AvantGarde

The ‘Dhak Dhak’ image of Hero Honda has touched the hearts of old and young alike across the nation. Also vivid is their association with sports like Cricket, Hockey (Phir Dil do Hockey Ko) and Delhi Commonwealth Games. It has also been the sponsor of TV shows like Roadies and Sa-re-ga-ma-pa.

The two automobile giants India’s Munjal owned Hero MotoCorp and Japan’s Honda Motor Company terminated the 26-year-old successful relationship due to unresolved differences and ambitious independent plans. Hero Cycles and Honda merged to form Hero Honda in 1984 and since then Honda is responsible for the technical advancements while leaving marketing and distribution to Hero Group. The years to come saw Hero Honda reach the meteoric level of becoming largest two wheeler manufacturer of India. In August 2011, the much celebrated honeymoon came to an end with Hero group buying Honda’s entire 26% stake in the joint venture for $850 million along with some share in future sales of Hero Honda. The contract is slated to last till 2014 and the proactive giants have begun their preparation.

India is too lucrative a market for any global player to miss out on. With the infrastructure already in place and on going research and development, both these organizations are likely to succeed in longer run.

Reasons for the split-: Growing presence and market share of Honda Motorcycle & Scooter India (HMSI), a 100% subsidiary of Honda, has made it a competitor of Hero Honda. Given this scenario the need to share the technical research and advancements with Hero was brought to question. After all brand Honda is no longer alien to India.

The regulatory norms could have also played a part in the decision. As the west prepares for uro V emission norms, Government of India is seeking compliance to Bharat IV (referenced from Euro IV). Honda has already invested heavily in R&D of Bharat IV norms. Honda might not have liked to share the fruits of its R&D done elsewhere with Hero group and dilute the competitive edge of HMSI. Hence it decided to sell its stake to Hero group.

Likely Challenges – : This split will open the doors for Hero Group to expand its identity across the globe by means of new products, rich technology and locating R&D centres. Also, Honda could now focus more on its subsidiary Honda Motorcycle and Scooters in India.

Challenge of course would be to maintain the brand image of Hero Honda. The year 2015 will be the acid test for Hero MotoCorp, as they will have to implement the new emission norms.

Honda is technically more capable and seems more progressive due to its global presence. They will have to develop strong distribution network in India which may not be a difficulty due to its global fame, knowledge due to partnership with Hero and its efficient products like Activa and Unicorn among others. It is also likely that till the time contract continues, Honda may not come up with challenging models in Indian market. Although Honda needs to provide new models to Hero Honda under the new agreement, there is a possibility that it will reserve few for HMSI.

The two-wheelers industry of India would become more competitive and customer is sure to benefit.

Rebranding/Brand Value-: Hero Honda has off-late become synonymous to motor bikes in India and it will be no mundane task for either of the players to move out of the Hero Honda mould. Honda has been always regarded as the name behind motor vehicles, while Hero has mostly been synonymous with cycles. And finally if the message is not right, any branding or rebranding campaign will surely fail despite the money spend over it. Hero Group is likely to spend Rs 175 crore for image makeover due to the split. This can also be interpreted by the length of the new Hero Motocorp advertisement “Hum mein Hai Hero” by AR Rahman and directed by Anurag Kashyap which is  about two minutes long and has been broadcasted in most hyped India-England series.  Hero Group has signed a deal with London based brand specialist Wolff Olins and advertising agency Law and Kenneth Communications (India) Pvt. Ltd for their rebranding exercise.

So, much awaited is how the market of two-wheelers will be affected after this split. Will both the firms manage to retain the Brand image or it is a chance for other players like Bajaj or TVS to benefit the most from the end of this long relationship?

Ankit Garg

Masters of Business Administration (2011 – 2013)

IIT Kanpur