External Analysis of Honda: Opportunities and Threats

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Pestel analysis of Honda:

Political Factors: these elements can influence Honda’s long-haul productivity. These components are spoken to in the accompanying:

-Incentives and Taxation: Tax rates change from country to another and that impact the product market cost which is going to affect purchasing buying power of Honda’s customers.

-is it safe to work there? There are a few nations in which Honda might want to put resources into and work there however would it be protected to produce its vehicles in there? For instance, it won’t be ok for Honda to put resources into some eastern/South American/European nations, for example, Yemen, Syria, El Salvador, Ukraine. These nations would be viewed as a gigantic market for Honda however because of it isn’t sheltered Honda won’t almost certainly construct and produce there. What’s more, as these nations simply rely upon bringing in the Honda vehicle and gets no opportunity of getting the vehicle made in their territories, this makes Honda a costly vehicle for them because of transportation.

Socio-cultural factors

Demographics & numerous nations: Each nation has its own statistic changes which impacts the vehicle’s business, in addition to that, they are financially steady however the development, for the most part, occurs in the nations in which they are not monetarily steady so that does not so much help Honda/all vehicle organizations to open new markets in these countries like: India.

Age structure/Family structure: Honda as an organization is entirely adaptable organization were, they produce vehicles focusing on specific ages. For instance, Honda produces the CR-Z display and different games releases autos focusing on ages from 18-28. Furthermore, the SUV vehicles focusing on families where they need gigantic autos for transportation

Economic factors: Honda as an organization does about fare to the entire world. As Honda fabricate numerous sorts of vehicles, Cheap and costly ones with the goal that implies they have a market in every nation.

Tariffs: Tariffs can influence the organization’s business in a specific area. For instance, nation like Nepal includes a high duty rate of 11.66% (Source: World Bank, 2016 information) while the salary of every individual isn’t that high, that is done intentionally to urge individuals to purchase the residential items. So, obstructs the street before Honda to contend there as individuals there would lean toward purchasing Suzuki and Tata engine vehicles.

The stability of Honda’ home country currency and fluctuations in exchange rates has an impact on the company producing process in addition to the exports and imports of Honda

Technological forces: Advancement now a days accept an imperative occupation in the field of vehicle’s industry. There are certain inventive parts impacting Honda execution, and they are:

Competitors development upgrades: it’s a fundamental thought facing Honda as they need to fit the front line progresses which are from contenders.

New Technology influence on the cost structure: new progressions have more effect on the cost structure of the association as they need to spend more to get the new examples in vehicles development.

Environmental Factors: Distinctive markets have diverse standards or natural principles which can affect the gainfulness of an association in those business sectors, these variables include:

Weather Conditions: the climate varies from a nation to another so that affects the organization method for creating their vehicles, for instance the center eastern part has its own particular autos as they can bear the cost of the high temperature contrasted and the cool nations need another sort of autos.

Demanding towards sustainable power source and green items is as of now expanding: Honda faces the expanding of the green items in this way, people extraordinarily in Europe and North America are earth neighborly, that is the reason they mean to buy vehicles which does not hurt the earth like more the autos that is utilized by electric vitality more than fuel vitality.

Legal factors: Honda ought to comprehend numerous lawful elements to enter any new market as: wellbeing and safety laws, Patents and the work laws.

Industry and Market characteristics

Value chain analysis:

In bound logistics:

Honda has a worldwide suppliers with an extraordinary stable relationship, since they may embrace in the nick of time fabricating reasoning that control and diminish raw material use and conveying cost.

Operations:

Honda’s utilizing high level of technological methods to guarantee the most outstanding quality outcomes, in other hand it utilizes human sources in assembling lines, as they may suggest new ideas and options that could be used in the future products.

