Abstract
The Indian two-wheeler industry has undergone a long journey since its humble beginning in the late 1940s. During these eventful years, it has experienced great advancements in technology, tremendous increments in production volume and opening up of the market for global trade. India has now emerged as a global leader in two-wheeler production and trade. A key factor behind the creditable progress of this industry has been the operation of several international joint ventures (IJVs) such as Kawasaki Bajaj, TVS Suzuki, Kinetic Honda and Hero Honda. Of all IJVs, the partnership between Hero and Honda has been the longest and perhaps the most remarkable too. This article gives a brief overview of the Indian two-wheeler industry and presents a glimpse of the IJVs therein. It analyzes the impact of Hero Honda case, in detail, to showcase how a local manufacturer can team up with a global player and still achieve a synergy between their core competencies for enhancing efficiency, productivity and quality. The article narrates the transition from interfirm competition to cooperation and aims at finding out how management innovations by both the partners can help reduce conflicts of interest, avoid cannibalization of the products of individual firms and derive mutual benefits by aligning their individual targets to a common goal of market success.
Introduction
In the history of human civilization, the instances where firms have expanded business beyond their national boundaries are not uncommon at all. The firms that seek entry into a foreign market need to decide wisely regarding the mode of entry to be pursued. The four most common modes are exporting, licensing, sole venture and joint venture (JV). Exporting involves a firm continuing with its present business model except for the fact that the firm’s distribution reaches beyond its country’s boundary. It entails minimum risk but the benefits are also limited. Licensing involves another company manufacturing and distributing goods and services using the brand of the parent company. Its impact on the business is more than exporting but requires constant monitoring. Sole venture is a mode where a firm builds up a business from the scratch in a foreign land. It has many risks such as uncertainty in political and economic climate, cost of development and uncertainty about the popularity of the product; but the opportunities are also limitless. An international joint venture (IJV) is a form of business in which two firms of different nationalities come forward and join hands to create a new firm whose identity is separate from the parent firms for some specific purposes such as expanding geographic market, achieving economies of scale, using resources effectively and so on.
There are several factors that make a joint venture attractive. The first and foremost is the access to new markets. More often than not, one player provides the core competency of a certain technology while the other contributes by allowing the JV to leverage on its existing supply chain and other infrastructure. A major contribution of the domestic firm is usually the market insight and a deep understanding of the regulatory norms of the nation. Moreover, a JV allows cost sharing and risk pooling. Through a JV, an existing business can diversify and develop new markets.
Joint ventures are not uncommon in India; in the case of Indian automobile industry, it has been a prominent feature in both four-wheeler and two-wheeler segments. In the four-wheeler segment, Maruti Suzuki, Ashok Leyland and Mahindra Navistar have been the most renowned ones, while in the case of two-wheelers, JVs between Hero and Honda, Kinetic and Honda, TVS and Suzuki and Kawasaki and Bajaj attracted everyone’s attention. On many occasions, the JVs come to the limelight either at the time of their formation or when they fail. Sometimes, JVs break rather too early and none of the partners can make gains expected from the venture. But the JV between India’s Hero and Japan’s Honda lasted for more than two and a half decades. It is also one among those JVs where both the partners had benefitted substantially even though the venture eventually fell apart. More importantly, the JV had a significant impact on the Indian economy, particularly its two-wheeler industry.
Literature Review
A JV is a form of business in which two or more firms join hands to collaborate in order to achieve specific market goals. Firms enter into JV agreements to enter new foreign markets, develop new products and services or potentially both (Beamish, 2008). An equity JV is very much distinct from its parents. While foreign ownership restrictions that necessitated the involvement of a local partner have been done away in many cases, IJVs continue to be the popular vehicle for sailing the uncharted seas of a foreign market. Although IJVs are not the only means of accessing foreign markets, they are often preferred over licensing, contracting and other forms of alliances. In highly uncertain foreign markets such as the developing economies of India and China, IJVs tend to outperform the wholly owned subsidiaries because of the benefits that a local partner provides (Brouthers, 2002).
