A. What role did economies of scale and experience curve play in Honda’s successful enrty into US market / motorcycle market? In the late 1950’s Honda contemplated a bold move: entering the motorbike market in the United States. Today, Honda is a dominant player in the US, selling a wide range of models in large numbers. But its start could not have been more improbable or less likely to succeed. It was only by staying flexible to an emerging understanding of what the problem and the opportunities were, that Honda succeeded in its long shot. Honda’s Native Success
Honda had done well in its native Japan, leaping in a short amount of time to the number one position largely on the strength of its Super Cub model, which was based around a new lightweight, 50cc engine that Honda had developed. The engine was inexpensive which allowed the bike to be sold for a low price, an important factor in Japan’s struggling post-war economy. The Super Cub had also been designed with close attention to customers’ needs such as the ability to drive it one-handed to facilitate carrying a package in the other arm. The US Motorcycle Market in the 60’s
The American Honda Motor Company was established as a subsidiary by Honda in 1959. During the 1960's the type of motorcycles brought by Americans underwent a major change. Motorcycle registrations increased by over 800,000 in five years from 1960. In the early 60's the major Competitors were Harley - Davidson of U.S.A, BSA, Triumph and Norton of the UK and Motto - Guzzi of Italy. Harley-Davidson had the largest market share with sales in 1959 totaling a 6.6 million dollars. Many of the motorcycles produced were large and bulky and this led to the image of the motorcycle rider as being one who wore a leather jacket and went out to cause trouble.
The BCG Report findings
The Boston Consulting Group (BCG) report was initiated by the British government to study the decline in British motorcycle companies around the world, especially in the USA where sales had dropped from 49% in 1959 to 9% in 1973. The two key factors the report identified were the market share loss and profitability declines and the scale economy disadvantages in technology, distribution, and manufacturing.
Allowance for maximum learning curve
The BCG report showed that success of the Japanese manufacturers started with the growth of their own domestic markets. The high production for domestic demand led to Honda experiencing economies of scale as the cost of producing motorbikes declined with the level of output. This provided Honda to achieve a highly competitive cost position, which they used to penetrate into the US market.
"The basic philosophy of the Japanese manufacture is that high volumes per model provide the potential for high productivity as a result of using capital intensive and highly automated techniques. Their marketing strategies are therefore directed towards developing these high model volumes, hence the careful attention that we have observed them giving to growth and market share." (BCG p.59).
Mr Honda’s Innovation
The report goes on to show how Honda built up engineering competencies through the innovation of Mr Honda. The company also moved away from other companies who relied upon distributors to sell their bikes when the company set up its headquarters in the west coast of America. The BCG found that the motorcycles available before Honda entered the market were for limited group of people such as the police, army etc. But Honda had a "policy of selling, not primarily to confirmed motorcyclists but rather to members of the general public who had never before given a second thought to a motorcycle". The small, lightweight Honda Supercub sold at under 250 dollars compared to the bigger American or British machines which were retailing at around 1000 to 1500 dollars.
In 1960 Honda's research team comprised of around 700 designer and engineer staff compared to the 100 or so employed by...
Please join StudyMode to read the full document