Honda's Strategy

Triggered by Japan’s condition in the postwar era – when the gasoline was in short supply, Soichiro Honda, one of the youngest Japanese entrepreneurs, came up with the idea of fitting an engine to a bicycle. Started with small plant in Hamamatsu, Honda established Honda Technical Research Institute in 1946. In 1948, Honda Motor Company was established with the capital of 1 million yen.

Critical Issues

There are three critical issues. First, Honda’s financial problems were solved in a unique way. Second, Honda established its production facilities in United States. Third, the single currency of Europe will affect to the automotive industry, yet, Honda should come up with new strategy.

Analysis

Honda’s financial problems were solved in a unique way. Fujisawa, the head of finance and marketing, allocated production to those who could pay in advance and began weeding out slow paying distributors and dealers. This approach could be decided as a high-risk decision that has been taken by Honda. But this financial approach and the market for the “Cub” boomed, took Honda moved into large volume manufacturing and became the strongest motorcycle dealer network in Japan.

The success of Super Cub in the late of 1950s had brought Honda and Fujisawa thought to pursue the world market actively. Honda executives regarded Europe and Southeast Asia as the best market to target, since America were so tied to automobile and held an unattractive image of motorcycles and their riders. But Fujisawa was thinking that America preferences might set trends for the rest of the world, so they decided to target the U.S.

The decision to target the U.S. as a major investment outside the country at that time was right. By that time, the company had made significant inroads into the U.S. automobile and motorcycle markets by exporting from Japan, so the United States seemed the natural choice. In addition Honda saw the establishment of U.S. manufacturing facilities as a hedge against a rise in the value of the yen and any future trade disputes between Japan and United States.

The euro affects every company selling, manufacturing or operating in Europe, including in the automotive industry. The single currency in Europe will have a strong positive impact on the European economy. The European economy will be more stable, and there will be a trend that the pricing in Europe will be lowering. In automotive industry, the market will be more competitive because the economic barrier within countries in Europe will be reduced. Because of these reasons, Honda should also consider new strategy to deal with euro. To benefit from this situation, Honda should invest heavily in Europe. Honda should serve the local market of Europe from within the country. There is a phenomenal change with the formation of euro, the prices have gone down which is an opportunity for Honda since it has a low cost production as one of its strengths.

Conclusion

In term of solving the financial problem, Fujisawa had done the risky way, by allocating production to those who could pay in advance while weeding out slow paying distributors and dealers. The decision to invest heavily in America was right, because successfulness in America might set trends for the rest of the world. And last thing, to deal with single currency in Europe, Honda should invest more in Europe.