External Factors Affecting Honda’s Operations

This report discusses the impact of external factors on the operations of Honda. These external factors include political, social, economic, technological, legal, and environmental influences. The report analyzes these factors using a PESTEL analysis and identifies four critical success factors for the company: demand, market rivalry, trends, and supply. The report also provides recommendations for Honda to address the threats identified in the analysis. The report includes an executive summary, table of contents, and references for further reading.  

MANAGEMENT

Executive summary
This report aims to reflect the effect of external environment on the operations of the
company. The external factors include political, social, economic, technological, legal, and
environmental influences on the business. This report brings out an analysis of these external
factors for Honda. Apart from this, the discussion also carries four important elements that
are important for the success of the organisation. The critical elements for success are
demand, market rival, trend and supply. Further this report also brings some suggestions for
Honda. The recommendation below establishes a relation and clarity between the threats and
their resolutions.

Contents
Executive summary...............................................................................................................................2
Introduction...........................................................................................................................................4
Introduction of the Honda.....................................................................................................................4
Evaluation of business model in the current environment....................................................................4
PESTEL Analysis......................................................................................................................................5
Critical success factors...........................................................................................................................8
Recommendation................................................................................................................................11
Conclusion...........................................................................................................................................12
References...........................................................................................................................................13

Introduction
This report brings out a discussion on the several external factors that affect the operations of
Honda. Initially, this report analyses the current business model of Honda. The model focuses
on innovation and creativity in the operation to make hybrid cars that can reduce the harmful
gas emissions to prevent the environment (Bohala, 2017). Further, this report uses a strategic
tool such as Pestle analysis to evaluate the how external environment affects the organisation.
PESTLE analysis is a method to monitor the macro environmental factors that affect the
organisational performance. Moreover, the analysis is limited to country`s conditions in
Pestle analysis but further the report evaluates the competitive position, demand of the
product, power of the suppliers, and also current trend of the company. At last, the report
brings out some resolutions in form recommendation to the issues and problems identified in
analysis (Bohala, 2017).
Introduction of the Honda
Honda Motor Company was incorporated in 1948 and it started producing motorcycles in
1949. The company was established in 1959 and it has its first subsidiary in US. It is a japan-
based automobile company. The company founded by Takeo Fujisawa. The model C-100 of
Honda is a small-engine motorcycle that was introduced in 1953 (Honda, 2019). By the end
of 1959, the company was largest motorcycle selling company in the world. Mainly, the
company deals with production and sales of automobiles, power products, and motorcycles.
As reported in 2018, the company has 440 affiliated companies in and outside Japan both
including 368 consolidated subsidiaries and remaining 72-affiliated accounting under an
equity method companies. From investor`s point of view, the company issues 1811428430
shares @ 100 yen till 2018 (Honda, 2019).
Evaluation of business model in the current environment

While evaluating the business model of Honda, the company`s value propositions include
creation of intelligent products which will enhance the mobility and increase the joy of life. It
also includes electric alternative fuel vehicles and plug-in vehicles. The company has
involved with artificial intelligence and robotics to release their ASIMO robot. Research and
development has been sharpening business advantage by penetrating the competition. The
business model is advantageous to Honda due to its R&D system (Jeong, Karbowski,
Rousseau, and Rask, 2016). Business model has defined a systematic way of resembling,
reliability, durability, and basic performance that establishes a creative and innovate
foundation. The distribution and manufacturing system of Honda are the source for
succession of Honda. To maintain a customer relationship, Honda want to get fit and do the
civic duty. The company serves community, customer assistance, quality, tradition, and
diversity that lead to brand awareness and reputation (ROTHFEDER, 2014). 50 percent of
CO2 emission will be cut from the product manufacturing by 2050. Some of the key
resources used in the operation are production facilities, distribution channel, advancing
robotics, intellectual property and finally harnessing the solar power (Jeong, Karbowski,
Rousseau, and Rask, 2016).
PESTEL Analysis
Political factors
These factors play an important role in ascertaining the factors that affect Honda Motors. The
success of the company is exposed to diversified risks that affect the profitability of the
company. UK`s government has proposed to limit the number of automobiles which are used
in order to minimise the amount of toxic gases. Honda is bound by government legislations to
lower the amount of car production. This will have negative impact on sales (Etherington,
2018). The president of US has proclaimed that it will impose new regulations on the use of

