Thursday, May 28, 2009

The Big Digital 3

with the pending GM bankruptcy as well as Chrysler
and dozens of companies in the 1,000 family of
operational businesses that those giants run
face a new digital dawn it might be time to
predict the new Big D3...

in other words the top 3 companies in terms
of digital units produced...

what is a digital unit??? a car or truck that
incorporates computers in it's drive train which
is the parts from the engine to the wheels...

most hybrids quality, all electrics, all plug-ins,
all fuel-cell vehicles qualify as digital so long
as there's computers saving you energy in the drive train
delivery you more control and performance or efficiency only:

many argues that Toyota is #1 but #2 and #3 are for the taking
and many analysts are saying that Honda is the only company
that will turn a profit this year and by making 20 million
engines with only a few hybrids and fuel-cell vehicles
could this group of 500 companies become #2???

if so, you may want to read our team's report on the multinational
which could be summarized as Japan's black sheep of automaking going global:

Group Project Report: Honda Motor Co., Ltd.
John Acheson
Judy Padilla
Darryl Smith

Michelle Dominguez, MBA
Business 280B
May 10, 2009

Table of Contents

1.0 Introduction ………………………………..…………………………………………………………3
2.0 Business Structure …….…………………………………………………………………………….4
3.0 Overview of Multinational Operation..……………………..………………………………….5
4.0 Legal Environment …………………………………………………………….…………………….7
5.0 Advantages and Disadvantages of Operating Abroad ……………….…………………8
6.0 Recommendations / Conclusions ……………………………………………………………….9
7.0 Bibliography / Works Cited ……………………………………………………………………….11

1.0 Introduction

Honda is headquartered is in Japan and the founder of the company is Mr. Soichiro Honda (1906-1991). He had no formal education and was an apprentice car mechanic at a garage from 1922 until 1928. His father was a blacksmith and his mother a weaver.

At the age of 17 he was the mechanic for car racer Shinichi Sakibahara, who won the Chairman’s trophy at Tsurumi. Mr. Honda started his own auto repair business (Art Shokai) at the age of 22 in 1928. In October of 1946 Honda Technical Research Institute was established and the first product was launched--an auxiliary engine that had been used to power radios for use in powering a bicycle. Subsequently, Honda Motor Co. Ltd. was established on September 24, 1948 and was led and expanded into a multinational by President and CEO, Mr. Tadeo Fukui.

Mr. Honda’s first focus was on building small capacity motorcycle and developed the Super Cub which was similar to a modern moped. Honda stumbled upon a cheap yet valuable vehicle for societies looking for affordable and flexible mobility. Before he knew it, his Super Cub was being exported all over the world, and America was a natural place for the larger bikes and engines Honda moved up to.

Honda's business partner Fujisawa made the call to start with America arguing that if Honda could make it in America, it could make it anywhere. Even though he knew that it would be easier to start with Southeast Asia, which still relies on more motorcycles than cars today, Honda's business head chose America and in 1959 setup a sales office in Southern California with eight employees. This small office was the beginning of Honda’s international business that went on to become a global multinational powerhouse.

By 1960 Honda was an international business. Honda kept tinkering for years working on engines to become a piston ring expert: his mastery of engines started early and was called the “Japanese Henry Ford”. Today Honda produces more engines than any other company, in some years over 20 million units. Most recently, Honda started making airplane engines. As of March 31, 2008 Honda has 178,960 (consolidated) employees and 501 subsidiaries. Its chief products are motorcycle, automobiles, power products, and of course engines. Their main competitors are primarily in the automobile industry (Nissan, Toyota, Ford Motor Co., and General Motors). Services offered by Honda includes: financing, customer service, satisfaction and sales, research & development, and racing.
2.0 Business Structure

Honda’s mission statement is, “Maintaining a global viewpoint, we are dedicated to supplying products of the highest quality, yet at reasonable price for worldwide customer satisfaction.”
Their basic principle is respect for individuals and the three joys (buying, selling and creating). On Honda’s website this statement is listed that would best describe their business philosophy: “Dreams inspire us to create innovative products that enhance mobility and benefit society. To meet the particular needs of customers in different regions around the world, we base our sales networks, research and development centers and manufacturing facilities in each region. Furthermore, as a socially responsible corporate citizen, we strive to address important environmental and safety issues.”

Honda Business Structure (

On April 28, 2008 Honda commemorated its milestone of a 5 millionth vehicle made in Canada since starting manufacturing vehicles in the country 23 years ago. During this downward economy, Honda has been experiencing worldwide decrease in production since November of 2008 (first time in five years), although production in Asia and China set al-time fiscal records. Honda Fit was the best selling car among new vehicle registration for March 2009. During their press release last month, Honda announced that their consolidated net sales and operating revenue reflected a 41.6% decrease compared to last fiscal year. Projection of return profits to shareholders for 2009’s first two quarters is 22%, 11% for the third quarter and 0% for the fourth quarter.

