Financial reporting & analysis

Final project
Company : atlas honda

Submitted to:
Miss sehrish
Submitted by:
Anum fatima (03)
Maheen amin (24)
Class: bba-7

DEPARTMENT OF MANAGEMENT SCIENCES

Lahore college for women university lahore

Automative industry pakistan

INTRODUCTION
The automobile sector plays pivotal role in the development of a country in terms of revenue
generation, foreign exchange, employment creation, and technology transfer. The share of Auto
Sector to GDP is around $ 3.6 Billion. The automobile sector of Pakistan was deregulated in the
early 90s after which major foreign automakers, through Joint ventures with local partners, made
investments in Pakistan
ACTIVE MANUFACTURERS
Automobiles and commercial vehicles
 Al-Ghazi Tractors (New Holland)
 Al Haj FAW
 Dewan Farooque Motors (SsangYong)
 Ghandhara Isuzu
 Ghandhara Nissan (Nissan) (Datsun) (Dongfeng) (JAC) (Renault Trucks)
 Hinopak
 Honda Atlas
 Hyundai Nishat Motor (Hyundai)
 Indus Motors Company (Toyota) (Daihatsu)
 Kia Lucky Motors
 Master Motors (Changan) (Foton) (Iveco Trucks) (Mitsubishi Fuso) (Yutong)
 Millat Tractors (Massey Ferguson)
 Pak Suzuki
 Sazgar
 United Auto Industries
Motorcycles
 Atlas Honda Motorcycles
 DYL Motorcycles (Yamaha)
 Pak Suzuki Motorcycles
  Ravi Motorcycles (Piaggio)
 United Motorcycles
 Yamaha Motor Pakistan
VEHICLE DISTRIBUTORS AND SUPPLIERS
 BMW Dewan Motors[15][16] (BMW)
 Sigma Motors (Land Rover)
 Volvo Pakistan (Volvo)
 Premium Motors [17] (Audi)
 Shahnawaz Limited [18] (Mercedes Benz)
 Porsche Pakistan [19] (Porsche)
DEFUNCT COMPANIES
 Adam Motor Company
 Nexus Automotive (General Motors - Chevrolet/Daewoo)

