Honda Value String Research - Rover Alliance

Keywords: honda value string, honda and rover, rover analysis

1. 0 Introduction

In the case study of Faulkner (1996) and Potter (1996), the proper alliance between over and Honda was were only available in 1979. Before getting into collaboration with Honda, Rover, being owned by Uk Leyland Motor Corporation (BLMC), suffered from major losses in terms of income and market shares. Rover's product lines weren't attractive enough to its clients and the major problem was due to its poor reputation for quality besides from below capacity factories, making very difficult to react to the extreme competition on the globe auto market. In 1979, Rover's top management decided to look for a partner and they approach to Honda. Honda at that time had limited occurrence in European countries and wanted access into the European market. Incidentally, they have got something for each and every other. Honda's production skills, good reputation in quality; and Rover offers an understanding of European preferences.

The tactical alliance between both companies was developed in 1979 and gradually evolved from a limited licensing arrangement into a multifunctional relationship including joint development and creation and a 20 per cent share exchange between two companies. Rover shared its knowledge to European taste of cars therefore Honda has increased Rover's understanding of quality products. Both companies' primary objectives were established from the tactical alliance marriage. Honda sales of autos in Europe experienced increased from a negligible amount to 700 million in 1990 and accounted 1. 2 per cent of the European market. Alternatively, Rover, after many years of loss making, relocated steadily into benefit from 1986 onwards and its own regenerated reputation for high quality of autos was achieved by introducing the group of Rover 800, 200, 400, and 600.

In 1988, British Aerospace (BAe), attained Rover Group from the British government and it generally does not have impact on the partnership with Honda. However, unexpectedly, BAe sold Rover to BMW in 1994 for 800 million and 900 million of online credit debt and off-balance-sheet funding as it includes became exhausted to fund the unprofitable development and deficits. Honda and Rover's romance was formally concluded with a net repayment from BMW to Honda of 116 million for Honda's 20 per cent stake in Rover Group.

2. 0 Internal Examination (Value String)

2. 1 Major Activities

Inbound Logistics:

The joint resource network of Rover and Honda provides its creation process with greater stability compared to its challengers. By maintaining a good relationship with its suppliers, they could take up "Just-In-Time" (JIT) making philosophy for handling raw materials to lessen in-process inventory and carrying cost (Hirano, 2009).

Operations:

From the Honda Alliance, Rover learned Honda's lean creation techniques, using high amount of automation levels (robotics ways of produce) to ensure high efficiency while lessening the resources necessary for production. Rover's product life pattern for new models has reduced through japan flexible production system. Furthermore, these improvements accompanied by the Japanese total quality control frame of mind to manufacturing tend to regenerate Rover's reputation as an excellent performer.

Outbound Logistics:

Rover can ensure timely delivery of completed goods by shipping and delivery in batches through Honda's "Just-In-Time" (JIT) trim creation. It reduces its ready period to the minimum amount and improves development efficiency (Liker, 2004).

Marketing & Sales:

Rover and Honda need to advertise their products based on customer's needs and wishes. In the world of automobile market, tournaments were powerful. Rover may utilize experienced car sales reps for better customer experience, including recommendation to customers interactively and customization availableness. Online marketing strategy such as strong advertising of new product releases by developing commercial advertisements. Additionally it is essential that Rover and Honda's websites give you a wide selection of product information and specifications.

Services:

After-sales service is very important. Customers may get their automobiles serviced at a certified Honda or Rover seller, employing qualified technicians. They may also provide a coffee shop in the service station for customers while looking forward to their automobiles being serviced.

2. 2 Promoting Activities

Technology Development:

Rover loves the gain access to into Honda's systems, primarily on engine unit. Rover and Honda preserved development costs due to the alliance and with the skills of Rover's four-wheel-drive; they gain the access into high technology of services, for example, Honda Crossroad, and CRV later on.

