Regional Supplier Networks and
Competitive Advantage
–
Case Studies of Honda and Vietnamese
Motorcycle Companies –
(Draft)
Pham Truong Hoang
Graduate School of Information and Environment Sciences –
Yokohama National University
JVEC Workshop – 11/22/2003
1
Background and Motive for Study

Japanese style supplier system’s
competitive advantage



Japanese direct investment in Vietnam
Vietnam condition- near China, in ASEAN
Vietnamese motorcycle industry in recent
years
2
Contents






Introduction
Key concepts and frameworks
Review of Motorcycle industry in Vietnam and
East-Asian region
Regional supplier system – Case of Honda
Vietnam Company
Product architecture and component’s
supplier system – Cases of Honda and
Vietnamese motorcycle companies
Conclusion
3
1. Key Concepts and Frameworks
(1) Supplier system
 Production cost & transaction cost:


Production cost: cost of input
Transaction cost: cost to sustain “asset
specific” – (1)search cost, (2)contracting
cost, (3)monitoring cost, (4)enforcement
cost
4
(2) Business architecture
Product architecture



Closed vs. Opened



Product architecture: function-component’s scheme
Interface: components’ connection rule
Closed: rule of interface designed by one firm
Opened: interface is standardized in the industry
Modular vs. Integral


Modular: one-to-one mapping
Integral: complex mapping (non one-to-one)
5
(3)Japanese style supplier system



High performance,
competitive
Transferable to other
countries
Exploiting
transaction cost
economy

Features:







Long-term relation
Specialization
Pyramid structure
Inside competition
Group integration
R&D concentration
Information
exchange
6
(4) Performance of supplier system

Short-term:



Cost: low input cost
Delivery: fast and accurate (JIT)
Long-term



Quality: stable in physical feature
Flexibility: fast in self-changing
Design: fast in R&D
7
2. Review of Motorcycle Industry
in Vietnam and in East Asian region

Motorcycle industry in Vietnam
 Development, Consumer market,
Competitors, Domestic suppliers

Motorcycle industry in East Asian region
 Overviews, Chinese motorcycle industry,
Thailand’s motorcycle industry
8
Motorcycle industry in Vietnam
Motorcycles being granted circulating license
Thousand units
12000
10273.659
10000
8359.042
8000
6000
4000
2770 2806 2846 2901
3275
3678
4209
6387.207
5549.267
5206.128
4827
Motorcycle
in the whole
country
Number in
increasing
compare
with past
year
36.4
40
837.939
403.3 531 618 379.128343.139
374
286.2
55.2
1991
1992
2000
1990
1971.835
1914.617
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0
Year
Source: Ministry of Police quoted by NEU-JICA project 2002
9
Consumer market
1. Rapid development:
(1)Income increased
7000
6000
5000
4000
3000
2000
1000
0
*
(2)Price reduced
2. Striking
development of low
price segment
3. Largest segment:
low price market
Household Income 1999
Number of
Household
(thousand)
*
Number of
Household
(thousand)
up * Up * 300 *
100
200
*
*
*
*
Income in USD/month
Household Revenue in 2001
RURAL
URBAN
6000
5000
4000
3000
2000
1000
0
Source: Department of Statistics and author’s
investigation
*
*
up * Up * 300 *
100
200
*
*
*
*
10
Revenue in USD/month
Competitors, Market share, suppliers

74.7%
70.0%
68.4%
60.0%
50.0%
40.4%
30.9%
40.0%
30.0%
19.6%
20.0%
13.4%
HVN share
Import Honda share
Total Honda share
VMEP share
Suzuki VN share
Yamaha share
Others share
Chinese m.c share
12.3%
10.0%
20
0
H1 2
/2
00
3
20
01
20
00
0.0%
19
99

In Japanese keiretsu
ones
Widely supplying foreign
invested ones
Domestic ones
80.0%
19
98

85.1%
19
97

90.0%
19
96

7 foreign invested, 45
domestic assemblers
Market share:
fluctuating
Suppliers- more than
550 classified in three
kinds:
19
95

