Joint venture

Hero Honda started its operations in 1984 as a joint venture between Hero Cycles (sometimes called Hero Group) of India and Honda of Japan in India. During the 1980s, the company introduced motorcycles that were popular in India for their fuel economy and low cost. A popular advertising campaign based on the slogan ‘Fill it – Shut it – Forget it’ that emphasized the motorcycle’s fuel efficiency helped the company grow at a double-digit pace since inception. In 2001, the company became the second largest two-wheeler manufacturing company in India and globally. It maintains global industry leadership to date. The technology in the bikes of the company for almost 26 years (1984-2010) has come from the Japanese counterpart Honda. By December 2010, the board of directors of the Hero Honda Group had decided to terminate the joint venture between Hero Group of India and Honda of Japan in a phased manner. The Hero Group would buy out the 26% stake of the Honda in JV Hero Honda. Under the joint venture Hero Group could not export to international markets (except Nepal, Bangladesh and Sri Lanka) and the termination would mean that Hero Group could now export. There were many reasons behind the split. Honda was reluctant to fully and freely share technology with Hero and the Hero group had to pay high royalty fee to their Japanese partner. Another major irritant for Honda was the refusal of Hero Honda (mainly managed by the Munjal family) to merge the company’s spare parts business with Honda’s new fully owned subsidiary, HMSI. (In 2010, Honda launched their own wholly owned subsidiary named HMSI in India). ***Do not copy-paste your answer from the case. Try to write it in your own words. a. What were the reasons behind the success of “Hero Honda”? (2) b. What were the reasons behind the termination of the joint venture? (3) c. Suppose, you are the CEO of Honda. The company has decided to enter into Bangladesh. Which entry mode will you choose and why? Explain. Also, each entry mode has some limitations. How will you overcome the limitations of your selected entry mode? Explain.

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