a) Honda's successful entry into the US motorcycle market has been used to support a range of "theories" about competitive strategy. What in your view were the key factors that explain Honda's success in that market? Subsequent to Honda's unlikely success in the US motorcycle market in the 60s, many academics and consultants have cited Honda to support their theories about competitive strategy. While some of these theories are conflicting, there have been debates on what were the key factors that help Honda succeed in that market. So, this essay intends to examine these conflicting theories in details and then provide an account for this phenomenal success.
So far, these theories can be broadly classified into three categories; BCG Design School Theorists, Pascale's Emergent School Theorists, and Hamel & Prahalad 'Core Competencies' School. It is thus worthwhile to address the question along these three schools of theories; In 1975, BCG reported Honda's cost advantage, developed by successful exploitation of scale and learning, and of the 'segment retreat' response of British and American competitors, was the main reason that led to their successful entry into the US motorcycle motor.
- According to this report, Honda's main strategy was to achieve an economy of scale (through both winning market share and enlarging the market size) that would give them a cost advantage. BCG claimed that the large volumes permitted Honda the use of specialised production technology and the operation of the 'experience curve'. Consequently, Honda arrived at a lower unit cost that their rivals found hard to match. In fact, Honda's commitment to this higher volume was so deep that they maintained their unit spending on marketing even when their US sales had mounted.
- To their pleasant surprise, when price war had just started in the US, their American and the British competitors, concerned about short term profitability, withdrew from the small motorcycle market segment. In so doing, their rivals basically played themselves into the hands of Honda- giving Honda the volumes they were dying for. As a result, Honda's entry was entrenched and Honda subsequently used this platform to attack other market segments, a strategy that their rivals had probably failed to anticipate when deciding to avoid Honda at their first encounter.
In 1984, Pascale argued that the Western concepts, such as "Portfolio Theory" or the "Experience Curve", were too formulaic and indeed too predictable for the Japanese managers. So, according to him, it was unlikely that Honda's main reason to increase volumes was to lower their unit costs (main claim in the BCG reports). Instead, he believed Honda simply intended to compete in the most competitive motorcycle market in the world and he chanced upon a huge and easy success there. So, he believed Honda success was due to their willingness to experiment boldly, to accommodate strategically and to learn rapidly. For example, Honda's Supercub take-off in the US was totally unanticipated, but was well-managed and taken advantage of. In his challenge to BCG, he was recorded defiantly saying if Honda had been totally rational, they would have not tried to sell the small motorcycles in the US at all.
In 1994, Hamel and Prahalad cited Honda as an example to support their strategic concepts of Stretch, Leverage and the Core Competencies. Similar to BCG, they believed Honda's direction was deliberate and managed. However, they rejected BCG's approach of placing market share, volume, learning and cost at the centre of the story. Also, they did not believe in the efficacy of a detailed strategy for competition. Instead, they believed what drove Honda to success was their long-term vision of global leadership in internal combustion engines.
- With this strategic intent, Honda continuously set itself stretched targets (such as competing head-on with the dominant players in its industries) and to also leverage its meagre resources to reach these stretched targets. As a result, Honda always had to learn faster and to be more productive. Hamel and Prahalad claimed that it was the stretched targets, leveraged resources, and core competencies in engine innovation that give Honda's their genuine competitive advantage. Taking all that arguments into our consideration, we would agree that they are all very likely to be the factors that had contributed to Honda's success in the US motorcycle market. So, it is more interesting to rank their likeliness and their relative importance in helping Honda motorcycles achieve the breakthrough in the US.
In my view, Honda's chance 'strategy' to enter the US motorcycle market could not have been planned because it was extremely impractical and would have been very difficult for any new comers, especially those with little resources or support, like Honda to implement. For example, logic dictated that Honda should only sell mid-sized motorcycles in the US, but it was their small motorcycles that helped them gain a foothold there.
So, if the Honda staff had not relied on their Supercubs to commute around in the US, the Americans would not have known their very existence. Besides, if Honda had had a detailed plan, he would not have sent his team over the US at the end of the motorcycle season. So, again, this example points in the direction that Honda probably had not had a detailed plan, as claimed by BCG. Lastly, this theory - learning curve, could not have explained Honda's domination in mid-sized segment in America because unlike the Supercubs- Honda had no previous experience in this market segment. So, shouldn't there be a more important factor?
On the other hand, Pascale was the champion of greater organisational learning. He was accurate in claiming that learning and strategic accommodation were important in implementing any formulated strategy on the ground. In fact, the marketplace often changes so fast that all formulated strategy need certain degree of tweaking when being implemented. So, to plan it too tightly, as described of Honda by BCG, would spell disasters. For example, if the ground staff in America had been slow in response to the budding interest in the Supercubs, Honda would have probably failed miserably in their American venture. So, in my opinion, organisational learning had played a more significant role for Honda than the overarching planning proposed by BCG.
However, it is also important to note that Honda's initial plan probably incorporates both elements, but only that this success had relied more on organisational learning. Even then, I have reservations that the combination of both deliberate and emergent strategy alone would have helped Honda succeed. In fact, I regard the concepts of 'strategic intent', 'stretched targets', 'leveraged resources' and 'core competencies' as the most likely and significant factors in helping Honda to become a big player in the US motorcycle market. I am strongly agreed with Hamel and Prahalad because the many temporary upsets and failures, that Honda faced, could have killed off even the most promising firms, but, not Honda and his team. Honda, thanks to his huge ego, then harboured the strategic intent to succeed beyond Japan and to prove MITI wrong.
So, they had, not surprisingly, set for themselves targets beyond their capabilities and hoped to achieve these targets by massively leveraging their resources and continuously developing their core competencies. The result was that their US team continued to grow from strength to strength in different market segments until they dominated the industry. I believe this ultimate success would not have been possible without the constant self-imposed challenges/targets that Honda had set for himself. Of course, it would be unfair to completely disregard other factors in explaining Honda's rapid success. But, the final point remains that planning and organisational learning may have contributed to Honda's success, the indispensable ingredient for their ultimate success is their passion for excellence.
In fact, this rise of Honda has exemplified the success of many entrepreneurs who relied much on their passion/ambition and resilience to compete with the incumbents in their respective industries. Of course, planning and organisational learning may help make entries easier and smoother. But, without passion and resilience, any breakthrough into a new market would be at best a temporary one.
1) Andrew Mair (1999), Learning from Japan? Nissan Occasional Paper Series No. 29
2) Hamel and Prahalad (1994), Competing for the Future.
3) Andrew Mair (2004), The Globalisation of Honda's Product-Led Flexible Mass Production System
4) Lecture Notes for Honda