gas mileage of cars. Honda will have to manage with new regulations while facing losses and
making its shareholders unhappy. Moreover, UK performs well even in the political
instability that is caused due to UK Brexit (McRae, 2018). The other factors include
recruitment law, domestic trade administration, and taxation. It reflects that political factors
will affect the innovations directly which indicates that Honda will have to perform carefully
in response to improvements (McRae, 2018).
Economic factors
These factors include inflation rate, foreign exchange rate, and other economic indicators will
determine the aggregate demand and supply in the economy. It is difficult to cope up with
exchange rate, which is not constant when the company trades with Japan for its sub-parts.
Honda can dominate the economic conditions with clever strategy (Hales, and Mclarney,
2017). Increase in oil prices has kept the company in danger. It is anticipated that the
consumption will decrease by decreasing the production of specific automobiles in business.
The company enjoys the advantage of hybrid technology. Honda will face loss of revenues in
petrol consuming automobiles, which will increase only through hybrid technology. As
economic conditions of UK is not stable due to UK Brexit but still the UK exports have been
growing by 1.5 percent each year. Apart from getting the benefit of increasing GDP and
purchasing power of the customers, Honda is coping up with the economic problems, which
the world is facing. Honda will launch more eco-friendly cars (McRae, 2018).
Social factors
Social factors include shared values and beliefs of the customers that play an important role
in affecting the culture of Honda. Cultural and demographic aspects of external environment
affect decisions of the company (Ariffin, and Sahid, 2018). People prefer to enjoy luxury at
less price. The company started producing eco-friendly cars to attract the customers who opt

for local brand such as people of UK. Social group, family, and friends affect the decision-
making of the customer. Moreover, Honda decides to remove the language barriers that are
spread worldwide. It is noticed that UK`s cars are less expensive as compared to world. As a
result, consumer buy products more form western countries, which affects the factors
affecting the size of the potential market (Giler, Gutiérrez, Mendoza, and Pérez, 2017).
Technological factors
Country`s trend in using the technology affects the organisation`s ability to use them. In
recent days, people start relying too much on GPS to see the route and the location. Honda
uses hybrid technology. Therefore, the company has included satellite navigation system in
their cars. It is important to consider some safety measures during the advancement of
technology. Hybrid cars will benefit the users and the company (Hales, and Mclarney, 2017).
Environmental factors
Honda has minimised the environmental impact caused by their merchandises by working on
their engines. The company follows waste hierarchy which works to minimise, re-use,
recycle, incinerate and disposal it by controlling. Moreover, the company is presenting eco-
friendly engineering autos that includes Honda hybrid in order to protect the planetary
heating. Change in temperate and weather conditions affect the auto engines as these engines
are overheated when weather conditions are hot (Ariffin, and Sahid, 2018).
Legal factors
Similar to various political reasons, Honda will endure to strain on forming law to hinder the
production of cars due to increasing global warming. Governmental laws have greater impact
on actions of Honda such as payment from supplier and changing the agreed price especially
when the deal is oversea. Honda has to review its pricing policies as it proposed reduction in
its prices on the basis on money spent by them on groceries (Industry week, 2017). Apart

from this, in regards to rules on labours enacts that working hours of company should be
eight hour and if the company gives an opportunity to the workers to work more hours then
they will be paid more. The company will be affected by high wages paid to the employees
(Ariffin, and Sahid, 2018).
(Source: Miselectro, 2017)
Critical success factors
Demand- while evaluating under the diamond porter`s five forces model, demand situation
defines the nature of domestic conditions. Here are some examples of how auto industry is
affected through domestic customers which further affects the organisation`s ability to
compete in global arena. For instance- Japanese customers focus on very high level of
quality, reliability, and aesthetics. This motivates Toyota, Nissan, and Honda to raise to a
difficult challenge and prepare the strategies to dominate internationally. As the bargaining
power of the customers in extremely high due to many reasons. Customers carefully evaluate
the each feature of the product of each competitor that avails some level of product (Mind
tools, 2018). Thought process of a customer becomes revolutionary and it evaluates every

