MKTG 3553 Temple University Challenges Honda Faces in Europe Discussion Background,location,strategy in Europe,problem Honda had (at least 2 problem),how H

MKTG 3553 Temple University Challenges Honda Faces in Europe Discussion Background,location,strategy in Europe,problem Honda had (at least 2 problem),how Honda solve these problems, recommendation for Honda in Europe (at least 2 recommendation), how Honda in Europe does right now, think about 4 question with answer of itno more than three double-spaced pages of text in 12 font size HONDA IN EUROPE (2016)
The Honda Motor Company first entered the European market in the early 1960s by selling motorcycles. The
company’s automobiles were introduced to Europe much later. Despite its success in North America and the rest
of Asia, the company has not achieved a strong foothold in the European market. In fact, its sales had been
declining until 2013 although it has edged up somewhat since then.
Net sales (in Million Yen)
FY2011
FY2012
FY2013
FY2014
FY2015
% change
2014-2015
Japan
1,310,734 1,329,645
1,462,664
1,714,752
1,617,941
-5.6%
North America
3,252,852 2,855,683
3,905,276
4,717,769
5,182,917
9.9%
Europe
Asia
Other
441,696
355,963
388,464
487,673
475,101
-2.6%
1,221,704
836,301
1,385,449
1,599,069
1,795,048
12.3%
567,112
428,383
567,363
657,097
622,287
-5.3%
Source: Honda Worldwide Homepage, world.honda.com, 2016.
History of Honda
In 1946, Souichiro Honda founded the Honda Technology Institute in Hamamatsu City, Shizuoka. The company
started as a motorcycle producer with a single small factory in an empty lot in Hamamatsu City. From this
simple beginning Honda became an incorporated company in September 1948, and by the 1950s had become
extremely successful in Japan. In 1956, Honda entered the U.S. market and was able to position itself
effectively, selling small motorcycles. In the early 1960s, the company commenced automobile manufacturing
and participated in Formula 1 (F-1) racing to assist its technology development. Thanks mainly to its success in
F-1 racing, Honda became recognized around the world as a technologically savvy company.
Up to the early 1990s, the company suffered from organizational mismanagement that came from tension
between its technology and marketing departments. The situation became so serious that the president and
founder, Souichiro Honda, was forced out for ignoring Honda’s marketing. After Souichiro Honda’s departure,
the company was better able to balance its technology and marketing departments, and by 1999 was second in
sales only to Toyota in the Japanese market. The underlying success of the company is best summarized in its
mission statements, “pleasure in buying, selling and producing,” and “Beat GM, not Toyota.”
Honda currently has 33 automobile manufacturing factories located in 17 countries around the world. Honda’s
operations cover automobiles, motorcycles, financial services, power products, power tools, jet aircrafts, and
robotics. In the fiscal year 2015, 76.6% of Honda’s revenues came from its automobile sector, as outlined in the
table below.
This case was prepared by Masaaki Kotabe based on its earlier version by Jon Pontius, Jared Winans, Tram Nguyen, and
Sun Pravichpibul of the University of Hawaii at Manoa for class discussion rather than to illustrate either effective or
ineffective management of a situation described (2016).
Honda Financial Year Closed March 2015
(in Billion Yen)
Net Sales & Other Operating
Revenue
FY2015 Twelve Months
Motorcycles
1,824.1
Automobiles
9,693.2
Financial Services Business
814.4
Power Product & Other Businesses
314.8
Total
12,646.7
Source: Honda Motor Co. LTD. Reports
Automobile industry
The automobile industry worldwide is in the mature stage of its life cycle. By the 1990s, the surplus of motor
vehicles became such a big industry problem that a number of mergers and acquisitions (M&A) and alliances
took place. Industry experts had stated in the late 1990s, only 6 or 7 companies would remain global players
while other companies would be forced to sell in niche markets. Indeed, many mergers and partnerships had
been established in the 1990s and in the first decade of the 21st century. For example, Daimler acquired Chrysler
in 1998, and then DaimlerChrysler acquired a major share of Mitsubishi in 2000, GM became the controlling
shareholder of Fiat and Saab in 2000, Ford acquired Jaguar in 1990, Volvo in 1999, a major share of Mazda in
1996, and Land Rover from BMW in 2000. Renault became the controlling shareholder of Nissan with over
40% ownership in 1999. Global-scale production and sales became important as a way to cut cost through
developing common parts and engines and improving procurement.
However, many of these corporate marriages did not last long, and quite a bit of re-alignment of automobile
mergers and partnerships have taken place in the last 15 years or so. Daimler and Chrysler divorced in 2007.