The automotive sector has deep forward and backward linkages: backward linkages in the form
of reliance on a number of vendors for the supply of various components. It has forward linkages
in the form of dealership networks and agents for the provision of after sales services. According
to the Automotive Industry Development Programme (AIDP)1 the auto industry economic and
job multiplier in the Pakistani context is Rs1:3 and 1:8 respectively
AUTOMOTIVE DEVELOPMENT POLICY (2016-2021)
The new AUTOMOTIVE DEVELOPMENT POLICY (2016-2021) has been approved by the
ECC in its meeting held on March 18, 2016.
MAIN OBJECTIVES OF ADP-2016-21
 Facilitate higher volume, more investment, enhanced completion and better quality with
latest technology
 Creating a balance between Industrial Growth and Tariffs to ensure sustainability of all
stakeholders
 Ensuring consumer welfare
  Providing Policy Consistency and Predictability for investors and mid-term review to
cater for emerging developments
POLICY DIRECTIONS
Lower the entry threshold for New Investment (Two categories namely Greenfield Investment i-
e. the installation of new and independent automotive assembly and manufacturing facilities by
an investor for the production of vehicles of a make not already being assembled / manufactured
in Pakistan and Brownfield Investment i-e. revival of an existing assembly and / or
manufacturing facilities, that is non-operational or closed on or before July 1, 2013 and the make
is not in production in Pakistan since that date and that the revival is undertaken either
independently by original owners or new investors or under joint venture agreement with foreign
principal or by foreign principal independently through purchase of plant).
 Create enabling tariff structure o Rationalizing Automobile Import Policy
 Provide regulatory and enforcement mechanism for Quality, Safety and Environmental
Standards
 Establishment of Pakistan Automotive Institute
 Ensure Consumer welfare through provision of quality, safety, choice and value for
money
 Truck Financing by Commercial Banks and Incentivized Fleet Operations
NEW INVESTMENT POLICY
A new manufacturer under Automotive Development Policy (2016-2021), establishing maiden
assembly facility will invariably need separate treatment and greater incentives in the early years
to enable it to introduce its brand, develop a market niche and share, create a distribution and
after-sales service networks, and develop a part-manufacturer base.
 Investment Categories ADP (2016-21) envisages two categories of New Investment with
different incentives:
A. Category-A
Greenfield Investment is defined as the installation of new and independent automotive assembly
and manufacturing facilities by an investor for the production of vehicles of a make not already
being assembled / manufactured in Pakistan. [Note: “Make” is defined as any vehicle of
whatever variant produced by the same manufacturer]
B. Category-B
Brownfield Investment is defined as revival of an existing assembly and/or manufacturing
facilities, that is non-operational or closed on or before July 01, 2013 and the make is not in
production in Pakistan since that date and that the revival is undertaken either independently by
original owners or new investors or under joint venture agreement with foreign principal or by
foreign principal independently through purchase of plant. b. Investment Incentives
 Category-A
Investor shall be entitled to the following incentives:
 Duty-free import of plant and machinery for setting up the assembly and/or
manufacturing facility on a one-time basis
 Import of 100 vehicle of the same variant in CBU form at 50 percent of the prevailing
duty for test marketing after ground breaking of the project
 Concessional rate of custom duty @ 10 percent on non- localised parts and @ 25 percent
on localised parts for a period of five years for the manufacturing of Cars and LCVs
 Import of all parts (both localised and non-localised) at prevailing customs duty
applicable to non-localised parts for manufacturing of trucks, buses and prime-movers for
a period of three years
 The existing policy for Motorcycle industry as approved by the government and notified
by FBR vide SRO 939(I)/2013 and SRO 940(I)/2013 shall continue.
 Category-B
Investor shall be entitled to:
 Import of non-localised parts at 10 percent rate of customs duty and localised parts at 25
percent duty for a period of three years for the manufacturing of Cars and LCVs
 Import of all parts (both localised and non-localised) at prevailing customs duty
applicable to non-localised parts for manufacturing of trucks, buses and prime-movers for
a period of three years
Eligibility Criteria
The Board of Investment shall be the single point of contact for the investor with the
government. Any new investor shall be required to submit a detailed business plan and relevant
documents for manufacturing of vehicles to the Board of Investment. The Board of Investment
shall have the Business Plan assessed by the Engineering Development Board, which shall verify
the investor’s in-house assembly/manufacturing facilities for the manufacture of road worthy
vehicles. The Engineering Development Board shall determine eligibility of the applicant under
the defined criteria to be declared as Category A or Category B Investor. The Ministry of
Industries and Production, on recommendation of the Engineering Development Board, shall
approve a new investor under the relevant category. The Auto Industry Development Committee
(AIDC) and Engineering Development Board shall review results of the new investor policy
once every two years and shall recommend modifications, if any.
Documents Required
Following documents are required by a new investor to submit BOI alongwith an application:-
 Registration with SECP
 Registration with FBR
 Detailed Business Plan on EDB format alongwith documentary evidences, wherever
applicable, of the following:

 Land and Building

 Plant and Machinery
 IPO receipt of brand name and logo
 Verified / authenticated copies of Contract Agreement (Technical Transfer / Assistance)
from the following organizations:

 Foreign Office in the country of Foreign principal

 Chamber of Commerce & Industries in the country of Foreign principal
 Pakistan Embassy in the country of Foreign principal
 Federation of Pakistan Chamber of Commerce & Industry (FPCCI), Pakistan

Rapid growth (2010–present)

