The meaning of business level strategy and corporate level strategy in a global context

Introduction

Honda may be the world’s leading automobile manufacturer, but the company is far more than cars. Some might assume that part of Honda’s success came from its rich Japanese heritage and discipline, some might attribute the company’s success to Honda’s efficient and manufacturing and unique manufacturing system, which continues to turn out some of the industry’s most impressive cars. However, that’s only a very small part of the company strength. Managers who hope to emulate Honda’s success must look beyond its administration and manufacturing system. The many pieces that comprise Honda from applications to management philosophies to products, combine to create a growth machine that is remarkably consistent. Therefore, this report is carried out to analyze the global corporate strategies adopted by Honda Motors and other world-class automobile makers.

A) Compare and contrast the meaning of “business level strategy” and “corporate level strategy” in a global context.

Business level strategy is a strategy that concerns developing competitive advantage. A firm must be able to supply a product or services more closely fitted to clients needs than rival firm. (De Witt and Meyer, 2004, pg. 667) By integrating and coordinating the sets of commitment and actions, a firm gains competitive advantage by exploiting core competencies in specific product market. In the Honda case study, it is clearly shown that Honda’s strategy of “right-first-time” or “build in quality” give Honda the competitive advantage by going against the theory of the western management model which says that: high quality cost more and took longer, low cost meant low quality; fast delivery cost more and risked low quality. (De Witt and Meyer, 2004, pg. 667) By adopting the “right-first-time” strategy, Honda saves a lot of money and time due to the reason that less wastage will incur and also the save on the time of testing the product again after it was completed. With the money and time saved, Honda can concentrate on further research and development plans.

Corporate Level Strategy on the other hand is mainly is concerned with what type of businesses the company should venture in to compete with the development and coordination of that portfolio of businesses. Corporate Level Strategy is made up of strategic plans at the highest organization and corporate level. It involves portfolio analysis, diversification and primary structure. It is not restricted to one particular area such as marketing, personnel, production/operational or financial implications, all the departments that were mentioned are all taken into consideration. For multi-business firms, corporate level established the allocation of resources such as cash, allocation of staff, equipments and other resources are being distributed. In addition, because market definition is the domain of corporate-level strategists, the responsibility for diversification, or the addition of new products or services to the existing product/service line-up, also falls within the realm of corporate-level strategy. The corporate level strategy that Honda adopted to venture in the automotive industry from a motorcycle manufacturer has shown result by being the top manufacturer in the world for economy and midsize cars, compact SUV’s and midsize SUV. (http://google.mini20.com)

B) Critically evaluate the process of “reconciling dichotomies” at Honda Motors’ with reference to the “product-related core competencies versus process-related core capabilities” dichotomy.

The competitive advantage that Honda has over its competitors such as General Motor and Ford is its advanced internal combustion engines which can be found in all the various model of Honda Motors, which is an evident that Honda has successfully reconciled dichotomy. Let us take an example of the Honda case study, when all the players in the automotive industry are doing nothing to reduce pollutants due to the traditional view of pollutant can only be reduced by cleaning up the pollutant after combustion. Honda on the other hand did not believe on that view and after R&D, came out with a CVCC (compound vortex controlled combustion) engine which will be able to reduce the pollutant in the internal combustion by lowering the maximum combustion temperature. At the same time, while its competitors do not believe in a car can be both fuel economy and engine power, again Honda do not believe in that and manage to introduce its VTEC (variable valve timing and lift electronic control) engine which in normal mode, the electronic controlled fuel injection system will control the fuel thin mixture which provide economy; while accelerating, the electronic controller will then allow a fuel rich mixture to provide significant more power.

On the process related core capabilities, Honda has sought to combine the advantages inherent in what have normally been seen in the West as dichotomous. It is a norm for automotive manufacturer to produce with the traditional chain driven line which is controlled by a centralized system in the assembly line, which need very little skilled workers, what they needed is those workers that can obediently follow the instructions given to do the same job repeatedly to cut down on the cost of production. Honda on the other hand sees things differently. It has experimented on the “free flow” system which allows the worker to control the unit that is going to be assembled. The worker will confirm that the unit is in satisfactory condition before it will be sent to the next assembly point. That way, the cost of retesting the unit in later part will be eliminated. In addition to that, workers could be given a sense of control over the production process since they could make the decision that the task has been carried out properly and should be sent to the next assembly point. In this way, efficiency and dignity can be combined. Again Honda has did things differently by over turning the traditional Western thinking that both efficiency and dignity could not exist at the same time.

