Company Background

Key Facts

Name Honda Motor Company, Ltd.

Founded September 24, 1948

Logo

Industries served Automotive, Aviation, Robotics, Finance

Geographic areas
Worldwide (more than 100 countries)
served

Headquarters Minato-ku, Tokyo, Japan

 Current CEO Takahiro Hachigo

Revenue JPY ¥14,601.1 billion (2016) 9.6% increase over JPY ¥13,328.1 billion (2015)

Profit JPY ¥406,358 billion (2016) 27.6% increase over JPY ¥561,098 billion (2015)

Employees 208,399 (2016)

Bayerische Motoren Werke AG, Chrysler Group LLC, Daimler AG, Ford Motor
Company, General Motors Company, Nissan Motor Company, Hyundai Motor
Main Competitors
Company, Tata Motors, Ltd., Toyota Motor Corporation, Volkswagen AG and
many other automotive companies.

Honda Motor Company (further Honda or Company) is a Japanese motorcycle, automobile, aircraft
and engine manufacture. The Company was founded in 1948 by Soichiro Honda, as an automotive
parts manufacturer. Honda later moved to manufacturing motorcycles and has become the world’s
largest motorcycles manufacturer in 1959.[2]

In 1962, Honda started manufacturing automobiles and was the first company to launch a dedicated
luxury brand, Acura, in 1986. The Company is now the 8th largest auto manufacturer in the world.

Over the years, the Company has ventured into many industries and is now manufacturing jets and
robots.

Honda always highlighted that its core business is engines and all the products the company has
ventured in is built around them. Company has been growing significantly over the past few years,
mainly due to its automobile business.
SWOT
Strengths

1. Competence in engine manufacturing - company’s core product

All Honda’s businesses are built around the engines - its core product. The company’s first engines
were built for motorcycles and power equipment, but were later produced for cars and marine
vehicles. Honda is the world’s largest engine manufacturer, which produced over 27 million units of
engines for automotive, motorcycle, marine, and power equipment products, in 2015.[3]

The company has lots of experience in manufacturing quality and well-performing engines. Its
engines are praised for their durability, easiness to start, quietness, fuel efficiency and reliability.
According to Reliability Index,[4] Honda’s car engines are some the most reliable in the industry.

Engines are the key to motor products and the company’s competence in manufacturing engines is a
competitive advantage few rivals can match.

2. Diversified product portfolio

Honda operates 4 different divisions:

 Motorcycle business (12.3% revenue)

 Automobile business (72.8% revenue)
 Power product and other business (2.3% revenue)
 Financial Services (12.6% revenue)

Honda offers many products to consumers including engines, cars, motorcycles, jets, robots,
generators, lawnmowers, water pumps, as well as many other power equipment products. While the
cars generate the most revenue for Honda, its overall product portfolio is fairly diversified, when
compared to Volkswagen, Toyota, General Motors, or Briggs and Stratton (in an engine industry).

Figure 1. Percentage of Sales Revenue by Business

Source: Honda’s Financial Report[1]

3. Dominance in motorcycle and engine industries leading to a high brand awareness

Honda is a huge company dominating in most of the markets it operates in, including engines and
motorcycles.
The company is the leading manufacturer of small, general purpose engines for commercial, rental
industry, and consumer applications.[5] Honda is also the leading global manufacturer of motorcycles
having 22.1% of the total market share in the first half of 2016.[1] Company’s dominance in both of
these markets have increased its brand recognition and reputation.

According to Interbrand[6] and Forbes,[7] Honda is the 21st and 23rd most valuable brand in the world,
worth US$22.1 billion and US$25.2 billion, respectively. Brand value is closely related to brand
awareness and its reputation and only few other companies, such as Toyota, BMW and Mercedes-
Benz, can compare with Honda in terms of a brand value.

4. Strong position in Asia’s motorcycle markets

Motorcycle business generates 12.3% of total Honda’s sales and is the third largest revenue group
for the company. The company has sold 17,592 units of motorcycles and all-terrain vehicles in 2016
alone and captured 22.1% of the world’s motorcycle market in the first half of 2016.

Asia is the main geographic segment for Honda’s motorcycle business, where the company has sold
15.1 million units or over 88.7% of its total motorcycles, generating ¥1,107.6 billion in revenue.

Asia-Pacific region, which includes such countries as China, India, Vietnam, Thailand, the Philippines,
Malaysia, Indonesia, Australia and Japan, is the largest motorcycle region in the world and Honda’s
strong position in it is a powerful competitive advantage.

Weaknesses

1. Dependence on North America to generate most of the revenue

Honda depends on North America region, which mainly includes the U.S. and Canada, to generate
55.6% of the company’s total revenue.