In 2010 the sales rebounded and began increasing again. The auto industry predicted a growing
demand in Pakistan and invested over ₨20 billion (US$140 million) during this decade.
Motorcycle production hit a record level in 2016–17, with 2.5 million units made. In 2015, the
Auto Policy 2016-21 was introduced, to help lure new automakers, which has traditionally been
dominated by Honda, Toyota and Suzuki. The auto industry remains the second-largest payer of
indirect taxes after the petroleum industry in Pakistan. At present, there are 10 cars for every
1,000 people in Pakistan. This is one of the lowest ratios among emerging economies, which
itself speaks of high potential of growth. Rising per capita income with changing demographic
distribution and an anticipated influx of 30 to 40 million young people in the economically active
workforce in the next decade will provide a stimulus to the industry to expand and grow. Toyota
started local assembly of its sedan Corolla. Similarly, United Motors started first Pakistani
locally made car Ghandhara Nissan started production of Isuzu d-max in Pakistan.
HISTORICAL PRODUCTION BY YEAR
Automobiles
Historical production by year
Year Production
1994 61,000
1995 44,000
1996 78,419
1997 41,585
1998 43,519
1999 46,761
2000 39,117
2001 46,538
2002 48,579
2003 74,274
2004 112,550
2005 150,016
2006 189,639
2007 195,688
2008 186,064
2009 100,468
2010 137,415
2011 153,114
2012 175,184
2013 134,849
2014 148,746
2015 229,686
2016 274,536
2017 285,248
2018 342,575
Motorcycles
Historical production by year
Year Production
1997 106,797
1998 92,978
1999 87,504
2000 86,959
2001 108,850
2002 120,627
2003 175,169
2004 303,383
2005 416,189
2006 520,124
2007 467,267
2008 660,593
2009 509,054
2010 736,861
2011 838,665
2012 828,576
2013 819,556
2014 771,507
2015 1,131,196
2016 1,362,096
2017 1,632,965
2018 1,931,340
Industry analysis
 Porter’s five forces
 Porter’s value chain
 Valuable Activities
PORTER’S FIVE FORCES
Porter’s five forces is a framework developed by Michael E. Porter that we use to analyse the
industry regarding the internal and external environment, competitors, and also better understand
the industry context in which the firm operates.
The aim of the five forces is to modify the strategy or just some rules in the firm favour in
This framework is used to identify whether a product, service, business will be profitable, and
also know the suppliers; power of buyers, substitutes, new entrants and competitors that will face
the firm in order to stay attractive.
Porter’s five forces on Honda Motors:
Rivalry: competition in the automobile industries is very high, because there are many firms in
this industry which offer many choices for the customers, so each firm try to do its best to make
more profit than others, and make its products the more sellable in the market.
Toyota, Ford, General Motors are the main competitors of Honda, so it should keep on
innovating, improving, researching, and developing to stay effective in this sector.
“The degree of rivalry in the automotive industry is further heightened by high fixed cost
associated with manufacturing cars and trucks and the low switching cost for consumers when
buying different marks and models”
Threats of substitutes: there is not a huge threat of substitute in the automobile industry that
offers utility, independence and no wasting time, even if there is a large number of transportation.
There are bicycles, subways, buses, trains and airplanes that could make our life easier, but that
can be less convenience than automobiles. The price of fuel have a large effect on the consumer’s
decision to buy vehicles, also the maintenance and the insurance of the car, but the automobile
still has an important use in our personal and daily life.
Barriers to entry: it is not easy for an entrant to enter into the automobile industry easily,
because of the brand loyalty of the consumers. It is substantial for established companies to have
barriers to entry to protect themselves, because some companies are entering into foreign
markets by buying an existing company or either merging with it and then realising a huge profit.
With local knowledge and expertise, companies have the potential to compete in the market in
which they operate against the domestic firms.
“Honda took the risk of entering into a long and complex relationship during the 80s with a
European company universally considered to be one of the least capable automobile
manufacturers in the west “British Leyland”.
Buyers bargaining power: consumers have many choices and brands, but the factors that affect
more the consumer to buy a certain brand from another are: the appearance, quality, price,
design. Consumers want always something new and nice looking with the latest technologies.
The car had to be efficient, by saving fuel, protecting the environment, and running fast.
Since there are lot of competitors, people have more choices to select the less costly, and better
in quality, for being loyal to a certain brand, that’s why Honda tries to make its cars unique.
“Honda has a history of delivering high quality and fuel efficient vehicles, so the consumers are
seeking the best product for a good price. Honda has being a leader in producing fuel efficient
and low emissions vehicles”
“Honda’s achievements on the technology front are well recognised, ranging from its cutting
edge low pollution and low fuel consumption engine technologies. The CVCC engine attempts to
reduce emission of the pollution and with less fuel used, while VTEC engines was fuel economy
with more power”
Suppliers bargaining power: there are many suppliers in the automobile industry, and “many