For both local and foreign firms, the formation of the IJV is a strategic decision. Hence, a partner can only be selected after a great deal of deliberations. According to Luo (1998), interpartner comparative or configurational features, which are sometimes referred to as interfirm diversity or complementary resources and skills, create interpartner fit which has a synergistic effect on the performance of the JV. An IJV is formed only when its benefits outweigh the additional costs associated with forming and sustaining it. These benefits are believed to accrue only when a partner can provide the four Cs: compatible goals, complementary skills, cooperative culture and commensurate risk (Brouthers, Brouthers & Wilkinson, 1995). In developing economies, the foreign partner faces the challenges of structural reform, poor market structures, poorly specified property rights and weak institutional authority (Nee, 1992). Luo (1998) further classifies the criteria for partner selection under three broad heads: strategic, organizational and financial. The strategic attributes include marketing competence, relationship building, market position, industrial experience, strategic orientation and corporate image. The organizational attributes include organizational leadership, organizational rank, ownership type, learning ability, foreign experience and human resource skills. The financial attributes include profitability, liquidity, leverage and asset efficiency.
It is not imperative that a JV should be formed between two partners only. There can be multiple partners too. Gong, Shenkar, Luo and Nyaw (2007) say that the JV performance deteriorates with the increase in the number of partners. From a resource-based perspective, a larger number of parents may imply more and possibly complementary resources, but they pose the difficulty of poor coordination and collaboration and more interference. Even in a two-parent case, it is generally a challenge to balance collaboration and competition, and researchers hold conflicting opinions regarding the same. Li, Zhou and Zajac (2009) shed much light on this confusion by theorizing that partner commitment, partner knowledge contribution and sharing of risks are governed by the ownership structure and that the JV performance initially increases, flattens out and then declines with the increase of foreign ownership (inverted U-shaped relationship).
Regardless of what the ownership structure is, the importance of inter-organizational learning can never be ignored. Inter-organizational learning can be of two types (Ribeiro-Soriano, 2013): (a) learning the knowledge provided by the partner involved in the agreement, and (b) cooperative learning. The former is a one-way process and depends on the extent to which the partners slacken up the boundaries between their respective organizations, and it represents an opportunity for one partner to assimilate the inherent knowledge of the other partner which might be later used in new products, new markets or new geographies outside the framework of the JV. The latter is a two-way learning process that benefits both the partners by the creation of knowledge through collaboration. This type of learning allows an organization to obtain both tangible benefits such as increased market share and sales and intangible ones such as generation of knowledge for future alliances. However, it needs to be ensured that the new alliance is structured in the same way in which it was generated.
Any kind of ambiguity in the structure of the JV or lack of collaboration in knowledge sharing impacts the JV through the allocation of formal and real authority (Hippmann & Windsperger, 2012). These authors have applied the authority view of Aghion and Tirole (1997) to JVs and provided empirical tests of the determinants of formal and real authority in JV relationships. A stakeholder is said to have real authority when he/she has effective control over decisions and he/she is said to have formal authority when that person has the actual right to decide. The allocation of formal and real authority depends on non-contractibility of knowledge due to uncertainty and intangibility.
A common criticism of JVs is that they are quite unstable. The most important reason for a JV not to perform satisfactorily is the lack of rapport or trust between the partner firms. According to Chowdhury (2009), this lack of trust or rapport can manifest itself in two forms: the disagreement arising out of alleged interference in each other’s activities and even outright cheating or the reverse case where there is no disagreement at all, owing to a severe lack of communication. While disagreements among partners can be caused by many factors, one oft-mentioned point of contention is the supply of inputs by the parent firms to the joint venture wherein a parent firm harvests an opportunity to become a supplier to the JV. Shaughnessy (1995) argues that
One of the most serious problems with a partnership arises when one or more parties supply the venture with product or services. There is a tendency for companies entering partnerships to see a special opportunity in becoming a supplier to the new venture.
