Hero and Honda split-Hero Gains ?

by Satyam Gambhir

How often do we come across the news of companies ending a successful joint venture, very
rare! Hero will now have to sweat a lot to maintain the market share of 44%. As a result,
newspapers are anticipating two wheelers prices to fall in times to come. None, other than time
can enlighten us.

With both companies deciding to end their 26-year old partnership, the question being asked is
what may have caused the split? There are two likely reasons. One, the increasing cost of royalty
and technology (R&T) and second, the growing presence and market share of Honda Motorcycle
& Scooter India (HMSI), a 100% subsidiary of Honda.

While people are wondering about how Hero will sustain their profits, market share and brand
image; I would like to congratulate the Indian giant for the divorce with Japanese company
which will only bring exhilaration into the market.

The questions are open to Hero but the management is smart, experienced and veteran. They
not only got their 26% share from Honda at 40% discount to the market rate, but also have
gained expertise over the Japanese technology during their operations of 26 years.

There was out rightly no need to piggyback the brand name Honda anymore which came with a
huge royalty fee. The technology shared by Honda has now been learned and mastered by Hero
during their long 26 years of marriage. The profits were now merely shared for customers’ sake
for they love to see the two names HERO and HONDA together on their bikes. Although, the
guild of the two names was giving maximum sales however was of limited value to the
company.

Do we buy Karizma, CBZ, Splendor, Hunk because they are Honda technology? Or because of
the way they are positioned in the market?

Benefits

New Markets: The Hero Group will gain from dissolving the partnership with Honda Motor by
being able to export more motorcycles and scooters around the world. Hero Honda, which has a
44 percent domestic market share, is currently limited to exporting motorcycles only to India’s
neighbouring countries due to Honda’s global presence. "We will be able to make our own
global presence felt in global markets," Hero Honda managing director Pawan Munjal told a
news conference.

New segments: Motor cycles have been surging in line with the rising incomes of India’s middle
class, who number up to 350 million, which has been aiming at high-end customers, now will
target the large entry-level segment.

The Hero Group has been responsible for marketing and distributing Hero Honda’s motorbikes
while Honda mainly provided technology. Hero will now leverage the plus.

Hero Honda said that the royalty costs for Honda technology would either remain steady or fall
as a result of the deal, in contrast to media reports and the technology would be shared till 2014
to fill the gaps, if any.

Challenges

After the exit of Suzuki from a joint venture, TVS Motors took many years to find its
bearings. Will this be the case with Hero too?

"One big differentiation between Hero Honda and other automobile companies is the scale and
strong brand recall," said Deepak Jain, assistant vice president and research analyst, Sharekhan.
"Hero Honda’s Splendor is a decade-old motorcycle brand. However, automobile divorces are
very challenging. Retaining core customer group will be the incremental challenge for the Hero
group apart from cut-throat competition."

R&T payments are the third biggest expenses for Hero Honda after raw materials and employee
cost. It’s another challenge to optimize the savings to rebranding activity.

The Hero group has two options, either to go for in-house R&D or choose a domestic/foreign
partner for technical collaboration. However, analysts do not see the group going in for a
partnership with anyone.

It will be a challenge for Honda to compete with robust Hero’s marketing and distribution team
and a challenge to Hero will be to live up to the expectations of customers at technical level.

Cultural Intelligence: Catalyst for success of

Mergers & Acquisitions!
by Charu

A study by KPMG International highlights that 83% of acquisitions and mergers fail to create
the intended value. Mergers and acquisitions are designed and executed to create growth,
competitive advantages, technological acquisition, eliminate competition and more in order to
create value.

The report also suggests that while strategic, cost, revenue and legal issues drive most deals it is
cultural issues that determine their success. It is not an exaggeration that how companies handle
culture issues is probably the single most decisive factor that can make or break a deal. Although
cultural integration is of high importance it is often hard to anticipate, analyse and quantify.

It is of no surprise that the most often quoted reason for the failure of an M&A is culture
differences. While utmost effort is regarded in the pre merger phase (identifying the target,
negotiations & due diligence); post merger phase is often overlooked. This is the phase when
actual integration takes place & companies look forward to derive the synergies from the deal
but most of the deals bomb owing to failure in acclimatizing the parties involved in the most
optimum cultural fit.

Most of the studies indicate among other factors the most critical is paucity of Cultural
Intelligence. Cultural Intelligence (CQ) is the ability to cope with national, corporate &
vocational cultures as described by Earley & Mosakowski in HBR, 2004. Cultural intelligence is
to have an empathetic point of view for unfamiliar contexts & adjust to same to derive mutual
benefits. CQ shares some of its characteristics with Emotional Intelligence but CQ goes one step
beyond as it emphasizes on ability to distinguish behaviours based on the culture.

