Speculations abound on the probability of the Hero Honda JV heading for a sudden break up. B&E’s Pawan Chabra does a speed-check on the repercussions of such an event for both players
August 26, 2010. Venue: Taj Palace Hotel, New Delhi. SIAM’s 50th annual convention was in its last session before the day was called off. The theme of the session was crystal ball gazing for the Indian automotive industry, and the panel had eminent names of the industry like Anand Mahindra, Vice Chairman & MD, Mahindra & Mahindra, Abhay Firodia, Chairman, Force Motors, Ravi Kant, Vice Chairman, Tata Motors and Venu Srinivasan, CMD, TVS Motors. As the session was in its question and answer round, Madhur Bajaj, Vice Chairman, Bajaj Auto pointed out that it is somehow difficult to predict the future; as an example, Madhur forwarded the example that in the early 1980s, no one could have predicted that scooters will be replaced by motorcycles. Before Madhur could complete his statement, Abhay Firodia gesticulated towards the much respected Brijmohan Lall Munjal, Chairman, Hero Honda Motors (sitting next to Madhur Bajaj on the same table), giving a repartee, “He predicted it!” The statement consolidated the emotion of the event – that not only had the Munjals forecasted correctly the change, they had also acted on the same in a brilliant manner, by forging one of the most successful JVs in Indian corporate history with Honda Motor Corporation in 1984.
It was at a period when the country saw many JVs and alliances happening in the domestic circuit – be it Kinetic joining hands with Honda or TVS and Suzuki getting into an alliance. But the fact is that most of these alliances ended sour – including all those mentioned above; all except the Hero Honda JV.
But apparently, corporate history is set to be re-written. The technological agreement between Honda and the Hero group was due to expire in 2014, but reports are now filtering out that Honda is attempting to move away from the relationship by attempting to sell their stake in the JV, The day these yet unconfirmed reports hit the stock bourses, Hero Honda saw its share price falling by over 6%. But that’s clearly not the worrying part for the Hero group. It’s quite evident that the parting of ways could inflict much more damage to the Hero group; which will be left lagging on the technology front.
In reality, even till last month, there was no such talk, report or discussion about any future breakup. When B&E met Anil Dua, Senior VP – Marketing & Sales, Hero Honda, in August 2010, he had enthusiastically commented, “Honda has had the most profitable JV with the Hero Group in India and as the companies have been launching right products at the right time, the strategy has paid off very well.” On the contrary, sources in the industry are of a view that the main issue of dispute between the two giants is on royalty payments. In case such a breakup does occur, the option of getting a new technology partner, developing its own R&D or continuing with Honda’s support are the most probable choices for the Hero group. For the uninitiated, the Hero Group owns a majority stake in the JV (see chart) and with Honda moving out, it would not only take a huge pile of cash reserves from Hero (to acquire the stake, if it wants to stop others from buying into the company) but the company could also take a temporary blow on volumes (due to supply issues). The market leader is already facing supply constraints and has seen its market share fall from over 50% since time immemorial to 44% in September 2010; and competitors like Bajaj Auto & TVS Motors have been quick to build on the opportunity.
August 26, 2010. Venue: Taj Palace Hotel, New Delhi. SIAM’s 50th annual convention was in its last session before the day was called off. The theme of the session was crystal ball gazing for the Indian automotive industry, and the panel had eminent names of the industry like Anand Mahindra, Vice Chairman & MD, Mahindra & Mahindra, Abhay Firodia, Chairman, Force Motors, Ravi Kant, Vice Chairman, Tata Motors and Venu Srinivasan, CMD, TVS Motors. As the session was in its question and answer round, Madhur Bajaj, Vice Chairman, Bajaj Auto pointed out that it is somehow difficult to predict the future; as an example, Madhur forwarded the example that in the early 1980s, no one could have predicted that scooters will be replaced by motorcycles. Before Madhur could complete his statement, Abhay Firodia gesticulated towards the much respected Brijmohan Lall Munjal, Chairman, Hero Honda Motors (sitting next to Madhur Bajaj on the same table), giving a repartee, “He predicted it!” The statement consolidated the emotion of the event – that not only had the Munjals forecasted correctly the change, they had also acted on the same in a brilliant manner, by forging one of the most successful JVs in Indian corporate history with Honda Motor Corporation in 1984.
It was at a period when the country saw many JVs and alliances happening in the domestic circuit – be it Kinetic joining hands with Honda or TVS and Suzuki getting into an alliance. But the fact is that most of these alliances ended sour – including all those mentioned above; all except the Hero Honda JV.
But apparently, corporate history is set to be re-written. The technological agreement between Honda and the Hero group was due to expire in 2014, but reports are now filtering out that Honda is attempting to move away from the relationship by attempting to sell their stake in the JV, The day these yet unconfirmed reports hit the stock bourses, Hero Honda saw its share price falling by over 6%. But that’s clearly not the worrying part for the Hero group. It’s quite evident that the parting of ways could inflict much more damage to the Hero group; which will be left lagging on the technology front.
In reality, even till last month, there was no such talk, report or discussion about any future breakup. When B&E met Anil Dua, Senior VP – Marketing & Sales, Hero Honda, in August 2010, he had enthusiastically commented, “Honda has had the most profitable JV with the Hero Group in India and as the companies have been launching right products at the right time, the strategy has paid off very well.” On the contrary, sources in the industry are of a view that the main issue of dispute between the two giants is on royalty payments. In case such a breakup does occur, the option of getting a new technology partner, developing its own R&D or continuing with Honda’s support are the most probable choices for the Hero group. For the uninitiated, the Hero Group owns a majority stake in the JV (see chart) and with Honda moving out, it would not only take a huge pile of cash reserves from Hero (to acquire the stake, if it wants to stop others from buying into the company) but the company could also take a temporary blow on volumes (due to supply issues). The market leader is already facing supply constraints and has seen its market share fall from over 50% since time immemorial to 44% in September 2010; and competitors like Bajaj Auto & TVS Motors have been quick to build on the opportunity.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri's Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