In their study of joint ventures, Miller, Glenn, Jaspersen and Karmakolias (1996) also found that the supply of inputs is one of the factors that leads to conflicts among the parent firms. One way to mitigate the above problem is through constant monitoring by the partner firms for whom it is easy to see why such allegations arise.
From the above discussion, it is very much clear that all JVs, almost inevitably, come to a premature termination. The underlying causes, in most cases, build up from the very inception of the JV. Pajunen and Fang (2013) opine that legacy conditions of the individual firms and the initial dialectical tensions set motion to the termination of the IJV process. They further mention that even minor incidents can influence the perception of the JV relationship by the partners and that a lack of effective communication, interlinked tensions and lack of trust may lead to a premature end of the JV. Most of the identified dialectical tensions, such as trust–distrust, short-term–long-term orientation, socialism–capitalism and flexibility–rigidity, have their roots, even if partially, in the cultural and institutional backgrounds of the partners. However, it is of utmost importance to make a note of the path dependency of these dialectical tensions. In the preformation phase, dialectical tensions need not necessarily have a negative influence on the JV performance. But the subsequent path-dependent dynamics of the dialectical tensions and the resulting confrontations are more likely to bring about the termination of the JV.
The JV between Hero and Honda is a benchmark in the world of two-wheeler industry. It not only survived for a long period but also touched many milestones in the course of its eventful journey. It had its own highs and lows, but it changed the very face of the Indian two-wheeler industry nevertheless. It is, therefore, very important to study this JV from the perspective of its impact on the Indian two-wheeler industry.
The Two-wheeler Industry in India
The origin of two-wheeler industries in India can be traced back to the late 1940s when Bajaj Auto was selling imported Vespa scooters in the country. Later, Bajaj started its own manufacturing and since then the industry has witnessed many changes. The number of players has increased after the liberalization of the 1990s, and the competition has grown immensely, with as many as seven big names presently operating in the market. The customer preferences have gradually shifted from scooters to motorcycles and gearless scooterettes with better fuel economy, greater aesthetic appeal and superior technology altogether. This shift in customer preference has had an impact on the fortunes of the players. The erstwhile leaders have either lost their market share or perished altogether and new players have emerged gradually.
In the Indian automobile industry, two-wheelers account for more than three-fourths of all vehicles manufactured in the country. India is one of the largest two-wheeler markets and it is in competition with China, Japan and Indonesia for holding the numero uno position in the world of two-wheelers. In 2011, China was the largest market for two-wheelers. But a year later, India seized that position from China owing to negative growth rate in the Chinese market (Table 1).
Sales of Two-wheelers in India, China and Indonesia
In India, two-wheelers are the most popular mode of private transport, especially among younger people. This is because two-wheelers not only facilitate low-cost mobility with speed but also offer a good comfort level and require less storage space. Bikes and scooters are the two major segments of this industry, though the preference for bikes is on the rise. Large varieties of two-wheelers are available in the market representing different brands, technology, fuel efficiency and price tags. Recently, the demand for style and class is also visible among the Indian consumers for two-wheelers. The sales volume has also shown steady growth over the years (Figure 1).
The Hero group (now known as Hero MotoCorp) is the largest manufacturer of two-wheelers, not only in India but also globally. In October 2013, the company crossed the 600,000 mark by selling 625,420 units, which was an industry first, and Honda Motorcycles and Scooters India Ltd. (HMSI) ranks second (in terms of number of units sold). During the Financial Year 2014–15, the company has experienced an impressive growth of 50 per cent in both scooter and motorcycle segments. Figure 2 showing the sales of two wheelers in July and August 2014, bears testimony to this. This is very significant because it came in a period when it parted ways with Hero. Marginally behind Honda is the Pune-based Bajaj Auto. It is one of the oldest players in the market and rides on both goodwill and variety in its new offers. Bajaj Auto is also the largest exporter of motor bikes in India. The south India-based TVS Motors, though an old name in the industry, is facing a downslide from its sales. Notwithstanding its third position in terms of market share, its sales figure lags far behind that of Bajaj. The other two prominent players are the home-grown Mahindra and the Japanese giant Yamaha. Mahindra’s maiden-product success has grabbed many an eyeball. It is still in its initial stages in the market and hence its year-on-year growth is very high although its sales figures are modest. Yamaha has built the image of a performance-oriented brand and offers quite a few high-performance bikes such as FZ, Fazer and R15.
