Crossing Boundaries to International Production
By June 1961, sales of motorcycles by American Honda Motor (American Honda) were registering some momentum. At about this time, Honda established a wholly owned sales company, European Honda GmbH (European Honda, presently Honda Motor Europe (North) GmbH) in Hamburg, Germany (then West Germany), in order to expand its exports overseas. Just as it had done in the U.S., Honda took up the challenge of opening a European motorcycle market.
Building the factory. The construction was rapid from the start, but nevertheless was suspended for four months after a cold wave struck the region.
Ironically, that month Honda swept the top five spots in the 250 cc and 125 cc classes at the Isle of Man TT racing event in the U.K. It was only the third year that Honda had participated in the event. Honda was indeed making a name for itself throughout Europe and the U.K.
In fact, Honda was at the time the world's leading maker in terms of motorcycle production and exports, and the Honda bikes were making a mark on the racing circuits with outstanding performances in the British Isles. Therefore, if Honda could succeed in the establishment of a European market - already a major one, with annual demand exceeding two million units - it seemed the day would soon come for the company to be recognized as the world's number one motorcycle manufacturer, with the reputation and sales figures to match.
European nations, however, had lately been implementing severely restrictive importation policies in order to protect their domestic industries. Therefore, it was clear that limits on imports and high tariffs would make it hard for Honda to win in this critical market.
It all began when six European countries-West Germany, France, Italy and the three Benelux*1 countries-made the move toward enhanced economic unity. In January 1958, the European Economic Community (EEC) was established (the predecessor of today's European Union, the EU). The leading nations of Western Europe sought greater force in competing with two giant political and industrial powerhouses, the U.S. and the Soviet Union.
The EEC countries were planning to establish a common EEC market by the end of 1969, in which they would mutually abolish tariffs among the six countries and combine their respective markets. Their way of dealing with countries outside the EEC region was to establish an import-restriction policy involving high tariffs and import quotas.
The EEC's policy was to promote the growth of industries in its home countries by providing regional corporations with the privilege of unrestricted, tax-free distribution in a huge market. Countries outside the EEC region, however, would have to pay dramatically higher tariffs in exchange for import rights.
This meant that Honda motorcycles, after two months and considerable transportation expenditures, would be subject to an additional high tariff at customs in order to complete their voyage from Japan to the Port of Hamburg, the city in which European Honda was located. As a result, Honda would not break even unless the motorcycles were sold at a significantly higher prices than their European counterparts. To make matters worse, the EEC continued expanding its protectionist policy so that the gap in tariffs between Honda and the regional manufacturers of motorcycles continued to widen, causing Honda to become less competitive in the market.
Many countries, including Japan, did not really take the EEC's policy too seriously, believing it could not be easily organized or enforced since government policies and economic structures varied throughout the region. But they were eventually forced to change that view, and began scrambling for the means of coping with the situation.
*1 The three Benelux countries:Belgium,the Netherlands, and Luxembourg. The name is derived from the Benelux Customs League, a postwar charter established in January 1948.