Themain objective of the study is to discuss the international marketingstrategies used by Honda Group to enter into Pakistani Automotive Car Marketfrom 1992 to 2016 and the retrospective recommendations of what internationalmarketing mix strategies to be applied by the company especially after nongrowing trend in their market share and upcoming threat of new internationalentrants into the market. The automotive industry of Pakistan is a growing industry controlledby Japanese manufacturers, namely, Toyota, Suzuki, and Honda allhave assembly plants and all co-owned with local partners. By a large margin, Honda is the preeminent engine maker inthe world with an output of more than 20 million internal combustionmotors annually; Honda vehicles are the most durable and long-lasting ofany automaker, with 75% of its cars and trucks sold in the last 25 yearsstill on the road (Rothfeder 2014). Honda Atlas Cars is a joint venture between HondaMotor Company Limited, Japan and the Atlas Group, Pakistan.
The company was incorporated in 1992 and since then, the company has developedtwenty five 3S dealers (Sales, Service and Spare Parts) fifteen 2S dealers(Service and Spare Parts) and six 1S dealers (Spare Parts) network in all majorcities of Pakistan (Business Recorder 2017). Honda has always looked to international markets asopportunities which have helped the company to plan its production andtechnology from the start and viewed the rest of the world as potentialcustomer base. While entering into the Pakistani market, the company targetedthe growing middle class and upper class section of the population with highincome 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 andbeing a steady grower in local Pakistani Automotive Car Market is facing thethreat of decreasing market share from existing competitors and from newinternational entrants. Likewise, interms of Pakistani Automotive Motorcycle Market, Honda has turned the tablesand has a growing market share of more than 50%, leading the motorcycleindustry with the adaption of more localized marketing strategy, wider targetmarket and different market mix strategy. In view of this, this termpaper will bring a case study about thechallenges and opportunities faced by the Honda Motor Co.
while entering intothe Local Pakistani Car Market and adopting to the public, differentinternationalization strategies applied by the company to enter and gain stable competitive position in this marketduring 1992-2016, and finally the recommended International Marketing Mix Strategiesthat should have been applied retrospectively by the company to become the growingcompany in Pakistan’s Automotive Car Market.2.ChallengesThere were many challenges and opportunities facedby the company when it was entering the Pakistani Automotive Market startingfrom 1992.
I will briefly discuss some of the salient features below:2a. Macro and Micro Analysis Following are the external challengesfaced by the company before entering the local market and how Hondastrategically 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 companymanaged 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 Theglobal automotive industry falls between potentially global and global in thein 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 in2016, based on its total revenue (Statista 2018). Basedon its preparedness for internationalization, the Honda Company falls into thecategory of mature global company since it had benefited from the huge Japanesehome market and had a high learning curve from its inception.
Therefore it waslikely that company prepared for globalization or strengthens its globalposition wherever it finds its target market. In terms ofEPRG framework (Hollensen2016; Perlmutter, 1969, Chakravarthy and Perlmutter, 1985), the companyhas a geocentric view of the world and it seeks to organize and integrate productionand marketing on a Global basis but with acting local. Each international unitof the company is an essential part of the overall multinational network andcommunications and controls between headquarters and local partner firms withless top-down approach. The major challenge that company faced during theinternationalization to Pakistani Market was to choose among the position innine strategic windows.
Being mature company and seeking the potential globalopportunity the company chose to strengthen its global position by initiatingthe assembly plant with the help of Joint Venture Agreement. It is pertinent tomentioned that company applied the same strategy while introducing itsMotorcycle products in Pakistani Motorcycle Market. Figure 1:Source: Hollensen 2016, Soldberg 1997 Honda Motor Company has a high integration/coordination forces due toglobal accounts/customers, global delivery of products, assured supply andservice systems, uniform core characteristics and global pricing. Also the companyhas standardized world wide technology and better resources to reduce costdrivers, utilize production capacity and ability to achieve economies of scaleby outsourcing lower value activities. On the other hand the localization isnot much present in the company’s products since most of the parts and systemsare standardized. This was a further challenge for the company in terms of enteringthe Pakistani Market. The company started from position A to Position B infigure 2 below (Daniels 2015) as most of the automoblile company does but to fully capture the localmarket and being the passenger car manufacturer the company should have reachedto position C by introducing small cars (in addtion to large cars) and moreresponsiveness to local market with reasonable prices which the companycurrently doesn’t have in this market.