Outbound logistics:

Honda has promised to provide the customer with the highest quality of products with the highest value required from the customers, also introducing the products that are highly friendly with the environment. As well as Honda is tied by providing prospective packaging to the spare parts with the preservation of engines as after selling service. Honda is developing the business operations to retain customer satisfaction and spreading the brand globally to guarantee that the customers had a great experience in using Honda products. Otherwise Honda is reducing the time of delivering products to the minimum to sustain the Just in time inventory system toward the customer which will create a high efficiency in products.

Marketing and sales:

Honda is playing the role of satisfying customer needs and wants through provide the customers with experienced cars to represent the customer experience toward the cars which is so important to consider the result of these experiments to the buyers from customers, police cars that might be bought from Honda, also the retailers dealership to make it available customer to reach, on the other hand for the transportation companies like Uber. Honda is marketing their products through heavy marketing campaigns and advertising, also Honda is enjoying the advantage of the variety of products on their website which will allow customers to choose according to their demands. Also developing the technology in the production process which the new trend nowadays.

Services:

Honda’s primary concern is the after-sale service by giving the administration focuses and make the vehicle parts affordable for the clients to be found and they offer free oil and tire change for one after purchasing it’s vehicle beside the engine services, promotions and offers with discounts, likewise they offer a café in the administration services center to guarantee that they give their clients the best customer service while they’re waiting for their vehicle to complete its service.

How is money made:

Money is made through selling different products in different markets with specific features that co-op with the demands of the customers which are defined by their cultures in order to satisfy their needs and wants with give them the sense of great experience in Honda products through selling motorcycles and automobiles to different types of buyers.

Porter’s 5 forces:

Bargaining power of Customers:

Today the internet has a lot of information about any kind of vehicles which allowed any person who looks to buy a new or even a used car find all the specific features and defects in any products so the customer now is very well-educated about any kind of product in the market in addition to that these customers has many choices now a days in the market which will make them able to transfer to any other competitors in the markets. So the buyer power is high as they are well educated about Honda vehicles and has many other alternatives as Toyota, Hyundai and Chevrolet.

Threat of new entrants:

Honda is a very strong vehicle brand which has a high valuable reputation in the market, beside that the brand name is well-known as many people across the world know what is Honda and its position in the global market, So the other new entrants not easy for them to reach Honda’s class level of vehicles even in the long-term, Honda is a global company works in many different countries around the world, and they meet many countries government policies which are way difficult for any new company to meet all of these policies in all of these countries, therefore the threat of new entrants is very low as its difficult for any new company to compete with Honda.

Supplier bargaining power:

Honda is a huge company in the field of vehicles manufacturing. Honda is like all other big companies, they tend to deal with the international popular suppliers like all other companies do. But sometimes it comes to a point were the international suppliers are not able enough to satisfy the just in time need due to many requests from other several companies too. The JIT product delivery is very essential for a company like Honda. That’s why Honda might need to deal with local suppliers too in order to get what they are missing of supplies. The local suppliers might exploit the chance of dealing with Honda and take in consideration that they are in need of these supplies urgently and increase the price of the supplies. On the other hand, there are also many other local suppliers in front of Honda to start dealing with if one is too expensive. So that the supplier bargaining power would be assessed as, Moderate.

Threat of substitutes:

Nowadays, there is a significant boost in gas prices as it is an exclusive source which is going to come to an end. Even though, the people using cars are taking also in consideration the money they pay for parking too, and the money they pay for the vehicle’s annually / monthly services. That’s why people nowadays go for public transportations as it is considered much cheaper. So that, the power of substitutes would be assessed as: High

Rivalry among the Existing Competitors:

There are several competitors in the global market such as General Motors, Toyota, Volkswagen, Mitsubishi, Nissan, and Ford are targeting the same customer segments and have their global market characteristics. These mentioned companies provide the same kind of technology and applies it to their vehicles. Whoever of these companies will be able to apply the latest technologies with the least price would be able to take the market’s lead. So that the rivalry among existing competitors would be assessed as high.

