Honda is a multinational company established in Hamamatsu, Japan in October 1946 by Sochiro Honda i It specialises in the production of aircraft, motorcycles, and more prominently automobiles. It 8th biggest car manufacturer in the world behind, 7 places behind the next Japanese company, Toyotaii The has various branches around the world including over 300 subsidiaries and affiliatesiii accommodating 208,399 employeesiv. It is one of the main competitors alongside Toyota, Nissan, Honda & Suzuki.
External Environment of Retail Automobile Industry
Honda primarily operates in the automobile industry. The industry reported 0.3 % growth in 2016v. Despite a marginal increase in 2016, the market is still recovering from poor economic performance between 2014-15. The unfavourable economic conditions came to halt in 2016 as confidence amongst general consumers grew with changing the upward direction of the economy. This also explains how CAGR (compound annual growth rate) has improved despite showing as a negative 1.1 %. This pales in comparison with their Asia-Pacific counterparts as China & Taiwan’s new cars industry grew by 10.7% & 6.2% respectively.
Porter 5 Analysis of Retail Automobile Industry
It is fairy difficult for new entrants to enter market as established brands have the capital and reputation to keep newcomers out. Of those who do succeed are usually established foreign conglomerates who have the necessary financial power to remain competitive whilst being disadvantaged by various legislative/geographic factors. Moreover, new entrants will have to incur high fixed costs associated with the design and manufacture of new cars which makes economies of scale extremely difficult to achieve.
In growing expectation for high technology features in newer editions of automobiles, it is challenging for newcomers as development followed by implementation of these newer high-tech advancements in vehicles is very costly. Customer expectations usually entail user-friendliness followed by competitive prices, something that local newcomers in the car industry highly difficult to offer. Hence new entrant in the automobile are rarity and Honda should feel that any threat coming from local entities to be a rarity.
To conclude, the threat of new entrants is very low
Threat of Substitutes
Threats usually come from alternative means of transport followed by third-party entities. Also the threat of substitutes may be argued that it is increasingly difficult for automobile companies to sell fuel-powered vehicles as the environmental initiative continues to be mainstream theme. Coupled by the fact that Japanese consumers purchased approximately 15,000 electrics vehicles in the 2015-16 periodvi. This will be strong indication to Honda, that entering the electric cars market should be future target.
As with public transport, the unstable petrol prices will part of consumer decision-making with regards purchasing a car. Moreover, proximity should be considered as purchasing a car may be unsuitable for one’s commute, especially if the distance to get to the selected destination can be done on foot.
Hence the threat of substitutes to Honda is quite high.
There is very extensive selection of Cars in Japan to choose from. However, even for price-sensitive consumers, low cost-switching occurs rather sparingly hence buyer power is weaker.
Disposable income alongside consumer confidence is key determinant to buyers’ power in the market. Due to a recession at the end of 2014vii, soon followed by another in 2015viii has done little to soothe consumer insecurity which can also explain the 5.4 % fall in demand in 2015/16 fiscal yearix. However, with increasing consumer confidence in 2016, this would explain how the decline of new car registrations has come to a hopeful end with a reported 1.5 % decrease at the end of 2015 as opposed to the 9.3% decrease the year before x.
Fuel prices has seen cuts in the 2014-15 period, hence consumers can consider purchasing more expensive vehicles which will strengthen buyer power.
Buyer power is influenced by several factors which are outside Honda’s control making it weaker against customer pressures. However, with recent economic events affecting consumer freedom, this has caused a substantial decline in demand of new automobiles which is showing signs of recovery. However as of yet, buyer power stands to be a moderate level.
Products that are car companies seek often are in the metal industry. On top of that, certain high quality car makers are keen on luxurious/technological advanced products to help differentiate itself from its competitors. Suppliers have often many buyer requirements to meet before any form of negotiations can end successfully. This often leads to weaker supplier power. Although, if the supplier can develop strong relations with any prospective buyer, this can position themselves in a strong supplier’s position.
However, with limited differentiation on raw products, this may limit supplier power to certain degree xi.
Degree of competition
Toyota has the lion share of car industry, with 36.9%. This is followed Honda & Suzuki 17.1 % and 15% respectively. xii
i Successstory.com. (n.d.). Honda Motor Story – History, Founder, Founded, CEO | Automobile Companies | SuccessStory. online Available at: https://successstory.com/companies/honda-motor-co-ltd Accessed 3 Jan. 2018.
ii Organisation Internationale des Constructeurs d’Automobiles (2015). WORLD RANKING OF MANUFACTURERS. WORLD MOTOR VEHICLE PRODUCTION OICA correspondents survey. online Organisation Internationale des Constructeurs d’Automobiles. Available at: http://www.oica.net/wp-content/uploads//ranking2015.pdf Accessed 3 Jan. 2018.#
iii Marketline (2011). Honda Motor Case Study – The Future of Hydrogen Fuel Cells in Cars. MarketLine Case Study. pp.1-20.
iv Forbes.com. (n.d.). Top Multinational Performers – #161 Honda. online Available at: https://www.forbes.com/companies/honda-motor/ Accessed 3 Jan. 2018.
v Marketline (2017). New Cars in Japan. MarketLine Industry Profile. Marketline, pp.1-35.
vi International Energy Agency (2017). Global EV Outlook. online France: International Energy Agency, pp.50-51. Available at: https://www.iea.org/publications/freepublications/publication/GlobalEVOutlook2017.pdf Accessed 3 Jan. 2018.
vii BBC News. (2014). Japan’s economy falls into recession. online Available at: http://www.bbc.co.uk/news/business-30077122 Accessed 3 Jan. 2018.
viii Yan, S. (2015). Japan’s economy is back in recession…again. online CNNMoney. Available at: http://money.cnn.com/2015/11/15/news/economy/japan-economy-recession/index.html Accessed 3 Jan. 2018.
ix Reuters. (2015). Japan automobile demand seen down 5.4 percent in FY2015/16: auto lobby. online Available at: https://www.reuters.com/article/us-autos-japan/japan-automobile-demand-seen-down-5-4-percent-in-fy2015-16-auto-lobby-idUSKBN0MF06L20150319 Accessed 3 Jan. 2018.
x Bekker, H. (2016). 2016 (Full Year) Japan: Best-Selling Car Manufacturers and Brands. online Car Sales Statistics. Available at: https://www.best-selling-cars.com/japan/2016-full-year-japan-best-selling-car-manufacturers-brands/ Accessed 3 Jan. 2018.
xi Marketline (2017). New Cars in Japan. MarketLine Industry Profile. Marketline, pp.1-35.
xii Marketline (2017). New Cars in Japan. MarketLine Industry Profile. Marketline, pp.1-35.