General Motors wound out Fiat in 2005, and right after General Motors’ bankruptcy in 2009, Saab was sold to
the Dutch automobile manufacturer Spyker Cars but could not avoid insolvency later on. Now Fiat acquired
Chrysler in 2004. The Indian automobile manufacturer Tata Motors acquired Jaguar and Land Rover in 2008.
The Chinese automobile manufacturer then acquired Volvo from Ford in 2010. The only major partnership that
has remained intact in the last 20 years is the Renault-Nissan alliance.
Japanese automobile companies, like their European and American counterparts, did attempt an M&A strategy.
Nissan acquired companies in Spain and later partnered with Renault and Daimler while Toyota had deals with
distributors from the early 1980s and later would merge with its Belgian distributors. Honda, unlike its
counterparts, chose to avoid an M&A strategy with the exception of an attempted joint venture project with
Rover from 1981 until 1994. To remain a global competitor, Honda expanded its operations by setting up plants
in regional markets. As of 2016, Honda is currently ‘the number 8 car company’ in the world in terms of sales
and is the fifth largest car company in the United States with a 9% market share.
Honda in Europe
Currently Honda has operations in North America, Japan, Asia-Oceania, Europe, Africa and South America. The
European operation covers Europe, the Middle East, and Africa. Honda began its automobile production in
Europe in 1986 by manufacturing engines in the U.K. Six years later in 1992, Honda launched a manufacturing
factory in Swindon, Somerset, U.K. Several years later, Honda opened production facilities in Turkey in 1999 to
target the Middle East and Eastern European market.
Production
2014
Japan
Outside of Japan
North America
(USA)
Europe
Asia
(China)
Others
Worldwide Total
2014
Japan
Outside of Japan
North America
(USA)
Europe
Asia
(China)
Others
Worldwide Total
Source: Honda Worldwide
Jan.
97,145
281,672
144,844
106,106
13,914
110,477
71,522
12,437
378,817
Feb.
84,883
267,941
148,763
109,837
14,045
92,982
49,106
12,151
352,824
Mar.
95,031
306,576
158,655
113,780
12,887
122,820
72,793
12,214
401,607
Apr.
78,809
305,602
154,406
112,564
12,115
126,704
78,624
12,377
384,411
May.
80,500
299,966
151,119
106,869
7,447
130,515
79,245
10,885
380,466
Jun.
87,639
301,742
143,663
100,869
8,973
137,811
82,268
11,295
389,381
Jul.
84,898
278,599
129,994
89,020
10,036
128,593
77,272
9,976
363,497
Aug.
59,232
284,310
161,250
114,609
4,059
105,406
51,780
13,595
343,542
Sep.
76,997
313,270
163,676
113,607
8,489
126,861
67,115
14,244
390,267
Oct.
75,994
326,633
178,577
123,212
6,675
126,978
67,542
14,403
402,627
Nov.
62,044
309,215
139,829
88,844
11,112
145,376
87,741
12,898
371,259
Dec.
75,007
280,064
132,348
89,587
10,243
128,051
71,065
9,422
355,071
The Swindon plant in the U.K. accounts for a small portion of Honda’s global production. The facility has two
assemblies, one with a capacity of 100,000 units/year and another with 150,000 units/year. As a note, the plant
in Turkey can produce 50,000 units/year. The Swindon facility produced 166,000 units in 2012, yet over 75%
(187,500 cars) of capacity must be achieved to break even. The situation has been especially unstable in recent
years, with a low of 97,000 produced in 2011. In 2008, 230,000 cars were produced there.
As of 2015, 50% of Honda’s cars purchased in Europe were produced in Europe. That year, the company set a
target to increase the figure to 80%, and hired 500 new employees at the Swindon facility. However, a year later,
the company cut 800 jobs (25% of its workforce) at Swindon. In January 2013, citing low demand in Italy, Spain
and Greece, Honda Europe’s Executive VP Ken Keir claimed that no growth was expected in the coming 4
years. Sales did temporarily increase from 2013 to 2015, largely due to the release of the new CR-V and diesel
engine. However, with a reduced workforce, Swindon appears to have little chance of breaking even in the
future.
An interesting implication in Swindon’s reduced role in European car sourcing is that cars may be increasingly
produced in Asia or other regions. This could potentially affect the amount of options made available to specific
European countries, and may intensify Honda’s pan-European approach.
Honda’s Global Sales by Region
There are a multitude of reasons for the low sales Honda has experienced in Europe. Honda entered the
European market later than its competitors. In fact, its first production facility in Europe was established as late
as 1992, at a time when Honda was still only a minor player in the Japanese market and its stronger Japanese
competitors had been active in Europe since the early 1980s. Prior to 1992, Honda Europe had been forced to
import its vehicles from the United States. These imports were subject to quota restrictions. This made it nearly
impossible for Honda to aggressively enter the European market.
