Honda

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S.I.D # 054

Principles of Management

Dr. B. Odejar

Buy Honda term paper

0th June 00

International Case 4 1

Honda Moves to the United States

1. Why did Honda build a plant in the United States (what were the objectives)? How is the plant in the United States affecting the company in Japan? What problems or advantages might the US operation give Honda in the future?

• Honda wanted to debunk the claim of the auto industry that "nobody can make an economy car in the United States at a profit". It had a relatively small market share in the Japaneese car market and it needed an outlet to grow. These were the main reasons for Honda to start a manufacturing plant in the United States. As it is evident, they wanted to introduce an economy car to the US market and still make good profit percentages. Besides this during the early 170's the gas prices were very high and so they wanted to introduce a fuel efficient car at an economical price.

International businesses engage in transactions across national boundaries. These transactions include transfer of goods, services, technology, managerial knowledge, and capital to other countries. Unifying influences occur when the parent company in Japan shares technical and managerial know-how, thus assisting the host company in the development of human and material resources. Moreover, the parent corporation and the firm in the host country may find it advantageous to be integrated into a global organizational structure. Being an MNC, it can take advantage of business opportunities in many different countries. It can also raise money for its operations throughout the world. Moreover, it benefits by being able to establish production facitlities where their products can be produced more efficiently and effectively. It can have access to natural resources and materials that may not be available to domestic firms. Finally, they can recruit managers and other personnel from a worldwide labor pool.

The advantages of an international operation must be weighted against the challenges and risks asociated with operating in foreign environments. One problem is the increasing nationalism. In addition countries have not only become aware of their natural resources but also become more skilled in international negotiations. Finally, Honda must maintain good relations with the United States, a task that may prove difficult because governments frequently change and corporations must deal with, and adapt to, these changes.

. Why was Honda able to build economy cars in the United States when American car manufacturers could not? What advantages does Honda have over the American companies?

• Honda was a Japaneese firm, and the Japanese culture is based more on team work rather than US culture, which focuses more on individual achievements. The US automobile manufacturing plants are far more automated than Honda's plant in the US. This requires them to pay a lot of money in training the workers to learn how to use the machinery. This adds to the cost of production and hence the final retail price of the car is very high. In Honda's case, they have a plan that is less automated and the employees are taught by professionals trained in Japan, how to assemble cars in teams in an assembly line production. This reduces the cost of training the employees in learning how to use complex machinery and hence reduces the overheads per worker. Hence, reducing the cost of production which enables them to price their cars lower than the American made automobiles.

Honda provides it workers with stocks in the company. They believe that all employees are equally important. All the workers are involved in the decision making process, which makes them more committed to the company and gives them a sense of belongingness and importance. The job satisfaction amongst the employees is very high. The workers are very proud of their work and they like working at Honda even tough they receive lower wages than other U.S. workers. Since the workers receive stock options and are happy with their jobs and accept lower pays, the overall costs decrease and hence the company is able to meet its goal of providing economy cars in the US, and still make a fair share of profits. In contrast, the US managers have been accused several time of making decision even before the problem has been discussed. This causes the employees to loose interest in the company and they begin working only for financial reasons and not for the better of the company.

American car companies generally concentrate on building "muscle cars", i.e. cars that have a lot of power, and are big in size. This causes the cars to be of higher prices and doesn't suit the needs of the customers, who are the young professionals who prefer smaller, compact cars. In this way Honda's existing compact-car production lines appeal to the growing number of young professionals. The Japaneese manufacturers concentrate in performance and fuel efficiency which had helped them gain an edge of the US automobile companies. Moreover, as a Multi-National Corporation, the profits made in the US are only a fraction of the profits made by the company as a whole and so the company is very profitable and appealing to the investors and shareholders.

. How much of Honda's success is due to its policies? How much is due to non-managerial factors?

• Honda attributes its success to workers who are willing to work hard for the company. But actually, it is the management policies of Honda that have created such a win-win situation. Involving the workers in the entire decision making process and reaching the final decision using consensus (i.e. all the workers agree to the decision) has played an important role in the success of the organization. Providing the workers with stock options rather than high wages is an effective method to gain employee commitment, as the employees will work harder to increase the share value which in turn increases their returns on the stocks they hold. These are the effective managerial practices that have helped Honda reach where they are today in the US market.

Besides the effective and unique managerial policies, there are certain non-managerial factors also that have attributed to Honda's immense success. Firstly, they didn't rely heavily on the use of automated machines for the production of their cars, which helped in reducing costs. Secondly, they stresses on team work rather than individual efforts, which reduced training costs and increased employee efficiency. Thirdly, they concentrated on the growing segment of the market, i.e. the young professionals, and produced more compact and fuel efficient cars rather than the large and powerful American cars. Fourthly, they helped Japaneese suppliers setup plants near their production facility, so that they could reduce their inventory and whenever they needed parts they could just order it from next door. This further reduced transportation costs and overall costs. Finally, to maintain a good image in the American market, they sold not only the economical compact cars but also luxury cars under different names and dealerships. This helped increase the net amount of profits, and further lowered the retail price of the compact cars.

In conclusion one can say that Honda's success must be attributed to its good balance between the managerial and non managerial practices. They have revolutionized the auto industry and have debunked the claim that "nobody can make an economy car in the United States at a profit."

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