Honda takes its corporate responsibility very seriously and their key phrase is “Together for Tomorrow” which captures the spirit of Honda.
A few of their initiatives are educational, environmental, traffic safety and community, are dedicated to worldwide philanthropic activities. Honda has started a new venture with GS Yuasa in the creating Blue Energy Co., LTD, a company designed for manufacturing, sales, research and development of lithium-ion batteries for hybrid vehicles. Construction started April 2009 and is scheduled to begin production around Fall of 2010. This is part or their commitment to a safer and cleaner environment through exhaust emission reduction and the development of alternative fuels to help ensure harmonious coexistence with host communities. Honda FCX Clarity [hydrogen fuel cell] was named 2009 World Green Car and Honda was recognized for their commitment to environmental leadership. Another of their environmentally friendly cars is the Civic Hybrid. On Earth Day, April 22, 2009, Honda launched its second generation 2010 Honda Insight hybrid electric vehicle (40mpg under $20,000) along with the lightweight CR-Z sports hybrid concept vehicle.
3.0 Overview of Multinational Operations

Honda, the company, is actually a group of hundreds of companies, so it's difficult to understand the day-to-day operations, without understanding the structures of the different companies across national borders. For example, there are several American Honda Companies that may or may not send products outside of North American borders. This is quite different from other companies that mainly import into America. BMW, Mercedes, and most luxury brands don't have factories in America so they primarily build overseas and import to America.

Honda is very different—in fact, it decided from day one, that it would setup in America, and keep the money made in America, to create more jobs by building more products and factories. Taking a look at Honda's global website at visitors are immediately blasted with everything but cars, including medical walking devices, flower accepting robots and even brain machine interface technology. So the best way to think about Honda's America's multinational parent Honda Motor Company, Ltd. (Honda Japan) is kind of like a General Electric (GE). GE runs everything from banks to airplane engines to nuclear power plants.

Management Organization of Honda’s Corporate Governance for Decision Making, Execution, Supervision and Others.

Honda R&D Americas works ideas into patents, and dozens more including financials like American Honda Finance Corp. and American Honda Receivables Corp. American Honda Finance Corporation dba Honda Financial Services helps customers looking to lease or buy. It represents the financial strength of the brand to Wall St. It operates smaller Honda banks like the one in Canada that loans people money to buy Honda products or the company that leases products. Honda vehicles rank near the top of assets that hold value so Honda's banking operations are strong. American Honda Receivables Corp. works with banks like U.S. Bank, Barclays, Deutsche Bank to turn all those loans that customers owe them for vehicles and other products into big money on Wall St. It's the American part of the Honda Bank described above.

Honda joined 70 of the biggest global multinationals headquartered in Tokyo; so we can assume taxes are low. Honda's tax strategy is much deeper and much more local than a company like Mercedes or VW that simply imports into American and exports our cash without paying all those local taxes from payroll, to the electric bill, to disability or worker's compensation. For example, Honda in Torrance, CA sells Honda cars to dealers in Las Vegas. Those dealers are not Honda—they are exclusive customers of Honda so they pay all the taxes in Nevada. But Honda of Torrance pays gasoline taxes on the trucks, transportation taxes and fuels, taxes on the income and sales, and of course anything related to employees both for the sales and transportation part of it. This doesn't include all the companies from idea to factory to Honda in Torrance. Honda’s American bank manages the money for Honda America whereas other companies send the money back overseas. There is a central bank in both countries to assist with international activities such as obtaining funding. Japan’s central bank has the second largest foreign exchange reserves after China.
4.0 Legal Environment
Honda has a compliance and risk management system. This was established so that each Honda organization, under the lead of the director in charge, can deal with legal compliance issues and risk management in a systematic manner while enabling verification of such situations on a regular basis. The Risk Management Officer oversees the risk management department and the Compliance Officer is responsible for the enforcement of legal compliance. There is also a Business Ethics Committee which is responsible for the deliberation of matters of corporate ethics and legal compliance. Honda has also established an Ethics Proposal Line for suggestions concerning corporate ethics and serve as a link to actual execution of improvements
Their government’s economic liability is the third largest public debt of any nation and this information can be obtained in the World Fact Book under public debt. Zimbabwe has the highest public debt. Japan ended its period of economic expansion in October 2007 and entered a recessionary period in 2008. In 2009 the return on interest rates are near 0%. The economy of Japan had been very solid and was considered the second largest economy in the world after the United States. The current worldwide economic crisis has impacted all nations, including Japan. Japanese workers are highly educated and Japan also has a high level of savings and investment rate. They are highly dependent on imported energy and approximately fifty percent of energy in Japan is from petroleum, one fifth from coal and fourteen percent from natural gas. Japan’s dependency on imported energy has projected Japan’s goal towards fuel economy and more diversification in its sources.

Honda is presently a member of The International Association of Traffic and Safety Sciences; it is also a member of the United Nations (1956), World Trade Organizations (1995), and The World Health Organization.