The Hero–Honda JV
The Inception
The JV started way back in 1984 when Hero group of India, which began its journey as a manufacturer of bicycle parts, joined hands with Japan’s Honda, the largest motor cycle manufacturer in the world, to form Hero Honda. The manufacturing facility was located at Dharuhera in north India. In the new entity, both Hero and Honda held 26 per cent shares each, while financial institutions held 37 per cent. The remaining 11 per cent shares were held by others.
A number of factors had contributed to the formation of this JV. The Indian market was attractive to Honda primarily because of its massive volume and high growth potential. In 1984, India had a population of 370 million which was projected to reach one billion in 2000. Not only the population size but also India’s demographics were in favour of two-wheelers. It was anticipated that the population within the age group of 15–65 years that has the high potential of buying two-wheelers would increase to 500 million by 1990 and further to 700 million by 2006.
Initially, the Indian two-wheeler industry was marked by the license raj that prohibited the entry of foreign players into the Indian market. This provided the domestic players with a level playing field. Domestic players were subjected to stringent capacity licensing and imports were highly restricted. This condition gave rise to a monopolistic sellers’ market where consumers had to wait for a long period after booking for delivery of their vehicles. But things started to change during the mid-1980s with the Indian government permitting entry of foreign firms into Indian market through minority JVs with local partners.
Around the same time, two-wheelers had become the preferred mode of transport for the average Indian. The prohibitive cost of four-wheelers and the lack of adequate roads for driving four-wheelers were the main reasons for this development. The two-wheelers became a family vehicle and it was used to transport goods as well. But the Indian market was less mature in global comparison. Hence, it was an uphill task for Hero to convince Honda, already a global giant, to partner with them in a country where a considerable proportion of the population was living below the poverty line.
However, the top leadership of Hero led by Brijmohan Lall Munjal had the vision of the market. They pointed out to Honda management that the two-wheeler penetration in the country was less than 10 per cent (87 out of 1000). Despite the dearth of good roads, there was about 1.4 million km of highways. And with air pollution and emissions from vehicles topping India’s list of environmental concerns, the government’s regulations favoured eco-friendly vehicles, further swaying the market towards two-wheelers. Thus, Honda was convinced about India’s potential in the two-wheeler sector, and its optimism was also strengthened by several macro trends favouring the industry.
Hero, on the other side, spotted the opportunity besides being endowed with quite a few qualities, which made it a deserving partner. It had been in the business of manufacturing and distributing bicycles and bicycle parts for long, perhaps as long as Honda had been manufacturing motorcycles. In addition, at the time of the formation of the JV, Hero was the market leader in its domain. The usage of bicycles being more widespread than motorized two-wheelers, Hero’s core competency lay in its well- developed supply chain with a dense distribution of network. The company’s strength in its management capabilities was already visible through very low employee turnover and zero industrial unrest. The Hero management was also known for following many modern good practices such as Just-In-Time (JIT), team-based performance evaluation and rigorous quality control of its products.
Making a Head Start
Hero Honda started with a strong note by introducing the four-stroke motor cycle in the Indian market. It was a remarkable product innovation and a visionary step of the JV company, as the only four-stroke motor cycle existing in the market then was Royal Enfield’s 346 cc model. But Enfield’s product was not a general-purpose bike with a mass market, and it was also prohibitively costly for an average Indian. In general, four-stroke bikes were costlier than the two-stroke bikes, but the total cost of ownership turned out to be less owing to greater fuel efficiency and lower maintenance requirements. Hero Honda was quick to notice that the emerging market of two-wheelers consisted more and more of people belonging to the middle-income group coming mainly from the tier-2 and tier-3 cities.
