Strategic Activities and Decisions of a Multinational Company Honda - Case Study Example

Strategic Activities and Decisions of a Multinational Company Student’s Name: ID Number: Lecturer: Date: Introduction Multinational company may refer to an establishment which has its presence in foreign countries but retains central operational base in home country (Mortara, & Minshall, 2011). The main aim of establishing foreign base is to widen its revenue generation activities for stability purposes. Multinational companies take advantage of their wider coverage to influence the market hence enjoys economies of scale. Most multinational corporations use strategic activities and decisions in establishing their foreign offices. The management evaluates the market critically before allocating funds for the expansion program (Heidenreich, 2012). Establishing an office in foreign country carries heavy investment risk hence the need for strategic decision. Some of the factors they consider in their decision making process include population size of the target country, cultural background, political structure and stability and economic strength among other aspects (Mortara, & Minshall, 2011). Looking at each of these aspects critically and analytically, they are able to come up with ideal and strategic decision whether to establish a business in that country or not. The final decision depends on whether there is suitable and sustainable climate for investment in that particular country. After making the decision, the management in home country identifies various strategic activities to carry out in target country. The main aim of these activities is to help the company penetrate the market (Meyer, Mudambi, & Narula, 2011). Note that penetrating a new market is a challenging task and requires strategic activities that suit the environment. The multinational company may start by conducting a market survey and research. In respect of this, the management is in position to compare various variables such as demand and supply for their products in this target market. Management may also invest in the community by establishing a project that benefits the society. The company is able to gain acceptability in the society thus creating a positive image which helps in marketing its products (Khanna, & Palepu, 2013). Honda is one of the popular multinational corporations with presence in almost every country throughout the world. Its main line of business is manufacture of motor vehicles and motorcycles (Mito, 2013). It is important to note that this is highly competitive business with many other manufactures in every corner of the world. For this reason, the management ought to develop strategies on how to tackle competition issues in order to have a stable market share in foreign countries. Tough challenges call for tough managerial decisions which enable the company to penetrate the new market, establish a reliable and sustainable share as well as achieve its objective efficiently (Meyer, Mudambi, et al, 2011). This paper aims at developing critical analysis on strategic activities and decisions Honda management takes when establishing a subsidiary firm in foreign location. It includes historical performance of this multinational company and its position in the automotive industry. The paper also provides range of products this company manufactures and strategic choices available for the management to improve its current performance. In the light of this, there is a clear understanding of management role in determining the fate of such large corporation. It is the duty of the management to develop strategies and direct activities of the firm hence key determinant of the outcome (Mortara, & Minshall, 2011). Reasons for Honda’s International Expansion As the most popular automotive manufacturer, Honda Motor Company has been able to build its reputation in terms of quality. Since late 1950’s, Honda maintains its leading role in manufacturing motor cycles and other products such as engines for internal combustion. The company is able to resist the heat of competition throughout this period. According to Sako (2004, p 293), Honda was the second largest automotive manufacturer in the year 2001. Besides, recent research reveals that this company is the eighth largest manufacturer in the world. In respect of this fact, the performance is remarkable bearing in mind the tight competition in this industry. The major reason behind Honda’s success and competitiveness both at home and in foreign market is diversification (Mito, 2013). Besides vehicle and motorcycles, Honda manufactures other auto products such as combustion engines, generators, solar cells and robots among others. The concept of diversification enhances sustainability of the market share (Wan, Hoskisson, Short, & Yiu, 2011). The management ensures every subsidiary firm has sufficient products that suit that particular location. Diversification is one of the most strategic decisions Honda Motor Company has ever made. It enables it to cope well with potential competitors since one product is a compensation for another. With wide range of products, Honda is able to build and cultivate its popularity. In every market where this company has a subsidiary firm, it has a reliable influence in terms of share. The aspect of diversification enables the company to have almost every auto product in the market. These include commercial vehicles, luxury cars, power equipment among others. Such strategy creates competitive edge thus enabling the company to remain influential in the industry and economy at large (Wan, Hoskisson, et al, 2011). Possible Strategic Choices Available for