Hero Honda Divorce the HAMMERHEADS

7/31/2019 Hero Honda Divorce the HAMMERHEADS

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HERO HONDA

DIVORCE


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Until the 1980s, foreign companies werenot permitted to enter the Indian

market.

These restrictions were relaxed to acertain extent in the mid 1980s whenforeign companies were allowed to enterthe market through minority jointventures


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Major manufacturers of bicycles in India andmanufactured close to 16,000 bicycles a day.


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HM Japan was already renowned for its technologicalexpertise in the automobile and motorcycle

Hero was a well-known and respected brand name andan association with Hero would make the entry into

Indian market a lot easier for HM Japan.


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26.00%

26.00%

38.04%

0.21%9.75%

Hero Honda before Split

Hero Group HMCL

Financial Institutions Individual Promoters

Others


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Over the year, Company has grown

consistently, earning the title of the worlds

largest motorcycle manufacturer after having

manufactured 1.3 million vehicles in 2001.


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Annual sales volume of over 2million motorcycles,

Hero Honda Splendor which is theworlds biggest motorcycle brand.

Over 5,000 outlets.

In the last financial year 2009-2010, the company had total unitsales of 4,600,130 two-wheelers, atotal net operating income of INR

158.605 billion (app. USD 3.52billion) and a growth of 28.1%.


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Sound and proven technical capabilities of HM Japan

The reliability of Hero Group.

Better fuel efficient motorcycles

Hero Groups deep distribution network.

No major competitors in the initial years

The decrease in price difference in comparison with scooters


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Supply of components

Reluctance to share keytechnology

Distrust between the twocompanies

Bar on exports hurt the long

term growth of the Company HM Japan aim for 100%

stake in India.


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52.00%38.04%

0.21% 9.75%

Hero MotoCorp

Hero Group

Financial Institutions

Individual Promoters

Others


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Hero under the agreement can

use the name Hero Honda till

2014 .


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All existing products of the Company to continue

The fresh licensing agreement with HM Japan to providenew models to the Company

Company will have the freedom to export to new markets

Company will have the independence to set-up its ownresearch and development (R&D) and new productdevelopment capabilities and acquire technology

No change in ongoing operations

Process for smooth transition was finalized between theparties

Name of the Company and the brand name to be changedover time.


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Launch of new refreshedversions of Glamour, Glamour

FI, CBZ Xtreme, Karizma.

Crosses the landmark figureof 5 million cumulative sales in

a single year.

It is the worlds largest two

wheeler maker. It is the worlds NO. 1

company in terms of Sales.


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To move out of HERO

HONDA Age

To give HERO a brand

new appeal , uniqueentity.

Looking to spend around

Rs 100 cr for promotion

Seeking the help of some

top agencies for branding


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New market

New segments


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While Hero is said to being majorly affected by the split,

Honda doesnt remain unaffected. The affect can be seen inthe following ways-

Price Wars

More discount and freebies for the customers.

India is the second largest market for Honda after China.Thus, its focus will intensify.

More launches in Rs. 40,000-50,000 bracket.

Cheapest Bike

Move targeted at boosting sales in emerging markets likeIndia.

Cost $599 or roughly Rs. 33,000.

This is Heros bread and butter segment of 100cc bikes.


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Effect on international market

Under the JV contract, Hero could export only to Sri

Lanka. Now, Hero would also focus on exports.

However, this is subject to local markets and supplychains.

Branding will be a challenge.

Market Penetration

Hero Honda has 4200 touchpoints in the country.

Honda has only 1075 touch points selling Activa scooters

and Unicorn and Shine bikes, among others.

The Asian Hub

Honda plans to make India-based facilities the hub for its

Asian market.

HMSIs second plant is being developed at Tapakura in

rajasthan.


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Battling local issues

Setting up more dealers wont be an easy task.

Labour issues concerning contract staff.

Automatics the way ahead

Honda has a strong reputation for itself in scooters like

Activa Eterno, its geared scooter was discontinued.

New terms of contract

Honda needs to provide new models to Hero Honda underthe new agreement

However, there is a possibility that it will reserve all the

good ones for HMSI.


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It wont be wrong to say that Hero Honda has been one ofthe most successful joint ventures in the history of Indianbusiness. Hero Cycles and Honda Motors, both champions

in their respective industries came together. Herobenefitted from the technology and Honda found an easierchannel to enter the market.

The main reason was that the JV was hurting the long term

growth plans of Hero (reluctance to share key technologyand bar on exports)

Both the sides have benefitted from the split. However, thelosses cannot be ignored.


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Hero Honda Divorce the HAMMERHEADS

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