The opportunities which have helped the company to plan

The
main objective of the study is to discuss the international marketing
strategies used by Honda Group to enter into Pakistani Automotive Car Market
from 1992 to 2016 and the retrospective recommendations of what international
marketing mix strategies to be applied by the company especially after non
growing trend in their market share and upcoming threat of new international
entrants into the market.

 

The automotive industry of Pakistan is a growing industry controlled
by Japanese manufacturers, namely, Toyota, Suzuki, and Honda all
have assembly plants and all co-owned with local partners.  By a large margin, Honda is the preeminent engine maker in
the world with an output of more than 20 million internal combustion
motors annually; Honda vehicles are the most durable and long-lasting of
any automaker, with 75% of its cars and trucks sold in the last 25 years
still on the road (Rothfeder 2014).

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Honda Atlas Cars is a joint venture between Honda
Motor Company Limited, Japan and the Atlas Group, Pakistan.
The company was incorporated in 1992 and since then, the company has developed
twenty five 3S dealers (Sales, Service and Spare Parts) fifteen 2S dealers
(Service and Spare Parts) and six 1S dealers (Spare Parts) network in all major
cities of Pakistan (Business Recorder 2017).

 

Honda has always looked to international markets as
opportunities which have helped the company to plan its production and
technology from the start and viewed the rest of the world as potential
customer base. While entering into the Pakistani market, the company targeted
the growing middle class and upper class section of the population with high
income earnings along with premium and market skimming price settings. 

 

In terms of Automotive Car Market, Suzuki (33%) and Toyota (28%)
have grown faster and have high market shares than Honda (25%) (Hembel,nd). Honda, being a Global company and
being a steady grower in local Pakistani Automotive Car Market is facing the
threat of decreasing market share from existing competitors and from new
international entrants.  Likewise, in
terms of Pakistani Automotive Motorcycle Market, Honda has turned the tables
and has a growing market share of more than 50%, leading the motorcycle
industry with the adaption of more localized marketing strategy, wider target
market and different market mix strategy.

 

In view of this, this term
paper will bring a case study about the
challenges and opportunities faced by the Honda Motor Co. while entering into
the Local Pakistani Car Market and adopting to the public, different
internationalization strategies applied by the company to enter and gain stable competitive position in this market
during 1992-2016, and finally the recommended International Marketing Mix Strategies
that should have been applied retrospectively by the company to become the growing
company in Pakistan’s Automotive Car  Market.

2.
Challenges

There were many challenges and opportunities faced
by the company when it was entering the Pakistani Automotive Market starting
from 1992. I will briefly discuss some of the salient features below:

2a. Macro and Micro Analysis

 

Following are the external challenges
faced by the company before entering the local market and how Honda
strategically converted them for their benefit:

 

Forces

Main Points to consider

Political/Legal

Government policies
taxed highly on imported parts or units to save the local industry. Political
motives were import oriented and lacked policies that enhance competition.
 
Strategic Position: Pakistan represented a long-term opportunity for Japanese
automakers including Honda Motor Co as the company had no issue with taxes
due to strong ties with government officials, low Japanese currency value,
and insurance by Government Officials to fully support the JV with local
group and establishment of Assembly plant

Economic

The industry was much
monopolized due to non-incentives for local producers and parts
manufacturers. The general economy and income level was not growing rapidly
and only few could afford high priced cars.
 
Strategic Position: The imported cars had a niche market and
demand which derived sales and profits for the company. The standardized cost
of production was so well managed by the company that cost was well managed
with high profit margin opportunities.

Ecological

Infrastructure was not
well built and environment was not very clean. 
 
Strategic Position: The opportunity for Honda was created since it
had a strong proven Japanese technology to build products well adjusted for
local conditions and its products were environmentally adaptive.

Social/Cultural

The demand for Japanese
cars due to their high quality, durability and reliability was relatively
high in big cities and in high income markets. The Japanese cars were viewed
as social status to consumers which always attracted upper middle class and
upper class individuals.
 
Strategic Position: Honda has the strength of making highly
durable, qualitative, and reliable cars. They came up with brand perception
of high social status image to consumers.

Technological

Limited investment in
high technology equipment and low capital inflow.
 
Strategic Position: Created an opportunity for Honda to
Internationalize its state of art technological value chain and take benefit
of producing large number of units at low standardized manufacturing cost.