Another example of Honda’s success is the production planning. Unlike its competitor which, completely adopting the “large lot mass production” production line system which, means that the production is organized to produce thousands of identical or virtually identical products in a row or series. In this system, at the expense of the product variety, cost reduction is achieved. Honda on the other hand, planned its production on a batch basis. Even though it is still implementing the large lot mass production, it had developed a small batch production system. With the system implemented, the units are sent down the assembly line in batches in which each vehicle is exactly the same including its colors. Workers therefore execute exactly the same task for each batch. Components are delivered to the assembly line in batches which exactly match the vehicles they will be fitted into. The objective is to combine the advantages of large lot mass production (simpler logistics and quality control, less error, and easier to program schedule) and small lot production (ability to offer a wider range of products to customers and greater worker involvement and satisfaction).

Question 2

A) Too much Debt and Risk of Bankruptcy

Mergers and acquisitions do not always benefits a company that initiates it. It will be very costly for a company if the decision of M&A is made wrongly. Let’s take Proton in Malaysia and QQ in China as an example; both are vehicle manufacturer in their respective country. QQ is not doing very well in China, but Proton is eyeing on the huge low cost vehicle will have in China market. Proton hopes to “get” into the huge low cost vehicle market in China by merging or acquiring QQ. The first obstacle could incur is the high legal expenses. Proton paid a huge amount of money for the legal expenses to acquire QQ and right after that the amount of debt that QQ is carrying will be transferred under Proton’s custody. Investment on R&D is the next step in order to produce the right type of vehicle for the low cost vehicle market in China which may take a long time to develop, and then followed by the advertising and promotion. All the steps that were mentioned earlier will require a big amount of funds that it is impossible for Proton to have. The only alternative is to seek back up from finance company. Adding up the debts that QQ is having previously and the exposure of Proton from the finance company, the debts are too much for Proton to handle. If the ROI was not realized as what Proton has forecasted, Proton will have a very high risk of being sued bankruptcy by the finance company or the debtors.

B) Potential for Product Synergies

It has long been viewed that product market synergies are key drivers of mergers. Mergers are a quick way to potentially increase product offerings if synergies arise from asset complementarities. One important dimension of synergies is the ability of merging firms to create new products and differentiate themselves from rivals when merging firms have complementary assets. Rhodes- Kropf and Robinson (2008) model similarity and asset complementarities as a motive for mergers but do not present direct evidence of their importance. In competitive markets, mergers are a quick way to potentially increase product offerings to increase product differentiation if synergies are important. Thus, firms may have incentives to merge with _firms that have different skills or technologies that increase the ability to introduce new products through synergies. However, because acquirers may be better at managing similar products due to managerial expertise and familiarity, mergers offering greater product similarity can also add value. There is thus a tension between merging with a firm whose product is very similar, and a firm whose skills or technologies are different enough from rivals to help differentiate the acquirer.

C) Access to New Technologies and Emerging Markets

Benefits such as access to new technologies and emerging market generate cost efficiency by having economies of scale and gain in market share can be obtained from having M&A. For example, China’s Chery and Japan’s Mitsubishi. If M&A were to happen between this 2 company in 2 different country, it will be a win win situation for both parties. Firstly, Chery as a new player in the automobile industry would not have the technology to manufacture high performance engine, but by having M&A Mitsubishi’s technology is accessible by Chery, in order to make sure that even Chery is a Chinese company but owns Mitsubishi technologies in its engine. It is very crucial to portray the image of Chery as a China product with Japan’s technology to ensure that a larger market share can be captured in China itself. Secondly, if Mitsubishi wanted to venture into China which is an emerging market it would not be easy due to the cost issue. To set up a manufacturing plan in China is the only way to deliver the vehicle to the customer in the fastest way, but by doing that if the demand for their vehicle is not what Mitsubishi has forecasted, the will be in the financial upset stage. Therefore, by having M&A, Mitsubishi can train the local staff to be more skillful to handle their assembly job. All they have to do is send in the parts for the local employees to assemble. In that way, the cost of operating a manufacturing plant can be eliminated and will be able to meet customer requirement of a shorter time to receive the vehicle that they have ordered.

