been selling. In addition, Honda aiming to recognise expectation of local customers to satisfy them and employ public to create communities as well as provide jobs for local suppliers (parkhonda.com, n. d.). Okio Hamada who is the CEO of Honda America said that they prefer to produce close to customer and reinforce network with local suppliers to be assured globally competitive instead of embodying suppliers by developing product which is a method to produce low cost (Kisiel, 2007). Moreover, all Japanese automobile makers has been affiliating with suppliers` associations such `Kyoryokukai` and most of the suppliers are member of automobile makers` association except Honda (Sako, 1995). Honda has been outsourcing components from both Japanese-transplant manufacture and local suppliers. Also, component supplying strategy of Honda varies based on region and component types (Cox, 1997). This outsourcing strategy of Honda was caused decline in sales and availability of units and delays in due to Great East Japan earthquake and floods in Thailand (Honda annual report, 2012). It indicate that supply strategy of Honda is not totally local and still dependent on other regional Honda factories.

Pressures for purchasing local parts was insisted to Japanese automakers by US since 1992 bilateral agreement that it was aimed to develop local suppliers by selling local components. On the one hand, firstly this agreement was caused to increase unit costs based on small lot sizes when 150,000 unit per year was produced and suppliers could not provide components quickly and flexibly. On the other hand, when the production size raised to 300,000 unit per year, locally suppliers was seen more attractive and economic and started satisfy expectations of the Honda (Shimokawa, 2010).

3.4 Localization of management

To be competitive in market it is important to minimise factory based problems and for reducing costs. Also, Honda emphasize on solving this problems by training, developing, improving personnel administration of some local employees in `mother plant` to improve system of host country plant due to increased self-reliance at employees. Furthermore, this philosophy helps to local facilities to response the changes quickly and effectively (Shimokawa, 2010). Honda localization strategy involve as well as management localisation which may reflect the company more attractive from psychological perspective to the host country by assigning their people to executive level. Honda decided to assign first time a non-Japanese engineer to second top position as a president of Honda R&D in U.S (Ohnsman, 2012).

3.5 Localization of Research and Development

Localization model need localization in R&D where “basic research, design and development of core product technologies, product design, market research and new product development by regarding different road system, customer expectation” such price, and concept should be emphasized based on localized country (Cox, 1997). The positive outcome of the localized R&D was understood by Honda after advice of California to produce CRX sport version.

If there would be a satisfactory local R&D provide to scope with project responsibility and independency from home R&D and it may result to produce autos based on demand of local customer as quickly as possible to do not miss market (Lang, Loeser and Nettesheim, 2008).

According to repatriation regulations foreign direct investors have to reinvest certain percentage of the profit in the host country that the percentage vary based on countries` laws also the one of the best place to reinvest money may be the R&D of the company. Therefore, localisation of management and procurement which are interrelated have to be advanced to achieve quality and effective R&D department (Shimokawa, 2010).

4 Reconciling dichotomies: a method for innovative thinking

4.1 “Low cost and product differentiation”

In `large-lot mass production` system it is aimed that to reduce costs which is occurred while producing different variety of products. The system has been using by automakers to reduce costs by producing big numbers of same or in essence same cars in a series or row. One of the main idea of reducing costs is based on simpler logistic and quality control. It indicate that if big numbers of identical or virtually identical products are produced in a row, logistic get ease due to supply same components in determined amount and quality control are controlled by using same procedures due to same product specification. In addition, less likelihood of errors could be seen due to do not be product variety and employees do same task and follow same procedures during job. As a consequence of this positive outcomes the programmed production schedule could not be delayed or changed. Large-lot mass production means in terms of operation management `push` based system. Also, in this system high technology into all products within each model type offered to customer as a standard rather than optional that is aimed in this procedure being able to offer acceptable features to consumer (Mair, 1997). The other aspect of this process is that schedules of production is prearranged for later months in advance and it provide to supply continuously same products

