Department of Economics
University Of Lagos, 2011+234 803644990; +234 8096683620
Honda Motor Company Ltd is a Japanese multinational corporation essentially famous as a manufacturer of automobiles and motorcycles. Honda is the sixth largest automobile manufacturer in the world today and the single largest motorcycle manufacturer since 1959. As well, since 1986, Honda manufactures marine engines, power generators and garden equipment among others. Nowadays Honda is involved in robotics research and aerospace. With over 180,000 employees and over $120 billion in revenues, Honda is an international titan.
Looking back at Honda’s history, the company has consistently held on to a course of self-determination and independence. For the company it had been a lifetime of dramatic change filled with repeated failures and successes. It has encountered an unending series of challenges. One of such challenges is the problem of sales downturns. Hence, I will evaluate the decision-making of Honda Corporation on the basis of its reactions to a particular case of sales downturn and how it attained a turnaround.
At the outset, the first motorcycle Honda made was the D-Type which debuted in 1949. Its revolutionary feature was that it did away with the hand-operated clutch. Nevertheless, from around this time, the motorcycle market was shifting, and people were turning away from 2-stroke engine with its high-pitched exhaust sound and selecting instead the quieter 4-stroke machines with deeper sounds. In addition to that, the D-type’s unique mechanism was having the reverse effect of hampering sales.
Notwithstanding, in 1949, even when Honda was facing a crisis, the company was moving to become a full-fledged motor-cycle manufacturer. Its products and its production system were based on innovative concepts never seen before in Japan, and with these Honda was taking up its challenges.
However, there was something missing in the Honda Motor Company and that was a sales system and a business strategy. In these respects, it was still the same old company it had been before, other than facing an acute sales downturn. Now what the company needed was a shrewd manager able to read the market and bring the company to its promised land. Then, just at this time, president Honda met Takeo Fujisawa which was to determine the fate of the company.
In August 1949, Soichiro Honda and Fujisawa first met face-to-face. Obviously the two men established an understanding of each other at once. With their completely different personalities and skills in quite distinct areas of business, they complemented each other. From then on Soichiro Honda did the making and Takeo did the selling. These two powerful personalities, neither of whom could manage without the other, made a perfect combination. Their partnership was a supreme example of ‘‘the right man in the right place’’.
In October 1949, Fujisawa joined the Honda Motor Corporation as managing director. In November of the same year, despite an on-going economic downturn, the company carried out its first capital increase, doubling its capitalization to ¥2 million. A quarter of the new money was put up by Fujisawa.
At once, Fujisawa realized there was a completely undeveloped distribution network that everyone else had ignored. He was the only one in the company who was able to understand its potential. Fujisawa was thinking of the bicycle shops that one could find all over Japan. The management team was amazed by his fresh thinking and insight.
Honda took the initiative, deciding on its market, establishing a production plan, and using it as a basis for the allocation of resources and placing orders with suppliers. With all the necessary information at their fingertips, it became possible to make independent decisions. However, to achieve this, an independent sales network is necessary.
This independent and totally original sales network, dreamed out of thin air, made the most of the new Cub F-Type’s special qualities as a consumer product. Fujisawa, the salesman, responded to the wishes of Mr Honda, the maker, and turned in a superb performance. Around this time Fujisawa also put in place a unique consumer hire purchase system of payment by monthly instalments.
Although the Cub F-Type was only ¥25,000, that was still more than three months’ starting salary for the average white-collar worker. So Fujisawa thought up a revolutionary way of organizing loans. The way it worked was that if, for example, a customer wanted to pay in twelve instalments, he or she would sign twelve promissory notes which were endorsed by the retailer and passed on to Honda.
This was a good system both for the customers and for Honda. It meant that Honda could be sure of getting paid and if by any chance there was a problem it only applied to a single purchase, thereby minimizing the risk. So the Cub F-Type went into mass production. It was a fantastic success, shipping 6000 units in October and 9000 units in December of the same year. So at the end of 1952, the Cub F-Type became the top-selling Japanese motorcycle.
Indeed, bringing in Fujisawa brought Honda phenomena success. Fujisawa’s business acumen and shrewdness opened markets never thought of by Honda. With his foresight and astuteness, Honda shot to the limelight. Bringing in Fujisawa as a managing director was a step in the right direction for Honda because, with his good sense, Honda was able to increase sales phenomenally.
CURRENT INTERPRETATIONS OF HONDA’S REACTIONS
Honda’s decision to bring in a competent hand is still relevant today as it was then. In contemporary times, Apple Computer Incorporated, an American multinational corporation that designs and markets consumer electronics, computer software, and personal computers, had a three-year record-low stock price and crippling financial losses. As a result, the founder of the company, Steve Jobs was brought back as interim CEO and began restructuring the company’s product line. In no time, Apple’s market share in computers increased and the price of Apple’s stock more than tenfold from around $6 per share to over $80.
Conclusively, the decision made by Honda to have Fujisawa at the helm of affairs because of sales downturn led to a turnaround and therefore was a step in the right direction. Demonstrated by the fantastic success of the recent return of Steve Jobs to Apple, Honda’s decision is as relevant today as it was at that time.
Firdaus Ibrahim, History of Honda: Honda 1950s, February 2011
Wikipedia, Honda, http://www.wikipedia.org/honda, Wikimedia Foundation Incorporated, 2011
Wikipedia, Apple Inc, http://www.wikipedia.org/apple, Wikimedia Foundation Incorporated, 2011