Managerial Economics Case Study
EMP OCT 2008
Term 1
Case Report on Hero Honda
Team Members
Pavitar Singh – 41
Uttam Kotdiya – 59
Bimal Luthra – 16
Kamlakar – 33
Gaurav Yadav – 27
Janmejay Gupta – 32
Introduction to Hero Honda 3
Hero Honda Mission 4
Hero Honda Mandate 5
Factors influencing growth 5
[ Just-in-Time ] 5
[ Ancillarisation ] 5
[ Dealer Network ] 6
[ Financial Planning ] 6
[ Quality ] 6
[ Diversification ] 6
Models 7
Competitor Analysis 8
Market Overview 11
Two Wheeler Market in India 11
CURRENT SCENARIO 13
Domestic Trends 13
EXPORT TRENDS 13
MOTORCYCLE SALES 16
Cost theory 18
Various type of cost 18
Cost analysis of Hero Honda Motors Ltd 19
Cost Analysis 20
Trend for Sales, cost and profit 21
Initiatives for cost reduction by Hero Honda 22
Economic Analysis 24
Economic Reasons Behind this De-Growth: 24
Higher Interest Rates 25
Availability of Finance 25
Hero Honda Champion in De-Growth 26
Long Term Strategy 27
Rural Economy 27
Hero Hondas stress on Rural Economy 27
Is this really Paying 27
Effective Working Capital Management 28
Financial Analysis 30
Sales 31
Sales Volume 33
Growth in Sales Volume 34
Net Total Income 35
Profit Before Tax 37
EVA with Investment 40
EVA Without Investment 42
SWOT Analysis 43
Strengths 43
Weaknesses 44
Opportunities 45
Threats 45
References 46
Introduction to Hero Honda
| |
|Hero Honda Motorcycle Ltd. |
|[pic] |
|Type |Public company BSE:HEROHONDA M |
|Founded |January 19, 1984 in Gurgaon, Haryana, India |
|Headquarters |[pic]Haryana, India |
|Keypeople |[pic]Om Prakash Munjal, Founder |
| |[pic]Mr. Brijmohan Lall Munjal, Chairman |
| |[pic]Mr. Toshiaki Nakagawa, Joint Managing Director |
| |[pic]Mr. Pawan Munjal, Managing Director |
|Industry |Automotive |
|Products |Motorcycles, Scooters |
|Revenue |[pic]U$ 2.8 billion |
|Website |http://www.herohonda.com/site/home/home.asp |
[pic]
The joint venture between Indias Hero Group and Honda Motor Company, Japan has not
only created the worlds single largest two wheeler company but also one of the most
successful joint ventures worldwide.
During the 80s, Hero Honda became the first company in India to prove that it was
possible to drive a vehicle without polluting the roads. The company introduced new
generation motorcycles that set industry benchmarks for fuel thrift and low emission. A
legendary Fill it – Shut it – Forget it campaign captured the imagination of commuters
across India, and Hero Honda sold millions of bikes purely on the commitment of
increased mileage.
Over 20 million Hero Honda two wheelers tread Indian roads today. These are almost as
many as the number of people in Finland, Ireland and Sweden put together!
Hero Honda has consistently grown at double digits since inception; and today, every
second motorcycle sold in the country is a Hero Honda. Every 30 seconds, someone in
India buys Hero Hondas top -selling motorcycle Splendor. This festive season, the
company sold half a million two wheelers in a single month*a feat unparalleled in global
automotive history.
Hero Honda bikes currently roll out from its three globally benchmarked manufacturing
facilities. Two of these are based at Dharuhera and Gurgaon in Haryana and the third state
of the art manufacturing facility was inaugurated at Haridwar, Uttrakhand in April this
year. These plants together are capable of producing out 4.4 million units per year.
Hero Hondas extensive sales and service network now spans over 3000 customer touch
points. These comprise a mix of dealerships, service and spare points, spare parts stockiest
and authorized representatives of dealers located across different geographies.
Hero Honda values its relationship with customers. Its unique CRM initiative – Hero
Honda Passport Program, one of the largest programs of this kind in the world, has over 3
million members on its roster. The program has not only helped Hero Honda understand its
customers and deliver value at different price points, but has also created a loyal
community of brand ambassadors.
Having reached an unassailable pole position in the Indian two wheeler market, Hero
Honda is constantly working towards consolidating its position in the market place. The
company believes that changing demographic profile of India, increasing urbanization and
the empowerment of rural India will add millions of new families to the economic
mainstream. This would provide the growth ballast that would sustain Hero Honda in the
years to come. As Brijmohan Lall Munjal, the Chairman, Hero Honda Motors succinctly
points out, “We pioneered Indias motorcycle industry, and its our responsibility now to
take the industry to the next level. Well do all it takes to reach there.
