CASE HONDA IN EUROPEGhar HONDA IN EUROPE INTRODUCTION ‘The Honda Motor Company first entered the European mar- ket in the early 19¢0s through the sale of its motorsycles The company’s motor vehicles were introduced into Europe at a ‘much Iater date. Honda's motor vehicle sales in Europe have been relatively pocr, especially in the previous five years De- spite its huge success in the North Ametican market, Honda struggling to gain a significant foothold in the European mar- ket. Honda executives wonder why their global strategy is sputtering Is global strategy just a pipedream, or is something, ‘wrong with Honda's European strategy? HISTORY OF HONDA, 1m 1946, Souichiro Honda founded the Honda Technology In- stitute, The company started at « motorcycle producer and by. the 1950s had become extremely suocessful ia Japan. In 1956, Honda entered the US. market and was able to position itself cffcctivey, selling small-sized motorcycles. {n the early 19608, the company commenced automobile manufacturing and par- ticipated in Formala-1 racing (F-1) 0 assist its technology de- velopment. Thanks mainly to its F-1 efforis, Honda became recognized as a technologically savvy company not only ia Japan but in the rest of the world as well ‘Until the early 1990s, the company experienced serious ‘organizational mismanagement resulting from tension be- tween the technology side and the marketing-sales side. The situation became so dire that the tachnology-biased president ‘and founder, Souichiro Honda, was forced out, asa result of his neglect in important marketing decisions. After Souichiro Honda's departure, the company became moce marketing- technology balanced, and by 1999 it was second in seles only to Toyota in the Japenese market. The company’s underlying success is best summarized in its mission statoment,"Pleesure in buying, selling and producing.” and "Beat GM, not Toyota. Honda currently hes 25 soparate factories in the world, andits operations cover automobiles, motorcyeles, financial services, power products, and power tool. In fiseal 2001, 81 percent of Hondr's revenues came from its automobile sector, as out- lined in the accorspaaying table, Honba's BUSINESS PORTFOLIO (IN MILLION YEN) Motor eyel 05,308 Automobi 5,231,326 Others 427,200 Total 6,463,830, Thiscase mas prepsred by Torg Won Ko, Peter Wirz, Méke Rhee, and Vincent Chan ofthe Univesity of Hawaii at Manos ender the super= vision or Professor Mastaki Kotate for dais dscusion eather than 10 lustrata either elfective orinefiective managenint of situation de scilbed (2002) AUTOMOBILE INDUSTRY ‘The automo! industry worldwide is in the mature stage of its lifecycle. By the 1990s,an oversupply of motor vehicles be- ‘came sch a problem to the industry that a number of merg- crs and acquisitions (M&A) and alliances took place, In the Ite 1990s, industry experts stated that only six or seven com> panies would remain global players, while other comparies would be forced to sellin niche markets. In the last decade, DaimlerChrysler acquired a major share of Mitsubishi, GM became the controlling shareholder of Fiat and Sacb,Ford ac- uired Volvo, Jaguar, and a major share of Mazda, and Re- nnault became the controlling shorcholder of Nissan. Global scale production and sales became important a a way t9 cut cost through developing a common platform or engines es well as global procurement, Unlike their European end American counterparts, Japanese automabile companies, in cluding Honda, did not adapt the M&A strategy for expan- sion. To remain a global competitor, Honda instead expanded its operations by setting up plants in regional markets. The following table shows that Honda is carrenily ranked seventh in the world in auto production ‘Worn Automonite Propuction RANKING IN SALES Name om 138 Ford 668 Toyota 2 Volkswagen DaimlerChrysler Peugeot(Citoreng) Honda ‘Nissan ‘Hyundai-Kia Fiat Ranking Number (milion) HONDA IN EUROPE, (Currently, Honda has ve global operations: North Americe, South America, Japan, Asia-Oceania, and Europe. The Euro” pean operation covers Europe, the Middle East, and Alice. Honda entered the European market in 1961 as ¢ motoreycle ‘manufacturer, with its automotile operations following sev- eral years later. In 1986, Honda started engine production ia the UK, and six years later it launched its European produc- tion at Swindon in Somerset, UK. Honda opened production facilities in Turkey in 1999 to target the Middle East and East- em European markets The European operation accounts for ' small portion of Honda's global operation, as shown in the following table.624 © Case7 * Honda in Europe Ast production 1atuy se sa sem time when Honda was still only a minor player in the fapan- ese market. Prior to 1992, Honda Europe wes forced to im- por its vehicles from the United States, making it impossible for the company to aggressively attack the European market. (One of the most important reasons for the ack of suczess was ‘that the European market was highly saturated with locally ‘owned car manufacturers. Companies tuch as Saab, Volvo, BMW, Audi, Volkswagen, DM, Opel, Renault, Peugcot, and ‘Flat have been dominating the European market for 8 consi. erable number of years In addition, other foreign companies, ssuch as Toyota, Nissan, Ford, and Hyundai make the Euro- ‘pean market extremely competitive, In 2001, Volkewagen was ranked aumber one in Burope with 17.6 percent of the market and Peugeot number 2 with 1S Gonrcent Renault. Ford, Fiat, and GM had spproximately had a market share in the region of 5 percent, Honda cap- tured only 24 percent of the European market. The competi- tive industry map below shows Honda's current position in ‘the European automobile market. ‘The Fonda brand image in Europe is relatively weak, and the product line is narrow compared tothe other major players inthe market. The company necds to expand its sales and pro- ‘duction in order to survive in global sale compet HONDA'S EUROPEAN MARKETING “The four largest markets within the European market are those of Germany, the UK, Italy, and France. Branp IMAGE IN EUROPE Brand image tow High Breadth of Preduct we Groaar SALES RY REGION ‘many, the county with the highest number orremm=TTETe- tions, has the next largest number of models, 16. Italy and France, both similar in size to the UK, have 11 and 9 models, respectively. The products found in Italy and France are found in Germany and the UK. The UK has a number of automo- biles that cannot be found inthe other three countries, incluc- ing diesel-powered ears. Price. Tne prices of Honde's vehicles in Europe are compa: rable to those of similar cars produced by local manufactur- ‘rs. The following table compares the price in euros of Honda's new Liter Jazz with similar cars offered in the Ev- ropean market yeux AUTOMOBILE PRICES Honda Jazz 13,800 Peugeot 307 13290 YW Polo 13920 Renault Gio 13590 Opel Astra Fiat Stilo ‘The table clearly implies that Honda is attempting 2 price its product at a similar level (o that of the competitoa, Distribution, The image of Honda's vehicles and motorey- cles in Europe i aligned together. Consequently, Honda vehi- cles throughout Europe are distributed at the same locations that their motoreycles are. Vehicles produced in the UK and Turkey are distributed throughout Europe, the Middle East, and Africa. Recently, because of the depreciating euro vis-> vis the US. dollar, cars manufeciured in the UK have also been exported to the United States. Promotion. The promotion of Honda's motor vehicles is es- sentially the same throughout Europe, whether in France, Germany, Italy, or the UK. The company spends very litle time and money in promotion, however. It believes that its success in Formula-I racing. together with its ability to pro- duce high-mileage fucl-ffisent products that exhibit great engineering, is enough to make it popular in the European market. It relies on word of mouth by ils customers to poten- tial customers and, toa lesser extent, on the Internet and the company’s various Websites.