same amount and to do economic of scale during supplying. However, output levels of this system and customer demand should be in same amount that it could be by focusing in sales strategy to deplete stock. Also, it means that demand of customer is adjusted based on production output level by performing some sales strategies such discounting. On the other hand, large lot mass production system do not allow customization and product variety due to demand of customer. Also, Honda`s other system `one-piece-flow` allow to produce different models in each assembly line that each products are completely different than previous and next one. The system provide to produce customized products based on demand and orders of customer (Mair, 1997). However, the disadvantage of this system is that all components should be sent in correct order into assembly line that it reveal to find solution for complex supply chain issue. Furthermore, the issue has solved by Toyota by applying `just in time` production and logistic system that is about to trade with component makers near the manufacture to able to supply `just in time`. Also in small-lot production system which has developed by Honda batches constitute of small amount, key amount 60 and its factors. All batches involve exactly the same cars and need to be done exactly the same task by workers. Moreover, consequently component batches are delivered to the assembly line which constitute of exactly same components which will be fitted into (Mair, 1997). In this process vehicle batches and component batches are prepared to exactly fit each other even optional extras and it allow greater worker involvement and satisfaction by doing same tasks and to save time due to less error margin, then product variety could be offered to customer.

4.2 ‘Vertical integration and market relationships’

Supply chain mechanism of Honda is based on balancing vertical integration and market relationship. This dichotomy normally need to consider buy or make decision but in the content of Honda supply chain it is more complicated. Honda do not prefer to supply mostly from japan even despite family relationship and the only one firm which is not organise suppliers association to discuss and solve likelihood problems. Therefore, Honda prefer to send continuously its own engineers to suppliers to check quality or delivery problems if there is. The other aim is to do not being member of supplier association that the company pay attention on long term relationship with its supplier without supporting them but expecting from them to establish required relationship. Honda invested capital to early arrived component makers in North America (Mair, 1997). It indicate that Honda encourage current component makers and the others to come in North America. The other reason could be that to develop current suppliers to achieve quality components in a variety and to reduce prices by doing economic of scale in terms of components. Also, Honda purchase steel and aluminium that these raw materials are heavy and difficult to store, process and distribution. Also, Honda prefer to purchase rather than make. Honda`s single sourcing system which is based on sourcing certain type of component from one component maker and the high technic type of same component from the other supplier. Honda supply slightly different components from two different component makers. In addition, both supplier aware of each other. Also, this awareness could allow to achieve more quality, in time, cheaper components because each supplier would think to expand its market. However, this apprehension may cause wrong move by suppliers due to concern about losing market as well and consequently Honda may not supply from both component makers during short term that it reflect negatively to operation of the company. Honda gain advantages of both single and dual sourcing. Honda prefer to use balanced spatially concentrated and spatial dispersal production strategy to gain advantages of both system (Mair, 1997). Traditional system offer to trade component maker

which are constructed in distance region with low labour cost. The other system which was developed by Toyota that the production capacity of the firm are supplied by component makers into few square kilometres. As it was said Honda has been using both methods that the just in time system is supplied by component makers near the manufacture of Honda. The component makers disperse in Ohio 10 to 20 miles apart to manufacture. The spatial dispersal of suppliers allow to adopt geographical pattern because wide area dispersal provide to do not increase local wages and job creation which in response affect relationship with government and institutions.

5 Managing Strategic Challenges

Honda developed and invented many innovation in terms of mechanical technologies in automobile industry since it was established. Compound vortex controlled combustion engine is one of the footprint of Honda that pollution degree in exhaust air was reduced due to CVCC engines and reduction for pollution was supported by adding catalytic conversion then system pioneered the automobile industry. In addition, VTEC (variable valve timing and lift electronic control) engines has devised by Honda that the system allow the engines consume low fuel and air mixture during low speed and high mixture of air and fuel in high speed in terms of more power (Mair, 1997). As the historic role of Honda in meeting environmental change has been continuing with its ultra-low-emission-vehicle (ULEV) which is offered firstly by Honda to market (automobiles.honda.com, n. d.). The best known side of Honda is its technologically innovative engines. Also, it indicate that Honda has been regarding R&D since it has establish to develop innovative products and introduce market. It is clear that the inventions of Honda for engines provide company to be known in the automobile industry around the world in terms of being environmental and satisfying customer expectation due to engine reliability and performance. The mechanical changes was used to reach market based on geographical pattern of countries that aim is to satisfy customer. On the other hand, Honda caused to speed up for development process in automobile industry because Honda manufacture cars after 2 years of launching development process which interval was five to six years before Honda`s attempt. Also it is related with product development process of Honda which is based on SED (Sales-Engineering-Development) teams that the teams take advantage of group working by sharing knowledge in all steps of process. The other aspect that effect to speed up is related with model replacement because in model replacement Honda aimed two ways, one is complete model change and the other is facelift. It indicate that Honda`s models are being changed every four years in terms of seen components by customer then every four years with a two-year lag unseen components are changed especially mechanical technologies (Mair, 1997). Also it means that every four years shape are changed within four years 2 times unseen components are changed. Form this result it could be understood that product development of Honda is being changing very fast and the other positive outcome of this effect on marketing. Honda has been selling same model in four years but in four years it develop cars` mechanical components and offer to customer. From the perspective of customer it could be assumed that if they purchase after two years of official model change it does not mean they bought old generation vehicle, in contrast they bought new technology in terms of mechanical technology except seen parts. This process could be interpreted from the perspective of company that seen parts are determined within the four years and based on this production program components could be bought in a big amount from supplier to achieve economic of scale. The supporter of this comment can be

