IIM RANCHI

Hero Honda Motors(India) Ltd.

Is it Honda that Made it a Hero?
Mergers, Acquisitions and Corporate Restructuring

Ankur Saurabh (M012/12) Tarun Gupta (M044/12) Rahul Gupta (M108/12)

Table of Contents
1 2 3 Case Summary....................................................................................................................................... 2 Identification of Problems .................................................................................................................... 3 Theories to Solve problems .................................................................................................................. 4 3.1 4 5 6 Use of joint ventures as a restructuring tool ................................................................................ 4

List of alternative Solutions to the Problem ......................................................................................... 5 Analysis and Identification of the Right Alternative ............................................................................. 5 Findings and Recommendation ............................................................................................................ 6 6.1 Recommendations ........................................................................................................................ 6

1 Case Summary
The case focuses on a joint venture between Honda Motor Company (HMC) of Japan and the Hero Group, a conglomerate of Indian companies held by the Munjal family. Hero is the largest manufacturer of bicycles in the world, and at that time had already dabbled in the motorized two-wheeler market with its mopeds. HMC entered into a 50/50 alliance with Hero to manufacture motorcycles for the Indian market. It assumed product design and technology transfer responsibilities while Hero was in charge of manufacturing and marketing. The venture performed very well until the contract renewal period, when Hero felt that HMC was slowing down its technology transfers. The agreement was extended for another ten years after protracted negotiations. Just as the relationship appeared to get better, HMC announced the setting up of a subsidiary in India to manufacture scooters. It said that the subsidiary would enter the motorcycle market in 2004. This grew from a split between Honda and its Indian partner in a venture that was manufacturing scooters. Having exited the venture, HMC wanted to go it alone. This caused serious concerns for Hero, since HMC's entry into the motorcycle market would threaten its very survival. In the end, the case closes with a set of issues that Hero faces and sets the stage for exploring alternative paths that Hero could take in managing it future.

2 Identification of Problems
Hondas ambitious plans to offer motorcycles keeping up with the market trend in the post 2004 scenario. Honda had also set up an independent company for manufacturing of scooters, Honda Motor Scooters India Ltd. and were bolstering their dealership network. Threat from the cheap Chinese imports post lifting of the import restrictions in 2001. The increase in the number of competitors including Kawasaki-Bajaj, TVS-Suzuki & Yamaha motors. Kawasaki, & Yahama were helping their local companies mount a credible assault on Hero Honda. Unequal contribution of Honda Motor Company to take the Joint Venture forward which helped competitors like Bajaj to take the advantage of the situation. There was a lack of new product innovation and much uncertainty surrounded the negotiations at that time. Even routine design changes were taking too long, Decline in the market price of shares the shares plummeted more than 30% when Honda motors announced to start a new loop subsidiary. Another challenge that the Hero Group is going to face is identity, what sort of an identity is Hero going to build in the classes that they sell the products in. Hero Honda has got very strong penetration in their segments, especially with Splendor, Passion is concerned. Once Honda exists this joint venture what exactly happens to Hero, how do people identify with the Hero

3 Theories to Solve problems

3.1 Use of joint ventures as a restructuring tool

Joint venture with a prospective future owner who will buy out the business following a transition period has important advantages for both parties, especially where the corporate challenge is to exit a non-core business whose main value lies in under-utilised intangible assets like brands, distribution relationships, business systems and experienced teams. The joint venture process can help the seller avoid the destructive impact of putting a business up for auction and gain some of its future upside potential in a higher, final exit price once the potential for performance improvement has been demonstrated. For the prospective buyer it proves the opportunity to observe the business as an "insider" before making final commitments on acquisition terms, time to disentangle the business unit from its former parents, and the opportunity to avail itself of continued managerial and technical input from the restructurer during the process of hand-over. This joint venture solution does, however, carry the penalty of higher administrative costs.

4 List of alternative Solutions to the Problem

1. Try to counter the threat from the Chinese counterparts by emphasising on quality of engine in the marketing communication to the customers. 2. Since Honda is planning to open a 100% owned subsidiary, hence focus on developing a R&D team which will come up with new variants in the bike segment. Also leverage on the knowledge in engines gained from the partnership with Honda. 3. Leverage on the existing strong network of dealers and make sure none of them is lost to the competitors. 4. Try to keep the increasing competition in the 2 wheelers segment at bay by focusing on environment driven strategies i.e. focus on producing products that customers are likely to want in the future. 5. Implement technology solutions like ERP for optimization of the process and reduction of the cost. 6. Look for another strategic partner, which can replace Honda. 7. Brand communication strategy should be in place post the merger to prevent the confusion regarding the identity of Hero motors.

5 Analysis and Identification of the Right Alternative

The lifecycle of products is getting shorter by the day, customers are getting more demanding, Hero needs to quickly react to the changing needs in terms of refreshes and facelifts, " R&D, sales, engineering and design and purchase should all be in sync with each other to produce the desired results. Hence setting up a technical center in India and a Brand communication strategy to prevent the confusion regarding the identity of Hero motors, should help counter the problems faced.

6 Findings and Recommendation

Based on the above analysis there are certain findings that will assist us in providing the recommendations. 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. For Hero to survive this split, it can focus on the below recommendations:

6.1 Recommendations
1. Putting key elements of the process chain in close proximity to each other to respond rapidly to market needs and trends. 2. Widening the product range to cover more market segments. 3. Deepening its presence to cover smaller markets better and increasing the number of dealerships. 4. Strengthening technical centre in India 5. And, finally doing all this quickly.