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Name of student PG Roll No.

Aastha Gupta PG 20111073

Submitted to Mr.Rahul Mishra

Submitted on 3 March 2012

Marks Allotted

Remarks(if any)

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External factors influencing innovation/major issues in a case:

1) Regulation & deregulation:

In 2007, car sales decreased by 3% in North America and by 11% in Japan. With these 2 major

markets for automobile reaching their saturation level, Honda was forced to find new

markets for its products. Thus Honda decided to enter into Chinese markets with registered an

increase of21.68% in 2007 in cars sales. In first half of 2008, cars production increased by

16.71% and sales increased by 18.52%. Moreover in 2007, china overtook Japan to become 2nd

largest automobile maker in the world after USA. GDP of china is 9.48% in 2011-2012.

Chinese automobile industry had various restrictions. To boost the growth of automobile

sector, Chinese State Development and Reform Commission had relaxed various restrictions

and removed many tariffs & non tariffs barriers. However there were 2 restrictions that were

strictly followed. The first one is equity participation by foreign automakers was restricted to50% and second one is minimum investment required in auto projects was US$292 million.

2) Competitors:

In china competition exists in 2 ways: the first form of competition was through the joint

ventures between Chinese companies with foreign automakers. While the second form of

competition was from local automakers producing proprietary brands. The objective of joint

venture is to transfer the technology while the objective of local automakers is to develop

indigenous technology and brands. In 2003, all major competitors of Honda like Toyota,

Volkswagen, GM, Ford, and Hyundai were already present in china and were among top 10players in automobile industry of china.

3) Customer expectations:

Per capita income of Chinese is US$ 4428 in December 2011 according to World Bank. Chinese

customers wanted a car that reflected their own identity or, personality. Over the years their

preference has changed from any car will do to a car that reflects their identity. They give

importance to aesthetics of the car. For them intangibleattributes were more important than

tangible attributes. In china word of mouth is the most trusted and credible source of

information. There were many online car forums and communities like sina.com where

discussion takes place about merits/demerits of different car brands. Chinese customers buy

cars on cash rather than going for car loans, this means that companies would require less

working capital and risk of default/bad debts is also with the companies.

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4) Social demand and supply:

80% of the Chinese buyers are first time buyers, hence there is a huge potential for automobile

industry in china. With per capita income US$4428, Consumers are ready to spend 3 times of

their salary on cars because they believe the more expensive the car the higher the status in

the society.Fuel prices in china are low than global standards, this increases the demand for

cars in china. Chinese customers buy cars on cash rather than going for car loans.

In 2007, china overtook Japan to be 2nd

largest economy in automobile market. In first half of

2008, cars production increased by 16.71% and sales increased by 18.52%. According to

Chinese state information centre, china could become largest automobile consumer and

largest automobile manufacturer in the world by 2010.

5) R&D Centers and universities:

In china all major players put heavy emphasis on R&D. Hondaspends 5% of its revenue on

R&D. It has created regional R&D centers in North America, South America, Europe, Asia and

china. GM has built 7 laboratories and 26 higher education institutes to overcome the shortfall

of R&D talent in china. It has also announced to invest US$4 million to develop research

institute with Shanghai Jiao Tong University. When Guangzhou and Honda entered into a

partnership and formed Guangzhou Honda Automobile, it has created its own R&D Center

Guangzhou Hondas Research and Development Co. Ltd. (GHRD).

6) Related Industry:

After entering into the joint venture with Guangzhou, Honda has set up many related industries

like Honda engineering china to manufacture production equipments; Dongfeng Honda Engine

to produce passenger car engines, Hondas suppliers in Japan which supply brake tubes, lamps,

and motors also opened their business in Guangzhou. Thus the whole supply chain of Honda

was very well managed and Guangzhou Honda automobile was being able to procure raw

materials and other inputs at low cost and thereby reducing cost of production.

Linking Hondas vision to innovation

Hondas vision is respect for individual and three joys. Respect for individual means all theemployees are being treated equally irrespective of their position in the company. This was

being reflected in regional Honda R&D center in china where all the employees have to wear

same white color uniform.

In order to fulfill respect for individual vision Honda has come up with an innovative idea of

waigaya meetings. These meetings are being scheduled for product development and

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employees freely exchange their ideas, discuss pros-cons of each idea regardless of their

position in the company.

Three joys say that employees, suppliers and customers should have a happy experience while

dealing with the Honda. In order to fulfill the vision of three joys Honda has come up with

the followinginnovative ideas:

1) To give happy experience to dealers, Honda provide them training for merchandising,

selling, floor planning, service management and Honda has also created computerized

dealer management information system.

2) To givejoy to customers Honda has come up with three reality principle where

employees go to actual market place, observe and take the experience of the real

happening and then come up with the product idea which is as per the expectations of

the customers.

3) To give happiness to employees, Honda treats all its employees equally. They wearsame color uniform despite the level of management. Employee at lower level can freely

criticize the idea of the employee at higher level.

Linking Hondas mission to innovation

Hondas missionis to create a product that is being accepted worldwide at an affordable

price.It has linked its mission with the innovation by introducing Element concept

development team. This team identifies the values, social behavior, standard of living and

personality traits of the target group and tries to incorporate these observations into the

product design, make sketches of the car, do prototyping and invite customers to test theproduct. Cars like civic and Accord have been developed by the Honda which is accepted

worldwide.

Type of innovation

Honda believes in commercial innovation. Honda has set up regional R&D centers in North

America, South America, Europe, Asia and china. These centers do changes in the product

design from time to time to upgrade the product design and develop non core technologies.

The main R&D center of Honda in Japan has core technology and retains all the patent &

copyrights of the core technologies.

But GHRD is the transformational innovation by Honda. GHRD not only develops non core

technologies but it also develops its own core technologies and has copyrights over those core

technologies.

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Conclusion

1) Core technologies of Li Nian car are different from Honda cars. Li Nian has been made

according to the needs of the Chinese customers. It is a customized product and hence

its core technologies are customized according to Chinese markets. Honda cars are

being sold all over the world. They are not meant for specific markets. Thus Hondas

core technologies are standardized technologies.

2) Honda Japan could offer technical support to GHRD in different ways like helping GHRD

in deciding research theme, helping in market research and understanding customers

needs, providing tools & equipments, providing technical staff etc. Thus Honda Japan

can provide all sort of support to GHRD expect providing core technologies because if it

does so there would be no difference between GHRD and Honda Japan.

3) Neither Li Nian is superior or Honda cars. Since, Li Nian is made according toexpectations of Chinese customers; they are more inclined to buy Li Nian rather than

buying Honda cars. Thus as far as Chinese market is concern Li Nian is superior. But on

the other hand, Honda car is meant for sale in worldwide. It is a standard product and

not meant for specific markets. Thus as far as worldwide markets are concern Honda

cars are superior.

4) If GHRD owns all the property rights for the core technologies it develops, the pay offs

of Honda could be it could more deeply penetrate into Chinese markets through the

joint venture, it could create its strong presence and give tougher competition to other

major players in the china.