Honda’s Parent Company Honda Motor Company has several strategic choices available that may enhance its influence in automotive industry. It is important to note that most companies establish subsidiary firms with an aim of widening their market (Mito, 2013). Although this is a good investment decision, it is important to concentrate on market needs rather that need for increasing sales volume. Honda can utilise this opportunity by venturing into developing nations especially in Africa. Every developing country aims at adopting industrialisation and mechanisation. Honda parent company may come up with strategy of helping these countries by offering affordable equipment to young and potential entrepreneurs. The strategy can create a new market for this company in these countries. Honda parent company can also create autonomous subsidiaries in emerging markets especially Africa. Autonomy entails entrusting the role of management to local people who can run the company effectively. Many successful multinationals adopt this strategy which enhances sustainable influence and dominance (Pfeffer, & Sutton, 2013). Local people may own significant percentage of the company such that they have a special interest in the company. Through such strategy, Honda may overcome competition challenges and concentrate on other issues. The company becomes influential when the community in its location accepts it. To gain acceptability, the parent company should be ready to allocate substantial amount of money for social responsibilities (Khanna, & Palepu, 2013). The subsidiary should take influential role in spearheading development and other social welfare of the community. Participating in community activities is one of the most strategic activities that boost image and reputation of the company hence a viable marketing tool. Reasons for Choice of Location for the Subsidiary Parent company requires strategic decision from the management to establish a subsidiary in a foreign location. The management considers various aspects which must be in line with company goals and objective. These aspects form the basis for making a decision to venture into this new market by establishing a subsidiary firm (Heidenreich, 2012). Honda Motors Company may decide to venture into Somalia market for various reasons which include: Many multinational companies may think view Somalia as a war-torn country instead of seeing the potential market in the near future. Honda Motors should take this as advantage and make a deliberate decision to invest in Somalia. The country is in its recovery path from war and political instability. Again, it has a potential population which consists of businessmen and various professionals. Such aspect provides sustainable market and Honda should be ready to face the challenge. After long spell of civil war and political instability, the country attracts attention of international community. Many aid organisations come with an aim of helping the country to recover. The Honda management should take this aspect into consideration and make a deliberate effort to establish manufacturing plant in strategic towns such as Kismayu in Somalia. While others see threats, Honda should see opportunity for growth and influence in this particular industry. Besides Somalia, Honda may also decide to operate other subsidiaries in East Africa. Mostly, companies only establish sales offices in foreign countries. Setting up manufacturing plant is also necessary in order to have sufficient influence in the economy. These countries are ready to support companies such as Honda to help in realising their dreams. It is therefore an idea that Honda management should not take lightly. The market has a lot of opportunities for automotive multinational companies such as Honda. Strategic Methods of Entry and Possible Consequences Entering a new market especially in foreign location is not an easy task. It involves research on market demand as well as competitors performance (Khanna, & Palepu, 2013). In the case of Honda Motor Company launching a subsidiary in Somalia, the issue of competitor may not be a challenge. Not many multinational companies are courageous enough to venture into such market. The parent company in Japan should take full advantage of this fact to enter this market. As a result, the company might end up having a stable and sustainable market share due to early entry. There are various strategies Honda management can use to enter and penetrate the market in Somalia. However, bear in mind this is a new market which has no stiff competition. In addition, most competitors still view the market as highly risky thus not willing to venture into it soon. In this case, two entry methods namely product promotion and price adjustment may work well. Product promotion is the common entry method for most companies. It involves vibrant marketing through advertising campaigns with an aim of creating awareness about the new product in the market (Lee, & Carter, 2011). The management should come up with vehicles that suit this specific market and promote them in its campaigns. The main target market in this campaign is able to get the logic why they should go for this particular product, in this case, Honda vehicles and leave others. There is also another class which is developing in Somalia especially southern part of the section. Due to booming business in Kismayu, most young men are taking advantage of prevailing peace by engaging in income generating activities. It is a potential market for Honda products. Price adjustment aims at creating a competitive edge over the competitors in the market. Most vehicles in Somalia come from neighbouring