Table 1: PESTEL Analysis

 

Following is the brief SWOT analysis of the company and how the company
managed them strategically.

Strengths:
1.     
State of Art technology and excellent R
2.     
Standardized manufacturing and production capabilities
3.     
Large number of product portfolio
4.     
High Brand Equity
 
 
Strategic Response: Company continued to further strengthen its competencies

Weaknesses:
1.     
Low after sales customers service
2.      Price higher than prevailing
competition in market, which gave customer thoughts about nearest substitutes
available
3.     
Less of a proactive approach in introducing new models
 
Strategic Response: Company came up with marketing plan
that were closely tied to customer and their feedbacks.

Opportunities
1.     
Growing demand in developing countries
2.     
Product Expansion (inclusion of small cars to low ends of the market)
3.     
Growing population and income levels in developing countries
 
Strategic Response: Company used its
standardized technology and production process to enter the market. There
was also opportunity to broaden the target market to reach large level of
population.

Threats
1.     
Competitive threats from existing customers
2.     
Threat of new entries
3.     
Threat of change in Government Policies
4.     
Fluctuation in Oil prices
5.     
High fluctuation in Japanese currency
 
Strategic Response: Company positioned
itself with premium car manufacturer with reliable quality and tied with
Government.

Table 2: SWOT Analysis

 

 

 

 

2b. Decision to Internationalize

 

The
global automotive industry falls between potentially global and global in the
in the nine strategic windows model (Hollensen 2016; Solberg 1997). 
Honda is truly a global company and was one of the top 6 leading passenger car manufacturers worldwide in
2016, based on its total revenue (Statista 2018). Based
on its preparedness for internationalization, the Honda Company falls into the
category of mature global company since it had benefited from the huge Japanese
home market and had a high learning curve from its inception. Therefore it was
likely that company prepared for globalization or strengthens its global
position wherever it finds its target market.

 

In terms of
EPRG framework (Hollensen
2016; Perlmutter, 1969, Chakravarthy and Perlmutter, 1985), the company
has a geocentric view of the world and it seeks to organize and integrate production
and marketing on a Global basis but with acting local. Each international unit
of the company is an essential part of the overall multinational network and
communications and controls between headquarters and local partner firms with
less top-down approach. The major challenge that company faced during the
internationalization to Pakistani Market was to choose among the position in
nine strategic windows. Being mature company and seeking the potential global
opportunity the company chose to strengthen its global position by initiating
the assembly plant with the help of Joint Venture Agreement. It is pertinent to
mentioned that company applied the same strategy while introducing its
Motorcycle products in Pakistani Motorcycle Market.

Figure 1:
Source: Hollensen 2016, Soldberg 1997

 

Honda Motor Company has a high integration/coordination forces due to
global accounts/customers, global delivery of products, assured supply and
service systems, uniform core characteristics and global pricing. Also the company
has standardized world wide technology and better resources to reduce cost
drivers, utilize production capacity and ability to achieve economies of scale
by outsourcing lower value activities. On the other hand the localization is
not much present in the company’s products since most of the parts and systems
are standardized. This was a further challenge for the company in terms of entering
the Pakistani Market. The company started from position A to Position B in
figure 2 below (Daniels 2015) as most of the automoblile company does but to fully capture the local
market and being the passenger car manufacturer the company should have reached
to position C by introducing small cars (in addtion to large cars) and more
responsiveness to local market with reasonable prices which the company
currently doesn’t have in this market.

Figure 2: Source: Daniels 2015

2c. Transaction Cost Analysis and Internationalizing the Value
Chain:

 

While considering the transaction cost
analysis framework (Hollensen
2016), the Honda parent company performed internally the activities like
R and production manufacturing at lower cost through establishing an
internal management control and implementation system while relying on the
market for activities in which its outsider partner company has a cost
advantage such as assembling, Marketing know-how, and Sales & Services. Since
the transaction cost such as search costs, contracting costs, monitoring costs,
and enforcement costs with strategic local partner firm were lower for the
company than its control cost, the Honda parent company effectively
externalized downstream functions with its strategic partner firm like Atlas
Group. 

 

Also, based on the strong value chain
analysis the company managed to internationalize its value chain by
centralizing the R and Production facilities at home and decentralizing
the downstream activities including the Assembling of all parts for knock-down
units. Some automobile companies also have production facilities as downstream
activities but for that they ensure the availability of resource factors and
availability of all supplies in consideration. This was a good strategic move
by Honda to further reduce its cost of production but
keeping the much standardized product hindered their ability to localize
efficiently.