5.0 Advantages and Disadvantages of Operating Abroad

Honda was the first foreign auto maker to setup foreign operations in the U.S. and is believed to be the first to open factories in the U.S. They also structured the U.S. Honda to keep all of its profits in the U.S. to continue to invest, hire American workers and expand operations. In fact, Honda sales have been dropping in Japan for decades as the company relies more and more on foreign operations.
For the first quarter of 2009, Honda was the only automaker to turn a profit out of the Top 10 including Toyota, VW, GM, Ford, etc. They don't sell the most vehicles but have always made the most profit consistently, kept the money local, and invest more into R&D. For example, Honda has significant research facilities in the US while other companies have smaller or none.
Honda is one of the most diverse automakers because expertise in engine manufacturing took them into many industries! In addition to vehicles of all kinds, the lawnmower, airplanes, cars, trucks, power generators, robots, etc.; and you can find Honda in almost every situation used by almost any nationality or minority. The only area Honda lacks diversity would be in the Japanese companies and especially management. Abroad, Honda has expanded their customer service initiative, enhanced their approach of cooperative ventures with suppliers, ensures diversity in employment, encourages development in staff abilities, builds healthy working environments and enforces occupational health and safety.
Without starting its operations abroad, Honda would have never gone from a small Japanese company to a global international multinational powerhouse of 500 companies operating all over the world making more engines and moving machines that any other company!
6.0 Recommendations/Conclusion

Honda’s advantages definitely outweigh its few disadvantages. Since Honda took globalization seriously from the beginning, they have the ability to be the most flexible multinational in auto making. With local operations in each region, they are the best automaker at adjusting the amount of production. Exporters relying on a few factories cannot change things as quickly as Honda. So in the economic downturn, Honda was able to react faster and more local than all the other automakers. Therefore, Honda is more innovative and profitable than competitors, while delivery quality and value!

The price that Honda has paid is its reputation in a highly educated Japan. Without any formal education, Honda was an outcast and never taken seriously by Japan’s elite and upper class businessmen. Many customers in Japan prefer Toyota, Suzuki, Nissan, Mitsubishi and other brands over Honda. Honda was kind of the black sheep car company in Japan and after World War II; engineers would apply to Nissan and Toyota and if they didn’t get hired they would chose Honda as a last resort. Although things changed by the 80s, Honda has always had to fight for respect in Japan coming from an uneducated blue collar background. The disadvantage has led to a long decline in Japanese market share while the company grew abroad.

So in weighing the advantage of being one of the top global brands and multinationals in the world vs. a declining Japanese presence, it’s pretty obvious that the advantages outweigh the disadvantages because our modern world is becoming more and more global.

Honda’s mission is definitely global with a focus on providing quality to benefit societies around the world while saving customers money. To do so Honda sets up sales, R&D and factories in each region to provide goods and services locally. That’s much different than competitors who produce in one country and export to others. Honda seems to care more about adapting to foreign places and serving diverse customers than other Japanese companies. In fact, not only is Honda the first automaker to setup in America and build a factory, it’s really the only Japanese multinational that operates independently abroad and keeps those earnings in house to invest in each region. The result is that Honda’s benefit to society is more than just products. It’s a way of life providing jobs to Americans for example and reinvesting into each local community.

Clearly, Honda could NOT achieve its mission and goals if it stays in Japan and exports. It may have worked with the simple moped motorcycles, but starting with cars and other complicated products, customer tastes, regulations, rules, and of course costs would prohibit success. It might be possible for Honda to deliver quality from Japan, but they would not be able to achieve their philosophical goals and societal benefits including reasonable prices to customers without having setup in each region. Honda is really the only Japanese automaker that has let go of the importance of its home country’s sales to focus on worldwide success. Interestingly, it was Toyota that followed Honda to American with factories and products like hybrids. Since Honda’s disadvantage is its reputation and declining presence in Japan, the company could improve by investing more at home.

Therefore, some avenues might be an acquisition, such as taking a large position in an automaker like Mazda, or even buying another company outright. A good example might be buying a supplier like Sanyo, which is the world leader in batteries used for mobility. Honda could leverage this technology into its various operations around the world as a steady supply of batteries for products from robots to medical devices to hybrid vehicles—a good way for Honda to add Sanyo’s integrity, history and reputation to help Honda’s presence in Japan.

7.0 Bibliography

Honda Worldwide. 2009. Honda Motor Co., LTD. 4 May 2009

Honda. 2009. Wikipedia. Web.4 May 2009.

Honda. 2009. Wikipedia. Web.4 May 2009.
Honda Worldwide. 2009. Honda Motor Co., LTD. 4 May 2009>.

Honda Worldwide. 2009. Honda Motor Co., LTD. 4 May 2009

CIA - The World Fact Book. 04232009. Japan. 4 May 2009

Phelps, Mark. "HondaJet Facing Delays; Deliveries Expected by Year End 2011." Article 433 of 444, Web.8 May 2009.

Sato, Masaaki. The Honda Myth: The Genius and His Wake. First American Edition. Random House, 2006. Print. (Sato 1-480)

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