countries such as Kenya. It is important to ensure that the price is slightly lower or at par with competitors’ vehicles to attract the potential buyers. The main concern in this case is that when the price is lower, people tend to purchase the product (Lee, & Carter, 2011). By adjusting the price, the management can be sure of recording high sales volume in this emerging market. Potential Organisational and Managerial Problems Setting up a subsidiary company in foreign market has several challenges. Some of the organisational problems that Honda Motor Company is likely to encounter in Somalia includes adaptation to the environment, language barrier and market resistance due to local perception towards foreigners. The major managerial problem is availability of skilled employees to work in the subsidiary. Most multinational companies and individual entrepreneurs shy away from this market due to such challenges. Climatic conditions in Somalia sometimes may not be friendly to foreigners. Adapting to this environment may take time which may have impact on cost of operation and overall performance of the company. Again, most locals in this location use local language in conversation except few who understand English. Language barrier is the potential hindrance in promotion and other marketing activities which are crucial in company’s performance. Again, the people in Somalia have negative attitude towards foreigners. It may be extremely hard to work in an environment where one cannot cope with local people. Most people in this community have no educational qualification that Honda management may require for employment. It makes the situation harder since even qualified people from neighbouring countries may not be willing to work in Somalia. People believe that working and residing in Somalia is risky hence they reject employment offers in this country. Although these problems form the basis for shying away from this market, the parent company should develop the guts to establish a subsidiary. Mostly, people analyse problems but fail to address them by looking for viable solutions. Every challenge in the world of business has a solution (Pfeffer, & Sutton, 2013). If there is ready market for vehicles in this location, then these problems should not prevent the management to establish the subsidiary. To counter the challenge of adaptation, the management may opt to hire employees from neighbouring country like Kenya who can cope well in Somalia. In Northern part of Kenya, there are substantial percentage of people who have the qualification and can work and interact with people from Somalia. Most of them speak the similar language hence easily acceptable than others in Somalia. Honda may take this advantage by engaging such people in marketing and other areas of operation. This counters challenges of adaptation and availability of employees in Somalia. To gain acceptability in foreign location like Somalia, the management need to develop viable strategic activities in the initial stages of establishment. Local people need conviction that the new establishment is there for the benefit of community (Khanna, & Palepu, 2013). Engaging in development projects such as assisting local schools and medical institutions may change their perception to the better. Consequently, such activities serve as entry strategy for existing products like Honda Vehicles in a foreign location. Acceptability from local community is the most crucial aspect in business. To create and sustain competitive market share in Somalia, Honda Motor Company ought to invest substantial financial resources in social responsibility. In the long run, this may help the company especially when other players join the market. The company does not need to spend money in marketing activities such as advertising when it has already invested enough in social responsibility (Mortara, & Minshall, 2011). The method has a lot of advantages since it benefits both the community and the company at large. Conclusion Multinational companies play an essential role in economic and social development both at home and foreign locations. They contribute significantly to employment creation which improves welfare of local people. In most cases, they source bigger percentage of labour from local population. The management of subsidiary is also entrusted to local people hence helping in developing professional careers in foreign countries. The aspect of availability of employment is beneficial not only to the people but also to the government. When there is high number of people in formal employment, the government gets sufficient revenue through direct taxation. In addition, employment enables people to get purchasing power thus high consumption of goods and services. This develops other businesses as well as raising government revenue through indirect tax in form of VAT. In the long run, this cycle impacts country’s economy positively. Critics of multinational companies argue that they repatriate their profits back to their mother country hence misusing local resources for their selfish gain. Although this statement sounds reasonable, there is need to compare both advantages and disadvantages analytically. The benefits of existence of multinational subsidiaries in foreign countries outweigh disadvantages. It is the local community and the government that stands to lose in case these companies close their subsidiaries. For this reason, there is a high need for establishment of Honda subsidiary in Somalia. Reference Heidenreich, M. (2012). The social embeddedness of multinational companies: a literature review. 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