Conflict Management-Honda Motorcycle &
Scooter India Pvt Ltd.

This case is about the split between the Hero Group and Honda Motor
Company. Hero Honda Motors Ltd. (Hero Honda), a joint venture
between Hero Cycles of India and Honda of Japan, came into existence
in 1984 as a motorcycle and scooter manufacturer in India. In 2001, Hero
Honda became the largest two wheeler manufacturing company in India
with over a million units produced as well as the 'World's number one'
company in terms of the unit volume sales for the calendar year. The
technology for manufacturing the bikes was provided by Honda whereas
Hero was strong in its distribution and service network spread across the
country.
In August 1999, Honda Motor Company announced the setting up of
Honda Motorcycle and Scooter India (HMSI) for making scooters and
later motorcycles as well. After this, the stock of Hero Honda fell by 30%.
Subsequently, HMSI started producing motorcycles, competing directly
with Hero Honda. Hero felt that its ambition to go international was being
hampered by the joint venture. Both the companies decided to end the
joint venture and signed their parting agreement on December 16, 2010.
With the split, the erstwhile partners became competitors. Both the
companies have several opportunities ahead of them and are likely to
face challenges to gain and consolidate their position in the Indian two
wheeler market.
Issues:
» Understand the benefits (utilizing strong points of both) and problems
(different ambitions) of companies being in a Joint Venture.
» Understand how the companies can together make the Joint Venture a
success.
» Discuss whether the decision of both companies to split Hero Honda was
correct.
» Discuss the future strategies of both the companies and what they need to do
to succeed.
» Analyze who will benefit more from this split.
» Analyze the impact of this split on consumers and competitors.
Splitsville
On December 16, 2010, India-based Hero Group (Hero) and Japan-based
Honda Motor Co. (Honda) signed an agreement to dissolve their partnership,
thus putting an end to one of the most successful joint ventures in the Indian
automobile industry. The companies decided to part ways owing to unresolved
disputes, and their own plans for the Indian and international markets. Honda
decided to exit the venture by selling its 26% stake to the Munjal family, the
owners of Hero. On ending the partnership, Fumihiko Ike, Managing Director
and COO, Honda-Asia and Oceania, said, "When we entered India, the idea
was to explore the market, but much has changed since then
Hero and Honda entered into a joint venture, Hero Honda Motors Ltd. (Hero
Honda), in 1984 and introduced Hero Honda CD100 the next year. The first 100
CC bike in the country provided high mileage and went on to become the most
popular two-wheeler in the country. The joint venture also resulted in several
path breaking motorcycles, like the Splendor and the Passion. However, over
the years, differences emerged between the partners mainly due to Hero's
global plans which were hampered by its agreement with Honda5, and the foray
of Honda's Indian venture, Honda Motorcycles and Scooters India (HMSI), into
the Indian motorcycle market, directly competing with Hero Honda. Both the
companies decided to part amicably, with Honda continuing to provide
technological support to Hero till 2014, and Hero continuing to pay royalties to
Honda.
After the split, Hero went in for a rebranding exercise, renaming itself Hero
MotoCorp. It launched a new logo, along with an advertising campaign. Hero
also launched new products and announced its intentions of exploring
international markets. Though Hero was successful in retaining its position as
the top two-wheeler company in the Indian market, some challenges remained.
According to Pawan Munjal, Chief Executive Officer and Managing Director of
Hero, the main challenges Hero faced were, "First is to bring our own product.
Second is to go out and set up our distribution globally, and third to replace the
brand, which was already one of the most established brands in the country.
The Hero Honda Joint Venture
The origins of Hero date back to 1944, when four brothers of the Munjal family
started a bicycle spare parts business in Amritsar, Punjab, North India. In 1956,
Hero Cycles Ltd was established in Ludhiana, Punjab. In the first year, the
output was 639 bicycles. They started exporting bicycles in 1963. The Munjals
also incorporated several bicycle component manufacturing units, which
included Rockman Cycle Industries for manufacturing bicycle hubs and chains,
and Highway Cycles for making freewheels. By 1975, Hero had become the
largest manufacturer of bicycles in India.
In 1978, Majestic Auto Limited, was incorporated. The first product from this
venture was Hero Majestic Moped, a motorized two wheeler. In 1986, Hero
became the largest bicycle manufacturer in the world.
In the early 1990s, Japan-based Honda was looking at entering the Indian two
wheeler market (both scooters and motorcycles) through joint ventures7. Honda
had been the largest manufacturer of motorcycles in the world since 1959. In
terms of automobile manufacturing, it was the sixth largest in the world. Initially,
Honda intended to partner with the then market leader Bajaj Auto Ltd. (Bajaj).
But the venture did not work out, and Honda partnered with Kinetic Engineering
Ltd. (Kinetic), which manufactured the Luna brand of mopeds. Both the
companies entered into a joint venture, with each company holding 28.56% of
the equity. The venture, Kinetic Honda Motors Ltd. (Kinetic Honda) opted to
produce scooters through the joint venture, as the scooters were highly popular
at that time.
On the board of Hero Honda, Honda appointed four members and the Munjal
family had four representatives. Employees from Honda, Japan, were brought to
take care of the quality and engineering functions. Other functions like
marketing, finance, HR, and daily operations were managed by the local staff.
Hero Honda announced that it would launch a 100 cc motorcycle the next year.
At that time, industry observers were of the view that consumers would reject
motorcycles as they were more used to and preferred scooters. Hero Honda set
up a factory in Haryana, North India. The company launched its first bike - the
Hero Honda CD 100 - in 1985. The CD 100 was designed completely by Honda.
The four stroke motorcycle was equipped with an electronic ignition system,
illuminated speedometer, and 4-speed gear box. The bike set very high
standards of fuel efficiency, promising a mileage of 80 km per liter. The Hero
Honda CD 100 was launched with the campaign - 'Fill it, shut it, forget it' that
highlighted the mileage that it provided. The motorcycle became highly popular
owing to its mileage and the fact that it was the only four stroke engine
motorcycle at that time in India.
Honda has other Plans as Well.
While the Hero and Honda joint venture was going from strength to strength, the
joint venture of Honda with Kinetic was not doing too well. Kinetic Honda was
the first gearless scooter in India. The vehicle became highly popular, especially
among women, due to its electric start and gearless operation. By the early
1990s, the company started facing competition from TVS which came up with its
own version of gearless scooter called Scooty targeted at women. But Kinetic
was not allowed to enter the motorcycle segment as Honda already had a joint
venture with Hero. In 1993, Honda increased its stake in the joint venture to
50.92%.
Bone of Contention
When Honda announced in August 1999 that it would set up a subsidiary to
manufacture scooters and motorcycles, Hero Honda's stock plunged by 30%. In
2004, when it was time for the agreement with Honda to be renegotiated, Honda
announced that it would enter the motorcycle market through HMSI. At the same
time, Honda allowed Hero to have a minority stake in HMSI, and allowed Hero
to examine the motorcycles that HMSI would release in the market. Though
Hero Honda launched several new products from time to time, Honda was
reportedly reluctant to share its technology with Hero Honda, though it had an
agreement to do so. Company insiders were of the view that Hero Honda was
unable to bring out new bikes with better technology while competitors came out
with better versions, as innovation was solely in the hands of Honda.
Human Resource Policy at HMSI