Honda’s inability to enter the European market aggressively continued despite an attempted joint venture with
Rover. This joint venture was pursued in order to help Honda gain distribution channels and obtain market
expertise in Europe. Unfortunately, Rover had a poor image in Europe and had very little knowledge of the
market.
Although Honda was able to improve sales slightly, in the end its image suffered from its association with
Rover. Furthermore, unlike its competition, Honda waited until 2003 to invest in research facilities in Europe.
However, one of the most fundamental reasons for Honda’s lack of success was the popularity and saturation of
locally owned car manufacturers that can be found in the European market. Companies such as Volvo, BMW,
Audi, Volkswagen, DM, Opel, Renault, Peugeot and Fiat have been dominating the European market for a
considerable number of years. In addition to these local companies, other foreign companies, such as Toyota,
Nissan, Ford and Hyundai have gotten footholds in the European market. As a result, the European market is
extremely competitive.
In 2001, Volkswagen was ranked number one in Europe with 17.6% of the market and Peugeot number 2 with
15.8%. Renault, Ford, Fiat, GM had approximately 10% of the market each, and Toyota, BMW, and Audi had a
market share in the region of 5%. Honda captured only 2.4% of the European market. In 2013, Volkswagen is
firmly in the lead with 24.3% of the market and Peugeot is ranked second with 11.2% of the market. Renault is
ranked third with 8.3% of the market. GM, Ford, and Fiat come in fifth, sixth, and seventh respectively with
7.8%, 7.3% and 6.8% of the market. Honda is tied for 15th with Tata among 19 companies with 1.4% of the
market. The second largest combined force is the joint venture between Daimler, Renault, and Nissan with a
combined market share of 17.6%. Honda sales in Europe have declined steadily in Europe from 2009 to 2015,
with market share sliding accordingly, to below 1% for the first time ever in 2015, compared to 2 percent in
2007. Comparatively, Honda’s brand image is weak and its product line is narrow. It is important to note that the
German ADAC brand ranking system ranks Honda at the 15th best brand in Europe. As the chart below shows,
BMW and DMC (Daimler Motor Corporation) have the highest brand image.
Honda’s European Marketing
The four largest markets within Europe are Germany, U.K., Italy and France. Honda’s European marketing
strategy in those four countries is highlighted below.
Product. Honda’s main European manufacturing plant is located in the U.K., and as a result the country has
more Honda models than any other country in Europe. Honda’s standard line of car models such as the Civic
and CR-V is generally sold throughout Europe, though different options are made available to specific countries.
Honda also develops some European versions of cars that are cosmetically or otherwise different than models in
different regions. These European versions are generally sold across Europe and are not made for specific
countries. Currently Honda offers eight models.
Price. The prices of vehicles in Europe are comparable to those of similar cars produced by local manufacturers
and foreign competitors. The tables below compare Honda’s economy models (Table 1), Honda’s new 1.6 liter
diesel engine model (Table 2), and off-road vehicles (Table 3).
Table 1: Economy Models
Vehicle
Honda Jazz Nissan Micra VW Polo
Renault Clio Toyota iQ
Fiat Panda
Price (Pounds) 11645
10595
8900
9750
10490
10995
Source: Carpages- Information on current and new vehicles U.K.
As can be seen from Table 1, Honda prices its economy older models higher than the competition.
Table 2: Diesel Engine Models
Vehicle
Honda CR-V
Toyota Yaris Hybrid Peugeot Ion
Volkswagen EOS
Price (pounds)
15195
26140
21505
26216
Source: Carpages – Information on current and new vehicles U.K.
Table 2 shows that there are far fewer companies that sell quality economical vehicles on the market. We can
also see that Honda’s green vehicles are cheaper than the other green vehicles on the market. This is likely due
to the fact that Honda has outfitted its old model CR-V models with new green engines.
Table 3: Off-Road Models
Vehicle
Honda
Nissan X- Toyota
Peugeot
Volkswagen Renault
Fiat Dobolo
Accord
Trail
GT86
Expert
Passat estate Megane
Tourer
Tepee
sport Tourer
Price
24265
25790
24995
23245
21030
17345
13410
(Pounds)
Source: Carpages – Information on current and new vehicles U.K.
Table 3 shows that Honda prices its off-road vehicles lower than other Japanese companies do, but the vehicles
are in general more expensive than those of national European competitors.