suppliers rely on one or two automakers to buy a majority of their products. If an automaker
decides to switch the supplier, it could be devastating to the previous supplier business. As a
result, suppliers are extremely susceptible to the demands and requirements of the automobile
manufacturer and hold very little power.”
Honda relies on some main suppliers for the items and raw materials that uses in the manufacture
of its products.
“Honda has only a handful of components makers that might be considered to belong to its
supplier’s family.”
PORTER’S VALUE CHAIN
“The value chain is a framework developed by Porter to describe the development of competitive
advantage and the value of the business. It is a chain of activities for a firm.”
Let’s now analyse Porter’s value chain on Honda Motors:
Primary activities:
Inbound logistics: Honda purchases the raw materials from a number of components and tries to
gain advantages in quality and cost as much as possible. Both manual and automated assembly
tasks to handle the components together to come up with the final product, and it also adopts an
innovative strategy for the planning production called small batch production systems, in order to
reduce costs and having a product variety.
Operations: Honda has developed a small batch production system, in which same vehicles are
sent down the assembly line in batches, and then workers execute the same task for each batch,
then components are delivered to the assembly line in batches which exactly match the vehicle
they will be fitted into. There is also the facelift that Honda applies to its cars; the components
are then replaced by others more developed to come up with a new product. Honda designs
models which are related to geographical dimension depend of different market segments.
Outbound logistics:
Marketing and sales: Honda expanded several products and models that customers could choose
among them, and also it adopts a good production system that is related to its marketing and
sales.
Honda’s strategy emphasizes the high technology build into all its products and it offers features
like advanced engines as standards rather than optional extras, thus simplifying product variety
within each model type, so that every customers could benefit from it whatever the model of the
car.
The alignment of output levels with customer demand tends to focus on sales strategy, so the
production levels of particular models can be varied up or down as a function of demand.
Services: Honda is aiming to improve their relational with the consumers, by being responsive to
the service support throughout maintenance and repair, and adopting a high level of transparency
with their customers.
Support activities:
Procurement: for a number of components, Honda arranges to purchase the raw materials gaining
advantages in price and quality. It has also the possibility of purchasing raw materials from
component maker’s located very long distance away to allow cheap labour sources in other
regions, or purchasing them few square kilometres which is advantageous for just in time
logistics.
Technology development: Honda has technologically innovative products, developing new low
pollution power sources for its vehicles such as CVCC and VTEC in order to have a good market
positions, and also it gives to its models a cosmetic facelift every four years in order to gain
competitive advantages.
HRM: Honda praises the achievements of individuals, makes merit the key to promotion, and
awards responsibility to younger employees across elder ones.
Firm infrastructure: Honda had become well known in the business for the collective decision
making process utilized by its top executives. Honda adopts too much dichotomies in their
strategies management taking advantages from all. They also have a good research and
development department aiming to improve the quality of the products and entering new
technologies to gain sustainable advantages.
The primary activities and the support ones are related to each other, one activity can affect the
cost of another activity. Thus, the primary activity is related to the creation of the product by
handling raw materials together and selling it, and the support activity is related to the
competitive advantages that you gain from buying the components at a low cost and with a high
quality and to the technology used in the product. So those linkages between the two activities
added value to the firm, and can be a source for a sustainable competitive advantages.
Reconciling dichotomies:
This approach of reconciling dichotomies is used in a wide range of activities of Honda, and it
represents the innovation strategy that seeks to adopt different ways and opposite polarities.
Dichotomy means two contradictory polarities that do not fit together, and reconciling in this
context, refers to an approach in which those two poles are somehow made compatible with each
other. Honda’s strategic thinking rejects the trade off, or to choose one strategy, however, Honda
has mixed too many dichotomies to incorporate the best of both worlds, and this contributes to
the success of its strategy.
After Honda had selected its market and customers segments, it is time to decide how it wants to
position itself within this segment.
VALUABLE ACTIVITIES
The VSA indicator stands for Vehicle Stability Assist, which is a standard system on most newer
Honda models. The Honda Vehicle Stability Assist System with Traction Control helps sense and
correct oversteering and understeering to improve cornering capabilities. Likewise, it helps
minimize wheel spin in slippery driving conditions. In all, the VSA System on your Honda gives
you a little more confidence behind the wheel by improving traction and vehicle stability.