Figure 2. Percentage of Sales Revenue by Region

Source: Honda’s Financial Report[1]

Honda’s reliance on North America grew from 49.3% of the total sales in 2014 to 55.6% of the total
sales in 2016. At the moment, North America is the main driver behind company’s growth where the
motorcycle revenue grew 20% and the automobile revenue grew by 19%. Nonetheless, the U.S. and
Canada are saturated markets and Honda will find it hard to maintain the same level of growth in
these markets.
The company is also becoming more vulnerable to overall negative changes in North America’s
markets.

2. Low investments in research and development (R&D) leading to fewer innovative products

Honda has spent US$5.4 billion for R&D in 2015. This amounted to 4.5% of the company’s total
revenue.

Figure 3. Comparison of R&D expenditure – Honda and selected major competitors (in US$ billions)

Company 2015 R&D As a % of revenues 2014 R&D As a % of revenues

Honda 5.4 4.5 5 4.5

Toyota 8.4 3.7 7.6 3.5

Volkswagen 14 6.9 14 7.1

General Motors 7.5 4.9 7.4 4.7

Source: The respective companies’ financial reports[1][5][6][7]

Low investments in R&D lead to fewer innovative products and significantly undermine the company’s
abilities to compete in the future. The company should focus its US$5.4 billion R&D investments to
certain areas (like Hyundai does), which would erase company’s low R&D budget disadvantage and
would result in innovative products.

Opportunities

1. Increasing government regulations

Many governments around the world are committed to reducing the greenhouse gas emissions and
are encouraging fuel efficiency initiatives. Such environmental initiatives may increase production
costs for the car manufacturers and these costs will be either passed to price sensitive consumers or
will decrease the company’s profits. Honda may take advantage of this by introducing more car
models running only Hydrogen fuel cells and bypassing all the government regulations associated
with the greenhouse gas emissions.

2. Improving U.S. economy

Signs of an improving economy and rising consumer confidence have been reflected in the strongest
increase in new vehicle sales for more than a decade in the U.S. market. 17.5 million new units were
sold in 2015, a 5.7% increase over 2014. Interest rates in the U.S. have been low for several years
and are forecast to remain that way for the foreseeable future. In such economic conditions, Honda
has an opportunity to capture higher market share and increase sales in the U.S. automotive market.
3. Timing and frequency of new model releases

The market share of the automotive companies is significantly impacted by the timing and frequency
of new model releases. Historically, new models have tended to have major upgrades every 4 or 5
years with only minor modifications in between. However, due to the rising consumer expectations in
relation to in-car technology and the competitive nature of the industry, there is an argument to
release upgraded models more frequently. Honda is well-positioned to be able to do this.

4. Low fuel prices are increasing the demand for pickup trucks and SUVs

Currently, fuel prices are the lowest in a decade. Such situation has encouraged consumers to buy
big fuel-inefficient vehicles such as SUVs and pickup trucks. Traditionally, Honda’s main focus was
on smaller cars like Honda Civic and sedans such as Honda Accord, but in the current situation,
where fuel prices are low, the company has introduced its next generation pickup truck Ridgeline and
redesigned its CR-V sport utility vehicle to meet the demand for the bigger vehicles.

The trend of low fuel prices is likely to stay and Honda should introduce more models of pickup trucks
and SUVs to take an advantage of the growing market for these vehicles and to increase company’s
profitability.

Threats

1. Increased competition

Honda is faced with an ever increased competition from the traditional automotive companies, the
new players and saturation of its main markets. In Asia, the company’s key motorcycle region,
markets are nearly saturated. In 2016, Honda’s motorcycle revenue grew by only 5.4% in Asia,
compared to 20.3% growth in North America region. The company faces many new entrants in India
and China, which offer similar quality motorcycles and scooters for lower price than Honda.

Honda’s automotive business is also experiencing the slowing growth of the automotive markets and
the increased competition from the new Chinese manufacturers. The company’s international rivals,
such as Toyota, Ford, General Motors, Volkswagen and Hyundai, all have larger budgets and could
use them to aggressively take market share from Honda.

New companies, such as Tesla and even Google, which tries to build self-driving cars are also
threatening the traditional automotive industry. The competition is further fueled by the fact that the
global automotive production capacity far exceeds the demand. In 2015, there was an estimated
global excess production capacity of 31 million units.[11]

2. Rising Japanese Yen exchange rates

More than 88% of Honda’s revenue come from international markets, which means that the company
has to convert foreign currencies to Japanese Yen in order to calculate its revenues and send the
profits back to Japan. Currency rates are volatile and the company’s profits and revenue highly
depend on the fluctuating exchange rates. The company cannot control the currency exchange rates,
therefore it is at risk, if Japanese Yen exchange rates would start to rise. In such case, the company’s
profits would decrease significantly. The company itself identifies this as a key threat that will
negatively affect the company over the next few years.
3. Natural disasters

Honda has manufacturing facilities in Japan, Thailand, China and Indonesia. These countries,
including others, are often subject to natural disasters that disrupt manufacturing processes and
result in lower production volumes and profits.
PESTLE Analysis of Honda

 Political Factors

What if government is imposing a law?