Human Resource Management (HRM):

Honda acquired a philosophy based on customer satisfaction and customer advancements. They utilize professional salespeople, helpdesk operators and technicians through Rover's network in UK and European countries and Honda's in U. S. In addition, Rover trains their employees of the quality and making techniques specifically trim manufacturing from Honda.

3. 0 Porter's Five Forces

Competitive Rivalry

Rover and Honda's profile were relatively small in global terms against global manufacturers: Basic Motors, Ford, Toyota, Volkswagen and Nissan. The increased of rivals like Volkswagen, General Motors, Volvo, Ford and other Japanese manufacturers in the wonderful world of automotive industry has become more intense. To be able to stay competitive, Rover 600 and the new Honda Accord were introduced in the past due 1993 to meet customers' needs. However, the attractiveness of a product in the car industry is the level of technology progression, for example, in order to invent a petrol economy engine unit system; company might need to allocate a large amount in R&D and purchase expensive machines and materials. In other words, only huge competition with huge capital can survive and operate on the market. Companies are trying to add-on value to their products and differentiate with other opponents.

Overall, the push of competitive rivalry is high.

Bargaining Power of Suppliers

The power of suppliers are determined by how big is automotive companies. For instance, if the motor vehicle maker is huge in capital conditions, they may choose to purchase materials from international suppliers, thus minimizing bargaining ability of suppliers (Muthusamy & White, 2006). However, sometimes due to the increased of contests in a particular region, manufacturers will receive materials from local suppliers to lessen the creation turnaround time. Suppliers then have the energy and advantage to increase its price. For companies with the practice of "Just-In-Time" (JIT) processing philosophy, creating a good relationship using their suppliers is vital as to get materials promptly to avoid any delay on response time.

Overall, the supplier power is moderate.

Bargaining Ability of Buyers

The bargaining power of potential buyers is reported to be high. The internet is a global market; customers contain the access into market information such as price, specs and etc. They may simply switch to other brands which satisfied them even better. Also, Carr and Garcia (2003) emphasize that the over-capacity in Europe provides customers with wider choice and customers demand for even better quality in current products. Alternatively, specifically, luxury car manufacturers have a relatively high bargaining electricity against potential buyers as their customers tend to rely on them to create their preferred products. For example, Aston Martin, which customized to individual tastes.

Threat of Substitutes

Natural gas like oil is becoming less in global conditions. As a result, passengers taking general population carry have been increased because of the hike in fuel costs. Other factors such as traffic and street congestion, the costs of auto parking, and possible car accidents have an impact on customer's purchase decision. As such, the power of products being substituted is high.

Threat of Entrants

The hazard in automotive market is suprisingly low. Those lacking any established strong brand like Volkswagen, Ford, etc. are not likely to endure in long term. The alliance of Rover and Honda helps you to save their development costs significantly passing the benefits to customers by decreasing the purchase price. Nevertheless, the capital requirement for establishing an automotive business is incredibly high in conditions of materials, factories, and etc. Thus, the force of new entrants to the industry is relatively low.

Summarized of key conclusions from Porter's Five Forces

The competition between the auto manufacturers is strong. Rover was too small to make it through alone and experienced insufficient quantity to service such as extensive model range since alliance with Honda. With the analysis above, the well established image of Rover and Honda is an advantage, thus definitely not to allow them to worry about your competition immediately from new entrants.

4. 0 SWOT Analysis

Strength:

• Global brand
• Honda was worldwide known of high reputation for sensible executive, high quality and efficiency and Rover competence in 4WD technology.
• Wide selection of products
• The joint development effort allows Rover and Honda to have a wider selection of products offering to consumers, like the 800, 200, 400 and 600 series.
• Shorten product life cycle
• Rover's product life pattern for new models was shortening significantly from seven to nearly five years.
• Development costs reduced
• The writing of resources; expertise and R&D between Rover and Honda have saved a substantial amount of development costs.
• Sales performance
• The regenerated reputation of Rover has lead to strengthening its sales performance. In 1993, the development of Land Rover was jogging forward capacity while other car designers were suffering decrease in amounts.
• Quality policy
• Honda was well-known using its total quality control. Rover benefits from the learning and always targets product development and performance.
• Shared resources and expertise
• The distributed resource and competence from Rover and Honda, specifically English and Japanese, create a distinctive image to get competitive benefit.

