Honda CEO Tadashi Kume has brought his company into the global marketplace; but, without a centralized plan, will he be able to avoid in-fighting between U.S. and Japan Honda?
September 1 1988 by John Carson-parker
Across the street from Tokyo’s Akasaka Palace, the display room at Honda headquarters gives pride of place to two surprising features: a large red, white, and blue sign that says-in English- “Born in the USA. ;” and, on a pedestal under the sign, an Accord coupe made in Marysville, Ohio with (believe it or not) left-hand drive. A smaller sign states that the car was “designed” by Honda R&D North America, “manufactured” by Honda of America Mfg. Inc., and “exported” by American Honda Motor Co., Inc.
The display, the two signs, and the car seem to symbolize two key aspects of Honda today: it is genuinely an international automotive manufacturing and marketing enterprise; and it may well be leading the way for U.S. companies who intend to be genuine competitors in global markets of any long-run manufacturing field.
A few facts about Honda demonstrate both its progress in globalization so far, and its determination to go farther still.
· For the six months ended March 31, 1988, only 33.15 percent of Honda’s 890,000 automobile sales were domestic-and 66 85 percent overseas. Still more significantly, perhaps, fully 69.5 percent of automotive sales value came from overseas.
· Production of Honda autos is, of course, still primarily domestic-but here, too, the overseas component is rapidly increasing. More than 20 percent of the company’s auto production is now in the US, and 5 percent in Canada. When Honda’s new plants in Ohio are in full production in the early 1990s, North American production will be a good 30 percent of the whole-and if Honda’s plans for globalization succeed, the percentage could be substantially higher by the end of the century. Honda’s other products, it’s worth noting-mainly comprised of motorcycles and “power” products such as lawn mowers, light tractors, and snow throwers-are already manufactured in more than 30 countries.
· If American Honda’s plans work out, by 1991 it will be the largest U.S. exporter of automobiles. According to Automotive Industries, its sales target for exports to Japan is 12 times the combined 1987 total of General Motors, Ford, and Chrysler.
· Honda CEO Tadashi Kume says that Honda’s “global network program” comes from “a corporate philosophy of manufacturing in the market where products are sold,” and that the program has now entered a new phase: his company will not only export Ohio-built cars and motorcycles to Japan, but also motorcycles built in places as far apart-culturally and geographically -as Italy and Thailand. If the new European market opens up to non-European cars, Kume says it will be Europe’s drivers who decide where the Honda entrants come from: that will be determined the customers, Kume insists-”What they want in quality and cost and everything else will determine whether the U.S. or the Japanese operation of Honda goes in.”
As the Christian Science Monitor put it, Honda “can no longer be considered strictly a Japanese car manufacturer” If the globality of its thinking is one aspect of Honda that distinguishes it from its competitors-Japanese, American, and European-there are also at least three others: quality of management, stress on, and separation of research and development, and good labor relations.
“Honda is superbly well-managed,” said Forbes magazine last year; and few would disagree. Three reasons for Honda’s excellence are suggested-with modesty and self-deprecation-by Tetsuo Chino, a member of the board of the parent company and chairman of American Honda. One is that “we give authority to make decisions lower down than most Japanese companies, where all decisions are made higher up.” Another, in contrast to most Japanese companies, is that “we make less decisions by consensus.” A third, in contrast to almost all major companies in other parts of the world, is that Honda’s top executives do not have large and luxurious private offices. Says Chino: “Even the directors all work in one room” at Honda headquarters; and at the plant in Marysville, all the office staff including the president, do so, too.
The practice follows what once was the policy of leading U.S. investment banks such as Morgan Stanley and Lehman Brothers and, as Chino observes, “it makes for better communication and quicker decisions.” One example of the result is the speed of Honda’s development/ production cycle. Most auto companies take from 4 to 5 years to move a car from concept to sales room: ” Honda,” says Kume, matter-of-factly, “does so in two or three.”
In what other parts of the world would you consider constructing major auto manufacturing facilities?
We have no plans to build in parts of the world other than Japan and the U.S.
In which parts of the world do you see the greatest dangers of a rise in protectionism?
Maybe in Japan! I say that half-jokingly, but I do believe there are a number of problems with the distribution system in Japan, and also in business practices which are rather peculiar to Japan. People from other countries may not know of these: Sometimes they call them “non-tariff barriers.” In this area, we Japanese have to work hard to get rid of some of the things that cause problems, but, of course, it can’t be done overnight.
Do you have as much manufacturing capacity as you need in the U.S. for the next few years, or do you expect to make more major investments?
At least until the 1990s, the demand for our products will be covered by the production we have now and the additions we’ve recently announced. Beyond that, we have no plans. If we can make more sales that can be handled by our present production capacity, of course that would make us happy!