Just a year after its inception, Hero Honda introduced CD 100, a four-stroke motor cycle that clocked a mileage of above 80 kmpl. This high level of fuel efficiency was a new phenomenon in the Indian two-wheeler industry and it therefore caught the attention of the mass almost instantaneously. To effectively leverage its strength in the market, the company came out with an advertisement campaign with the tagline ‘Fill it. Shut it. Forget it.’
Progress over the Years
Over the years, Hero Honda produced more than a dozen motorcycles with many of them having numerous variants. Its product portfolio was rich and diversified. It had bikes ranging from CD100 and Splendor for entry-level consumers to high-performance bikes such as Karizma with a sporty character. The company kept changing its product portfolio almost on a continuous basis. Sometimes, new products were developed while on many occasions new variants of the existing products were launched. For example, Splendor, which was first launched in 1994, went on to become its highest-selling model. It recorded a sale of 5 million units in 2004 and 11 million units in 2009. The Super Splendor was introduced in 2005 and it was followed by Splendor NXG in 2007.
In 2008, Hero Honda ventured into the scooters segment. But there too, Hero Honda with its sound marketing plan was able to sell around 25,000 units per annum, which was no mean achievement for a company primarily known for selling motorcycles. Keeping its eye on women commuters, Hero Honda introduced Pleasure scooter. And this product too made a good impact on the Indian two-wheeler market. Figure 3 shows the journey of Hero Honda over the years.
Conflicts
For a long time, the Munjals wanted to foray into the global market. But the JV terms restricted Hero Honda to only those countries such as Nepal, Bangladesh and Myanmar. where Honda did not have its footprints. In August 1999, Honda announced that it would set up a wholly owned subsidiary in India to manufacture scooters and motorcycles. This dealt a huge blow to investor confidence, which was reflected in the Hero Honda stocks crashing down by 30 per cent. In 2004, when it was time to renegotiate the agreement, Honda announced its entry into the Indian market through HMSI. Though Hero Honda launched several new products from time to time, there was a discontentment in the Hero camp regarding Honda’s reluctance to share technology with it, resulting in Hero not being able to match up to the innovative products launched by its competitors of late. Honda’s thrust on a more competitive procurement approach also meant that parts and components hitherto supplied to the JV by smaller companies, mostly owned by the Munjal family, would not be favoured in future. This did not go well with the Munjals and proved to be another irritant in the smooth functioning of the JV (ICMR India, 2012).
The Split
In December 2010, the most successful JV in the history of Indian two-wheeler industry came to an end. Honda sold its 26 per cent stake to Hero. Pawan Munjal, chief executive and managing director of Hero group, admitted that
It was time for us to get into a new mode where we as a group can then involve a whole lot of our own people here in the company and start doing our own technology development, which was one of the big reasons why we thought of parting ways and also to get into the international market and to take the Hero brand global. (Raj & Verma, 2012)
Impact of Hero Honda JV
The impact of a JV could be different on different partners. An IJV also leaves considerable impacts on the local economy that hosts major activities of the JV such as manufacturing and serves as the main market for its products. In this case, we analyze the impact of the Hero Honda JV from three different angles viz., impact on the market, impact on the domestic partner and, finally, impact on the foreign partner, all in the context of India.
Impact on the Market
Popularization of the Four-stroke Two-wheeler
In 1985, Hero Honda launched their first product in the Indian market. It was a 100 cc motorcycle named CD 100. Until then, the two-stroke scooter was the most popular two-wheeler, and the only four-stroke motorcycle present in the market was Royal Enfield 346 cc. The four-stroke engine uses a camshaft and a valve train that makes it heavier and bulkier; it is also more expensive. But four-stroke engines have certain obvious advantages: they last longer and require less maintenance, hence reducing the total cost of ownership. In addition, they produce cleaner emissions and thus are environment friendly. All these plus points outweighed the cost and made them a mainstay in the market.