Weakness:

• Low presence in European market
• In 1990, Honda's sales accounted only 1 1. 2 per cent of the Western market, while Rover's accounted for 3. 1 against
• Heavy reliance on European countries and UK market
• Most of the Rover's productions were mainly for Europe and UK market. There will be no backup for the company in the event if any downfall in the European countries and UK market.
• Alliance breakup
• Rover constantly seeking ways to keep carefully the alliance "alive" by collaborating in major projects.

Opportunities:

• Expansion into China and India
• Utilizing the expertise and financial support from Rover and Honda, there is a possibility to allow them to extend their market into China and India.
• Introduction of new differentiated products
• Combining the United kingdom styling (Rover) and Japanese styling (Honda), they gain an gain access to into development of differentiate products. Honda Crossroad, CRV, for a good example, the joint development work combining Honda's specific machines and Rover's 4WD technology, decreasing customer's purchasing vitality while increasing their sales.

Threats:

• Strong competition
• Rover and Honda face difficulties from other car manufacturers, specifically Volkswagen, General Motors and other major Japanese manufacturers.
• Foreign exchange fluctuations
• Whether the currency is strong or vulnerable, it does impact the performance of both companies. For example, the discrepancy of money value will impact prices, that may lead to lowered comparative competitiveness.
• Acquisition of Rover by BMW
• The alliance development of Rover and Honda was envy by many manufacturers. BMW, who eventually bought Rover, was a hazard to the alliance.
• Hike in energy price
• This will impact on the client purchasing decision significantly as replacement for cars is always there, such as general public transfer.
• Change in consumer behaviour
• Nowadays, certain countries were battling over-capacity. Too many competitors and selection of products, however, in the event if the pattern of getting second hand cars happens, undoubtedly, car creators including Honda and Rover are affected loss of earnings.

4. 1 TOWS Research (Strategic Position)

• Strengths and Opportunities (SO)

Honda as a worldwide brand as well as Rover's quality performer image enables the access into foreign marketplaces like Asia. The joint resources including technology knowledge, financial support, and R&D provide them the possibility to create products which includes an elegant design and powerful and create competitive gain.

• Strengths and Risks (ST)

Customers nowadays will be more worried about the gas efficiency of the car somewhat than its performance. This is mainly due to the hike in gasoline price as well as the economic recession taking place in almost all of the countries. Rover and Honda need to build up an engine motor system to generate autos with best gas market. Honda Civic Crossbreed is a good example of the above said, it features a gasoline-electric engine motor system, which reduce the fuel ingestion and "live green" at the same time.

• Weaknesses and Opportunities (WO)

Rover, instead of relying closely on the united kingdom and European market, they should develop their business in some other countries since they have little existence all around the globe. Also, there were options for Rover besides working as a "slave" for Honda; they ought to develop their own machines through the learning from Honda's knowledge. Usually, they may also form alliance with other car manufacturers, such as Kia, to boost their V6 engine technology.

• Weaknesses and Risks (WT)

Rover need to understand the market and examine the talents and weaknesses of different challengers. Then, they have to build a competitive advantage in order to remain strong in the market. Let's say Rover and Honda acquired a little existence in the Western market and were difficult for them to go forward, they should think about other markets or penetrates their well-established market like UK and US by increasing market shares from opponents through a thorough marketing strategies.

5. 0 Analysis of Current Strategies Employed

Rover's major problem was its poor reputation for quality. Definitely, the strategy "joint venture with Honda" undertook by Rover's management team was successful. Rover's factories were not working at an best level in those days and coincidentally, Honda was looking to enter European market but lack of money, thus they have something for each and every other. The alliance is reported to be successful, and many manufacturers were impressed with the outcome from Rover and Honda.

