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The alliance between Honda and Rover from 1981 to 1994 was thought to be a successful case at that moment. However, four years after the end of the relationship, Rover still just had all those old models in its product portfolio. On the other hand, it was said that because of the end of the relationship, Honda was put back by four years (Button 2005).
This report is divided into two parts. In the first part, the Honda-Rover case is discussed in terms of their capacity and incentive to deliver in the alliance, what they wanted from each other, and what was the outcome of the alliance and why it brought limited benefit to Honda and Rover. In the second part, the reasons are presented to show why Tata might do better than Honda by establishing its engineering expertise in UK.
I. The alliance between Honda and Rover
Before the collaboration- the capacity and the incentive to deliver
After a period of continuing growth, the stagnant sales growth of the automotive industry in the late 1970s led all car makers to start to look for methods to fit the new climate. With the purpose of using money on research and development more effectively, spreading the risk of making main components in greater volume, and accessing to new market which were hard to enter, more and more automobile producers reached to the conclusion of collaborating with others. In addition, to remain independent, joint venture seemed to be the best answer. (Campbell, Stonehouse & Houston 2002)
The capacity and incentive
Honda, like other automotive companies, also came to the conclusion of firming a joint venture. At the moment, Honda was already famous for motorcycles in UK, but it was less well known in terms of the automobiles. While Honda’s cars enjoyed reputation for good quality and durability, the import restrictions limited its success it the European market. However, the European market was essential for the company’s global expansion. With the joint venture, Honda could avoid the restrictions on the import quota by assembling cars locally, because these cars would be considered locally produced. Moreover, a local partner could assumedly offer a better insight of the market.
At the same time, Rover was suffering from the hardship of the embarrassing sales of uncompetitive products but had no ability to fund the development of new models by itself. Meanwhile, the expertise skills gained from the previously amalgamated companies were not preserved.
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Indeed, both Honda and Rover had something to deliver each other. Honda had the capability in designing engines and gearboxes, where Rover had lost specialist and the ability to fund the development activities. In addition, Honda’s distribution network in Asia could be helpful for Rover’s products. For Rover, the excess capacity could be a quick and less risky solution for Honda’s expansion in the European market. Moreover, the design studio owned by the parent company of Rover-BL was appealing to the Japanese “as a means of improving products by making them more attractive to customers both at home and abroad” (Pilkington 1999). By having a joint venture, Honda could quickly have a base in the market that it wanted to develop, share the expense of research and development by supply main components to the partner, and use its existing distribution network more effectively by offering distribution channels to the Rover. On the other side, the excess capacity had been a headache for Rover. With the alliance, Rover could operated more efficiently by making use of the excess capacity and might earn itself a chance to regain the capability of making its products attractive to the customers.
During the collaboration- what did either side want from the alliance?
From the projects shared by the two firms, it could be seen that Rover had been trying to get more involved in the product design. However, it always failed to get where it wanted because of the veto Honda held. Also we could see that Honda successfully made itself become the supplier of Rover, not only on the major components of the cars, but also the facilities in the factories. However, this reminded us to think about what each side really wanted form the alliance.
For Honda, the purposes of forming the alliance with Rover could be from a few respects. First of all, although Honda was well-know for its motorcycles in UK, but much less for its cars. However, the import restrictions limited the extent to which Honda could develop the large European market (Campbell, Stonehouse & Houston 2002). By collaborating with Rover, Honda could quickly have a base of penetrating the market, because its cars could be assembled locally and sold as locally produced. Thus, Honda could avoid the limits from import restrictions. Moreover, compared to direct investment, the alliance also had less risk. Secondly, Honda’s cars had enjoyed the reputation for quality and reliability. However, for entering the European market, it was still necessary to Honda to get more understanding about the preference of the local customers. With a local partner, it would be easier for Honda to acquire the related information, even the applicable skills and technologies related to the product design. Last but not least, by forming the alliance, Honda could create a chance to be the supplier of major components and facilities of Rover; therefore, create more sales profit and spread the research and development expense as well.
As to Rover, firstly, the excess capacity had been a headache for the company. The manufacturing of Honda’s cars could make facilities operated more efficiently and also generate income for the company. Secondly, Honda’s reputation for product quality and reliability was what Rover lacked but without ability to fund. By involving in the product development in the alliance with Honda, Rover could learn how to improve the quality and reliability of its own products and regain the capabilities of designing the main components. Lastly, Rover could make use of Honda’s distribution network in the Far East area and increase the sales by export.
Due to the unequal of negotiation power, it was not difficult to tell that Honda had been making money from the agreement while Rover had been losing their independency and more and more relying on Honda. In addition, it was also clear that both Honda and Rover did not completely obtain what they wanted from the alliance.
After the collaboration- why the alliance brought little to each side
The expectations and realities
Mostly, the collaboration of Honda and Rover was considered successful. Firstly, the relationship lasted for more than a decade. Secondly, in 1990, Honda acquired 20% stake of Rover Group and BAe (Rover’s parent company at that moment) also took 20% stake of Honda UK, which even strengthened the relationship. However, when considering what each side wanted from the alliance, it was not really successful as it seemed.
Rover’s excess capacity did enable Honda to quickly increase the sales in the European market, and Honda did make money by supplying the major components to Rover. However, Rover’s lack of abilities did not let Honda acquire the insight of product design for European market in terms of styling and cabin interiors, which could be even more valuable for the long-term operation. On the other hand, in the beginning, Rover wanted to regain the capabilities of design to improve the quality and reliability of their own products though a short-term relationship. However, the relationship further weakened Rover’s capabilities in design and manufacture while Rover increasingly depended on Honda. Although it seemed that Rover did improve its product quality and increase its sales in European market quickly.
