Honda (HMC, Financial) is coming up with a new manufacturing plan to make its two wheeler segment more affordable and a better yielding unit. For a very long time, the Asian subcontinent has been identified as the prime destination for service outsourcing giving rise to BPOs, KPOs and ITES in a big way in India. But when it came to production or manufacturing, it was never a fond destination for the manufacturing bigwigs of the world. For a while, the notion about India as a location for manufacturing was quite shady. But now it seems the world is reconsidering their notion and identifying the fact that India has expertise required to become a global business destination.
Honda has already geared up to set the ball rolling in this direction after Amazon (AMZN, Financial), the world’s largest e-commerce player, started their Indian unit and recognized the Indian consumers.
Honda in India
The name Honda means a lot in the automobile sector across the globe; a name often associated with Grand Prix, as well as NASCAR events. It has been one of the dark horses in the racing circuit, and the world knows it. But what the world does not know much about is Honda's presence in India.
A lot of analysts would term the venture of Honda in India as a new move, while some might even speculate on the viability of Honda’s new move in the subcontinent. But the truth is that Honda is a time-tested name in India and has been here for ages. Honda first came into India as a joint venture partner of Hero Cycles and came to be known as Hero Honda, now known asHero Motor Corp.
They were among the first two-wheeler manufacturers in India to introduce 4-stroke technology and had launched their first motorcycle on Indian Roads by the name CD 100, which became an instant hit due to its high fuel efficiency, and rocketed Hero Honda to the number one position on Indian roads. And it held its number one position until the partners got divorced and became individual players. Hence, Honda is not new to the land, and rather has a profound clientele in the country and has gained enough customer confidence to perform on its own in the subcontinent.
New Move by Honda in India
Honda has recently declared through its Indian subsidiary, Honda Motorcycle & Scooter India, about its intent to start the manufacturing of global sports bikes from its Indian facility for both export and Indian consumers. They declared that it would start producing its high-end sports bike CBR-650 in the country, and also laid the foundation to set up its $179 million scooter manufacturing plant in the state of Gujarat. Production of the sports machine will commence next year.
"We announce that from next year Honda will start making CBR - 650 in India. By this, we will not only open up the skill of our existing manpower but it will also showcase the Honda India's manufacturing quality to the world," Honda India Vice-President Y S Guleria told reporters during the foundation stone laying ceremony for its upcoming plant at Vithalapur in Ahmedabad district of Gujarat.
Honda currently runs the show in India from three of their existent facilities located in Harayana, Rajasthan and Karnataka apart from the upcoming plant in Gujarat. It is yet to be decided as to which facility will facilitate the sports bike manufacturing.
CBR-650 is 649 cc sports bike with the four-cylinder double overhead camshaft (DOHC) engine technology and having the six-speed gearbox, as per the Honda website.
Meanwhile, reports suggest that the Vithalpur plant will be the world's largest 'scooter-only' producing unit. The unit is scheduled to start production by the end of 2015 and will have an annual production capacity of 1.2 million units.
"The latent demand of automatic scooter is so strong that with improving infrastructure in rural India, we foresee that this segment sale can go up to 35 per cent of overall two-wheeler sales in 5-10 years horizon," said Honda India President and CEO Keita Muramatsu.
While Guleria attributes this move from Honda as a part of the "Make In India" initiative being driven by Narendra Modi, the current prime Minister of India, analysts term this as a typical economics-based move. Considering the fact that India is a skilled labor intensive country and the cost factors being on the lesser side, Honda wants to take this advantage and keep the price tag more affordable globally in order to enhance its market share.
Honda Motor Company Chief Operating Officer Asia & Oceania Region, Noriaki Abe, said India is already a priority market for Honda.
"In the current fiscal 2014-15, Honda aims to sell 18.2 million two-wheelers worldwide and for the first time, India will contribute almost 25 percent to global Honda sales," he added.
Honda Motor Company Managing Officer Yoshiyuki Matsumoto said “with the fourth plant, the company aims to reach closer to the vast market in West which contributes over 25 percent to Honda's business.”
When the new facility hits the start button, the 1.2 million additional capacity would enhance the company's total annual production capacity in the country to 5.8 million units.
Though news about exports from Indian facility is yet to be confirmed, the buzz is that manufacturing and exporting from the subcontinent will substantially reduce their operational cost and improve their margins considerably.
The Outcome
With this new move, Honda will add substantial value to their books of business and this will certainly bolster their global two-wheeler market cap ahead of its peer group players like Ducati, Yamaha (YAMCF, Financial), Suzuki (SZKMF, Financial) and so on.
On the other hand, the Japanese automaker has started the trend of adding India to its production map. So is this the start of a new beginning, and will India succeed in delivering the quality at par with Honda global standards? India has got talent and potential that is for sure evidenced by the fact that the global number ones have put India on their radar. It would also be interesting to watch how the other manufacturing leaders’ device their production maps. Is this going to turn the production wind from China to India? Will the other auto majors follow suit? Is the world eyeing India as the next manufacturing hub? Lot of such questions will be answered once the time is ripe and the ball sets rolling for Honda. Until then, it would be best to sit on the sidelines and watch out for the results of the new move from Honda.