But what does it mean when that VSA warning light illuminates?

If the system activates, likely in slippery driving conditions, you'll see the VSA warning light
blink. This is normal, as it indicates the system is working. When you see the light come on, it
might be time to lay off the accelerator to regain traction.
If the VSA warning light comes on and stays on while you are driving, there may be an issue
with the system. First, find a safe place to pull over to the side of the road and turn off the engine
for a short amount of time. Restart the vehicle and see if the VSA indicator once again remains
illuminated. If it does, there may be a problem with the system and you should make an
appointment with your Honda dealer to have it looked at.
You can continue to drive with the VSA warning light on, as you will have normal braking and
cornering abilities, just without the stability enhancements the VSA System provides.
Strategy analysis
This analysis covers company’s business decisions and its success at establishing competitive
advantage. Also company’s expected strategy responses on its future success and growth.
 STRATEGIES AND FUTURE
 COMPETITIVE ADVANTAGES
STRATEGIES
Purpose of every strategy along with its successful implication is given down below:
Enterprise Strategy
The Mission Statement of Honda is try to maintain a global point of view, with the dedication to
supply the highest quality products at a reasonable price for worldwide customer satisfaction.
Moreover, taking new challenges with the pursuit of Initiative, Technology and Quality, Honda is
pursuing their 2010 Vision: Striving to be a company society wants to exist through creating new
value, globalization, and commitment for the future.
Corporate Strategy
Honda’s portfolio includes three businesses: Automobiles business, Motorcycles business, Power
business. Even though stepping into Automobile industry rather late at 1963, Honda quickly
leads the industry with characteristics like superior fuel economy, optimum safety, and driving
pleasure. Honda’s sales and production in this industry prove successful steadily not just in U.S.
but also in many regions worldwide.
Meanwhile, motorcycle business is the first business of Honda, from 1963 with the event of the
first oversea plant in Belgium, Honda has devoted in one basic rule: build products close to the
customer. Honda has operated successfully in 28 motorcycle plant in 21 countries, as well as
Honda R&D operations in the U.S., Italy, China, Germany, Thailand, and India. In 2005, the
150-millionth Honda motorcycle created, its business goal is to make Honda cycles more popular
than ever.
The first Power Product engine started in 1953, and now has expanded – includes tillers, portable
generators, outboard engines, lawn mowers, power carrier. Cumulative production of power
products has exceeded 70 million units (May, 2006). Power Products are produced at 11 plants in
9 countries worldwide, sold in 156 countries, and used by around 5.5 million people annually.
Honda is now expanding into robot industry with ASIMO, reaching the sky through Hondajet,
providing financial services worldwide to enhance sales increasing. They all create a very
promising and potential Honda in the future.
Business Strategy
R&D is sharpening the business advantage of Honda, together with the fierce competition
between Honda and competitors, and they all define the Business Strategy of Honda. One of the
proudest things about Honda is its R&D system. With the systematic way of resembling, focus
on durability, reliability and basic performance to establish a creative and innovative technical
foundation.
With the wisely approach to the future, the Honda products do care about the economical,
environmental, and social issues – This leads to a increase steady in American and Europe
recently meanwhile the whole industry is going down by some external factors such as U.S.D.
depreciation, Oil price raising, political recession. Honda is keeping involving in the research
and development that benefit people in the future through leading-edge technology and
commitment to innovation that opens up new possibilities in mobility.
With “The Joy of Selling” The dealership of Honda is also one of its strengths. Through creating
products and services that provide the core values that make Honda unique, the Honda’s
associates around the world keep creating such inspiring experience for its customer. Honda put
heartfelt endeavors into services, responding to changing values and increasingly complicated