Assuming if the tactical alliance had not been formed and they work separately, they may not be able to survive in UK and European market, specifically for Rover. The joint procedures, developments and sourcing for components keep Rover and Honda from competing with the giants of the motor unit world like Volkswagen, Ford and General Motors.

In the author's viewpoint, Rover was only part of Honda's "empire". Not surprisingly, Honda will still able to contend in the automotive world even without Rover. Japanese car manufacturers like Honda, for an example, have progress ambitions plus they certainly did not come purposely to revive Rover's business in 1978. In other words, Honda experienced achieved their aims to establish in Western market, thus alliance with Rover could only provide little gain in heading further, therefore this is also the primary reason Rover broke the alliance and sold to BMW (Zesiger, 2000).

6. 0 Recommendations

6. 1 Market development to China by Honda through proper alliance with the neighborhood car manufacturers

Among a number of countries, and in addition, China is the countries that appeals to global player because of its continued strong financial expansion (Hsu, 2009). Honda was already a solid player in U. S. market and well established in UK and Europe, the author suggests that Honda may expand the size of their business to China or India markets.

• Suitability

According to Hays (2008), China's auto industry is attractive and you may still find lots of expansion potential. In addition, a large range of competitors are available in China's market, through joint venture, Honda and the local manufacturer may develop progressive products from mixed resources. Despite of the aforesaid development opportunities, China does not suit Honda characteristics. To demonstrate, Honda was famous with its high quality products, if they were to determine themselves in China; it is unavoidable that they have to reduce their cost by lowering its product's quality in order to remain competitive with other manufacturers.

• Acceptability

Since the break-up of alliance with Rover, Honda's stakeholders, especially the management team and shareholders, wouldn't normally take the risk of copy of knowledge and know-how to its alliance partner, or potentially so-called "competitor", like regarding Rover. Customers may not entice to Honda anticipated to non-competitive price. Honda possessed make a assertion announcing that they can not follow how many other car creators doing, to produce a low-cost vehicle for the clients.

• Feasibility

Based on the case study, Honda is not in the position of competent to grow their market in those days in financial term. It might be problematic for these to borrow to funding the growth.

6. 2 Market penetration in U. S. by Honda

Since Honda had not been able to dominate and carrying out well in the united kingdom and European market, because of their strong rivals like Volkswagen, Ford, Standard Motors, etc. Honda should choose the strategy of market penetration in U. S. by attaining and increasing their market share in the auto industry.

• Suitability

Honda got already well established in U. S. all the time. It generally does not make much difference to target their business in U. S.

• Acceptability

Shareholders are more interested towards permanent investment with higher comes back.

• Feasibility

Market penetrating requires less expensive than increasing into new markets. Moreover, they curently have experienced personnel who in a position to create and control the business in U. S.

6. 3 Horizontal integration between Rover and Honda

• Suitability

Honda and Rover have been working closely and efficiently throughout the years since 1979. Major collaborative projects, such as Rover 600, Honda Crossroad, CRV, and Land Rover have proven success through its sales performance. The furthering of the alliance provides them the access into development opportunities in terms of products invention and technology.

• Acceptability

Honda concerns third get-togethers like BMW have access into joint secrets, or Honda's know-how and management style and systems. Throughout the merger and acquisition, these concerns would be dissolved as well.

• Feasibility

Honda does not have the money to acquire Rover.

6. 4 Rover goes on the alliance/arrangement with Honda until Honda is fiscally competent to takeover Rover

The major reason Rover was sold to BMW because Honda does not have the sufficient to financing the acquisition costs. Predicated on the case research, Honda, definitely commenting they are interested to takeover Rover Group, but because of the limited resources, they weren't able to do this, instead, they purchased 20 % stake in Rover as a sign of good faith and promise for long lasting.

