The Hero Honda Break-Up
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Case Code : BSTR409
Case Length : 17 Pages
Period : 1984-2011
Pub Date : 2012
Teaching Note :Not Available
Organization : Hero Group, Honda Motor Company, Hero Honda
Industry : Automobile
Countries : India
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
"The timing of the end of the joint venture is advantageous in terms of the fact that the overall market is expanding and specifically it has ended uncertainty within the two companies. The termination of the joint venture opens up the opportunity for Hero to become a global player which was a constraint during the joint venture."
-Rakesh Batra, partner and national leader of the automotive practice at Ernst and Young, in 2010.
"On the face of it, one would assume that with this change there would be greater competitive activity both for the export markets where one should expect Hero to be more active and also in the domestic market place one could expect more action from Honda."
-Rajiv Bajaj, MD, Bajaj Auto Ltd. in 2010.
On December 16, 2010, India-based Hero Group (Hero) and Japan-based Honda Motor Co. (Honda) signed an agreement to dissolve their partnership, thus putting an end to one of the most successful joint ventures in the Indian automobile industry. The companies decided to part ways owing to unresolved disputes, and their own plans for the Indian and international markets. Honda decided to exit the venture by selling its 26% stake to the Munjal family, the owners of Hero. On ending the partnership, Fumihiko Ike, Managing Director and COO, Honda-Asia and Oceania, said, "When we entered India, the idea was to explore the market, but much has changed since then.
Both companies have their own vision of what they want."3 He added, "Our joint venture agreement will be dissolved, but our positive relationship will continue. Honda will grant the necessary license to enable continued production and sales of current products as well as license for new products."4
Hero and Honda entered into a joint venture, Hero Honda Motors Ltd. (Hero Honda), in 1984 and introduced Hero Honda CD100 the next year. The first 100 CC bike in the country provided high mileage and went on to become the most popular two-wheeler in the country. The joint venture also resulted in several path breaking motorcycles, like the Splendor and the Passion.
However, over the years, differences emerged between the partners mainly due to Hero's global plans which were hampered by its agreement with Honda5, and the foray of Honda's Indian venture, Honda Motorcycles and Scooters India (HMSI), into the Indian motorcycle market, directly competing with Hero Honda. Both the companies decided to part amicably, with Honda continuing to provide technological support to Hero till 2014, and Hero continuing to pay royalties to Honda.
After the split, Hero went in for a rebranding exercise, renaming itself Hero MotoCorp. It launched a new logo, along with an advertising campaign. Hero also launched new products and announced its intentions of exploring international markets. Though Hero was successful in retaining its position as the top two-wheeler company in the Indian market, some challenges remained. According to Pawan Munjal, Chief Executive Officer and Managing Director of Hero, the main challenges Hero faced were, "First is to bring our own product. Second is to go out and set up our distribution globally, and third to replace the brand, which was already one of the most established brands in the country."6
The Hero Honda Joint Venture
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