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Network expansion in rural and semi-urban areas is our primary challenge, Muramatsu and Guleria tell Ankita Rai
Research shows that an overwhelming majority of joint ventures end in legal wranglings that do often result in heavy costs and time overruns. This highlights the need for better contract administration, more robust documentation and a proactive approach to risk management to help mitigate against the most common causes of dispute. What has been your experience? Did you have an exit plan?
There was no exit plan. When a company enters a joint venture, guidelines are framed for the particular way in which every partner is supposed to act, behave and approach. That existed. After the exit was signed, there was a cooling period till June 30, 2014. Honda did not start independent operations after June 30 because Honda Motorcycle and Scooter India (HMSI) already existed - it was a 100 per cent subsidiary and existed along with the Hero-Honda joint venture. There were guidelines and a common Board, which used to decide model line up, such as which model for Hero and which model for HMSI. So there was an organised way to tackle such confrontation issues.
The split came at a time when the two-wheeler segment was slowing down. However, Honda posted growth rate much higher than that of the industry average...
Given the slowdown in the two-wheeler market, we had to make plans. We raised the bar. Of course it was not easy to achieve. Last year, one million two wheelers were added in the market, of which 9.6 lakhs were manufactured by Honda.
To cut down cost and increase the speed of new launches, we announced a technical centre, which is a first for Honda globally. This is the first time the EDBQ [engineering, design (R&D), bought-out (purchase) and quality] functions are under one roof, or same building. Earlier different functions were in different locations. For instance, Honda R&D was in Gurgaon while we were in Manesar. Now all key persons are under one roof. This has shortened the development period of new models and also helps us indigenise products faster. There are many expats in the R&D department. This enables faster know-how transfer from the Japanese to the Indians. Earlier they had to go to Japan or Thailand for new model development, testing and prototyping.
One of the key reasons for the success of the Hero-Honda JV was the fact that Hero Honda became a brand in itself and not Hero or Honda in isolation. Was there any difficulty in placing Honda in the rural areas, post the split with Hero?
Yes, we faced challenges in the rural market but only in terms of awareness and recognition. Honda is not new to rural areas but the confusion between the 'other' brand and wing mark exists. This is a challenge. Therefore, we launched this new campaign 'Honda is Honda'. Starting July 2014, HMSI becomes the only Honda in the two-wheeler market in India. Now we are free to approach the rural market aggressively.
HMSI is becoming aggressive with the ambitions of becoming the biggest player in the Indian market (by sales volume). What are the challenges you faced during the transition?
From employee side, we never faced any challenge. The reason being that Honda has never seen a dip in its business in its last 14 years of operations. In the first quarter, April-June 2014, Honda has grown 2.5 times the industry growth. And once a company grows, there are more opportunities for the business associates to grow along with organisation. High growth, however, can also be a challenge because the team is young. If we have grown in the last two years in terms of employees from 7,000 to 17,000; these new 10,000 employees come with a new culture. The challenge is how to quickly make this new manpower accustomed to the Honda way. The approach of Honda is such that that employee engagement is not only HR's responsibility. Individual operations' must take care of their own associates in terms of employee engagement.
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Industry data shows that the Indian two-wheeler market depends nearly equally on the urban and rural customer and the health of agricultural as well as industrial output. How do you plan to manage the dealership network here on?
In terms of business we are growing in urban and making in roads into rural areas. Rural is a long-term strategy. We have aggressive plans in term of further penetrating the two-wheeler market in tier-III towns and rural areas. In urban areas, we have good representation. We cover almost the entire urban market. The challenge remains semi-urban and rural areas. In term of network expansion, our focus is on rural and semi-urban markets. We have to develop the channel at a much faster pace. Last year, we took the challenge and opened 800 new outlets in one year alone. No other manufacturer - whether we talk about two-wheeler or four-wheeler - has been able to do this. This year we are planning to open 1,000 networks in 2014-15.
Do you need to make some changes in your hiring strategy, given the focus on rural and semi-urban markets?
Hiring in the last three years has almost tripled. The increase in manpower is in line with our plans. Two new factories became operational in the last three years: Tapukara (Rajasthan) and Narasapura (Karnataka). We have also increased the number of zonal offices. We have five regional offices and 12 zonal offices, which will go up to 18. The idea is to increase direct office presence for amassing local market intelligence, strategising and implanting regional approach faster. All our zonal offices are equipped with service training centres. We need to be closer to the market. The pace of launching new models has also increased now. A new model is launched every four months now. Before a new model comes in, every person - from the work shop level to those interacting with the customer - has to be trained.
Recently we announced our rural vertical. The challenge now is to expand to the last mile. We need to have dedicated people working only for the rural markets. Historically HMSI has been selling into urban areas. We first entered the market with scooters. It was a top down approach. Even in motorcycles we first launched 150-cc, then 125-cc, 110-cc and now the mass segment. This area is more challenging for us. Our know how was limited in this area.
What are the challenges peculiar to the mass segment?
In the mass segment the challenge is brand awareness. We need to build awareness of the Honda brand and differentiation. Any new network that we make, the potential and delivery from this network takes at least six months to one year to come through. The business partner has to develop trust among the locals. Therefore, engaging with the local community is a focus area for Honda. For example, the operations at the Gujarat plant have not started yet but we have started our CSR activities there.
