Honda Motor

The growth of the Honda Motor Corporation is inseparable from the explosive surge of the Japanese automotive, truck, and motorcycle manufacturing sector in the aftermath of World War II. That expansion is remarkable. In 1950 the combined total for production of cars, trucks, and buses was around 29,000 units; by 1960 this number had multiplied 15-fold; by 1978 it exceeded 9,260,000 units. Within this massive industry Honda is a second-tier player. A world leader in engine manufacturing (its engineers made a major breakthrough with their development of the water-cooled Compound Vortex Controlled Combustion engine in 1973), its volume of vehicles produced is far overshadowed by other Japanese automobile manufacturers, most notably Toyota and Nissan.

As the industry blossomed, especially during the 1960s and 1970s, its major players developed a two-pronged strategy relying upon domestic sales for their core business, simultaneously pursuing export opportunities especially in the relatively high income per capita American market, eventually building a North American production base. For instance, Honda established its first American factory site near Marysville, Ohio, laying the groundwork for Honda of America Manufacturing during the late 1970s.

These two features of the postwar Japanese automobile industry can be neatly captured in the theory of international trade in manufactures rooted in twin concepts of geographic distance and monopolistic competition within national economies. As the costs of shipping goods fall—in the case of automobile shipments over the seas due to the growing use of specialized roll-on/roll-off ships—consumers seeking variety find they can satisfy this demand by purchasing from a menu of choices including both foreign and domestic manufactures. Since there are strong economies of scale and scope in manufacturing and distributing automobiles—unit costs falling with volumes fabricated [Page 823]and sold—relatively few companies can enter and survive within individual national markets. Those that do so differentiate themselves from one another through branding and advertising. While relatively few automobile producers exist in individual countries, considerable variety of choice exists for consumers in these countries due to international trade.

Honda shares with most of its Japanese rivals—Toyota, Nissan, and Mazda—a cluster of characteristics that help explain the phenomenal growth of the industry: building quality into all of the components of its vehicles; the ability to rapidly and flexibly adjust to changing regulations and consumer tastes; and a fierce commitment to improving productivity. Exemplifying these principles is Honda's BP Program—“best position, best productivity, best product” —perfected in Japan during the 1970s and introduced into its North American operations during the 1990s. One of the principal goals of BP is to induce firms in its supplier network—in the case of Honda of America Manufacturing over 80 percent of its manufacturing parts are sourced from its supplier network—to continually drive down costs and to upgrade component quality, never forgetting that the battle to cut costs and improve quality is best fought at the shop floor plant level.

A second characteristic that Honda shares with companies like Toyota is rapid response to constraints on exports. When the American and Japanese governments negotiated voluntary export restraints (VERs) on the volume of Japanese automotive exports to the United States, both companies diversified into luxury cars—each luxury vehicle containing more value added than their less expensive cousins. Honda introduced the Acura, and Toyota the Lexus.

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