 

 

Figure 3:
Source: Hollensen, S. 2008. Essentials of Global Marketing

 

There was also a problem with the above
function. In its motorcycle market Honda started with above
internationalization of value chain and moves more towards local production
facilities. It is locally producing body and spare parts through its local
plants and also procuring them from other local spare part manufacturing
companies which ultimately reduces its cost of production with product features
more representing local target market. On the contrary, in the car market Honda
has still positioned with above function while still producing main car units
in Japan.

2.d Entry Mode

 

After
deciding to internationalize, the company followed a pattern of Uppsala Model (Hollensen 2016,
Forsgren/Johanson 1975) to enter in
Pakistani Market. The market commitments were made in incremental steps
starting from developed and growing developing countries to less developed
countries. The company chose Pakistani market with incremental steps and
commitments for the sale of its products starting from exporting to different
agents till establishing the strategic alliance and opening of assembly plant
for local production. This strategy helped company to succeed during its
expansion and leads to increased internationalization into the local market.

 

 

 

 

 

 

 

 

 

 

Figure 4: Source: Hollensen 2016, Forsgren/Johanson 1975    

 

However, once the company realized that
it was strategically beneficial to completely internationalize in the Pakistani
market, the Honda Parent Company managed a Joint Venture with its local partner
Atlas Group in the form of intermediate mode i.e. “X Coalition”. (Hollensen 2016)

                                         Border          

Figure 5: Source: Hollensen 2016

3. Recommendation
International Marketing Mix Strategy 

While Honda
adopted different marketing internationalization strategies to establish its
foot prints in the local car market, in 2016 its market share was threatened to
come down due to existing competitive pressures, continuous new car model
introduction by competitors, introduction of more localized products by competing
car manufacturers, proposal of low priced cars, announcement of 3 new prospective
entrants from international car making companies and changing dynamics of Pakistani
consumers and car market. From 1992 till 2016, I have found the company’s core
product and its brand image to transform to the Growth Phase Cycle with
introduction of different models every two years within the range of their core
product. In view of this, their strategies differ from what they should had
been while entering into the growth stage. The strategic marketing objectives should
had been more on building stage rather than on static stage. Penetration to the
market should be higher but not low aggressiveness, Product should had been
blended with core and adaptive one and with different sizes, Promotion should had
been more extensive and widespread, Price to be slightly lower and distribution
to be wider than they had during the period. All are summarized in figure 6
below:

Figure 6:  Source: Jobbler/Ellis-Chadwick 2016

 

These broad
terms demanded new or modified International Marketing Mix Strategies from
their existing ones which I shall explain briefly in next part.

 

1. Product:

 

Previous
Strategy

Honda Cars
Company possesses all those outstanding multidimensional features which are
required to compete in current market. It possesses all qualities; from updated
engine models to updated technology. It has the brand image of luxury car in
the local market.   The company also believes
to work for customer’s satisfaction through their feedback. This is reliable
source for the quality improvement and for the productivity enhancement in
terms of material, financial and human resources.  An example of this is when company
incorporated the suggestion of its consumers of placing lamp light with
dashboard for proper visibility at night. 
Additionally, Honda Motor Company, Japan, has given Honda Atlas
liberties to modify certain features of the vehicle to suit the demands of the
local consumers. This reflects the significance of public demand and
satisfaction.  

 

Product
Recommendation

Product and
promotion for the company go hand in hand in the Pakistani market. After somewhat
standardization of their core product along with little localization effect the
company chose from standard to little adaptation to its product. According to keegan 1995 who
highlighted the product/communication mode, the company stands in Straight
Extension position in Figure 7 below:

Figure 7:
Source: Hollensen
2016; Keegan 1995

 

In
retrospectively, if the strategy of Dual Adaptation had been applied the
company could have captured the local market more. Considering the potential
threat of new entrants and current market situation they could have considered
this strategy.

The company also
needs to plan for modification in size, design and colors on the basis of local
demand and requirements of the product. Producing the models with small and
affordable cars along with its line of large luxurious cars will definitely add
market share and profitability. Another important strategic decision is
regarding time frame of launching new models. These decisions should be taken
after taking into consideration the financial implications, the demand of the
car, the performance of the existing model and the plans of the competitors
regarding launch of new models.   