Honda primarily focuses on mid-lower priced vehicles, for the most part staying out of Europe’s crowded luxury
market. BMW, Mercedes and Audi are very popular luxury cars, and Ferrari, Lamborghini and Porsche compete
for the richest consumers. As so many luxury car manufacturers exist in Europe, it is difficult for Japanese cars
to enter the market at the higher end. Some of the few luxury Japanese cars that have sold well are Toyota’s
Lexus, Nissan’s Micra and Honda’s Jazz.
Distribution. Honda relies on franchises for its distribution in Europe, and offerings at each dealership vary
greatly. In general, Honda-specific dealers sell a wide range of Honda products, from cars to motorcycles to
lawn mowers. Car-specific dealers tend to sell Honda cars alongside those of other manufacturers. Vehicles
produced in the U.K. are generally sold in Europe, and those produced in Turkey are mainly sold in the Middle
East and Africa, though there is some cross-over.
There has been a lot of fluctuation in the exchange rate between the British pound and the euro, and this has
affected where cars for a given market are produced. As the pound appreciates against the euro, production in
the Swindon facilities is decreased; when the pound depreciates, production is increased. As the pound
depreciates, it becomes a better option for the Swindon facility to produce more vehicles in the U.K. and sell
them in other European countries or the U.S. However, the pound has not always been in a downward trend. In
fact, sharp upward swings in the strength of the pound have often cut into the Swindon factory’s profitability.
The Euro – British Pound Exchange Rate: 2005-2014
(Euro/Br. Pound)
Source: Yahoo Finance
Promotion. In the 2002 launch of the Jazz (known as the Fit in Japan), the company relied heavily on word of
mouth and on a website created especially for the occasion. The website used the same design for all European
countries, and promoted the car as suitable for young working women. The website attempted to give the car a
cool, ‘young’ image by associating it with Feng Shui, Yoga and other hip activities. Once inside the Jazz
website, a user could easily find the nearest dealership to purchase a vehicle.
Honda used to have its websites localized to individual European countries. However, as of 2016, Honda has
decided to standardize its image throughout Europe (except in France yet). Its European websites emphasize
racing, high-tech, speed, and engineering throughout. The French site is divided into 3 panels, with automobiles,
motorcycles, and power equipment, and emphasizes how Honda cars match various lifestyle needs.
Since 2010, Honda has been pushing for a more pan-European strategy for video and print advertisements. The
company is hoping for a more consistent brand image throughout the continent, where opinions on its
automobiles are said to vary greatly between countries. This strategy seems to be in line with that of most
foreign manufacturers in Europe. Nissan, for example, created a comprehensive ad campaign for Spring 2013
that was aimed at over 20 European countries. GM and Ford have also advertised with one message throughout
Europe.
Unlike foreign manufacturers, European automakers are more likely to pinpoint individual EU countries in its
ads. Audi is one company that does this. One Italian ad, for example, is very human-centric, showing Italian
architecture and kissing customs, and jealous Italians chasing an Audi owner down the street. A German ad from
the same time period simply features an Audi car speeding through a tunnel in mirror-vision. There is even a
special German-language catchphrase for Audi, “Vorsprung Durch Technik” (Progress through technology),”
which has been said to perfectly capture the German ideal for cars. This catchphrase does not appear in the
Italian ad, suggesting Audi is comfortable with its brand image being different from country to country. BMW
and Renault can also be seen using similar country-specific advertising methods.
Martin Moll, the marketing director for Honda Europe, claims that one of the problems with Honda’s advertising
has been its focus on the 5% of people who are actively searching for a car. From 2013 on, he hopes to build an
emotional connection with the brand that will not only pull in current car shoppers but their friends and family
as well.
European sales
Source: ACEA
New passenger car registrations in the EU fell each year from 2008 to 2012, though there was a slight increase
in 2013 and 2014. As of June 18th 2013 the sale of vehicles hit a 20-year low, falling to a record low of 1.08
million vehicles, less than the 1 million vehicles in recent years. These numbers are representative of the EU,
Sweden, Norway, and Iceland. One effect the recession has had on the EU market is that car owners tend to hold
on to their cars longer. Sales in the EU have also been falling due to unemployment and job insecurity caused by
the recession. However, sales are expected to rise in the latter half of the year. Daimler CEO Dieter Zetsche
states, “The market is bottoming out and a recovery is possible in the second half of the year”.
Passenger car sales in EU for 2013-2014:
We can see 2014 EU sales for some of the major manufacturers in the spreadsheet above. Honda only held 1%
of the market. Honda’s automobiles have been relatively unpopular in the majority of Europe. Although recent
data are unavailable, historical data suggest that sales have been lower in France and Italy than in the U.K. or
Germany.
European Culture
One reason for Honda’s poor sales in Europe may be that the company has failed to truly understand the culture
of Europe, and has treated it as a single market. Although France, Germany, the U.K. and Italy are all European,
cultural…
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