Appraisal was performed by the section head and the shift in charge.

Workers were divided into five categories with increments ranging from
400 to 1400 per month.

Opportunities for workers ranged from workers to sub-leaders to
assistant executives to executives.

No one covered by Payment of Bonus Act, 1961 & most of employees
were not covered by Employees state insurance act because of high
salaries. • Company gave an ex gratia of one month’s gross pay as
incentive around Diwali • No scope for workers’ expression through any
letter to the editor.
Rise of issues at HMSI
The first labor unrest voiced in November 2004 regarding the Diwali gifts.
 Movement Sheet for Washroom Breaks.
 Managers showed partiality in matters related to job posting.
 Strict attitude of the Japanese vice president.
 Too much of workload in the form of handling multiple machine at the same
time.
 Strict in granting leaves.
Consequences

Slowdown of work

Output was affected

Widespread discontent among the workers

Workers demanded creation of union

Employees encircled the management resulting in violence

Shutting down of production

The incident of 25th July 2005- workers got beaten up by the police
After-Effects of conflict

Registration of employee union .

Change in management attitude felt by union leaders; concessions allowed on
various fronts .

A small room allotted to union leaders with a promise of a union office in
future .

Invitation to all 7 union office-bearers to discuss workers-related problems or
issues .

Overtime working issues: lure of extra money; medical problems, workers not
fresh .

Overtime working was scraped in most cases.
The Split and the Aftermath
In December 2010, both the companies decided to part ways in a phased
manner because of unresolved differences and independent plans.
Honda decided to sell its stake of 26% to the Munjal family and to exit
from the venture. On the split, Pawan Munjal, said, "The Hero group
together with Honda had a great 27 years of the joint venture which all of
us have benefited from. It was time for us to get into a new mode where
we as a group can then involve a whole lot of our own people here in the
company and start doing our own technology development, which was
one of the big reasons why we thought of parting ways and also to get
into the international market and to take the Hero brand global
Opportunities and Challenges
In the
past when there had been a split between an Indian company and the
partner in the joint venture, the results had been mixed. For example, Bajaj and
TVS were able to sustain and grow even after breaking away from their joint
ventures with Kawasaki and Suzuki respectively. On the other hand, Kinetic and
Eicher suffered after falling out with Honda and Yamaha respectively. Regarding
the split of Hero and Honda, there was a poll conducted and afaqs asked
advertising and marketing professionals about the impact of the split on both
brands. The experts felt that the Hero group would continue doing well,
especially in the mass markets, but R&D and technology would remain a
challenge. They said Honda would do well in the premium segment, but creating
a mass market appeal might prove difficult. Another challenge would be in the
terms of local distribution, after-sales service, and spare parts...
CONCLUSION
1. Failure of mgt. to realize importance of Diwali in India
2. Tokenism of conciliation in resolving collective issues
3. Carelessness on the part of Indian mgrs. about labour power  After a problem
is identified, the next step in conflict resolution is to gain a better understanding
of the situation. If conflict isn’t handled effectively, results may cause further
damage and lead your team or organization down a vicious path of negativity.