Consumer/buyer markets characteristics:

It is very important to analyze the market characteristics to identify the attractiveness of Honda let’s start with a chart shows the revenues and sales of Honda in many different regions to understand the Geographic markets and which region has the highest sales and lowest sales through the last years

Global Market Size: (Geographically)

[image: https://lh3.googleusercontent.com/ZvqfYjxMxE1AaxSj6j0cWIut4mQVoETxa_5_XzsroT1hUk-9JOquljClNXRowYfVIsPVlabyEFAxG1FfIFJkUvtS0Kl0-guENebf6BJHTIbz2pLD8MQ7KinwkFtXbqx–A]

Referring to the chart above shows that the company most sales focuses on North America nation compared to other nations as there is a smoothly increase in the sales through the past years and the sales in Asia countries enjoys a very high stable level of sales such as China , and the sales in japan which is the host country of Honda decrease as it means that interest in the Japanese market is gradually decreasing.

North America has 56% of the total revenues and according to the researches by (Source: Company’s filings) the market in North America is focusing primarily on specific models as Honda HR-V and Civic which indicates that this market looks for the high-middle class of cars as high features which middle price and SUV trucks to be suitable with the weather and long drives but Honda doesn’t have the highest market share in North America because they are facing a very strong GM ( General Motors ) which has the highest market share in North America , in contrast with the host country has 12% of the total revenues of the company which is way lower than it was in 2012 by 19% (Source: Company’s filings) but Honda is not alone who is suffering a sales decline in their host country, Nissan and Toyota has reported the same decline in their sales[footnoteRef:1] [1: PARKER, J. (2016, June 20). Honda Motor Company: Understanding Key Business Segments. Retrieved from https://articles.marketrealist.com/2016/06/honda-motor-company-understanding-key-business-segments/]

Market demographic characteristics:

There are main elements any company should use in order to analyze their demographic characteristics such as age, income and gender so through this analysis, it will show which gender or age prefers to buy which kind of cars and then Honda will be able to recognize which cars they should produce in order to target a specific kind of people. so starting by the age and gender group indicators globally:

Ages

SUV

Sedan

Truck

Electric

Hybrid

24 or younger

less than 1%

25 to 54

43%

51%

50%

46%

54%

54 to 64

26%

21%

23%

22%

64 and up

31%

27%

26%

32%

23%

Gender

SUV

Sedan

Truck

Electric

Hybrid

Male

57%

56%

86%

75%

Female

43%

44%

14%

25%

Source: Hedges Company (January 2019)

So as the table above shows that there is a significant low of the group age between 24 or younger buyers as refers to the students between the high school and university education so Honda doesn’t care too much about this market segment as not all of the people in that age have their own driving license or even if they have, there are many choices for them other than Honda to buy. Secondly, the table shows that the vehicle industry has too much demand for the people who their ages between 25 to 54 on many types of vehicles but there are simple ratios between the types of vehicles, from the age of 54 to up they have closely different proportions in type of cars percentages. Secondly, the gender group indicators show that female buyers are lower than male gender and there is a very low percentage of female compared with male in buying trucks, electric and hybrid cars which indicate that females prefer the SUV and sedan cars more than any other car types. The income average of the people different from country to another and its necessary for any company to enter any market and provide a new product to study the people income to be able to provide a car that could be suitable and affordable for the consumer market needs.

Behavioral and psychographic characteristics: there are many ways that Honda use to attract their consumers to buy their vehicles and in order to reach the attractiveness of the market, nowadays most of people they care about the new technologies and features with a low price, some of the people looking for luxurious cars which will suit their attitudes and their class level, other people looking for motor performance as they want a modified car to be as super cars so in terms of all of these attitudes and behaviors through many people in the market so Honda should study the consumer market in terms of the above characteristics which are Geographic, Demographic, Behavioristic and psychographic.

