Sep 6, 2010

10 Hero without Honda..??

Amidst persistent rumors of an impending split between Hero Honda and HMSI (Honda), lets try to unearth what could be the implications if the split really does take place

(Photo Credit: ibiTimes)

"Hero" Splendor, "Hero" Passion, "Hero" Karizma..!! How does it sound?

After years of my ears getting tuned to hearing the name "Hero Honda" being uttered in unison, it really sounds quite odd to my ears.

In any case, Hero can’t rely forever on Honda for technology..

Of late there has been a lot of (bad?) press about an impending split between India’s Hero Group and its Japanese technology partner Honda. Although there has not been any official confirmation of the same, but something tells me that this time there is some fire somewhere for this smoke to appear.

News about the Hero and Honda split:

Hindustan Times, Business Standard, The Economic Times, The Hindu Businessline

If the news of the split between Hero and Honda is really true then this is a really BIG deal. After all the 25 plus year old Joint Venture has resulted in making Hero Honda as the "Largest Two Wheeler manufacturer in the world"..!!

But why would Hero and Honda want to split one of the most profitable joint venture in the history of two wheelers? What could be the implication for both Hero and Honda? Who might profit? Who might lose? Will the competition stand to gain from this split?

More of that a little bit later, but first..


What is a Joint Venture?

Most amateur sites and blogs term any sort of business partnership as a joint venture. One such example is that of Bajaj and Kawasaki. Correct me if I am wrong but in a JV in India, the parties involved subscribe to the 'shares' of the JV company.

Kawasaki never owned any share in Bajaj, the Bajaj Kawasaki alliance was just a technical collaboration.

In the Hero Honda JV, currently Hero Group owns 26 % of the shares and Honda owns 26 %, the rest 48% is owned by the general public. So according to current status quo both Hero and Honda are equal owners of the Hero Honda JV.


How the Hero Honda JV has worked out so far?

In a business either of the parties would always like to have the upper hand..

Honda has provided the technology for the products; Hero Honda has manufactured and sold the products through it dealership networks. Hero also pays royalty to Honda for every product that it sells.

The technological prowess of Honda along with Hero’s extensive dealer network has made the JV one of the most successful in the history of bikes.


So why is the need to split such a successful JV?

Hero was always dependent on Honda for technology; in return Honda was earning huge amounts in the form of royalty. Even though Hero Honda bikes were selling in millions in India, the export market wasn’t totally opened for Hero Honda products. At the same time Honda started it HMSI (Honda Motorcycles and Scooters India) and started selling scooters and motorcycles independently.

I can’t tell the exact reasons, but I guess that in a business either of the parties would always like to have the upper hand and call the shots.


What happens if the Split does really take place?

According to news Hero group seems to be looking at buying the 26% from Honda and thus retain a total of 52% (majority) stake. For that Hero might have to spend around 9000 crores.

Benefits for Hero and Honda: Hero could save upto Rs. 5,500 crores on royalty for the financial year 2011. Hero would also be free to explore new export markets. Honda could utilize the money from selling its stake in further strengthening its dealer network.

Challenges for Hero and Honda: Without Honda’s technical assistance, Hero will have to build an R&D and fast. Honda will also have to build its product line up fast to match up to Hero Honda 100 cc Superstars, the Splendor and the Passion.

Opportunity for competition: Bajaj and TVS Motors can utilize the time that both Hero and Honda might take to stabilize/establish and gain some extra market share with some good products.


In any case, Hero can’t rely forever on Honda for technology. Like Bajaj and TVS, Hero has to build its own R&D. But that could take some time.

So in the meanwhile would you fancy getting a "Hero" Hunk or "Hero" CBZ Xtreme instead?




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Disclaimer:

This is to remind that the Views or Opinions in the blog are entirely mine unless explicitly stated. The Views and Opinions published in this blog should in no way be related to any other person or organization associated -- directly or indirectly -- with me.







10 Comments:

Anonymous said...

This seems to be unevitable! Only time will be different...
But as a proud owner of HH, I heartiestly felt... Dont do this!
It will be Lose-lose condition for both of them.
Gautam.

Shaiju B said...

That's going to be a huge blow for the Hero Honda lovers especially looking at the fact that Hero Honda doesn't have an R & D of its own. Achieving Honda's reliability factor with Hero's R & D is definitely going to take time.

Anonymous said...

Don't know about big companies,but I can smell compition between this blog and www.bikeadvice.in

PearlKing said...

better Honda buy the 26% from hero group and make all the bikes as Honda Splendour and Honda Passion

Sunil said...

The day when the name Honda is dropped from Hero Honda, Hero can kiss its 2 wheeler sales goodbye.

Akash said...

This is the beginning of the end of the company which will also be remembered for making some smashing colorful sticker designs

Anonymous said...

LOl why can't honda buy the remaining 26% share from Hero ...otherwise Hero without Honda will perish!

PearlKing said...

better Honda buy the 26% from hero group and make all the bikes as Honda Splendour and Honda Passion

Shaiju B said...

That's going to be a huge blow for the Hero Honda lovers especially looking at the fact that Hero Honda doesn't have an R & D of its own. Achieving Honda's reliability factor with Hero's R & D is definitely going to take time.

Santanu Samanta said...

till 2014 Honda is bound to supply technology to hero for existing as well as upcoming bikes (Like the Off road/on-road u mentioned in ur another write-up). Because The agreement was till 2014 b/w hero n honda.

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