Shift of Preference from Scooters to Bikes
At the time when Hero Honda came into being, scooters with 100–150 cc engines were the preferred mode of transport. In 1988, Hero Honda conducted an extensive market survey with approximately 25,000 responses which showed that motorcycles were to become the two-wheeler vehicle of the 1990s (The Human Factor, n.d.). Several reasons can be attributed to this trend. With increasing number of young professionals having large disposable incomes, the main purpose of buying a two-wheeler was individual mobility rather than meeting family needs. Motorcycles with their rough and tough looks and higher speed thus became the first choice of this group. On the surface, this change in trend might be attributed to change in demography and rise in incomes, but it can hardly be a coincidence that this phenomenon went hand in hand with Hero Honda’s introduction of motorcycles in the Indian market and the subsequent expansion of the motorcycle market. A point worth noting in this respect is that Bajaj Auto, which was the market leader in two-wheeler at the time Hero Honda entered the market and whose forte was in manufacturing scooters, had to toe the line of Hero Honda after Hero Honda established the market potential of motorcycles. Thus, it can be safely argued that the JV set the market trend for two-wheelers and also sustained it through its innovative product portfolio refreshment strategies.
Mobility for the Masses
Hero Honda, like any other two-wheeler manufacturer, had the dream of reaching out to every nook and corner of the country. It was reflected in their motto: Har gaaon, har aangan. But unlike other players, it realized its dream to an appreciable extent. Most other two-wheeler manufacturers concentrated on the urban market, but Hero Honda was quick to spot the shift in demand towards consumers originating from rural areas and smaller cities. In bigger cities too, it was preferred by middle-income population for daily commuting to their offices. For them, the fuel economy offered by Hero Honda vehicles more than compensated for higher cost of acquisition. In the process, Hero Honda became a household name almost everywhere in India. It played the pioneering role in developing the rural two-wheeler market and had been quite successful at it. When the market for two-wheelers tanked in 2008–2009, other players like Bajaj felt the brunt of it, as they had heavily invested in the premier segment, but Hero Honda was not much affected. Towards the fag end of their journey, just under half of the sales of Hero Honda came from their rural markets.
Impact on the Domestic Partner: Hero
Technology Building
Hero was a bicycle and bicycle parts manufacturer, with no technical know-how in the field of two-wheeler manufacturing. By virtue of its JV with Honda, it developed its capacity to manufacture two-wheelers. Honda set up the plants for Hero. It also designed the motorcycles rolled out by Hero Honda. The Japanese experts from the Honda camp were directly involved in the technology development process of Hero Honda in India.
Research and Development
As long as the JV was in operation, Hero had no stake in the technology part. Although it developed production capacity in the form of manufacturing plants, research and development (R&D) capability was not adequately developed by Hero during the course of the JV. But the split in the JV has been amicable in ways more than one and a case in point is R&D. As a part of the terms and conditions of the split, Honda offered Hero a transition period of three and a half years during which it supported Hero in its R&D endeavours. Hero has utilized this period well in developing its R&D by means of the following steps: First, it strengthened its R&D manpower by substantially increasing the deployment of engineers in in-house research and product developmental activities; second, Hero hired advisors and consultants for the purpose of modifying their existing products; third, they had tied up with a few design houses in Japan and other parts of the world in order to help them develop new products; and lastly, they had tied up with the world leader Erik Buell, which designs high-end bikes ranging from 250 cc and upward, for modifying existing engines and developing new platforms.
Imbibing the Best Practices of Honda
Hero had imbibed quite a few best practices of Honda in course of its long association with Honda. Ravi Sud, senior vice president and CFO of Hero MotoCorp, himself said in an interview (CFO Connect, 2012)
We have got tremendous learning from working with Honda in many areas—the way they conducted meetings, standard operating processes, and HR processes. Our effort will be, to continue these practices. I will not hesitate in saying that if we are responsible for establishing their brand, they have given us a lot as well.