Internal Analysis

(Strength and weaknesses)

Organizational performance to-date for Honda Company

Organizational performance

Honda operates in the worldwide market with 134 manufacturing amenities in 28 international locations and at 31 R&D facilities in 15 countries, about 167000 Honda personnel and associates serve 23 million customers worldwide annually. Honda’s international operations are divided into 6 administrative regions responsible for operating.[footnoteRef:2] Hiring and engaging the human beings and philanthropic initiatives locally in the communities that Honda operates. Honda is pushing the independence of their neighborhood administration and income operations, at the equal time with integrating and forward-looking plan for each region. They operate beneath the conduct suggestions that assist member companies and mates in evaluating and managing risks, complying with legal guidelines and regulations, preserving a high degree of transparency in operational level, that’s all to maximize the global client satisfaction. [2: Essays, UK. (November 2018). Analysis of Honda’s Business Strategy. Retrieved from https://www.ukessays.com/essays/business/honda-is-the-worlds-biggest-and-leading-manufacturer-of-motorcycles-business-essay.php?vref=1]

Organizational health

Honda is working on the strong intensive motivation toward the work through rewarding system and badges for employees of the month, also doing an annual convocation in order to reduce the number of employees turn over and build a strong organizational structure, on the other hand the managers maintain the utilization of work and attach them to the resources to develop the rhythm of the job. Employees are submitted to hard trainings to achieve the core values of the operations which are the most important aspects to reach the organizational goals. As for the management system Honda have a strong schema for the management to hire all the employees in the right place that fit with their abilities and assigned them to tasks according to their capability and power for doing the work whether it is individual tasks or in group tasks. As a result, the main goal for Honda organization is to gather all the employees to do the job in a followed tune.

Honda current strategy

Goals:

Market Domination: Honda’s current goal is to dominate the affordable vehicle’s market and apply the latest innovations to their vehicles.
Provide a unique after sale service: Through the customer service agents, Supply the market with the vehicle’s spare parts needed for repairs and add vehicle repair shops specialized in repairing the Honda vehicles.

Value proposition:

Affordable prices: Honda’s value proposition is to provide its customers with the best products with the cheapest prices.
After sale services: It is represented in the services in which Honda does provide for its customers after they purchase their vehicles, like free oil change and tires replacement for One year after the duration of purchase.
Ecological products: Provide ecofriendly vehicles, Like the hybrid electric vehicles. which meets the demands of its customers in North America and Europe.
Latest technology: Honda tends to innovate and create the latest technologies and apply it to their vehicles.

Core activities:

Services:
- Honda offers after sale services for their customers by giving promotions and free services (Ex: free oil change, engine service, tire change, brakes and maintenance) to reach the best level of customer satisfaction.
Resources and capabilities:
- Honda produce motorcycles and automobiles as it’s not a single market focus and that’s due to its expertise in development and manufacture of engines.
- Honda’s current resources mainly concerns in (Human resources, tangible resources and intangible resources)
- Honda’s current capabilities concerned in (Corporate functions, information management, research and development, operations, design, marketing, sales and distribution and service).
-Values:
- Honda respects the three joys of (Selling, creating and buying), also Honda set The Individual concept of fairness and equality in every Honda operation around the world. A diversity of ideas and talent is the purpose of what makes Honda great.

Product market focus:

Customers: Honda’s main customers are the people who are willing to buy cars with relatively low prices
Products: Honda tends to manufacture several types of vehicles like the sports cars, Family cars and Hybrid electric vehicles which means that they have a wide variety of products.
Markets: Honda mainly tends to localize not globalize, they aim to take the lead of the North American market. By manufacturing the vehicles which meets demand of the local people in North America.
Channels: Honda tends to reach its customers through online ordering, and retailer where they are the ones responsible for the distribution.

Diamond-E framework

Resources

Human resources

Honda is hiring sufficient and skilled employees like accountants and marketers for business activities and high level of engineers for manufacturing activities. Honda also providing training, experience, adaptability, and loyalty for employees.