CQ disaster will entail low morale, satisfaction, commitment, reduced trust, reduced
productivity, poor communication, and increase absenteeism as possible outcomes. Many
acquisitions are evaluated based on their compatibility regarding financial figures, technological
advantages, or market share, never focusing on the soft (people issues) M&A issues.

People issues are generally considered as “soft” issues mostly taken for granted, but
organizations have learned it hard way. The costs to ignoring or mismanaging people issues are
huge & perhaps organizations are now striving hard to manage post merger session as well
smoothly i.e. post transaction workforce integration, selection and retention of specific
personnel, communications with severed and retained personnel, analysis of the pre and post
transaction cultural operating environment etc.
For instance DaimlerChrysler Merger was a complete Cultural Mismatch; obviously the deal has
not seen light of the day. Both sides in the partnership underestimated the influence of culture,
and due to culture clash, almost two years later it is still struggling to become a unified global
organization. People in both organizations expected that their “merger of equals” would allow
each unit to benefit from the other’s strengths and capabilities but it went against predictions.
Similarly Cendant Corporation’s 1997 acquisition, ignored importance of integrating human
resources. Their CEO believed that: "If the numbers work, don’t worry about the soft side-the
people stuff". As a result it bombed.

Failure in creating conducive cultural fit can lead to following bottlenecks in the
organization:

1. Lack of Direct Involvement by Human Resources

2. Loss of Key People and Talented Employees
3. Loss of Customers
4. Corporate Cultural Clash
5. Power Politics

Puma India’s unique communication strategy

– Crazy or Desirable?
by Aseem Rastogi

Puma is one of the biggest international shoe brands in the world in the leagues of Nike, Reebok
and Adidas. Puma India was set up in 2005 and this was an advantage for it as the German brand
became one of the first international shoe brands in the country. But then in the last 5 years, how
many times have you seen a Puma commercial or huge billboard advertisement or heard a jingle?
I am sure you can count on your fingers. But that would surely not be the case with say a Reebok
or a Nike!

What’s the difference with Puma?

Puma has always gone for a subtle branding and communication strategy to target its customers
in the age groups 16-25 years – the ones who use their products the highest
Rather than go overboard with TV, Billboard or print advertising, Puma has always concentrated
on digital as well as in – store branding and retailing. Positive word of mouth from satisfied
customers is what Puma has always tried to achieve as its main communication strategy as this
purchase is a high involvement category.

Puma’s strategy is built on left brained communication as it explains the concept of the brand at
a level from which one can form opinions and conclusions. This gives an option for a person to
be judgemental / non – judgemental.

So why such a narrow communication strategy?

Puma desires to be the brand for people who want something to show off as a status symbol or to
satisfy their esteem needs. Early adopters would leave a brand they consider as desirable if it
starts appearing anywhere and everywhere.

Rather than specially placing a product by its name in a movie, Puma India concentrates on
building attention or awareness about the brand without mentioning the name. Since the brand
appeals to fashion as well as sports conscious individuals, it strongly relies on digital
advertising.

Future of Puma India?

Puma has tied up with Rajasthan Royals and Deccan Chargers and is also the official kit supplier
for the IPL. After starting many digital campaigns this year, Puma India plans to go for special
TV innovations during the IPL next year.

What is most important in the long run for Puma is to communicate the legacy of the brand to the
customers / prospective customers. Without that it would be really difficult for the brand to
sustain itself and it may force it to go the conventional above the line advertising route!
Top 10 Indian Mergers & Acquisitions of the 2010!

by Aseem Rastogi

India Inc. is back making multibillion dollar deals like never before. The total deal value this
year has surpassed 2007 which was the big ticket year for mergers and acquisitions. The
recession and economic slowdown had caused a lot of heartburn, disappointment and distress
among the corporate honchos in the country. But with deals crossing [...]

{ 0 comments }

Puma India’s unique communication strategy – Crazy or Desirable?

by Aseem Rastogi 1 comment

Puma is one of the biggest international shoe brands in the world in the leagues of Nike, Reebok
and Adidas. Puma India was set up in 2005 and this was an advantage for it as the German brand
became one of the first international shoe brands in the country. But then in the last 5 [...]

Continue Reading →

The real reason behind Hero Honda Breakup..

by Aseem Rastogi 4 comments

The breakup of Hero Honda after a marriage spanning 25 years sent shockwaves across the
entire Indian auto industry. Hero Honda had brought the concept of a two–wheeler in India’s
collective consciousness. It is also regarded as the largest manufacturer of two–wheelers in the
world. Then why the breakup of such a uber successful marriage [...]

