The Hindu Business Line : Hero and Honda — Fill it, shut it, forget it?

IS THE glass half full or half empty? That is the question Hero Honda Motors must be searching an answer for.Honda Motor Company announced last week that it would renew the technical tie-up with the Hero group when the current agreement expires in 2004, setting to rest all speculation on the issue.

Yet, Honda's announcement raises more questions than it provides answers on its future relationship with the Hero group. For, post-renewal, Honda will be free to produce and market motorcycles through its wholly-owned subsidiary in India, Honda Motorcycle and Scooter India Pvt. Ltd. (HMSIL).

Of course, Hero Honda, the 26:26 joint venture, will also be free to enter the scooters market in the country. Both of these are prohibited as per the terms of the current agreement.

What exactly is Honda's strategy in the Indian market? Last Tuesday's announcement clearly says that the two may even launch models in the same category and that they have identified models to be introduced in the next five years through Hero Honda. Their strategy is to have a 50 per cent combined share of the market, the announcement said. While this does resemble, in parts, the strategy adopted by Coca-Cola in India (where it has Coke and Thums Up, acquired from the Parle group, competing with each other), it also appears to spell trouble for the joint-venture company, Hero Honda.

What will be the motivation for Honda to continue supplying technology to Hero Honda when its subsidiary is operating in the same segment? In other words, with its own models competing with that of Hero Honda's why should Honda Motor Company support Hero Honda?

These are the questions that ought to disturb stakeholders in Hero Honda. Especially because unlike TVS Motor or Bajaj Auto, which have a demonstrated ability to design and develop successful models on their own, Hero Honda depends on the Japanese major for technology. As for the freedom to enter the scooter market, well, the writing on the wall is clear. Scooters, as a generic category, have lost out to motorcycles and the only scooter to taste success in recent times has been Honda's own Activa. Three-fourths of all two-wheelers sold are motorcycles while scooters account for less than a fifth. Besides, Hero Honda has no demonstrated ability in scooters and again, it would have to compete with the successful Activa for market share. The option to enter the scooter market is, thus, really a no-option. On the other hand, look at the hunky-dory scenario for Honda. Its subsidiary, HMSIL, has stamped its authority on the scooter market firmly establishing the Honda brand in the process. It has gained a solid insight into the market through the subsidiary and has also established an excellent dealer and service network that is so essential for success. All it now needs is a good motorcycle model.

Honda's strategy clearly seems to be to strike out on its own and the renewal of the tie-up appears a mere thanksgiving gesture to a partner which has helped establish its brand in the country. The progress of their relationship in the next few years will be interesting to watch even as the other two-wheeler companies sit up and assess the competitive threat emerging on the horizon.

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