aspect of purchasing the product, which creates demand. Due to increasing competition,
market is able to provide a wide range of competitive products to customers, which
sometimes confuses them. It is not only limited to range of cars, each category has several
products that ranging from low priced to luxury cars. Honda has been investing in marketing
and also product safety to manufacture better cars and attract the potential customers (Mind
tools, 2018).
Supply- the company needs several providers of materials in the car industry. These suppliers
rely on some car manufacturing companies to purchase huge amount of merchandises. If a
car producer changes the suppliers for its motor parts (Seth, Goyal, and Kiran, 2015). As a
result, suppliers are highly doubtful to the demand of carmaker and therefore they have less
power. Apart from this, Honda has an extensive worldwide supply chain and the distribution
network. The company has collaborated with several suppliers in all-over the world to get the
raw material. It is important to understand that each vehicle is made up of more than 20000
parts (Rothaermel, 2016). Honda has built long-term partnership with renowned several
suppliers that can supply good quality raw material products to make their automobiles. In
spite of greater number of suppliers, Honda holds higher bargaining. Moreover, the
bargaining power of the suppliers is very low because suppliers of motor parts are scattered
across the world and do not hold adequate financial strength. Therefore, Honda has
bargaining advantage due to its larger market share and strengthened profitability (Mind
tools, 2018).
Market Rival- the company has been facing high rivalry from various companies such as
ford, BMW, Mercedes, Toyota, Audi, Hyundai, Nissan and many more. It is seen that Sedans
have been attracting the audience and striving to maintain the three-dimensional approach to
continue with the same status of accord (Rothaermel, 2016). The level of market rivalry is
very high due to huge number of good players who may not be at very large scale but still

most of them tries to maintain a considerable portfolio of different cars. As there are huge,
number of factors that affect brand` competitive strength. This factor includes brand product
portfolio, customer loyalty, marketing, and deer of investment in innovation and technology.
Honda is innovative brand whose bikes and cars are very popular in the market (Jeong,
Karbowski, Rousseau, and Rask, 2016). Therefore, still the company has positioned itself
among tough year such as Ford, Hyundai, and Toyota have made tough situations with
intensified competition. Honda remain focused for better future technologies to grow and
become competitive (Rothaermel, 2016).
Trend- One of the most known trend of Honda is that it is world`s most innovative car
company that helps in increasing sales. Recently, the company has served successful models
to the multinational companies in the globalised commercial. The company declared that it
would maintain international footprint who perceives rest of the world as potential customer
base (Rothaermel, 2016).
The revenue trend of Honda reflects that the company is at 36th position in the world in terms
of revenue. The company`s revenue includes overseas market such as north American and
Asia that has grown in last few years (The economic times, 2018). Moreover, the margin
trends reflect that the company has earned a gross margin of 22.4 percent in 2016, which is
lower than 25.2 percent in 2010. During this time, the company`s EBITDA margin has also
shrank to 8 percent from 11.6 percent in 2010. Moreover, since 2015, Honda was very well
known for legendary TV advertisements that show not only cars but also a wide range of
products from lawnmowers to aircraft. Japanese brand has a plenty of features and
technology fitted to the cars. Moreover, the company has been known for world`s first
innovators and some of its best are hydrogen car for family and friends (Seth, Goyal, and
Kiran, 2015). .

(Source: Parker, 2016)
Recommendation
Form the above evaluation there are certain areas where there is a scope to improve its
operations and expand the margin which are before backed by increasing demand for trucks
and other utility vehicles. Whereas, automakers such as GM, Toyota, and Ford are able to
exploit the opportunity because they have strong line-up in the segment (Honda, 2019). Due
to country`s political instability, the company would suffer from lower profitability. In order
to reduce the effect of political instability, the company should focus on improving the
relationships with the shareholders by regulating the policies related to environmental
protection. As in the economic segment, it is identified that the company depends on japan
for its motor subparts which is extremely exposed to environmental risks such as earthquakes
(Kim, Gasparrini, Hashizume, Honda, Ng, and Armstrong, 2017). The company should
reduce its dependency on japan and start relying on other suppliers so that when the company
has gone lack of motor materials, it can approach the other suppliers. As the country has
started positioning itself as a luxurious brand and it also faces huge rivalry from Mercedes
and BMW (ROTHFEDER, 2014). The company should attempt to offer services to prime
audience to attract them and treat them in such a way that the services are extremely rich. It is