Figure 2: Source: Daniels 20152c. Transaction Cost Analysis and Internationalizing the ValueChain: While considering the transaction costanalysis framework (Hollensen2016), the Honda parent company performed internally the activities likeR and production manufacturing at lower cost through establishing aninternal management control and implementation system while relying on themarket for activities in which its outsider partner company has a costadvantage such as assembling, Marketing know-how, and Sales & Services. Sincethe transaction cost such as search costs, contracting costs, monitoring costs,and enforcement costs with strategic local partner firm were lower for thecompany than its control cost, the Honda parent company effectivelyexternalized downstream functions with its strategic partner firm like AtlasGroup. Also, based on the strong value chainanalysis the company managed to internationalize its value chain bycentralizing the R and Production facilities at home and decentralizingthe downstream activities including the Assembling of all parts for knock-downunits. Some automobile companies also have production facilities as downstreamactivities but for that they ensure the availability of resource factors andavailability of all supplies in consideration.
This was a good strategic moveby Honda to further reduce its cost of production butkeeping the much standardized product hindered their ability to localizeefficiently. Figure 3:Source: Hollensen, S. 2008. Essentials of Global Marketing There was also a problem with the abovefunction. In its motorcycle market Honda started with aboveinternationalization of value chain and moves more towards local productionfacilities.
It is locally producing body and spare parts through its localplants and also procuring them from other local spare part manufacturingcompanies which ultimately reduces its cost of production with product featuresmore representing local target market. On the contrary, in the car market Hondahas still positioned with above function while still producing main car unitsin Japan.2.d Entry Mode Afterdeciding to internationalize, the company followed a pattern of Uppsala Model (Hollensen 2016,Forsgren/Johanson 1975) to enter inPakistani Market. The market commitments were made in incremental stepsstarting from developed and growing developing countries to less developedcountries. The company chose Pakistani market with incremental steps andcommitments for the sale of its products starting from exporting to differentagents till establishing the strategic alliance and opening of assembly plantfor local production.
This strategy helped company to succeed during itsexpansion and leads to increased internationalization into the local market. Figure 4: Source: Hollensen 2016, Forsgren/Johanson 1975 However, once the company realized thatit was strategically beneficial to completely internationalize in the Pakistanimarket, the Honda Parent Company managed a Joint Venture with its local partnerAtlas Group in the form of intermediate mode i.e. “X Coalition”. (Hollensen 2016) Border Figure 5: Source: Hollensen 20163.
RecommendationInternational Marketing Mix Strategy While Hondaadopted different marketing internationalization strategies to establish itsfoot prints in the local car market, in 2016 its market share was threatened tocome down due to existing competitive pressures, continuous new car modelintroduction by competitors, introduction of more localized products by competingcar manufacturers, proposal of low priced cars, announcement of 3 new prospectiveentrants from international car making companies and changing dynamics of Pakistaniconsumers and car market. From 1992 till 2016, I have found the company’s coreproduct and its brand image to transform to the Growth Phase Cycle withintroduction of different models every two years within the range of their coreproduct. In view of this, their strategies differ from what they should hadbeen while entering into the growth stage. The strategic marketing objectives shouldhad been more on building stage rather than on static stage. Penetration to themarket should be higher but not low aggressiveness, Product should had beenblended with core and adaptive one and with different sizes, Promotion should hadbeen more extensive and widespread, Price to be slightly lower and distributionto be wider than they had during the period. All are summarized in figure 6below: Figure 6: Source: Jobbler/Ellis-Chadwick 2016 These broadterms demanded new or modified International Marketing Mix Strategies fromtheir existing ones which I shall explain briefly in next part. 1.
Product: PreviousStrategy Honda CarsCompany possesses all those outstanding multidimensional features which arerequired to compete in current market. It possesses all qualities; from updatedengine models to updated technology. It has the brand image of luxury car inthe local market. The company also believesto work for customer’s satisfaction through their feedback. This is reliablesource for the quality improvement and for the productivity enhancement interms of material, financial and human resources. An example of this is when companyincorporated the suggestion of its consumers of placing lamp light withdashboard for proper visibility at night. Additionally, Honda Motor Company, Japan, has given Honda Atlasliberties to modify certain features of the vehicle to suit the demands of thelocal consumers. This reflects the significance of public demand andsatisfaction.
ProductRecommendation Product andpromotion for the company go hand in hand in the Pakistani market. After somewhatstandardization of their core product along with little localization effect thecompany chose from standard to little adaptation to its product. According to keegan 1995 whohighlighted the product/communication mode, the company stands in StraightExtension position in Figure 7 below:Figure 7:Source: Hollensen2016; Keegan 1995 Inretrospectively, if the strategy of Dual Adaptation had been applied thecompany could have captured the local market more.