Hero Honda Mission
Hero Hondas mission is to strive for synergy between technology, systems and human
resources, to produce products and services that meet the quality, performance and price
aspirations of its customers. At the same time maintain the highest standards of ethics and
social responsibilities.
This mission is what drives Hero Honda to new heights in excellence and helps the
organization forge a unique and mutually beneficial relationship with all its stake holders.
Hero Honda Mandate
Hero Honda is a world leader because of its excellent manpower, proven management,
extensive dealer network, efficient supply chain and world-class products with cutting
edge technology from Honda Motor Company, Japan. The teamwork and commitment are
manifested in the highest level of customer satisfaction, and this goes a long way towards
reinforcing its leadership status.
Factors influencing growth
The growth of the Group through the years has been influenced by a number of factors:
[ Just-in-Time ]
The Hero Group through the Hero Cycles Division was the first to introduce the concept of
just-in-time inventory. The Group boasts of superb operational efficiencies. Every
assembly line worker operates two machines simultaneously to save time and improve
productivity. The fact that most of the machines are either developed or fabricated
in-house, has resulted in low inventory levels. In Hero Cycles Limited, the just-in-time
inventory principle has been working since the beginning of production in the unit and is
functional even till date.. This is the Japanese style of production and in India; Hero is
probably the only company to have mastered the art of the just-in-time inventory principle.
[ Ancillarisation ]
An integral part of the Group strategy of doing business differently was providing support
to ancillary units. There are over 300 ancillary units today, whose production is dedicated
to Heros requirements and also a large number of other vendors, which include some of
the better known companies in the automotive segment. Employee Policy:
Another Striking feature within the Hero Group is the commitment and dedication of its
workers. There is no organized labor union and family members of employees find ready
employment within Hero. The philosophy with regard to labor management is “Hero is
growing, grow with Hero.” When it comes to workers benefits, the Hero Group is known
for providing facilities, further ahead of the industry norms. Long before other companies
did so, Hero was giving its employees a uniform allowance, as well as House Rent
Allowance (HRA) and Leave Travel Allowance (LTA). Extra benefits took the form of
medical check-ups, not just for workers, but also for the immediate family members.
[ Dealer Network ]
The relationship of Hero Group with their dealers is unique in its closeness. The dealers
are considered a part of the Hero family. A nation-wide dealer network comprising of over
5,000 outlets, and have a formidable distribution system in place. Sales agents from Hero
travels to all the corners of the country, visiting dealers and send back daily postcards with
information on the stock position that day, turnover, fresh purchases, anticipated demand
and also competitor action in the region. The manufacturing units have a separate
department to handle dealer complaints and problems and the first response is always
given in 24 hours.
[ Financial Planning ]
The Hero Group benefits from the Group Chairmans financial acumen and his grasp on
technology, manufacturing and marketing. Group Company, Hero Cycles Limited has one
of the highest labor productivity rates in the world. In Hero Honda Motors Limited, the
focus is on financial and raw material management and a low employee turnover.
[ Quality ]
Quality at Hero is attained not just by modern plants and equipment and through latest
technology, but by enforcing a strict discipline. At the Group factories, attaining quality
standards is an everyday practice – a strictly pursued discipline. It comes from an
amalgamation of the latest technology with deep-rooted experience derived from nearly
four decades of hard labor. It is an attitude that masters the challenge of growth and change
– change in consumers perceptions about products and new aspirations arising from a new
generation of buyers.
Constant technology up gradation ensures that the Group stays in the global mainstream
and maintains its competitive edge. With each of its foreign collaborations, the Group goes
onto strengthen its quality measures as per the book. The Group also employs the services
of independent experts from around the world to assist in new design and production
processes.
[ Diversification ]
Throughout the years of enormous growth, the Group Chairman, Mr. Lall has actively
looked at diversification. A considerable level of backward integration in its manufacturing
activities has been ample in the Groups growth and led to the establishment of the Hero
Cycles Cold Rolling Division, Munjal and Sunbeam Castings, Munjal Auto Components
and Munjal Showa Limited amongst other component-manufacturing units.
Then there were the expansion into the automotive segment with the setting up of Majestic
Auto Limited, where the first indigenously designed moped, Hero Majestic, went into
commercial production in 1978. Then came Hero Motors which introduced Hero Puch, in
collaboration with global technology leader Steyr Daimler Puch of Austria. Hero Honda
