Hero Honda ≠ Hero Motocorp
By now, the vast majority of the people exposed to mainstream multimedia are already aware of Hero group and Honda Motorcorp’s divorce last year and the subsequent solo journey of the Munjals that began in earnest last week.
This blog’s primary motto has been to raise and simplify issues related to cars in general, but this week, I choose to make an exception. Hero Honda was not a company that made cars but like Maruti, it had its roots in the pre liberalisation era that abhorred competition and quality. But like Maruti, it played a big role in the growth of the Indian automotive industry as it became the world’s largest two wheeler maker by the turn of the century. It will be a farce not to look back at that journey and speculate on the way forward.
Hero and Honda
Back in 1983, when Hero Group controlled by the Munjals centred in Punjab and Honda Motor Corp of Japan sat down to sign a joint collaboration agreement, the two firms were as different as chalk and cheese.
Hero was a desi company that had mastered the art of making bicycles and was looking to graduate to the next step. Honda was already the giant in the global automobile industry, a technology and quality driven company that has few parallels.
The two firms had one common belief, that India with its bulging population, low per capita income and pathetic public transport system would be in need for frugal means of personal transportation. And they knew that together they can provide it like nobody else.
Hero with its inherent knowledge of how to sell products in India was the champion in marketing and sales. Honda was the undisputed leader in two wheeler technology worldwide. This marriage was made in heaven.
The magic of Splendor
Though the journey began with the frugal 4 stroke 100cc motor bike CD 100 in the 80s, the Hero Honda story really started gathering momentum when in 1994, it launched the Splendor.
This bike was a significantly more improved version of the CD 100 and offered a fuel efficiency of more than 70 kmpl. The market then was dominated by scooters made by Pune based Bajaj and the Splendor’s tag line of fill it, shut it, forget it, aimed centrally at the relatively poor fuel consumption figures of a scooter.
What helped the bike’s cause was also the young population in college which was exposed to the winds of globalisation. No longer was a bicycle the preferred mode of transport for students in college and Splendor quickly took over that segment.
But no product in the competitive automotive space can withstand the test of time only with lever marketing and branding. Honda’s might in two wheeler engine technology worldwide paid dividends and Splendor proved to be as easy to maintain as it was to run. It rarely complained when abused, was sprightly and sporty and returned excellent fuel economy figures.
It may be a hard core biker’s nightmare, but even today after being on the roads for 17 years Splendor does the job of ferrying around the country like no other. By the turn of the century it became the world’s largest selling motorcycle and by 2002 it catapulted Hero Honda to the top, a position it has withheld ever since. The Splendor remains one of the largest selling motorcycles in India with sales of over 1 million units per year.
Even though, the two companies complemented each other very well, there were quite a few areas of discord that often fuelled rumours of an imminent split. Initial the joint venture agreements between the two firms that were renewed after every 10 years, itself prohibited Honda to sell motorcycles on its own. This was one reason why it had to enter India first as a scooter manufacturer in 1999 (Honda Motorcycle and Scooter India) and even for that it had to reach a consensus with the Munjals.
Hero Honda could never build its own research and development capabilities as Honda, which had a 26% share (the same as the other promoters Munjals) would always argue the rationale when technology was being provided by it in anycase. The company could also not spread its wings and look at exports as that would cannibalise Honda’s own global export strategy from Japan. As things panned out, export of two wheelers took off in a big way since 2005, which has been well exploited by rivals Bajaj and TVS. This did not go down well with the Munjals.
The differences escalated further when after renewing the technical collaboration agreement in 2004, Honda decided to get into motorcycles with the 150cc Unicorn. This was the first time that a Honda bike was competing directly with a Hero Honda (CBZ). Even though, Honda promised to keep off the commuter segment (100-110cc) that accounted for the bulk of the sales in India and where Hero Honda was the strongest, relations between the two promoters was deteriorating.
The relations between the two partners reached a flashpoint after Honda suffered one of the cases of labour unrest in the country at its Manesar factory in the summer of 2005. Though it could never substantiate it, the Japanese officials at Honda who were also on the board of Hero Honda suspected the hand of Munjals behind every instance of labour strife HMSI suffered between 2005 and 2010.
With both holding grouses against each other while growing more confident and ambitious of their own capabilities, a divorce was duly executed in December 2010.
Hero Honda may become Hero Motocorp but the two companies would never be the same. Hero would get to use Honda technology till 2014 as also keep ubiquitous brands like Splendor, Passion and Glamour but eventually its bikes would be powered by technology that is developed in house.
Unlike cars, two wheelers do not boast of very complex engine technologies that keeps upgrading itself in short cycles, especially in the case of low cost commuter bikes. Further, the demand for two wheelers elsewhere in the world is such, that some of these technologies is available at very attractive prices all over Europe.
Even then, it will be difficult for the Munjals to either develop or buy technology as advanced and reliable as the one that has powered all its bikes till date. It will use its muscle of marketing and low cost servicing, two very critical aspects in a country as geographically wide as India, to the full but should Honda be able to develop a revolutionary low cost technology for emerging markets in the near future, Hero would have its hands full.
For Honda, it will be a very steep learning curve for the next few years. Hero Honda no longer exists and what remains at its place is a very stern and ruthless competitor, one that uses its own basic edifice.
Honda also does not have the marketing prowess of Hero and would take its time to shore up its dealer network. To their advantage, the Indian consumer recognises what Honda brings to the table and is knowledgeable enough that the technology that powers the Splendor they ride everyday is courtesy them. Whether HMSI can act smartly enough and press than advantage fully would be critical.
The Munjals would like everybody to believe that Hero Motocorp is the same as Hero Honda, the sad reality is it is not true. What we have in its place instead are two companies with their own strengths and weaknesses. Individually Hero and Honda’s strengths do not match up to those of the erstwhile Hero Honda. Instead the two firms are much weaker than what Hero Honda ever was.