The reasons why the alliance brought little
The reason why the alliance brought limited benefit to either Honda or Rover could stem from several aspects. Firstly, Rover was incapable of giving what Honda wanted in product design. In addition, Rover’s weakness in financial status made it had no power in the negotiation with Honda, and therefore, became more and more dependent on Honda, which not only weakened Rover’s potential on profitability, but also further crippled the design and manufacture ability of the company. Secondly, the relationship between of Honda and Rover was on project-by-project basis. The fact that both companies had to bring their conditions to the negotiation table frequently might cause the instability of the relationship and lead the agreement to lack of the complete plan for long-term operation. Moreover, the resources had to be reallocated into different projects while the terms of projects usually overlapped, which could result in the ineffectiveness and confusion in the use of resources. Thirdly, once Honda found Rover incapable of offering the ability that could help it design products more attractive to the European market, it did not try to develop the ability with its partner during the period of the relationship. After all, for Rover, it was the case of lack of financial support, but for Honda, it had to overcome the difficulty came from the difference of culture. Had Honda chosen to develop the ability of designing the products for European market by letting Rover get more involved in the product development and funding the related activities, with such a long period of the relationship, it surely could have learnt something more. Finally, the difference of culture and language increased the difficulty of communication. In addition, the culture distance could affect the extent of closeness between the two parties and have negative influence on the mutual trust, which might result in the higher uncertainty of the relationship in the future and guide the ways of thinking of both sides in the negotiations.
II. Tata’s way of penetrating the European market
The engineering ceter in UK
In today’s automotive industry, the enterprises have no choice to compete in the global market if they want to survive. Tata, the rapidly growing automotive company from India, had established its own engineering center in Europe in 2005. Tata Motors European Technology Centre (TMETC) was located in the UK, where the alliance of Honda and Rover took place. Both Honda and Tata are from Asia; however, the location is the only similarity of their strategies of penetrating the European market.
Why might Tata succeed where Honda failed?
Tata had different thinking from Honda when it wanted to develop the European market. The diffidence between Tata and Honda is why Tata ‘s way may work better than Honda’s and can be seen from several aspects.
First of all, while Honda chose to form the alliance, Tata chose to establish its engineering expertise in house. According to Tombat A. mentioned in a report about the Tata’s technologies developing activities, “Tata Motors' experience has proved that the development of in-house technical skills is not only more cost-effective than outsourcing, but also has longer term benefits for the company.”(Tombat 2007) In addition, a wholly owned research and develop center enables Tata to use the resources more flexibly allows Tata to generate related knowledge on an ongoing basis and much more space for the long-term plans. Meanwhile, the technologies and capabilities would be dedicated for the company and most fit the company’s needs.
Secondly, local specialists with abundance of experience and capabilities were hired to corporate with the professionals from India. While the capable experts belong to the same company, there would be less chance of interest conflict and the relationship among the staff would be more stable, which is favorable for the corporation.
Thirdly, the direction of the engineering center is different form others. Kike Tombat A. indicated in the report, “one of the biggest strengths TMETC can bring to Tata Motors is its ability to identify and lead the development of disruptive technologies” (Tombat 2007). As a new investor, Tata has no burden and is able to do something different with its competitors. Tough the outcome may not be told at this moment, it is an opportunity for Tata to gain the niche of distinct advantages.
Finally, both companies use the same language, which makes the communication much easier. Moreover, the fact that India used to be the colony of UK also shortens the culture distance between the two firms. Actually, the close relationship between the staff might be the most important factor to make everything work. Just like what the head of the TMETC-Dr Clive Hickman said, "Without those synergies, it would not work at all,"
Tata chose to establish its own engineering center while Honda used alliance as a way to develop the European market. From the aspects mentioned above, it can be seem that Tata might have more chances to succeed where Honda failed to reach its goals.
To survive in the today’s automobile industry, the manufacturers have to compete in the global market without choice. Therefore, joint venture and alliance are so common in this industry. However, in the Honda-Rover case, the alliance did not really give what each side wanted from it, although both side really had something to give. Tata, on the other hand, chose a different way to build its own engineering center in the UK instead of forming alliance with another company. Although the outcome may not be so clear at this moment, it could be seen that there is more possibility for Tata to succeed when compared to Honda.
Button L 2005, ’Why did BMW buy Rover?’ AROnline, derived 4 May 2008, from http://www.austin-rover.co.uk/index.htm?whydbbrf.htm
Campbell,D, Stonehouse, G & Houston B 2002, ‘Case Study 11: Honda-Rover: How successful was it?’, Business Strategy- An Introduction, 2nd Edition, Butterworth-Heinemann, Oxford, pp. 412-417.
Motor Trader 1995, ‘THE split between Honda and Rover in the UK left many wondering how the Japanese marque would market itself after shadowing its British partner for so long.’, Motor Trader, derived 3 May 2008, from
Pilkington A 1999, ‘Strategic alliance and dependency in design and manufacture: the Rover-Honda case’, International Journal of Operations & Production Management, 19,5-6, 460-73.
Pollack A 1994, ‘Honda Plans to Cut Ties with Rover’, New York Times, derived 1 May 2008, from http://query.nytimes.com/gst/fullpage.html?res=9F01E3D8133BF931A15751C0A962958260
Tombat A 2007, ‘Global challenges, hi-tech solutions’, Tata Group, derived 1 May 2008, from http://www.tata.com/0_knowledge_centre/technology/articles/20070314_tmetc.htm