What’s your forecast for auto sales this year-for the U.S. and for Honda?
Last year we thought the U.S. market might decrease in 1988, but we now think it will be the same as it was in 1987. [As for Honda] we’re expecting to sell about 800,000 cars in the U.S. this year [up from 693,000 in 1987], between local production and imports. In Japan, last year, we sold 550,000, and this year we’re planning to sell 620,000, or maybe a few more.
You were quoted in the U.S. press last year as saying that you were aiming to make your American operation “a self-reliant integrated motor vehicle company, which will compete in the world market.” How do you avoid competition-in these circumstances-between your U.S. company and your Japanese company?
I remember saying something like that at the press conference in Ohio, when we announced our strategy for the U.S. and Canadian markets. When I talked about the independence of the U.S. operation, I used the term “fraternity system,” because [our Japanese and U.S. companies] are like brothers. When there are just the two of us, there can be good competition between the two brothers, but when the two of us face the outside world, we will tie in with each other and cooperate to fight outsiders. Within Honda, the U.S. and Japanese organizations will be competing with each other for customers. But, when we have to face the outside world, we’ll be hand-in-hand.
Alright, but suppose a market such as Europe becomes more open to you than it is today; how do you decide whether it’s American Honda or Japanese Honda that will enter that market?
It will be up to the customers in Europe; what they want in quality, cost, and everything else, will determine whether it’s the U.S. or Japan. It will be a competition within Honda; whichever company provides what the European customers want will be the winner.
If U.S. manufacturers catch up with you in production technology, how will you maintain your quality advantage?
No matter how good the quality of the car you produce, or of any product you produce, history shows that someone will catch up with you if you don’t continue to take action-even after you’ve attained the top quality. You can see it in auto racing; if you win one race and then just sit back, you’re not going to win the next race.
Do you have any out-of-the-ordinary technological innovations in view?
We’ve already introduced different computer technologies in our production line; the same is true of laser technology. This will continue. These innovations are important, but what is more important is that Honda people know what the customer wants; what’s in the minds of our associates [the Honda word for all employees] is more important.
For instance, autos naturally make noise when they run; drivers would like to have less noise or no noise at all. Let’s say we’ve met that desire; we introduce cars with no noise, and maybe the customers will want [to hear] something pleasant: It may not be called “noise,” but if you can foresee what it is that they’d like to have in the future, and then take the appropriate measures to increase customers’ satisfaction, that is what is important-to perceive the customers’ needs and take action in advance.
Do you take action on the basis of market research, or instinct?
We use a certain amount of customer research; in fact, we have a company [conducting research], but that’s not the main thing we rely on to find out what the customer wants. [Rather] we encourage the people in the production and development areas of Honda to visit our sales outlets and talk to our customers, so that they feel the customers’ needs for themselves-rather than relying on documents put together by somebody else.
You were quoted last year as saying that your near-term objective is to triple Honda’s productivity. What are the key elements in your plan to do this?
We don’t have a specific formula. This idea came out of our feeling that-looking both at the industry as it is now and predicting its future-we should do everything we can to stop the things that are not good for the workers or the products. Right now, in many areas, people have to work [too] hard to create good quality autos; sometimes the quality suffers-and they suffer-because they have to work so hard. Let’s stop this by introducing ideas that will make work less difficult! We’ve been trying in many areas, and in some parts of the line the productivity has already been improved threefold. In others, it has not.
In the areas where you have succeeded, how have you done so?
It is an accumulation of very small steps. In some areas we took what we call a “soft” approach: instead of introducing new production facilities or anything similar in a given area, we have tried to change the way in which certain jobs are done. For example, someone may be doing something that is not really necessary, but it is being done because it has always been done that way. Maybe that can be eliminated; that’s one way we’ve improved productivity.
Another way is in the area of hard jobs-that require extra effort; another is in the process of lifting something heavy, or putting something heavy in place-maybe that’s a simple, repetitive job that can be replaced by a machine and efficiency improved. Or, in processing or assembling-certain areas that are personally checked by people. If they have to do it 1000 or 2000 times a day, the job gets very tedious: mistakes can be made. So again, there’s a job that can be done by a machine-again, the quality improves.
Why are sales of American autos in Japan so low?
As I said earlier about the non-tariff barriers, the Japanese market is a very difficult one for newcomers to enter. Honda [is relatively new], too. It’s not only foreigners who find it’s not an easy market, so do latecomers like ourselves! If American car companies seriously want to sell more cars in the Japanese market, they have to be really serious about it, as we have been.[With much laughter] There are American companies which are doing very well in the Japanese market: McDonalds and Kentucky Fried Chicken, for example. My daughter is one of their customers. If you make the products the customer wants, you can be a big success in the Japanese market, as well.