Tangible resources

Financial resources: starting with a big capital for business and manufacturing process, after that the generation of internal funds.
Physical resources: Honda is a source of materials and assets for itself and a supplier at the same time, for example: providing tar materials, iron and non-iron metals, steel plates, liquid aluminum, consumable supplies, and hardware equipment parts for its final products. Honda use recycling of useful old equipment and material resources like aluminum, iron and resin that can be used from scraped cars.

Intangible resources:

providing intangible technologies like patents, copyrights, and research and development facilities.
Providing a good reputation like customer loyalty and reputation

[image: Supplying raw materials, Manufacturing, Sales, Recycling][footnoteRef:3] [3: Honda. (2019). Our Business. Retrieved March 20, 2019, from http://americas.hondatrading.com/en/business/index.html?fbclid=IwAR3vhcsW6Kn-kXQI59A_Ry7HmsAFGrngAODyWzpLjPqXUsOOxbkAECn3PKM]

Capabilities

Corporate functions

International management for instance: in North America like U. S and Canada, in Europe, and Middle East…. Etc.
Strategic innovation: there are strategies for doing developments and technologies.
Management development: developing the management options with the changing that happens in markets.
Financial control.

Information management: Using good IT employees to collect economic, technological and financial information from markets.

Research and development of Fast cycle new products and research every year.

Operations

Operating efficiency: the company focus on how to measure management ability to generate sales (revenue) and costs (expenses).
Continuous improvement of products every year.
Flexibility and speed of response with the changes that happens inside and outside Honda.

Design

New styles every year.
New tangible and intangible technology every year.
New safety functions of products for example cars and other labor machines.

Marketing

Honda brand management.
Building a reputation for Honda quality.

Sales and distribution

Effective sales promotions and execution.
Speed of distribution.
Efficient, fast order processing.

Service: Providing customer services like resolve any issues or concerns for customers, present a solution for the customer, understand all the customer needs.

Competitive advantage

Honda localize don’t globalize: Honda not a very top, or a very down company, it provides customers with products and designs based on local conditions and consumer behavior to achieve the goals of providing all types of products to all types of customers.
Robots: Honda is using robots for employment in dangerous areas because it is a way to maintain productivity and reduce costs.
Engineers: Honda employee’s priority is for engineers, even the company CEOs are professional engineers. That because they have large knowledge about manufacturing and designing, and the technical products that the company sell and managing the supply chain. They more know about research and development imagination activities.
Factory flexibility: Honda can produce multiple autos on a single production line, one after another in a short time. By contrast, it can take months for Honda’s competitors revise a factory for a new vehicle.
Fuel efficiency: Honda is a leader in helping the customers to save their money against the high price of gas energy. [footnoteRef:4] [4: Rothfeder, J. (2014, July 29). 5 Brilliant Strategies That Make Honda One Of The World’s Most Innovative Companies. Retrieved March 20, 2019, from https://www.businessinsider.com/strategies-that-make-honda-innovative-2014-7?fbclid=IwAR0P9I4AYNnafd-vtgyGaJ6PpEbSFFtwQAf8D4unuY3LGR4Td8G-mxmqGUU]

SWOT Analysis

Strengths

Weaknesses

Localize don’t globalize
Fuel efficiency
Robots Employment
Hiring efficient professional engineers
Factory flexibility in changing lines of production
Strong brand awareness
After sales services
Pricing options
Dependence on North America to generate most of the revenue as we mentioned in the analysis 56% of the total revenue
Hondas’ R&D is assessed to be relatively low compared to its competitors

Opportunities

Threats

Honda has a great opportunity to expand and compete in the rest of the world as they compete in North America.
Honda has to give attention to the B2G business. And start supplying governments with civil protection cars like, [ Police cars, Ambulance cars and firefighting cars]
The demand on the automobiles is highly increasing.
Competition among existing competitors.
Threat of substitutes, like public transports.
As fuel prices are relatively high, this caused a threat and decreased the demand of customer’s to buy new vehicles.
Rising Japanese yen exchange rate
Natural disasters.

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