• Suitability

Honda's technology and product advancement and design along with Rover's expertise in four-wheel-drives, there are possibility of synergies emanating out of this alliance.

• Acceptability

As talked about in the third recommendation, Honda does not have to worry that their joint secrets will be released to third functions if Rover is part of Honda, formal and officially.

• Feasibility

Honda will be able to spend the money for acquisition costs after they moved gradually into gains.

6. 5 Rover may be sold to the British government

Rover Group was initially held by the British isles government. These were unfavourable to the government due to years of reduction making. However, since the alliance with Honda, they may have regenerated a reputable image for high quality and were no longer regarded as a "loser". Rover, with the financial and regulatory support from English government, there might be a possibility to dominate the auto industry in UK.

• Suitability

There is a likelihood which British authorities concerns that Rover Group will never be in a position to work independently minus the the help of their partner, Honda.

• Acceptability

Rover was reasonably strong in the united kingdom by 1980. And in addition, Land Rover and other group of Rover's car have been slowly but surely accepted by the UK customers as it included the progressive design of Honda.

• Feasibility

Strong financial holds from British federal make this strategy works better still.

7. 0 Winning Strategy

Strategy Option (4): Rover proceeds the alliance/contract with Honda until Honda is fiscally competent to takeover Rover

Based on the study of Rover and Honda, the writer identifies the reason why of the alliance broke was credited to Rover had a feeling of insecure and less confident in the motor vehicle market in 1990s and Honda was not capable of acquiring them at that time BMW approach (Brady & Lorenz, 2005; Potter, 1996). The author advised that Rover goes on the prevailing alliance with Honda until Honda is financially capable to takeover and the merger and acquisition are anticipated to provide them a tremendous growth in the current market, UK and Europe.

The company cultures of both companies were unexpectedly successful. It really is a trust and human relationships build through years of partnership, and it only pertains to Rover. Once they have merged, they can form new strategic programs which give their employees, a clearer targets, missions, and visions. For instance, as being under one group, they can have full gain access to into both companies' resources, know-how, and other skills available without the restrictions. They can share their circulation channels and penetrates the united kingdom and Western european market (Harrison, 2001). China and India, although were attractive, regrettably, it does not in line with Honda's idea of producing high quality products for a good end user's experience. To demonstrate, in order to remain competitive in these markets, ones like Honda have to adapt their products in relating with customer choices, which is low priced and resulting in low quality.

Land Rover and CRV were the successful confirmation for them to merge together. The writer suggested that the merged company should invest in R&D to assimilate both companies' know-how (engine motor and four-wheel-drive technology) to create something differentiate with the opponents (Schill, Bertodo & McArthur, 2007). The joint relationship would probably bring benefits such as cost-cutting in conditions of development, produce, and circulation. The "JIT" manufacture technique, along with the shared resources; permit them to become more effective and reliable.

It would not be sensible for Honda-Rover to broaden their market for the time being until they are simply strong enough to contend with the multinational giants: Volkswagen, Basic Motors and so on (Service provider & Lorange, 2002). In the event if the merged synergies provide them a substantial increase in revenue, they may employ strategies like sponsoring automobile racing like Solution One. This will not only increase their reputation but also attaining worldwide publicity.

It is a good idea that they shouldn't forget of their core prices and talents. Honda's power in designing impressive and stylish vehicles, while Rover's know-how in producing four-wheel-drive technology. Competitive gain may be created by combining the talents. BMW X5 is a very good example; it shows the sign of privilege, top quality, and once also stylish and powerful and quality.

Aside from the strategic plans, it is also very important to the management to deal with its internal pushes. Rover and Honda might have been working closely along for years, however, since given that they are formally under a same group, HR (Individual Source of information) interventions must take place by standardizing its company policy, pay size, and especially working out and development function (Lavie, 2009). Rover's employees need to learn better of Honda's production skills, control skills, total quality management and other so-called "secrets" techniques.