PEST and SWOT techniques on Honda

1 Introduction

Honda is the most successful company existing in the market now days with the latest technology in the automobile industry with luxury cars to sports to family car they have a vast range of cars and motorbikes. Honda, (2010) In October 1946, Soichiro Honda established the Honda Technical Research Institute in Hamamatsu, Japan, to develop and produce small 2-cycle motorbike engines. Two years later, Honda Motor Company, Ltd. was born, and in 1959 Honda opened its first storefront in Los Angeles with six industrious employees. Honda opened there first U.S. plant in 1979 and have evolved into a company that directly employing more than 25,000 Americans. More than 100,000 workers are employed at authorized Honda automobile, motorcycle and power-equipment dealerships in the United States. Tens of thousands of additional Americans are employed by more than nearly 600 U.S. suppliers from which Honda purchases parts and materials.

Honda, (2010) In the recent years the automobile crisis of 2008-2010 was the part of financial downturn, which affected automobile makers and suppliers around the world. The industry was weakened by the substantial increase in the prices of fuel linked to energy crisis of 2003-08 which discouraged purchases of automobiles with low fuel economy. In the year 2008 there were fewer fuel efficient models to offer to the consumers, the bigger automobiles including General Motors, Toyota, Ford, Chrysler, Nissan and Honda Motors experienced sliding sales.

Honda, (2010) Honda Motors in 2008 announced it would be down sizing due to 2008 economic crisis and predicted that there may be reductions in staff at all levels of the management effective January 2009

2 Strategic Analyses, (2010). “The process of strategic analysis the process of conducting research on the business environment within which an organization operates and on the organization itself, in order to formulate strategy”. “A number of tools are used in the process of strategic analysis, including PEST, SWOT analysis, and Michael Porter’s five forces model”.

Pest Analysis, (2010) “Pest analysis is for Political, Economic, Social, and Technological analysis and helps to set a framework of macro-environmental factors used in the environmental scanning component of strategic management”.

Pest Analysis, (2010) Political factors are the level to what the government interferes in the economy. Specifically, political factors areas such as tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Political factors include goods and service which the government wants to provide or be provided Government plays an important role in the economy as well as in taxes to be charged to the company”. These factors also play an important role in the employment law, competition regulations as the company can not make specific prices as they have to follow the competition regulations.

“Economic factors have economic growth, interest rates, exchange rates and the inflation rate”. Pest Analysis, (2010) these factors have major impacts on how business works and decision making, example, interest rates affect a firm’s cost of capital and therefore it affects the business and how will grow and expand. Exchange rates affect the costs of exporting goods and the supply and price of imported goods. Economic factors affect the purchasing power of potential customers as the power to buy the product.

Social factors include the demographic and cultural aspects of the external microenvironment. Pest Analysis, (2010) these factors affect customer needs and the size of markets. Social factors affect the demand for a company’s products and how that company works. Companies may change various management strategies to adapt to these social trends (such as recruiting older workers). Social factors affect the needs and wants of the customer and the way they buy a particular product, as the demand may decline with the new product which offered to the wrong age sector.

Pest Analysis, (2010) Technological factors can reduce the barriers to enter and reduce minimum efficient production levels, and play a big role outsourcing decisions. Technological factors include technological aspects, automation, technology incentives and the rate of technological change. They can help to determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Technological factors help to technological shifts that can affect costs, quality, and lead to innovation.

SWOT analysis, (2010) SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business.

It helps in specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to that objective. SWOT analysis is a business tool by which, a firm will be able to implement a strategic analysis, analyzes and recognizes its corporate Strengths and Weaknesses as well as the existed or forthcoming Opportunities and Threats from its external environment. Completing a SWOT analysis will help in identifying and the ways to minimize the affect of weaknesses in your business while maximizing your strengths only when these four critical information elements are well elaborated and known, the enterprise is able to formulate and implement the strategy leading to its business aims. SWOT analysis methodology is implemented in two phases as follows.

SWOT analysis compiles of, SWOT analysis, (2010)

Strengths: “attributes of the person or company that is helpful to achieving the objective”

Weaknesses: “attributes of the person or company that is harmful to achieving the objective”

Opportunities: “external conditions that is helpful to achieving the objective”

Threats: “external conditions which could do damage to the objective”

Honda Motors is one of the most successful automobiles company in the world and with the help of PEST analysis and SWOT analysis they have come so far as they are able to understand what are the political factors, economic, social and technological factors they have to understand when they are producing the automobiles as well have to understand the needs and wants of the customer as well as the economy of the place as the government plays an important role. They have to understand the technology they have to provide in there automobiles because the latest technology will be able to attract the people better and they would be able to reach the market better and the relevance of SWOT analysis in running the business is very important as Honda has to understand what are there strengths, weakness, opportunity, threats in order to be successful in the market as they need PEST and SWOT analysis together to be able to survive in the market for long run these two analysis helps Honda to be a better company and be able to understand its customers and their needs.