Moreover, operational practices such as inspection, quality control and testing are few of the other lessons from Honda that Hero will always find useful.
Brand Image and Brand Equity
Over the years, Hero Honda has launched a number of motorcycles and their variants covering a wide array of customer choices and preferences. These models have come to be synonymous with the brand of Hero Honda. Naturally, after the split, Hero would have to do a vigorous rebranding exercise, but that would take a considerable amount of time. If the name Hero Honda were to suddenly disappear from their products, it would have dealt a severe blow to their brand image. According to the terms of the split, Hero could retain the name Hero Honda on its products and outlets until March 2014.
Global Reach
According to the agreement signed in 1984, the JV was only for domestic production and consumption. With the opening up of the global market and with Hero Honda turning out to be a leading producer of two-wheelers in the world, Hero aspired to become a global player. But Honda was not very much comfortable with this idea. Subsequently, the agreement was modified to allow exports of limited products to a handful of countries where Honda had no presence, namely Sri Lanka, Bangladesh, Nepal and Columbia. Now that Hero is independent of Honda, it can easily pursue its vision of becoming a global player. In fact, from 2015–2016 onwards, Hero will aim at earning 10 per cent of its revenues from the export markets.
Impacts on the Foreign Partner: Honda
Market Access
At the time when Honda entered the Indian market, a JV was the easiest mode of entry. Through this JV, Honda got the access to the huge untapped Indian market. With many favourable macro trends such as growing per capita income, favourable demographics and environmental regulations, Honda has been successful in introducing one model after another for the Indian market.
Market Knowledge
Apart from its JV with the Indian partner Hero, Honda had been operating mostly in industrialized nations. It utilized this experience to grow its automobile production and operation in emerging markets. The venture in India provided Honda the first-hand knowledge about emerging markets, especially the needs of the middle class and rural customers. Going forward, Honda will benefit from the know-how gained in product development, procurement, production and marketing in India for managing its operations in other emerging markets. Even within India, Honda established a wholly owned subsidiary in the form of HMSI in 1999. The company went from strength to strength over the years and by the end of March 2013 it overtook Bajaj Auto to become the second-largest two-wheeler manufacturer in India in terms of volume.
Lessons from the Hero Honda JV
The Indian automobile industry has witnessed many JVs. All of them have been high-profile alliances with their formation being greeted with much fanfare and the market brimming with enthusiasm and optimism. But most of them, after their separation, have unfortunately been diminished to bleak memories. The Hero Honda JV, however, is an exception to this general trend. By virtue of its existence for over 26 years, the JV has been the longest ever in the Indian two-wheeler industry. More importantly, when the JV ended, separation was done amicably. Honda gave Hero a transition period of three and a half years during which it supported its erstwhile partner with technology. The Hero management has acknowledged this good gesture from the Honda in more than one occasion. The JV also helped Honda to build its brand in India. Thus, the JV was a win–win relationship for both the partners. It also changed the outlook of the Japanese firms towards Indian market. Before this, they had a lot of scepticism about India, more so with regard to the prevalent regulatory norms. The success of Honda’s JV with Hero had a favourable impact on the overall image of India as a good place for doing business.
Hero Honda has been, undoubtedly, one of the most successful JVs in the Indian automobile industry. It set a new trend in the market by building the commuters’ preference for four-stroke bikes. It spurred not only domestic but also global demand. It nurtured ambition in the Indian two-wheeler industry and gave it the courage to look beyond the Indian market. It demonstrated the importance of having a long-term vision. This JV brought into focus the importance of R&D, new product development and product portfolio refreshment. While it took Hero to the pinnacle of success by taking it to the position of the largest manufacturer of two-wheelers worldwide, it also set the stage for Honda to have become the second-largest player in the Indian market as it stands today. All in all, the Hero Honda success story will always serve as an effective case to demonstrate how an IJV can survive and flourish in an emerging economy like India with all partners benefitting from it.