needs of customer worldwide. Its services focus on improving customer relations, with friendly
and attentive sales, responsive service support, thorough maintenance and repairs. “Life with a
Honda” Honda began unifying its multiple dealership channels into a single Honda sales
channel, seeking to strengthen the Honda brand, enhance customer satisfaction, and help ensure
lifetime customer loyalty.
The manufacturing and distributing system of Honda are also sources for the succession of
Honda. With the global network, Honda’s global strategies somehow include the globalization
characteristic. Honda has established independent local operation around the world and pushed
local autonomy and proactive efforts to localize the needs regional with mutual understanding.
The competition between Honda and others speed up year by year. This is somehow carry the
win/lose characteristic.
The world Automobile market is being taken by Asian Brands. In the U.S. market, the foremost
threat to U.S. car makers is the emergence of Toyota, Honda, and Nissan that are threatening
directly to the wealth being of these Big Boys here, General Motors – the world’s current largest
car manufacturer, Ford – the pioneer of automobile industry, and some others big boys of Detroit.
The raise of Honda and Toyota hit General Motor the most because they came so strong many
years ago.
Honda’s greatest competitor of all time worldwide is Toyota Motor, but the competition around
the world involve Hyundai, Volkswagen, Nissan, General Motor, Ford, Kia, Mazda. The rivalry
against these top car manufacturers in the world has created a work ethic that is unmatched in the
American auto scene. With their constant improvement on their cars, the healthy competition –
that mostly in Japan – leads the way for the production of vehicles that gets more and more miles
per gallon.
Operational Strategy
Honda operates in the worldwide market – with 134 production facilities in 28 countries and at
31 R&D facilities in 15 countries, about 167000 Honda employees and associates serve 23
million customers worldwide annually. Honda’s global operations are divided into 6
administrative regions responsible for operating. Hiring and engaging the people and
philanthropic initiatives locally in the communities that Honda operates. Honda is pushing the
independence of their local management and sales operations, at the same time with integrating
and forward-looking plan for each region. They operate under the conduct guidelines that help
member companies and associates in evaluating and managing risks, complying with laws and
regulations, keeping a high level of transparency in operational level, that’s all to maximize the
worldwide customer satisfaction.
The Individual Strategy
The individual strategy of Honda is reflected through the Honda’s philosophy – The Three Joy
 The Joy of buying:- the Honda’s associates must try their best to exceed the customers’
expectation.
 The joy of selling:- which concern not only about the relationship between the dealers
and their customers, but they also feel the pride of having a positive relationship with
their customers.
 The joy of producing:- comes from manufacturing, research and development. by
producing quality products that satisfy customers worldwide, the Honda’s employees can
experience pride in exceeding the expectation of their customers.
That all bring the strategies of Honda from their enterprise level, through corporation, business,
operational level, to individual strategy level, that spread the Honda’s strategic spirit throughout
the company.
FUTURE
The future of a company or the strategies to be made to keep an company alive in future can be
framed by keeping in mind the environment and the challenges that are expected to arise in near
future. So we will analysis the future policies of the company by taking Potter’s 5 force model
for environment and challenges that may arise in future
COMPETITIVE ADVANTAGE
Honda Motor produces, sells, and services the all Honda products. There are several factors that
can contribute to a firm’s ability to be competitive in its industry. Building blocks of a
competitive advantage include “efficiency, quality, innovation, and responsiveness to
customers”. A firm with a competitive advantage may experience higher profits than the average
profit in the industry while competing for the same customers.
In the case of Honda, this is true. Honda has many distinctive competencies based on its
 Resource
 Capabilities
Above mentioned competencies allow it to have a competitive advantage in the auto
manufacturing industry.
