The Hero Honda Break-Up
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Case Code: BSTR409 Case Length: 17 Pages Period: 1984-2011 Pub Date: 2012 Teaching Note: Not Available |
Price: Rs.400 Organization: Hero Group, Honda Motor Company, Hero Honda Industry: Automobile Countries: India Themes: Joint Venture, Strategic Alliance |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Honda has other Plans as Well...
While the Hero and Honda joint venture was going from strength to strength, the joint venture of Honda with Kinetic was not doing too well. Kinetic Honda was the first gearless scooter in India. The vehicle became highly popular, especially among women, due to its electric start and gearless operation. By the early 1990s, the company started facing competition from TVS which came up with its own version of gearless scooter called Scooty targeted at women. But Kinetic was not allowed to enter the motorcycle segment as Honda already had a joint venture with Hero. In 1993, Honda increased its stake in the joint venture to 50.92%...
Bone of Contention
When Honda announced in August 1999 that it would set up a subsidiary to manufacture scooters and motorcycles, Hero Honda's stock plunged by 30%. In 2004, when it was time for the agreement with Honda to be renegotiated, Honda announced that it would enter the motorcycle market through HMSI. At the same time, Honda allowed Hero to have a minority stake in HMSI, and allowed Hero to examine the motorcycles that HMSI would release in the market. Though Hero Honda launched several new products from time to time, Honda was reportedly reluctant to share its technology with Hero Honda, though it had an agreement to do so. Company insiders were of the view that Hero Honda was unable to bring out new bikes with better technology while competitors came out with better versions, as innovation was solely in the hands of Honda...
The Split and the Aftermath
In December 2010, both the companies decided to part ways in a phased manner because of unresolved differences and independent plans. Honda decided to sell its stake of 26% to the Munjal family and to exit from the venture. On the split, Pawan Munjal, said, "The Hero group together with Honda had a great 27 years of the joint venture which all of us have benefited from. It was time for us to get into a new mode where we as a group can then involve a whole lot of our own people here in the company and start doing our own technology development, which was one of the big reasons why we thought of parting ways and also to get into the international market and to take the Hero brand global."...
Opportunities and Challenges
In the past when there had been a split between an Indian company and the partner in the joint venture, the results had been mixed. For example, Bajaj and TVS were able to sustain and grow even after breaking away from their joint ventures with Kawasaki and Suzuki respectively. On the other hand, Kinetic and Eicher suffered after falling out with Honda and Yamaha respectively. Regarding the split of Hero and Honda, there was a poll conducted and afaqs asked advertising and marketing professionals about the impact of the split on both brands. The experts felt that the Hero group would continue doing well, especially in the mass markets, but R&D and technology would remain a challenge. They said Honda would do well in the premium segment, but creating a mass market appeal might prove difficult. Another challenge would be in the terms of local distribution, after-sales service, and spare parts...
Exhibits
Exhibit I: Hero Group - Divisions
Exhibit II: About Honda
Exhibit III: Hero Honda -Product Launch
Exhibit IV: Two Wheelers Market in India
Exhibit V: Awards Won by Hero Honda
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