Considering the potentialthreat of new entrants and current market situation they could have consideredthis strategy. The company alsoneeds to plan for modification in size, design and colors on the basis of localdemand and requirements of the product. Producing the models with small andaffordable cars along with its line of large luxurious cars will definitely addmarket share and profitability. Another important strategic decision isregarding time frame of launching new models.
These decisions should be takenafter taking into consideration the financial implications, the demand of thecar, the performance of the existing model and the plans of the competitorsregarding launch of new models. Its product positioning has always beenbased on Country-of-Origin effect (Hollensen 2016) due to name of Japanese car manufacturers andit should continue to build up its current positioning strategy. BrandingStrategy could have based on parent company’s own brand.
2. Price: PreviousStrategy Honda has set the prices of the cars in previousyears mostly on the basis of firm-level factors, environmental factors, productfactors and market factors of the International Pricing Framework Model (Hollensen 2016). Major firm level factors included country oforigin effect and choice of foreign entry mode assuming control over thesubsidiary and pricing. Product factors mostly included the unique andinnovative features of the product. Environmental factors included all externalfactors and market factors mostly accounted for purchasing power of thecustomer within the target market.
The company used skimming pricing (Hollensen 2016) for new car models at the start with theobject of achieving highest possible contribution in the short time due to its premiumbrand and country of origin effects. PriceRecommendation Figure 8: Source:Hollensen 2016 In view of the Figure 8 above thecompany should have considered more of the Product factors and market factors(based on broad target market) to consider its international pricing beforeintroducing its new products or models. In product factors the company shouldhave considered the appropriate stage of life cycle, product positioning and locallymodified product features.
Also, in market factors (based on broad targetmarket) the company should have been more responsive to purchasing power of thelocal people and their price sensitivity. Rather than using skimming pricing for new carmodels at the start, the company should have considered moving towards lower pricesfor some of its new product lines, considering the positioning of the brand andin accordance with increased competition in the market. 3. Place: PreviousStrategy Honda in collaboration withAtlas Group uses channel strategies where it had to select indirectdistribution methods like majority of car manufacturers do. The distributionchannel includes but not limited to Showrooms, Authorized Dealers in everyselective region of the country with the mid-level degree of Disintermediation.
Its channelstrategy consists of following: DistributionChannel: Manufacturer———-Dealers/Showrooms———–customerChannelSelection: Authorized Distributors, Value Added Partners andshowroomsChannelIntensity: between Selective Distribution and Exclusive DistributionChannelIntegration: Vertical Marketing System wheremanufacturer, distributors and showroom dealers all integrated and dealing withconsumers PlaceRecommendationThe recommendeddistribution strategies should have been as follows: ChannelSelection: Authorized Distributors, Value added Partners andshowrooms, greater number of 5S dealers i.e. dealer should include all theaspect of Sale, Service, Parts, Leasing and Exchange system faculties whichalso requires enhanced area of the shop, Warranty Dealers, Exclusiveinstallment dealersChannelIntensity: Should be more towards Selective Distributionas mentioned in figure 9 below.ChannelIntegration: Vertical Marketing System wheremanufacturer, Distributors and Showroom dealers all integrated and dealing withconsumers Figure9:Source: Hollensen 2016, Lewison 19964. Promotion: PreviousStrategy Honda cars beingtangible, high priced and one time buy cars, uses different communicationstrategies to interact with the customer. The major ones are through showroomswith big customer centers, dealers’ network, word of mouth, print advertising,and television advertising.
The company alsouses the traditional mode of one-way advertising or Bowling Approach to its customersdue to is brand name (Hollensen2016). PromotionRecommendationAgain therecommended strategies should cover most of the broad target market and shouldinclude more channels in addition to its existing communication strategies,Sponsorships (both event oriented and cause oriented) and Celebrity Endorsementare recommended due to local culture and favorability of local customers whichare also considered by competitors and other international companies. Instead of usingtraditional mode of one-way advertising, the company should have used theCustomer Driven Interaction or one-to-one approach (Hollensen 2016) to its customer wherethere is a high degree of interaction between company and customers. This modehas already been considered by the company in recent years by introducing 5Sconcept4.
ConclusionIn view of thechallenges faced by the company and the retrospective analysis of therecommendations 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.