important to understand that the company should undertake steps that can help them to stand
in competitive world through its competitive advantage. In the trend section, it is seen that the
company revenue has decreased in 2016 from 2010 that can be due to many reasons such as
lower demand, forceful rivalry, or dependency on japan (Honda, 2019).
Conclusion
Automobile strives to cater various requirements, as they wants to make use of technology to
comply with current trend. Honda uses technology and tries to make great cars. The rivalry
analysis suggests to combine the multiple strategies such as market segmentation strategy and
product differentiation strategy that can be an effective method of matching the
organisation`s product strategy. Sometimes establishing a cost leadership with differentiated
product is difficult because implementation due to potential for conflicts between the
additional costs incurred due to value-added differentiation and customisation. The report has
covered the external environmental analysis such as Pestle analysis and some important
critical factors that can lead the company to success. This report has also evaluated the
current business model used by the company that prioritises innovation as an important step.
At last, this report has been concluded by providing some important recommendations that
will help the company to grow and these recommendations are based on the issues which are
identified above in the analysis process.

References
Ariffin, A.S. and Sahid, M.L.I., 2018. Competitiveness Analysis of ASEAN Automotive
Industry: A Comparison between Malaysia and Thailand. Journal of Science, Technology
and Innovation Policy, 3(2).
Bohala, (2017) Strategic Comparison Report Between Honda and Toyota. Available on:
https://bohatala.com/strategic-comparison-report-between-honda-and-toyota/ [Accessed on
30/01/19]
Etherington, D. (2018) Honda’s Silicon Valley Lab becomes Honda Innovations. Available
on: https://techcrunch.com/2017/04/13/hondas-silicon-valley-lab-becomes-honda-
innovations/ [Accessed on 30/01/19]
Giler, B.I.C., Gutiérrez, C.M., Mendoza, M.C. and Pérez, A.V., 2017. Water Quality of the
Poza Honda Dam and Other Water Points Down. Journal of College and University. This is
an open access article under the, 2454, p.2261.
Hales, G. and Mclarney, C., 2017. Uber's Competitive Advantage vis-à-vis Porter's Generic
Strategies. IUP Journal of Management Research, 16(4).
Honda, (2019) Company Overview. Available on: https://global.honda/about/profile.html
[Accessed on 30/01/19]
Industry week, (2017) Honda by numbers. Available on:
https://www.industryweek.com/leadership/honda-numbers [Accessed on 30/01/19]
Jeong, J., Karbowski, D., Rousseau, A. and Rask, E., 2016. Model Validation of the Honda
Accord Plug-In (No. 2016-01-1151). SAE Technical Paper.

Kim, Y., Gasparrini, A., Hashizume, M., Honda, Y., Ng, C.F.S. and Armstrong, B., 2017.
Heat-related mortality in Japan after the 2011 Fukushima disaster: an analysis of potential
influence of reduced electricity consumption. Environmental health perspectives, 125(7).
McRae, H. (2018) Why is the UK economy doing so well given the current political
instability?. Available on: https://www.independent.co.uk/voices/uk-economy-bank-of-
england-imf-interest-rates-city-of-london-gdp-exports-imports-a8453381.html [Accessed on
30/01/19]
Mind tools, (2018) Porter's Five Forces Understanding Competitive Forces to Maximize
Profitability. Available on: https://www.mindtools.com/pages/article/newTMC_08.htm
[Accessed on 30/01/19]
Miselectro, (2017) PEST analysis. Available on:
http://www.mistelectro.com/pest_analysis_diagram_download.php [Accessed on 30/01/19]
Parker, H. (2016) Analysing Recent Trends in Honda’s Revenue. Available on:
https://marketrealist.com/2016/06/analyzing-recent-trends-in-hondas-revenue [Accessed on
30/01/19]
Rothaermel, F.T., 2016. Competitive advantage in technology intensive industries.
In Technological innovation: Generating economic results (pp. 233-256). Emerald Group
Publishing Limited.
ROTHFEDER, J. (2014) 5 Brilliant Strategies That Make Honda One Of The World's Most
Innovative Companies. Available on: https://www.businessinsider.in/5-Brilliant-Strategies-
That-Make-Honda-One-Of-The-Worlds-Most-Innovative-Companies/articleshow/
39248379.cms [Accessed on 30/01/19]

Seth, M., Goyal, D.P. and Kiran, R., 2015. Development of a model for successful
implementation of supply chain management information system in Indian automotive
industry. Vision, 19(3), pp.248-262.
The economic times, (2018) Evaluating market for more SUV models: Honda Cars. Available
on: https://economictimes.indiatimes.com/industry/auto/cars-uvs/evaluating-market-for-
more-suv-models-honda-cars/articleshow/65765001.cms [Accessed on 30/01/19]