2.1 Honda: Reconciling dichotomies (Product related core competencies versus process related core capabilities. Constructing dichotomies is the best avenue for new ideas in the field of automobiles industry.

Productivity, (2010) Product related core competencies are measurement of the effective use of the resources, expressed as the ratio of output and input. Productivity as the ratio

of output and input. Productivity us very important to business because they can gain market share and make great profits. For example, when productivity increases, product costs decline and product price can be reduced.

Productivity relates to competitiveness in the way that if two firms have the same level of output but one requires less input because of higher productivity, that one will be able to charge a lower price and consequently increase its shares of the market.

Process related core capabilities typically describing the act of taking something through an establishment and usually set of procedures to convert it from one form to another, as a manufacturing or administrative procedure. The process core capabilities at Honda is playing an important role as it is helping in having new and developing innovative ideas for the company and playing an important role in product related core competencies.

Process Capabilities, (2010) The concept of process capability has been used by the manufacturing industry to quantify the relation between product specifications and the measured process performance. Various ratios and indices have been developed to describe this relation.

2.2 International trade is exchange of capital, goods, and services across international borders or territories. International Trade, (2010) the main advantages of international trade are International trade has flourished over the years due to the many benefits it has offered to different countries across the globe. International trade is the exchange of services, goods, and capital among various countries and regions, without much hindrance. The international trade accounts for a good part of a country’s gross domestic product. It is also one of important sources of revenue for a developing country. With the help of modern production techniques, highly advanced transportation systems, transnational corporations, outsourcing of manufacturing and services, and rapid industrialization, the international trade system is growing and spreading very fast.

International trade, (2010) Great variety of goods available for consumption and international trade brings in different kinds of goods from different destinations. This gives consumers a variety of choice to choose from and which will not only improve their quality but also the whole country. Better allocation and better utilization of resources, since countries tend to produce goods and items which they are good at and have a comparative advantage towards its competitors.

Efficient in production will help countries and they will adopt better methods of producing goods and this will keep the cost down in order to remain competitive. Countries that can produce a product at the lower price possible can gain the larger market share in the market. Therefore an incentive to produce efficiently arises. This will help standards of the product to increase and consumers will have a good quality product to consume.

Automobile industry, (2010) Restricting trade in the context of global automobile industry, the global automotive industry, increasingly characterized by global mergers and relocation of production centers to emerging developing economies, is in the grips of a global price-war. The industry is subject to imperfect competition which has resulted in too much of everything too much capacity, too many competitors and too much redundancy and overlap. The industry is concerned with consumer demands for styling, safety, and comfort; and with labor relations and manufacturing efficiency. The industry have to really work hard to meet the demands of the consumers and what are the new wants as what types of cars they want in the automobile industry. Specialization in automobile (Honda) sector is increasingly becoming segment specific as each of these countries is finding its niche. China is specializing in components, India in two wheelers and small vehicles, Thailand in pick-up trucks and passenger cars and Indonesia in utility vehicles. As Honda is understating its market in these areas and other areas of the world as they are providing according to their customers wants as they have restriction in providing different kinds of automobiles which is not required in the particular country.

Automobile industry is a symbol of technical marvel by human kind. Being one of the fastest growing sectors in the world its dynamic growth phases are explained by nature of competition, product life cycle and consumer demand. Today, the global automobile industry is concerned with consumer demands for styling, safety, and comfort; and with labor relations and manufacturing efficiency.

3 Whittington’s Evolutional and Systemic schools of thoughts. Applying the two schools of thought in developing strategy to Honda motors. Evolutionary process in which the Evolutional is way in which the evolutionary perspective: sell or die. Strategy, (2010)

Marketing communications decisions are for short-term survival

In the long-term we might be dead!