 

Its product positioning has always been
based on Country-of-Origin effect (Hollensen 2016) due to name of Japanese car manufacturers and
it should continue to build up its current positioning strategy. Branding
Strategy could have based on parent company’s own brand.

2. Price:    

 

Previous
Strategy

Honda has set the prices of the cars in previous
years mostly on the basis of firm-level factors, environmental factors, product
factors and market factors of the International Pricing Framework Model (Hollensen 2016).  Major firm level factors included country of
origin effect and choice of foreign entry mode assuming control over the
subsidiary and pricing. Product factors mostly included the unique and
innovative features of the product. Environmental factors included all external
factors and market factors mostly accounted for purchasing power of the
customer within the target market.

 

The company used skimming pricing (Hollensen 2016)  for new car models at the start with the
object of achieving highest possible contribution in the short time due to its premium
brand and country of origin effects.  

Price
Recommendation

   

Figure 8: Source:
Hollensen 2016

 

In view of the Figure 8 above the
company should have considered more of the Product factors and market factors
(based on broad target market) to consider its international pricing before
introducing its new products or models. In product factors the company should
have considered the appropriate stage of life cycle, product positioning and locally
modified product features. Also, in market factors (based on broad target
market) the company should have been more responsive to purchasing power of the
local people and their price sensitivity.

 

Rather than using skimming pricing for new car
models at the start, the company should have considered moving towards lower prices
for some of its new product lines, considering the positioning of the brand and
in accordance with increased competition in the market. 

3. Place:

 

Previous
Strategy

Honda in collaboration with
Atlas Group uses channel strategies where it had to select indirect
distribution methods like majority of car manufacturers do. The distribution
channel includes but not limited to Showrooms, Authorized Dealers in every
selective region of the country with the mid-level degree of Disintermediation.

Its channel
strategy consists of following:

 

Distribution
Channel: Manufacturer———-Dealers/Showrooms———–customer

Channel
Selection: Authorized Distributors, Value Added Partners and
showrooms

Channel
Intensity: between Selective Distribution and Exclusive Distribution

Channel
Integration: Vertical Marketing System where
manufacturer, distributors and showroom dealers all integrated and dealing with
consumers  

 

Place
Recommendation

The recommended
distribution strategies should have been as follows:

 

Channel
Selection: Authorized Distributors, Value added Partners and
showrooms, greater number of 5S dealers i.e. dealer should include all the
aspect of Sale, Service, Parts, Leasing and Exchange system faculties which
also requires enhanced area of the shop, Warranty Dealers, Exclusive
installment dealers

Channel
Intensity: Should be more towards Selective Distribution
as mentioned in figure 9 below.

Channel
Integration: Vertical Marketing System where
manufacturer, Distributors and Showroom dealers all integrated and dealing with
consumers 

Figure
9:
Source: Hollensen 2016, Lewison 1996

4. Promotion:

 

Previous
Strategy

Honda cars being
tangible, high priced and one time buy cars, uses different communication
strategies to interact with the customer. The major ones are through showrooms
with big customer centers, dealers’ network, word of mouth, print advertising,
and television advertising. 

The company also
uses the traditional mode of one-way advertising or Bowling Approach to its customers
due to is brand name (Hollensen
2016).

 

Promotion
Recommendation

Again the
recommended strategies should cover most of the broad target market and should
include more channels in addition to its existing communication strategies,
Sponsorships (both event oriented and cause oriented) and Celebrity Endorsement
are recommended due to local culture and favorability of local customers which
are also considered by competitors and other international companies.

 

Instead of using
traditional mode of one-way advertising, the company should have used the
Customer Driven Interaction or one-to-one approach (Hollensen 2016) to its customer where
there is a high degree of interaction between company and customers. This mode
has already been considered by the company in recent years by introducing 5S
concept

4.
Conclusion

In view of the
challenges faced by the company and the retrospective analysis of the
recommendations I come with following conclusion:

Increasing
the scope of the target market would have served well for the company
The
company should have included new product lines with a mix of its big
luxurious cars and small affordable cars
The
company should also have considered different international marketing mix
strategies with increased period of time.
Considered
more localization in the car segment like it is doing in its motorcycle segment
in order to have high market share.