AREAS:
Three areas that give Honda a competitive advantage in the auto industry include
1. Honda’s engineering and design,
2. Research and development
3. Brand equity
In order to determine whether Honda’s competitive advantage in these three areas is sustainable,
we analyze and apply each one to the VRIO framework.
HONDA’S ENGINEERING AND DESIGN
Honda Engineering develops manufacturing processes, systems and equipment used to build all
Honda products. Honda’s superior design capability has enabled it to build high-quality reliable
products and has also added value to the Honda brand. Honda’s efficient manufacturing
processes have also kept production costs low relative to other automakers in the industry
(Snipes 2008). In terms of value, Honda excels at using its engineering expertise and design
skills to build reliable cars that simply work. This ability is quite valuable to the company and its
industry. Although valuable, Honda’s engineering and design is not rare, because there are other
car manufactures with excellent engineering and design capabilities. For car manufacturers who
are not already competitive with Honda in its engineering and design ability, it would be very
difficult to bridge the gap to competitiveness by imitating Honda’s success. Therefore, Honda’s
engineering and design is inimitable. The final question to ask is whether Honda is organized,
ready and able to take advantage of opportunities via its engineering and design. Honda’s
organization is unique in its management structure in that it differs from most public U.S
corporations. A board consisting of 21 directors runs the company, which allows for faster
decision-making and execution in new product design (Whiston 2010). All of the company’s
business units are aligned to take advantage of design breakthroughs, which leads to a conclusion
that its engineering and design are a source of sustainable competitive advantage.
RESEARCH AND DEVELOPMENT
Honda’s focus on research and development is highly valuable and places it at the forefront of
technology. This allows the company to incorporate technological breakthroughs and
advancements into its wide line of vehicles. Honda also has a very high level of investment in
research and development, which is not common in the auto industry. Honda’s level of
commitment to research and development is also very rare compared to its industry peers. Honda
possesses a strong first mover advantage over many competitors in this area because of the
advanced nature of its research. Competitors not actively pursuing their own research find it very
difficult to catch up to Honda, therefore the company’s R&D is considered inimitable.
Organizationally, Honda keeps the R&D group separate from other divisions within the company
giving its teams freedom to develop new technologies for the company across the board. Honda’s
unique structure and its level of commitment to advanced quality research make its research and
development a sustainable source of competitive advantage in its industry.
HONDA’S BRAND EQUITY
Honda’s brand equity is an extremely valuable source of its competitive advantage since
consumers are willing to pay a premium for Honda’s vehicles because of the power of its brand
and its association with quality and value. As a result, it has led Honda to have best-in-class
repeat purchase rates. Honda has repeatedly been placed among the world’s top 20 most valuable
brands according to a research conducted by Business Week Magazine (Ferret 2006). The Honda
brand ranked 19th on the international list of one hundred most valuable brands in 2005, having
a brand value of $15.8 billion. Honda has very strong brand loyalty as evidenced by the strong
repurchase rate for Honda automobiles relative to the industry norms. 65% of Honda customers
purchase another Honda automobile compared to only 48% for the industry (Ferret 2006. While
it is highly valuable, Honda’s brand equity is not rare. Toyota also has strong brand equity in the
same industry, but recent recalls may have deteriorated its value. Because Honda’s brand equity
has been built over a long period of time, it would be very difficult for competitors to imitate.
Honda’s reputation for reliable cars was not earned over night, making it highly inimitable.
Honda takes advantages of the benefits given by its strong brand by using it as the flagship brand
for the company. By supporting its brand value with superior engineering, design, and research
and development, Honda is able to rely on its brand equity as a source of sustained competitive
advantage.