Figure 2.5 : Market share by producers
Year
Source: Ministry of Police and author’s investigation
11
$ 6,000
Vietnamese Motorcycle Market’s Segments
and Positioning in 2002
@
$ 4,000
Spacy
Piaggo
Force
Future $1660
$ 3,000
Dream II
$ 1,300
Jupiter ($1600)
Sirius ($1400)
Viva ($1500)
Best ($1300)
Supper Dream ($1330)
Magic,star $1250
$1,000
Angel $850
Sanda$850
$700
Chinese parts product($500)
Dream Model
Dream Model
Traditional
Chinese
parts
product
($500)
Wave Alpha ($730)
Wave Model
Fashion Model
Source: Author’s editing based on expert’s measures and market data
12
Motorcycle industry in East
Asian region

Chinese motorcycle
industry




Striking development:
Price cutting
“Copy and ameliorate”
strategy
Modularization
Table :Motorcycles Production in China
Thousand units
14000
12000
10000
8000
6000
4000
2000
0
Year
1980 1983 1986 1989 1992 1995 1998 2001
Source: Honda's "World motorcycle facts
and Figures 2001"
13
Thailand’s motorcycle industry
2001
2000
1999
1998
1997
1996
1995

Localization: 100%
Closed-integral
business architecture
1994

Production
Sales
1993

Japanese makers-98%
Honda-70%
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1992

Thousand Units
1991

From 1960s
Market share:
1990

Table ..: Motorcycle production and sales in Thailand
Year
Source: Honda's "World motorcycle facts
and Figures 2001"
14
Summary

Vietnamese motorcycle industry:





Striking development
Increasing competition
Low price segment enlargement
Chinese component’s role
East-Asian regional motorcycle industry



Striking development
Chinese motorcycle industry modularization
Low price of components
15
Hypothesis (1)





Change in Vietnamese market
Decline of Honda in Vietnam before 2002
Development and modularization in regional motorcycle
industry
Transferability of Japanese style suppliers system
Advantage of Japanese style supplier system
(1) Honda in Vietnam enlarged its supplier
system to regional supplier network
(2) Change of suppliers is in some components
16
Hypothesis (2)





Modularizing in Japanese automobile industry
Modularization in regional motorcycle industry
Modularization in components
Outsourcing and modularization’s relation
Dynamics of product architecture
(3) Honda in Vietnam is modularizing partly and
based on components
(4) Modularization in Vietnamese motorcycle
companies and product architecture is changing
dynamically
17
3. Regional supplier system in
Honda Vietnam Company (HVN)
Company background:






Joint-venture : Honda 70%
Establishment: 1997
Capital: 104 million US$
Location: Vinh phuc, 40 km
from Hanoi
Products: Super Dream (1998),
Future (1999), Wave Alpha
(2002)
Labor: 2000 persons
Figure 3. Production of HVN
Thousand units
400
350
300
250
Super Dream
200
Future
150
Wave Alpha
100
HVN total
50
0
1998
1999
2000
2001
2002
Source: Ministry of Police. Ministry of Trade
Year
18
Wave Alpha product


Launch: 2002
Price:


Sales:



2002-730US$;2003-850 US$
2002: 315.000
H1/2003: 158.000 (82%
HVN’s sales)
Successful development



Low price
Good design
Good quality
The role of supplier system
Figure 3. :Market share of Honda's different products
80%
66%
70%
60%
Super Dream
50%
Future
Wave Alpha
40%
31%
Import Honda
31%
30%
HVN total
20%
20%
19%
12%
10%
19% 28%
Total Honda share
8% 16%
0%
1997
1998
1999
2000
2001
2002 H1/2003
Year
Source: Ministry of Police, Ministry of
trade and author’s investigation
19
HVN supplier system
- cross product analysis New style supplier system of
HVN
Supplier system of Wave Alpha
Honda
Vietnam
Japanese traditional style
supplier system
Supplier system of Super
Dream
Honda
Vietnam
Sundori Honda
(China)
Asian Honda
(Thailand)
Honda
(Thailand)
Asian
First tier suppliers
Second tier suppliers
Source: Author’s investigation
20
HVN supplier system changes
and component classification

HVN supplier system’s change:
(1)
(2)
(3)
(4)
(5)

Increase domestic suppliers
Increase first tier: domestic ones, non-core parts
Shift to Chinese suppliers
Concentrate on price
Increase second and third-tier suppliers
Component’s classification:


Core components - Honda’s specific parts
Non-core components – Honda’s none-specific
parts
21
Performance of new supplier
system in HVN
Main characteristics of new
supplier system in HVN
(1) Increase domestic suppliers,
shift from some Thailand’s
suppliers to Vietnamese one
(mainly non-core components)
(2) Increase first tier but most of
new first-tiers are domestic ones
with non-core components
C
D
Q
F Ds Notes
+
+
(-)
(-)
+
+
(-)
(-)
*Weak
impact
because
components
are non(-) core
(-)
(C- cost, D- delivery, Q- quality, F- flexibility, Ds- Design
+: positive impact, -: negative impact, x: unidentified impact, (): weak impact)
22
(Cont.)
Main characteristics of new
C
supplier system in HVN
(3) Shift from some Thailand’s
suppliers to Chinese ones:
+
-With core components
+
-With non-core components
D
Q
F Ds Notes
* With the
development of
production in China,
negative impact are
(+)** - weak
(+)** (-)* (-)* (-)* **Including some “-”
impacts
(4) Take price is one of the
decisive factor
+
+
-
-
-
(5) Increase second and third
suppliers
+
+
-
-
x
23
Performance in summary
Characteristics
C
D
Q
F
Ds
(1)
+
+
(-)
(-)
(-)
(2)
(3)
+
+
(-)
(-)
(-)
+
+
(+)
(+)
(-)
(-)
(-)
(4)
(5)
+
+
-
-
-
+
+
-
-
x
(C- cost, D- delivery, Q- quality, F- flexibility, Ds- Design
+: positive impact, -: negative impact, x: unidentified impact, (): weak impact)
Source: Author’s investigation by interviews carried in July and August 2003
24
Supplier system of core-components

Honda keiretsu in
East Asia:


Engine’s component:
suppliers in Japan
(and some parts
from Thailand)
Transmission’s
component:
suppliers in East Asia
Supplier
systems of
C D Q F Ds
corecomponents
Sustain
suppliers in
Honda
- - + +
keiretsu for
most of corecomponents
Source: Author’s investigation by interviews carried in July and August 2003
+
25
Supplier system in HVN
- from performance analysis 
New supplier system:


Supports short term performances: Cost, Delivery
Harms long-term performances: Quality,
Flexibilities, Design


New supplier system for non-core
components
Traditional supplier system for core
components
26
Reasons for developing regional
supplier system

Regional condition:


Vietnamese motorcycle industry:



High development
Market (low price segment) enlargement
Regional strategy of Honda


Chinese motorcycle industry and modularization
East Asia regional specialization
Institutional factors:

Policy of localization
27
Summary

Regional supplier network in HVN





Component’s characteristics based
Opened regional system for non-core parts
In keiretsu regional system for core parts
Focusing on cost and delivery, on short-term
production cost
Reasons for new network: Industry’s condition,
MNCs regional strategy, institutional factors
(Hypotheses (1), (2) are supported)
28
4. Product architecture and
component’s supplier system
– Cases of Honda and Vietnamese motorcycle companies-
Case study of HVN

Flexible component’s supplier systems:

Core components:


In-the-keiretsu suppliers
Non-core components


Out-of-keiretsu Vietnamese suppliers
Out-of-keiretsu Chinese suppliers
29
Cont.

In-the-system relation:





Closed relation
Integral system
Supplier changing
inside system
Enlarging the system
Product architecture

Product architecture
Integral
Modular
Closed
Opened
Closed-integral
Hypothesis (3) is not supported
30
Cases of Vietnamese domestic
companies

Company A


Company B


Moving to closer relationship in system
Company C


Increasing in-house production
Keeping open supplier system
Company D

Moving to component manufacturing
31
Cont.



Entered market by
wholly opened-modular
Market-based
relationship
New changes:


Increase close relation
Apply in some parts
with some suppliers

Product architecture
Integral
Closed
Modular
A
B
Opened
C
Source: Author’s investigation by
interviews carried in July and August 2003
Hypothesis (4) is supported
32
4.3. Summary
- Dynamics of product architecture in Vietnam Motorcycle industry-


HVN sustains closedintegral architecture in
larger and regional
supplier network
Vietnamese companies:


Move to closer relation
with more closed product
architecture
Sustain opened-modular
architecture

Dynamics in product
architecture:
Integral
Modular
Closed
Opened
HVN
Vietnamese ones
New architecture
33
5. Conclusion & Discussion

Conclusion:




Regional supplier network in China-Asean region
Mixing and flexible component’s supplier systems
Dynamics of product architecture in components,
companies
Discussion:



Change of Japanese style supplier system
Modularization and component’s supplier system
Flexibility of transaction cost & production cost
34