In the UK, a very limited number of cars are being sold after the government gave out its
new proposal. This law would affect the sales of Honda, and they would not be able to
produce the number of cars like it used to previously. Moreover, people in Europe have
to pay a high amount of taxes than anywhere in the world. Market prices, costless
business and oil charges allows to access customer to devote automobile. The stable
political environment will construct the modern standards and boosts the endowment.
Political factors include recruitment law, trade and domestic trade administration and the
taxation. Political factors will be influencing the innovations directly. It means Honda
needs to perform responsive to its improvements in a safe manner.

 Economic Factors

What is the impact of currency fluctuation on production and other factor like
rising income of consumer?
Honda Company can easily dominate the economic factors if the trends are clever. The
exchange rate of the United Kingdom and Japan are not constant always. Hence it affects
the price of Honda’s cars. The rising income refers to the consumer’s income being
raised, hence leading to an increase in purchasing power. Honda introduces new models
of cars every year to go on sale and keep up with this income rising. To cope up with the
economic problems that the world is facing, Honda is now launching more economical
and eco-friendly cars. Honda might suffer aloss in the coming years. Its growth will limit
because of the petrol consuming vehicles. However, the company mainly relies on the
exchange rate which needs to be stable otherwise it will affect the price if automobiles.

 Social Factors
The social factors affecting the motor vehicle company involve the cultural and
demographic aspects of the external macro environment. People tend to go for their own
country’s car manufacturers instead of opting for imported ones. Hence, Honda
introduced new eco-friendly cars to change their thinking. Honda deals in the English
language to remove language barriers and spread worldwide. Cars products in the UK are
less expensive than anywhere else in the world. Thus, consumers buy these products from
western countries more. All these factors affect the customer needs and size of the
potential markets.
 Technological Factors

What is the impact of technology on Honda?

The factors that affect Honda regarding technology show how the trend helps in the
business. In the modern world, people have started relying too much on the GPS to look
for the location they want to go to. So the Honda manufacturers have included the
Satellite Navigation System in new cars. Honda is now manufacturing environmental
friendly cars by providing fuel economy, clean emissions, and ample torque. It is
important to take safety measures while advancing the technology. However, the
company will surely consider the fact of hybrid cars, which will benefit the users and
generate more sales. Honda has always been that company that is eager in innovating
technology and advancing in mobile technology.

 Legal Factors

What is the impact of restriction on Honda?

Law restricts the production because of the environmental issues. However, Governments
laws have a wide impact on the Honda Company. Honda needs to focus on its pricing
policies, must propose the reduction on vehicles, which helps to confront the opponents,
and allows generating more sales. The working hours in the UK are 8 hours daily, and the
pay is high per hour. The company may be affected due to the high wages of employees.
The government has issued a law saying all the workplace of the company should be safe.
They cope up with issues like reporting accidents, training, and the safety equipment to
ensure that its employees are secure.

 Environmental Factors

What is the impact of environmental factors on Honda?

Car engines mainly rely on the climate changes. The efficient solution will surely
eliminate the situation of heated engines and will improve the performance of cars. The
prices of petroleum are increasing due to global warming hence; Honda is producing eco-
friendly cars like Honda Hybrid to protect global warming. The UK has had a varying
climate and weather in the past years. The changes in temperature affect the engines of
cars. It is difficult to start a car engine in winters than it is in summers. So, Honda has
manufactured different engines for different regions to resolve this issue.1
Mission Statement
“A dynamic growth oriented company through market leadership, excellence in quality and service and
maximizing export, ensuring attractive returns to equity holders, rewarding associates according to
their ability and performance, fostering a network of engineers and researchers ensuing unique
contribution to the development of the industry, customer satisfaction and protection of the
environment by producing emission friendly green products as a good corporate citizen fulfilling its
social responsibilities in all respects.”
Vision Statement
“Market leader in the motorcycle industry, emerging as a global competitive centre of production and
exports.”

Component in the vision and mission statement of the company is ?

1. service: excellence in quality and service

2. concern for employees: , rewarding associates according to their ability and performance,
3. concern for growth profitability and technology: fostering a network of engineers and
researchers ensuing unique contribution to the development of the industry
4. customers and concern about public image: customer satisfaction and protection of the
environment by producing emission friendly green products as a good corporate citizen fulfilling
its social responsibilities in all respects.

5. Markets : “Market leader in the motorcycle industry, emerging as a global competitive centre
of production and exports.”
6. Concern about shareholders : ensuring attractive returns to equity holders
7. Self-concept: A dynamic growth oriented company through market leadership