Question 3

A) Using information from relevant literature on ‘Corporate Social Responsibility (CSR)’, and appropriate examples from global automotive makers and suppliers; explain the impact of CSR on organizational performance in both financial and non-financial areas.

CSR is defined as open and transparent business practices that are based on ethical values and respect for the community, employees, the environment, shareholders and other stakeholders, in short is a form of corporate regulation integrated into a business model. CSR basically do not take into consideration that how a firm spends it money but what is the way used by the firm to make money. In financial areas for those who are in the automotive industry, the most impact that CSR will create lies within the environmental issue. All of us that are living in today’s world are talking about environmental friendly. As all of us know that while fuels are burned to create energy to move a vehicle, it will create pollutant to our environment. Therefore, those who are in the automotive industry must seriously take this factor into account to improve on the technology of the engines to reduce the amount of pollutant being release by vehicles into our environment. In order to do that, it will require R&D, and that will automatically require a lot of funds to be invested in. To recap on the above phase of ‘what is the way used by the firm to make money’, the way used by the firm to make money in this case is environmental friendly by investing in R&D so that the engine will release lesser pollutant to be more environmental friendly. In addition to that, for those loyal and skillful staff, the company should send them for training in Head Quarters for their carrier advancement. That will at first cost funds from the company but once they are back from training, their productivity and skill will be improve and in other words will transfer into profit for the company. As for the non-financial areas, those companies which put weight on CSR will have a better reputation among the end user. For example, Honda organizes a one day activity for all his staff to help clean up the city or organize tour to visit old folks home and orphanage. As an end user, I will have a feeling that even though Honda’s final objective is to make money but it did have the consideration to give it services back to the society.

B) Compare and contrast Japanese and Western strategic leadership model by reference to Table 5 in the Honda case study. Explain which of the two model you prefer, and why?

There are 2 different kinds of management models in the Honda case study. Let us now compare the 2 models and later part decides on which model is more suitable for today’s business. Let us compare the two models by the category. In Western management system, the work process model shows that its employees are categorized in the are those employee who just do their daily job but do not have a thought of how to improve on their job and they poses no skill to do their job. The Japanese on the other hand will have workers that are the thinking type and are multi-tasking. The production organization and logistics in the western management model will produce large lot production and just in case logistics and uses the push system; where as the Japanese will only have small lot production and just in time logistics and uses pull system. In the organization, westerners practice vertical type of management, fragmented duties and individually responsible for the action they have done. Japanese on the other hand practice horizontal type of management, broad duties and the group will be responsible even if the actions are cause by individual doings. As for the labor relations, the westerners will be more on job control focus, cross-company unions and hire and fire. Unlike the westerners, the Japanese emphasize on employment condition focus, enterprise unions and job for life. In the industry organization set up, western management model separates firms and have a distant inter-firm relations. The Japanese on the other hand believe in Keiretsu families and close inter-firm relations. Overall, the western management model is based on mass, standardized and fordist; where as the Japanese is lean, flexible and post-fordist.

In my opinion, both of the model has its pros and cons. Therefore, the best thing to do is to integrate both of them. For example, a firm should implement horizontal management style to allow more communication but individual for responsible so that employees will have the motivation to work hard to climb up the corporate ladder which will create value for the firm. For production and logistics, both large lot production and small lot production can be integrated so that no wastage of time if some of the parts are not supplied on time. When comes to labor relations, the firm should also uses both hire and fire and job for life. Hire and fire for those bad workers and job for life for those who is good and loyal. Therefore, no single management style is suitable for all kind of business. The important thing is to customize the theories to the type that best fits the business.