Intense focus on short-run sales, not long-term brand-building

Whittington’s four schools of thought

The development strategy of Honda Motors have used the Whittington evolutional and Systemic school of thought in there process and the way to understand the market better and its competition. Not only maximizing the profit but also professional pride and culture as described under in the figure

Evolutionary and Systemic schools of thought

Whittington

Evolution

Systemic

Opportunities to make decision and competition

Unexpected swings in future

Competition does not imply efficiency: markets can be manipulated; society has other criteria s for corporations than just profit maximization

Finding possible causes of action and objective

Trial and error forced choices

Local approved

Selecting course of action and developing strategy

Improving operations management

Strategic objectives depends

on the specific social system in

which the strategy is created

Strategy

Strategy = day to day management for surviving and competitive nature

Other than profit maximizing is professional pride, influence, religion and culture

The two schools of thought which are being used by Honda Motors in order to develop their strategies are Evolutional and Systemic and Honda are using these tools in a proper manner likewise in

Evolutional school of thought used by Honda in

Marketing communications decisions are for short-term survival

Communication decisions are for short term in the evolution process

Intense focus on short-run sales, not long-term brand-building.

They have to consider intense focus on the market

The school of thought who is better is Systemic school of thought because of lots of reason Systemic school of thought have

Systemic School of thought used by Honda

Consumer attitudes and behavior are confined to social systems with given norms, values, roles, culture, and ethics. Honda understands all these behavior and attitude of the customer in order to develop a better strategy in future.

Limitations to what marketing communications can do in terms of market share – the consumer culture rules, Honda have to have a good knowledge about the marketing communication and know its limits

Other “rational” reasons for marketing communications than pure profit maximization, such as religion, culture and professional pride.

This school of thought is better and more suited towards Honda as it keeps an eye on the consumer demand needs and wants as well understand its customer behavior. They have good knowledge of the marketing process. Honda believes in professional pride, culture and religion understanding of the people and how people react to these norms as Honda is the leading Automobile industry as it suites towards the Systemic school of thought in order towards the strategic development.

Proper explanation of Systemic in figure below

4 Processual schools of thought is about understanding the brand and influencing the brand with some risk taking in decision making and Processual approach helps firm to maintain its goal of a simple strategy based on four loop. The loops can affect but should not change the strategic management of the firm and it is about

Consumer attitudes and behaviors can be influenced

Continuous improvement of brand, Creative ways of reaching customer

Advertising management

Certain degree of risk-taking in decision-making allows for innovative and

The Processual School of Thought is about making the Honda adopt the strategy and develop a brand by understanding its customers and their need and wants. At the same time understand its values. The implications of strategic management on the four loops.

The rational loop helps in making sure that strategic management would be based on rational thoughts and ideas. Processual school of thought helps in focusing on the use of rational decision making when making decisions and controlling the use of strategies. It helps and makes sure that all the implications of any decisions or strategies would be carefully analyzed under Processual School of Thought. Therefore Processual School of Thought is making the strategic management of the rational loop more though full and full of new ideas.

The overt politics loop with the help of Processual School of Thought helps to create a more open influence on strategic management. Politics are used by some to add their ideas to strategic management without being discreet about it. Overt politics focuses on the use of influence and connections to assert strategic ideas with the help of Processual School of Thought and that is best thing for the company

The Culture and cognition loop plays an important role when evaluated by the Processual School of Thought as it makes use of culture and tradition to influence strategic management decision and to make the strategies based on the culture of the place and country. Honda Motors uses culture and cognition as important factor in strategic development. The culture and cognition loop makes use of ideas to change strategic management decision so that the firm will act according to the needs and wants of the environment. In this loop Processual School of Thought would serve an important part in making decisions that will affect the firm and Processual approach helps the firm maintain its goal of a simple strategy based on the four loops.

The covert politics loop with the help of Processual approach helps to create a more secretive means to influence strategic management; this involves a member of the Honda Motors secretively influencing strategic management decisions in his favor. Covert politics loop is a more secretive way to influence decisions and strategies and this usually creates decisions that may be beneficial to the company.

5 Conclusions

Honda Motors is one of the leading automobiles industries and in couple of years they have been facing problems as the industry was weakened by the rapid increase in the fuel prices as well as to energy crisis of 2003-08, which made people to buy less of automobiles with low fuel economy. In the year 2008 there were some models released by Honda with fuel efficient models to offer to the consumers, the bigger automobiles including General Motors, Toyota, Ford, Chrysler, Nissan and Honda Motors experienced sliding sales.

Honda has used PEST and SWOT analysis to work harder to achieve the goal to make their sales go high, and have worked on the weakness in the market as well. Honda has studied there PEST analysis and the factors that are affecting their company. Honda being the leading automobile industry has to know its strengths and weakness, when dealing with their customer. They need to know their needs wants and demands.

Whittington’s Evolutional and Systemic schools of thoughts are being applied by Honda Motors to the better development of their strategy and which helps them to know where they are standing in the market and with the help of the four loops Honda can know its company better way as they will be able to understand its culture, religion and this will help to make better strategic decisions for the company.