Hero Honda – the Seed of the Organisation
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CREATION OF AN ENTERPRISE: ENSURING THE RIGHT SEED
TABLE OF CONTENTS
THE SEED OF SUCCESS
THE MUNJALS AND THE HERO GROUP
CREATION OF HERO HONDA MOTORS LTD.
GROWTH OF HHML
A SUCCESSFUL KICK-START
CUSTOMER RELATIONSHIP MANAGEMENT
SUPPLIER RELATIONSHIP MANAGEMENT
DEALER RELATIONSHIP MANAGEMENT
LABOUR RELATIONSHIP MANAGEMENT
EMPLOYEE RELATIONSHIP MANAGEMENT
TECHNOLOGY-DRIVEN OPTIMIZATION OF DELIVERY ROUTES
HHMLÐŽ¦S FINANCIAL PERFORMANCE
KINETIC HONDA LTD.
COMPETITION IN THE MOTORCYCLE SEGMENT TO INTENSIFY
COMPETITION FROM HONDA
HERO HONDAÐŽ¦S WEB PRESENCE
THE ROAD AHEAD
THE CHINESE THREAT
IN THE IT PIPELINE
Hero Honda Motors Limited (HHML) is a partnership between the Hero Group and the Honda Motor Company of Japan. This partnership, forged in 1984, carved a lionÐŽ¦s share of the market for itself and went on to become the worldÐŽ¦s largest manufacturer of motorcycles. Since its inception, the company has had a spectacular track record. It challenged Bajaj Auto Ltd., the traditional leader of the pack in two wheelers. The company created records of sorts not only in the growth by sales volumes, but also financially. In 2001, the Return on Average Capital Employed (ROCE) was at 65%, among the highest in the country. Hero Honda was among the few Indian Companies that enjoyed the distinction of generating a positive economic spread for an extended period of time. Between 1995 and 2001, the economic spread expanded from 16.5% to 65.4%. This put HHML stocks among the ranks of established blue chips.
The success of Hero Honda has not been smooth sailing through calm waters. The company has been through a lot storms and rough weather. Over dependence on the Japanese partner Honda for R&D paralyzed the company more than once. Many a times HHML had to sit on the sidelines while its competitors roared past. Thus, the lack of R&D make the company a cripple, especially when the competition began to intensify in the late ÐŽÒ90s and other foreign joint ventures (like Kawasaki and Yamaha) helped their local companies mount a credible assault on Hero Honda. This study traces the growth of Hero Honda since its inception in 1984 to date, examines the critical success factors and the future challenges that lie ahead for the companyÐŽK.
Hero, Honda or not!
The two-wheeler industry thrives in developing countries especially in densely populated countries like India. The birth of the Indian two-wheeler industry can be traced to the early 1950s, when Automobile Products of India (API) started manufacturing scooters in the country. While API initially dominated the scooter market with its Lambrettas, it was Bajaj Auto Limited, which rapidly emerged as the unchallenged leader in the scooter industry. A number of government and private enterprises, who had entered the scooter segment, disappeared from the market by the turn of the century. The License Raj that existed prior to economic liberalization (1940s-1980s) in India did not allow foreign players to enter the market, making it an ideal breeding ground for local players. But the Raj also hurt the growth of the industry by imposing various restrictions.
In the mid-1980s, the government started permitting foreign companies to enter the Indian market, through minority joint ventures. During this period, the two-wheeler market witnessed a boom with Japanese players like Honda, Suzuki, Yamaha and Kawasaki, entering the market through joint ventures. Foreign players quickly changed the rules of the game. From a supplierÐŽ¦s market, it became a buyerÐŽ¦s market. Companies tried to outdo each other in terms of style, price and fuel efficiency. The technological expertise that the foreign collaborators brought to the marketplace helped increase the overall quality of the products quite significantly.1
India is the second largest two-wheeler market in the world, today. Two-wheelers account for 79% of the total automobile sales in India. The Indian two-wheeler industry has seen remarkable growth rates from 2000, due to various factors like fall in interest rates, availability of finance and affordable prices relative to the growing purchasing power. It grew by 11.6% to 5.64mn units in FY04 from 5.05mn units in FY03. Despite