The Honda Motor Company first entered the European market in the early 1960s through the sale of its motorcycles. The company’s motor vehicles were introduced into Europe at a much later date. Honda’s motor vehicle sales in Europe have been relatively poor, especially in the previous five years. Despite its huge success in the North American market, Honda is struggling to gain a significant foothold in the European market. Honda executives wonder why their global strategy is sputtering. Is global strategy just a pipedream, or is something wrong with Honda's European strategy?
History of Honda
In 1946 Souichiro Honda founded the Honda Technology Institute. The company started as a motorcycle producer and by the 1950s had become extremely successful in Japan. In 1956, Honda entered the US market and was able to position itself effectively, selling small sized motorcycles. In the early 1960s, the company commenced automobile manufacturing and participated in Formula-1 racing (F-1) to assist its technology development. Thanks mainly to its F-1 efforts, Honda became recognized, not only in Japan but in the rest of the world as well, as a technological savvy company. Up to the early 1990s the company had experienced serious organizational mismanagement resulting from tension between the technology side and the marketing-sales side. The situation became so dire, that the technology biased president and founder, Souichiro Honda, was forced out, due to his neglect in important marketing decisions. After Souichiro Honda’s departure, the company became more marketing-technology balanced, and by 1999 was second in sales only to Toyota in the Japanese market. The underlying success of the company is best summarized in its mission statement, “pleasure in buying, selling and producing”, and “Beat GM, not Toyota”. Honda currently has 25 separate factories in the world, and its operations cover automobiles, motorcycles, financial services, power products and power tools. In the fiscal year 2001, 81% of Honda’s revenues came from its automobile sector, as outlined in the table below.
The automobile industry worldwide is in the mature stage of its life cycle. By the 1990s, an oversupply of motor vehicles became such a problem to the industry that a number of mergers and acquisitions (M&A) and alliances took place. Industry experts stated in the late 1990s, only 6 or 7 companies would remain global players while other companies will be forced to sell in niche markets. In the last decade DaimlerChrysler acquired a major share of Mitsubishi, GM became the controlling shareholder of Fiat and Saab, Ford acquired Volvo, Jaguar, and a major share of Mazda; and Renault became the controlling shareholder of Nissan. Global scale production and sales became important as a way to cutting cost through developing common platform or engines as well as global procurement. Unlike their European and American counterparts, Japanese automobile companies, including Honda, did not adopt the M&A strategy for expansion. To remain as a global competitor, Honda instead expanded its operations by setting up plants in regional markets. The table below shows that Honda is currently ‘the number 7-car company’ in the world.
Honda in Europe
Currently Honda has five global operations, North America, South America, Japan, Asia-Oceania, and Europe. The European operation covers Europe, the Middle East, and Africa. Honda entered the European market in 1961 as a motorcycle manufacturer, with its automobile operations following several years later. In 1986, Honda started engine production in the UK, and 6 years later it launched its European production at Swindon in Somerset, UK. Honda opened production facilities in Turkey in 1999 to target the Middle East and Eastern European markets. The European operation accounts for a small portion of Honda’s global operation,...