Hero Honda Split Case Studies

: The emission norms are getting stringent every year and it is said that it was the prime reason for Honda to part ways with the Herogroup. By 2015 all the bikes in India would adhere by the BS4 norms which are much more stringent compared to the BS3.

The new norms mean that the companies have to invest a lot of money in R&D for advancing their engine and fuel injection systems for reducing the emission. The manufacturers have to redesign and make technical changes to suit the emission norms set forth. V G Ramakrishnan, senior director, Frost & Sullivan, said, "Honda knows better fuel injection systems are required to meet the next level of emission standards in India. The company has invested heavily in making its products more fuel-efficient. This technology could not have been shared with Hero Honda." So the next logical step for Honda would be to end its tie with the Hero Group so that the technology need not be shared which would be a vital loss to the company after spending millions for R&D of its injection systems. With this split up we can expect Honda to play a much more aggressive role in introducing new bikes and pricing well.

2: Well, the end of this 27 year old highly successful partnership is really a bit shocking. The official reasons cited were disagreement between the Munjals owned Hero and the Japanese motor giant Honda over various deals and issues, but in the market the speculations are that the real reasons can be the requirement of all two-wheeler manufacturers to implement Bharat IV emission norms. While at the same time EURO-V norms will have to be implemented in the west, and keeping this in mind as Honda is already a big player in western markets, Honda has already invested heavily in R&D keeping the western up-gradation in mind. Honda is already a competitor of Hero Honda in the Indian markets so if they continue their partnership Honda will have to share their technology with Her. With about 26% stake of Hero in Hero Honda, Honda will not like to risk the large potential in Indian market by sharing their technologies.

3: Honda is one of the leading manufacturers of world class products including cars and two wheeler( In collaboration with Hero Group ) and is very popular in India too. Honda Motor Company being the second largest manufacturer carries enough potential to stand on its own and this could be one of the reasons why it is considering a split with the Hero Group.

4: There are two likely reasons. One, the increasing cost of royalty and technology (R&T) and second, the growing presence and market share of Honda Motorcycle & Scooter India (HMSI), a 100% subsidiary of Honda.

R&T payments are the third biggest expenses for Hero Honda after raw materials and employee cost. However, even as it has to pay more to Honda under the R&T head, its margins are actually falling. This coupled with higher input cost means that Hero Honda