Continue Reading →

2010 – Year of Indian Auto sector growth!

by Aseem Rastogi 2 comments
Booming is a small word for the Indian auto sector today. The pace at which it is growing, it
seems that it would soon surpass the IT / ITes sector as the most prominent sector of our
economy. The Indian auto sector has grown by leaps and bounds over the past decade. But with
new [...]

Continue Reading →

The Very Basics of Customer Relationship Management [CRM]

by Satyam Gambhir 7 comments

You have probably heard about this term, CRM or Customer Relationship Management. When I
was curious to know more about it, I read not less than 15 articles, blog posts and discussed it
with friends. I could get a hang of it but believe you me, none could give a comprehensive
explanation to be understood [...]

Continue Reading →

Indian Online Advertising market to grow at 26.5% – BFSI Leads…

by Arun Prabhudesai 0 comments

Online advertising is steadily seeing growth in India. Though broadband Internet penetration is
growing at snail’s pace, Mobile internet figures are rising at breakneck speed, which augurs well
for online advertising growth in India. Internet & Mobile Association in India (IAMAI), recently
released a report which pegs text and display advertising growth at Rs …

Continue Reading →

After Hero’s Honda divorce, it starts work on its Brand Identity!

by Aseem Rastogi 2 comments
Hero Honda has been the largest manufacturer of two–wheelers since a decade. With a market
share of 60% in motorcycles and 43% in two – wheelers, Hero Honda has been the leader by far.
But then as they say everything isn’t always hunky – dory, Honda recently sold off its stake of
26% in the [...]

Continue Reading →

Hero and Honda split-Hero Gains ?

by Satyam Gambhir 0 comments

How often do we come across the news of companies ending a successful joint venture, very
rare! Hero will now have to sweat a lot to maintain the market share of 44%. As a result ,
newspapers are anticipating two wheelers prices to fall in times to come. None, other than time
can enlighten …

Continue Reading →

The Power of Co-Creation

by Charu 3 comments

This one is not a typical book review; I actually found this concept worth sharing & compelling
enough to write on. So here it goes “together we create value”; “don a mind-set of win-win
partnerships”& “learn to build healthy relationships”. This is just a glimpse of a book – The
Power of Co-creation – written [...]

Continue Reading →

70 percent of Foreign Investors have achieved profit targets in India!

by Arun Prabhudesai 0 comments

FICCI recently released an interesting report which puts light on how Foreign Direct investors
are doing in India – and the report card looks awesome. According to survey, 62 percent have
reported making profits in their Indian operations. And within this group, nearly 70 percent have
been successful in meeting their profitability targets. The spread [...]

Continue Reading →

India Smartphone Market–Huge future potential!

by Arun Prabhudesai 0 comments

2010 has undoubtedly been the year of smartphones – The all in one device that takes care of
literally every digital need of a youth, be it Email, Social Networking , photography, chatting,
messaging, gaming. You name it and today’s smartphones have it in them! Having said that,
India has lowest penetration of smartphones amongst …

Continue Reading →

India Leads Ad spending in Asia Pacific!

by Arun Prabhudesai 1 comment

According to latest Nielsen report, India and Taiwan are seeing highest growth in Ad spending
across Asia Pacific Region. India registered 19 percent growth compared to 3rd quarter of 2009
as compared to average Asia Pacific growth of 9 percent. Asia Pacific Ad spend Growth Here
are some of the other …

Continue Reading →

Kia Motors – Another international auto player plans India Entry!

by Aseem Rastogi 1 comment

General Motors, Ford, Hyundai, Volkswagen, BMW, Mercedes and now KIA – International
auto players seem to be marching into India at the snap of one’s fingers. And no this is not just
Asian players alone. If you go back to my list, it includes American and German auto companies
as well. As incomes rise, aspirations [...]
Continue Reading →

Dell India leads the way for Dell International Services! Here’s how..
by Aseem Rastogi 0 comments

Dell has for long been one of the biggest players in the world market in the field of personal
computers. Its direct business model which involves bypassing the traditional distribution
channels as well as strong influence on customer service through social media made it the world
number 1 in this segment by far till 2006. [...]

Continue Reading →

Growth is here but where are the jobs?

by Charu 0 comments

“Jobless growth” and “jobless recovery” are the words creating lot of tidings these days, but
these words are not hollow, recent survey conducted by Labour Bureau (A research organization
under the Ministry of Labour Employment) pretty much justifies the buzz. With a view to study
the overall employment-unemployment situation in the country, Labour Bureau …