Hero Honda

Motors (India) Ltd.

Case Submission
Ankesh Goyal BJ21071
Saarthak Gupta BJ21106
Adarsh Nethwewala BJ21124
August 14, 2022 Pallavi Mehrotra BJ21156
MACR Group 4 Siddharth BJ21172
 Case background: How did Hero Group join hands with the Honda Motor Company to
become a world leader in two-wheeler manufacturing
BACKGROUND, CHALLENGES

• India is a significant market for global 2-wheeler manufacturers with the largest population of 2-wheelers in the world and a
penetration of only 10%
• License raj before liberalization prevented the entry of foreign players into the industry, thus making Bajaj Auto, a world leader
• Having being permitted to enter into joint ventures post the 1980’s, Honda Motor Company had formed an alliance with Hero
group for its motorcycle venture in India. Honda provided technical know-how and assistance in R&D efforts for a sum of
Company $500,000 and 4% royalty on sales, with each having 26% stake in the venture.
analysis • The partnership flourished with the introduction of models like CD-100 due to its superior efficiency with Hero experiencing a
growth of over 35%
• The lack of new product designs and slow movement in R&D efforts from Honda’s side made HHM susceptible to ever-
increasing competition.
• Through its phenomenal marketing campaigns, extensive knowledge of the customers/markets and a well penetrated dealer
network (rural and urban), HHM managed to maintain its stronghold despite increasing competition. Low prices, significant
product differentiation coupled with a highly loyal and efficient supplier network (localization) furthermore contributed to this.
Thus, the venture was renegotiated on much favorable terms for Hero in terms of R&D and royalty in 2004
• With aggressive marketing and new product launches, HHM became a market leader in the segment. However, at this time, with
competition intensifying, Hero evaluated alternatives through Daimler and BMW

Given the impending renewal of the joint venture, HHM was facing the following challenges:
Challenges • Increased Chinese imports which were much cheaper as compared to locally manufactured products.
for renewal • Establishment of the Honda Motor Scooters India Ltd which threatened HHM’s operation even though the company agreed to
of venture not engaged in motorcycle production and offered a minority shareholding to HHM in it.
• Decision on future course of operations given growing competition & lack of in-house R&D if the venture ended.
Hero group should continue the partnership for now but look to terminate, and evaluate options
like self sustenance, other brands
FUTURE COURSE OF ACTION

Strengths Weakness Opportunities Threats

• Superior distribution network
SWOT Analysis- • Localized supplier network
• Superior customer knowledge
Hero Group • Differentiation & low prices
• Effective marketing mechanism
• Low development costs
• Absence of in-house R&D
facility
• Huge dependence on HMC for
product innovation
• High prices compared to
foreign imports
• Growing two-wheeler market-
CAGR 29%
• Low penetration of the
industry in India-10%
• Significant partnerships with
Daimler and BMW for vehicle
production
• Establishment of the Honda
Motor Scooters India Ltd. by
HMC
• Increased Chinese imports
• Ever-increasing competition
with highly efficient and cost
effective innovations

At present, Hero should renew its agreement with HMC and leverage the time to ensure the limited growth of HMSI, post which it
should terminate the contract after 5 years
• With the superior technical know-how gained from HMC, Hero could work on developing its own R&D facility over the period of
Future course the next renewal to ensure it is having all the facility in place when the parentship with HMC ends
• Hero’s supplier network was highly efficient thus ensuring 95% of the component manufacturing in India. Thus, Hero delivered
of action for superior quality differentiated products at lower prices
Hero post 2004 • Hero can increase market penetration going forward as it has a superior distribution network which managed to expand its
reach to both the rural and urban areas, coupled with a superior knowledge of people behavior
• HMSI agreed to not enter the motorcycle market for a period of 4 years to ensure it does not compete with HHM. HHM was to
be a minority shareholder in the same and could review products before its final launch. This move would furthermore help HHM
consolidate its position in the motorcycle market.
• Hero should evaluate alternatives, like it did in the past with Daimler and BMW, to continue the provision of superior quality
motorcycles and technical know-how post the end of the venture period.