Hero Honda Motors is one of the largest two-wheeler vehicles in the world. Naturally, the company had a long road to go to achieve such a status and international recognition. During its development the company faced a lot of difficulties and problems that were successfully solved and nowadays when it is targeting one billion dollars revenues the company faces a new obstacle that is probably as serious as it has never had before. After a long period of cooperation, which actually was not ideal, Hero Honda Motors has eventually become very close to find its main partner Honda among its main competitors in the market.

Obviously, it is quite a strange situation but at the same time, it is quite a typical situation and Hero Honda Motors is rather a company representing a developing country which significantly depends on its partners from abroad, notably from well developed industrial countries. This is why it is particularly important to trace the development of relations between Hero and Honda in order to better understand what difficulties may face both companies originating from developing and developed countries, what kind of relationship exists between them, and what actually make or made such companies to closely cooperate worldwide at large and in India, in particular.

The dominant characteristics of the market of scooters, mopeds, and motorcycle in India

It is an undeniable fact that Hero Honda Motors is one of the largest producers of two-wheelers vehicles in the world, and one of the most popular brands in India operating in this industry. The reason of such popularity and the leading position of the company among the producers of two-wheelers is basically explained by the size of Indian market and its specific characteristics.

At this respect, it is quite noteworthy that India has the second largest population in the world, which is actually not very rich but as the rest of the world Indian people also needs some means of transportation. As a result of such a combination of large number of consumers and their low level of income the production of two-wheelers is most perspective industry for this country because Indians couldn’t and often still cannot afford to buy automobiles. Consequently, the development of this industry is naturally retarded compared to the industry of two-wheelers.

Furthermore, another very important fact is that initially India did not have technological opportunities to produce two wheelers, as well as automobiles, of a good quality that made their product less competitive, if competitive at all, compared to other world producers. As a result, Indian government attempted to support local producers of two wheelers and restricted significantly access of foreign companies on the national market, especially during 1940s, when the industry actually started to develop, till 1980s.

However, even when Indian government permitted foreign companies to enter the local market in mid-1980s, it was still necessary for them to cooperate closely with local companies in order to make their products cheaper, otherwise Indian consumers couldn’t simply afford two-wheelers for a high price.

Honda’s entering the Indian market and its international strategy

Honda was on of the first and the most powerful foreign companies that attempted to profit from such a shift in the policy of Indian government and, as soon as restrictions were lessened Honda entered the Indian market of two-wheelers. It should be pointed out that Honda’s entering the market was the part of the company’s international strategy. Honda, being specialised mainly on the production of engines, aimed at the global expansion. Not surprisingly that by 2002 this company had 100 plants in 33 countries. One of the main strategies the company used in the international arena was a so-called ‘glocalization’, which implied the development of local plants that could match the local demands.

As a result, Honda traditionally entered into the joint ventures in order either to overcome certain fiscal restrictions or to get easier access to the local market. The latter is actually one of the main reasons for Honda initially to choose Hero as its partner in production of motorcycles in India. Hero was quite popular company in India and possessed a well developed net of dealers and Honda supposed to contribute technologically to the development of Hero Honda Motors and quickly gain a lion share of the market using Hero’s loyal dealers.

Eventually, the deal was done in June 1984 when the joint venture was created and named Hero Honda Motors that opened new perspectives for the cooperation of two companies.

The relationship between Hero and Honda

The conditions of the creation of the joint venture and its further operation in the Indian market, to a significant extent, defined further relationship between Hero and Honda. Speaking about the structure of Hero Honda Motors, it should be said that both Hero and Honda possessed 26% of the equity and another 26% were sold to the public and the rest was held by financial institutions. In the company administration Honda was presented by four key appointees, including the Joint Managing Director, while Hero, being represented by four family members, could appoint the chairman of the company. Honda basically contributed technologically to the development of Hero Honda Motors, notably the company’s experts ran engineering and quality support functions while Hero’s representatives were responsible for the rest of functions, including marketing.

The development of Hero Honda Motors may be considered quite successful and the company showed a constant growth of production and sales. As a result, the joint venture agreement was renegotiated and extended until 2004. This new agreement was even more profitable for Hero. For instance, its royalty payments decreased form 4% to 0.5%. After the renegotiation the growth continued. For instance, between 1997-2001 Hero Honda Motors showed the growth for 18 consecutive quarters.

However, in 2000s the relations between the companies has started to deteriorate dramatically despite positive results of their cooperation, basically because Honda got to be less and less interested in the cooperation with Hero who had nothing but use Honda’s old technology without real perspectives for modernization.

Hero’s challenges as a result of its cooperation with foreign partners

The recent problems Hero faced is the result of its high level of dependence on foreign technologies, notably that of Honda. Actually, Hero’s problems are typical for companies from developing countries. In the case of Hero Honda motors the situation was deteriorated because representatives of Honda controlled engineering and technological process. Moreover, Honda supplied engines the main components of the Hero Honda Motors’ two-wheelers but, as soon as Honda actually lost its interests in the venture joint and get prepared to launch a new 100% subsidiary Honda Motorcycle and Scooter India, a direct competitor of Hero Honda Motors, the latter lost the last chances to get more or less advanced and contemporary engines and technologies for their two-wheelers.

As a result, the company gradually becomes technologically backward and unable to lead a normal competition in the market that puts under a threat the further existence of Hero Honda Motors.

Obstacles and objectives of Hero

In addition to the problems with the main technological supplier, i.e. Honda, Hero faced another very serious problem that retarded the company’s development and that actually was the direct consequences of the Honda’s unwillingness to modernize production in Hero Honda Motors. This problem was the company’s competitors that grew in power and gain larger share of Indian markets because of the use of more advanced technologies and more attractive prices. The latter concerns in particular Chinese companies and import of two-wheelers from China. In fact, Chinese two-wheelers are significantly cheaper than those produced in India.

By the way, Chinese expansion in the Indian market is, to a significant extent, the result of liberalization of international trade and Indian international policy, which opened the local market for foreign companies.

Moreover, Indian companies are also very serious competitors for Hero, which production gets more and more out of date, while the competitors implement new technologies, even though often they are also up brought from abroad. As a result, Hero gradually loses its share of the market.

In such a situation, the company’s strategy of ‘Operation One Billion’ becomes practically an attainable goal. Consequently, the objectives of the company have to be much more pragmatic and one of the main goals will be to sustain its positions in the market and prevent the company from degradation or even a complete ruin.

Conclusion: Recommendations as for the further development

Obviously, taking into consideration the current situation and the nearest perspectives, it will be very difficult for Hero to achieve the basic goals, which have been just mentioned above. Nonetheless, it is possible to achieve positive results. This can be done primarily through the modernization of the production. Naturally it would be easier to continue the cooperation with Honda, but such cooperation seems to be quite doubtful. This is why it is possible to recommend to find a new supplier of engines and contemporary technologies that could make the Hero’s two-wheelers competitive and not expansive that are traditional characteristics of the company’s product. It is necessary to do in possibly shorter terms and as soon as possible because nowadays the company still has a widely spread net of dealers and it remains to be quite a popular brand but if the time is lost Hero will have to build up practically a new company, a new brand.