seen from complete change and facelift logic shift on more flexible and fluid one. It means that the completely changed model share almost half of its components with previous one. In addition, `sister` models has been developing for different market segments and models are changed in terms of mechanically or design to adopt geographical market expectation of other countries. Changing and developing models due to some reason could be possible based on shared components between models. Also, shared components may mean the production processes in assembly line will be same and in consequently error margin may be decline due to same task and usage of same machineries through same component fitting into vehicles. As a production process free-flow assembly line that it positive effect on efficiency and dignity (Mair, 1997). It means that this process allow to do task under the observation of workers instead of automatic system which give to workers responsibility and self-reliance through doing task well. It indicate that workers have active role in production process and feedback for tasks from workers to management is possible to improve job due to increased involvement of workers. As a result, Honda has been struggling in mechanical technologies and whole value chain from raw material to customer. Therefore, it can be said that mechanical technologies and value chain of Honda has been managing properly and allow to be competitive in market and satisfy customer. In addition, it is clear that customer evaluate a car by considering its company as a whole not based on just one side. Automobile industry is very competitive due to technology era that if one car release in one country it can be seen directly in other country due to technology and it does not mean just view as well as technology is under consideration of customer. A car could have very advanced mechanical technology but without product design it does not mean perfect. Therefore, some Honda models such NSX has been knowing by customer with its mechanical specifications and as well as handling feature because if handling features could be well, mechanical specification would be reflected better. Honda has been regarding both requirements and has been using as a marketing, production, development adaptation strategy since it has establish. It means that if product design play a key role due to marketing strategy, company focus on that aspects more. Honda has been honouring with many awards due to quality, reliability, durability, environmental engines, safety rating, and resale operation. Some awards of Honda are Best Overall Brand, Most Trusted Brand, and Best Value Brand according to Kelly Blue Book (automobiles.honda.com, n.d.). This results indicate that Honda achieve to have good brand image by considering mechanical technologies and production process and product design within whole value chain that if both points could be managed and implemented well, it make sound because both side are interrelated with each other.

6 CONCLUSION

As a result in this report Honda has critically analysed and evaluated by considering its globalization strategy, low costs with quality and customized product design and production strategy, decisions of supplying and factors to choose that decision, core competency argument in terms of mechanical technology and supply chain strategy based on its activities in domestic and overseas within market relationship and customer satisfaction.

7 LIST OF REFERENCES

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Sako, M. (1995) Suppliers’ Associations in the Japanese Automobile Industry: Collective Action for Technology Diffusion. Available at: < http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.29.9806&rep=rep1&type=pdf > Accessed on: 09/08/2013

Shimokawa, K. 2010 Japan and the Global Automotive Industry. Cambridge: Cambridge University Press. Available at: < http://books.google.co.uk/books?id=D90-Q6AEEIoC&pg=PA66&lpg=PA66&dq=localization+of+production+of+honda&source=bl&ots=pjHm5l7gQa&sig=wgY5RXt-6vF1BlyCTyVEAfvhGwo&hl=en&sa=X&ei=UmT9UZiGLYqBhAf144CoCQ&ved=0CH0Q6AEwCDge#v=onepage&q=localization%20of%20production%20of%20honda&f=true> Accessed on: 09/08/2013

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