|Gaining an Edge in the Global Competition
|Honda found itself surrounded by an atmosphere of upheaval in the 1970s, both in Japan and abroad.
Yet, that situation had actually arisen much earlier-in the mid-1960s when, along with advancing industrialization and motorization, air pollution had become a serious social issue. The Clean Air Act of 1970 passed by the U.S. Congress resulted in even stricter regulations regarding tailpipe emissions. Moreover, the Clean Air Act had influenced the Japanese government to tighten its own policies. Accordingly, auto manufacturers had to comply with such demands, and with no time to waste. Company President Soichiro Honda put out a call to action on behalf of researchers at the R&D Center, saying, This allows latecomers like us to line up at the same starting line as our rivals. His encouragement extended to all Honda associates. Now is the chance, he said, emphasizing his view of the matter in several issues of the Honda Company Newsletter.
In August 1971, the U.S. government announced its policy in protection of the dollar. This was the result of a shift in the yen toward the floating-exchange-rate system, which had prompted the actual value of the yen to rise, bringing about a crash in the Japanese stock market.
At Honda, where exports to the U.S. and other countries made up 60 percent of total revenues, the impact was tremendous.
We must use new ideas to change our way of doing business, stated Executive Vice-President Takeo Fujisawa in the September 7, 1971, issue of Nihon Keizai Shimbun. Otherwise, well continue to feel the impact of outside forces. In fact, were already having difficulties with our conventional method of rapidly increasing the number of exports by employing technologies, mass-producing and streamlining. We have to come up with a newer, more suitable method.
The New Honda Plan (NHP), proposed by the senior managing director Kiyoshi Kawashima, was implemented in April 1972 as a company-wide effort to build a corporate structure that would allow rapid response to changing situations in a flexible manner. The Global Production Strategy, was one such project promoted to all corporate divisions.
Kiyoshi Kawashima assumed the post of company president in October 1973, effectively replacing Honda founders Soichiro Honda and Takeo Fujisawa. Immediately afterward, another incident took place that rocked the global economy to its very foundation: the first oil crisis, triggered by the war in the Middle East. However, it was more than a direct hit to business. It also gave rise to serious questions concerning the entire global population. The oil crisis was an especially heavy blow to the Japanese economy, which, despite almost 100 percent dependence on foreign petroleum, had been riding a wave of high economic growth. The oil crisis, however, served as an opportunity for Honda to establish the idea of decentralizing its manufacturing bases and becoming even more global. Indeed, it led the company to give serious consideration to the creation of a system that could offer a steady supply of products without being affected by changes in global dynamics.
At the same time, Honda had a long-standing policy to build products in the market where they are sold. Through this policy, Honda also can contribute to the local community through employment and paying taxes. The policy is based on Hondas corporate philosophy of The Tree Joysthe joy of buying, the joy of selling and the joy of creating. To realize this policy, the NHP Global Production Strategy Project team began analyzing the possibility of local motorcycle production in the U.S.the biggest single Honda market in the world.
Therefore, a feasibility study was conducted in the fall of 1974, at the request of Kiyoshi Kawashima. There were feasibility study tours of American manufacturing plants, and cost comparisons between the importation of completed cars and local manufacturing. However, it was a big question whether such products manufactured in the U.S. would possess the same quality as those built in Japan, as was the issue of profitability.
Okay, I understand, said Kiyoshi Kawashima. Let me hold onto this project for the time being. But keep the research data handy so that it can be used whenever the need arises. He then decided to forego the manufacture of motorcycles in the U.S., ending the NHPs study. However, he could not seem to forget the idea of establishing a manufacturing base in the U.S. that would allow motorcycles to be made locally.
Believing that one-way exports would not last indefinitely and that thinking in terms of profit only would never allow him to make up his mind, Kawashima decided he should weigh such a decision with great care.
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